<PAGE>
As filed with the Securities and Exchange Commission on February 22, 1999.
Registration Statement No. 333-72769
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CAIS INTERNET, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 4813 52-2066769
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
1255 22nd Street, N.W. Ulysses G. Auger, II
Fourth Floor Chairman and Chief Executive Officer
Washington, D.C. 20037 CAIS Internet, Inc.
(202) 715-1300 1255 22nd Street, N.W.
(Address, including zip code, and Fourth Floor
telephone number, including area code, Washington, D.C. 20037
of registrant's principal executive Telephone (202) 715-1300
offices) Facsimile (202) 463-7190
(Name, address, including zip code, and
telephone number, including area code,
of agent for service)
Copies to:
Morris F. DeFeo, Jr. Lorraine Massaro
Swidler Berlin Shereff Friedman, LLP Chadbourne & Parke, LLP
3000 K Street, N.W., Suite 300 30 Rockefeller Plaza
Washington, D.C. 20007 New York, NY 10112
Telephone (202) 424-7500 Telephone (212) 408-5100
Facsimile (202) 424-7647 Facsimile (212) 541-5369
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, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, 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(d)
under the Securities Act, please check the following box and list the
Securities Act registration number of the the earlier effective registration
statement for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Maximum
Title of Securities to be Aggregate Offering Amount of
Registered Price (1) Registration Fee
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<S> <C> <C>
Common stock, $.01 par value.............. $75,000,000 $20,850
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rules 457(c) and (o) under the Securities Act of 1933.
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 this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission or any applicable state securities +
+commission becomes effective. This prospectus is not an offer to sell these +
+securities and is not soliciting an offer to buy these securities in any +
+state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 22, 1999
PROSPECTUS
Shares
[INSERT LOGO HERE]
Common Stock
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CAIS Internet, Inc. is a tier one Internet Service Provider. We focus on
providing the most cost-effective, dedicated high-speed Internet connections to
commercial and residential customers primarily using digital subscriber line
technology and our patented OverVoice technology.
This is the initial public offering of shares of the Company's common stock.
There is currently no public market for our common stock. We expect that the
initial public offering price will be between $ and $ per share. The public
offering price may not reflect the market price of our shares after the
offering.
We have applied to list the common stock on The Nasdaq Stock Market's
National Market under the symbol "CAIS."
-----------
Investing in our shares involves a high degree of risk. See "Risk Factors"
beginning on page 7 for a discussion of certain factors that you should
consider before you invest in the common stock being sold with this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to the Company......................................... $ $
</TABLE>
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The underwriters may purchase up to an additional shares of common stock
from us at the public offering price less underwriting discounts solely to
cover over-allotments.
ING Baring Furman Selz LLC
This prospectus is dated , 1999
<PAGE>
[INSIDE COVER PAGE]
[GRAPHIC APPEARS HERE]
The graphic includes a schematic of the complete OverVoice technology
solution, with a secondary graphic. The three dimensional drawing identifies
CAIS Internet, Inc. as the source of the dedicated high-speed Internet service
connection, which comes into a building's basement telephone closet. That
active Internet connection is then dispersed to each intermediate telephone
closet located on multiple floors of the building. An example of the connection
is shown from an intermediate telephone closet to a specific user's room, which
is expanded to show typical OverVoice wall jack placement. A detail of the
OverVoice wall jack and the OverVoice DeskJack shows where the telephone and
computer connect. The secondary graphic indicates the specific path of the
Internet connection in the telephone closet.
Our trademarks and pending trademark applications include "OVERVOICE,"
"CAIS," "LANJACK" and "DESKJACK." This prospectus also contains our product
names, trade names and trademarks and those of other entities.
ii
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WHERE YOU CAN FIND MORE INFORMATION
Our fiscal year ends on December 31. We will furnish our stockholders annual
reports containing audited financial statements and other appropriate reports.
In addition, we will become a reporting company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). You may read and copy any reports, statements
or other information we file 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. You may
call the SEC at 1-800-SEC-0330 for further information on the operation of the
Public Reference Rooms. Our SEC filings are also available to the public on the
SEC's Internet site at http://www.sec.gov., which contains reports, proxy and
information statements, and other information regarding issuers.
We have applied to list our common stock on The Nasdaq National Market under
the symbol "CAIS," and reports, proxy statements and other information
concerning the Company will also be available to be inspected at the offices of
Nasdaq Operations, 9801 Washingtonian Boulevard, Fifth Floor, Gaithersburg, MD
20879.
If you want more information, write or call us at:
CAIS Internet, Inc.
1255 22nd Street, N.W.
Fourth Floor
Washington, D.C. 20037
Telephone: (202) 715-1300
Facsimile: (202) 463-7190
Internet address: www.cais.com
We have filed a registration statement on Form S-1 with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"), covering the common
stock being offered by this prospectus. As permitted by SEC rules, this
prospectus omits certain information that is included in the registration
statement. For further information about us and our common stock, you should
refer to the registration statement and its exhibits. Since the prospectus may
not contain all the information that you may find important, you should review
the full text of these documents. If we have filed a contract, agreement or
other document as an exhibit to the registration statement, you should read the
exhibit for a more complete understanding of the document or matter involved.
Each statement in this prospectus regarding a contract, agreement or other
document is qualified in its entirety by reference to the actual document. In
addition, information available on our Web site is not part of this prospectus.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations and business strategies or state other "forward-looking"
information. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions. We undertake no obligation to publicly update or revise any
forward-looking statements.
Important factors that may cause actual results to differ from projections
include, for example:
. changes in business conditions;
. changes in the Internet services industry and the general economy;
. our limited operating history;
. our ability to manage rapid growth;
. our ability to enter into joint ventures and other strategic
relationships with companies on terms acceptable to us; and
. the impact of computer and related problems that may arise from the Year
2000 problem on our business.
iii
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SUMMARY
We have prepared this summary to assist you in your review of this document.
We have highlighted in this summary certain information which we believe is
important for your review. However, we have not included all of the information
that may be important to you. You should carefully read this entire document,
including the specific risks described in the "Risk Factors" section beginning
on page 7 and the other documents to which we refer. References in this
prospectus to the Company include our subsidiary, CAIS, Inc. For more
information about the Company, see "Where You Can Find More Information."
Overview
CAIS Internet, Inc. is a tier one Internet Service Provider. We focus on
providing the most cost-effective, dedicated high-speed Internet connections to
commercial and residential customers primarily using digital subscriber line
technology and our patented OverVoice technology. We offer our commercial
customers dedicated high-speed Internet access, including our new HyperDSL
services that we currently provide with Covad Communications Company and Bell
Atlantic. Additionally, our OverVoice technology enables us to offer a multi-
user, dedicated high-speed Internet solution to residential customers by
creating an Ethernet local area network in a hotel, multiple dwelling unit or
single family home more cost-effectively than alternative technologies,
including cable modems, digital subscriber line services or Category 5 rewiring
upgrades.
We use our OverVoice technology to simultaneously transmit voice and data
over a single traditional copper telephone line at speeds of up to 300 times
those of conventional 28.8k dial-up modems. This enables an OverVoice user to
have both dedicated high-speed Internet access and complete use of the
telephone at the same time over one telephone line. By combining the OverVoice
technology with any dedicated high-speed Internet connection, such as digital
subscriber line technology, T-1 or wireless, we can provide a single, dedicated
high-speed Internet connection that can be shared simultaneously among many
users in a multiple dwelling unit building, hotel or single family home. Today,
we believe that the economies of scale associated with the OverVoice technology
are most obvious when providing high-speed Internet access to concentrated
residential communities such as multiple dwelling units and hotels.
Although our primary focus for OverVoice initially will be on the hotel and
multiple dwelling unit markets, we believe that the demand for high-speed
Internet access in single family homes and the trend toward using more than one
personal computer at home, will also make OverVoice the most cost-effective
solution for providing dedicated high-speed Internet access in single family
homes and for "home networking." As of February 15, 1999, we have installed the
OverVoice technology in over 1,900 apartment units in 15 multiple dwelling unit
buildings and in over 1,900 guest rooms in eight hotels. Additionally, we have
signed an agreement for the nationwide roll-out of OverVoice with Hilton Hotels
Corporation and an agreement with OnePoint Communications Corp. to install
OverVoice in certain multiple dwelling unit buildings where OnePoint has
agreements to provide Internet and other communications services.
Industry Background
Internet access and enhanced Internet services represent two of the fastest
growing segments of the telecommunications services marketplace. According to
industry estimates, the number of Internet users in the United States who
access the World Wide Web reached approximately 29.2 million in 1997 and is
forecasted to grow to approximately 72.1 million by the year 2000.
International Data Corporation has projected that total Internet service
provider revenues in the U.S. will grow from $4.6 billion in 1997 to $18.3
billion in 2000.
Currently, individuals most commonly access the Internet through a dial-up
service. However, dial-up access has several drawbacks including delays,
frequent busy signals and mid-use cut-offs (drops) from service.
1
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Demand is ever increasing for cost-effective, high-speed Internet connectivity
in the hotel, business and residential communities. Internet usage continues to
be stimulated by the increasing number of Web sites, the increasing
sophistication of Internet browsers and software applications, and the
proliferation of bandwidth-intensive information (such as streaming video and
audio) published on the Internet. The infrastructure necessary to support this
greater bandwidth, and the resulting multimedia applications, is the threshold
issue to realizing the potential of the Internet as a medium for communication,
education, entertainment and commerce.
Our Business Strategy
Our objective is to become a leading national provider of dedicated high-
speed Internet services. The following are key elements of our business
strategy to achieve this objective:
Offer the Most Cost-Effective, Dedicated High-Speed Internet Access to Our
Customers. We believe our OverVoice technology is the most cost-effective,
dedicated high-speed Internet solution for hotels and multiple dwelling units.
We also focus on providing the most cost-effective, dedicated high-speed
Internet access for commercial customers through our digital subscriber line
technology. In addition, we believe that OverVoice enables us to economically
create an Ethernet local area network in a hotel, multiple dwelling unit or
single family home.
Roll-Out Our OverVoice Technology Nationwide. Our goal is to make our
OverVoice technology the de facto high-speed Internet access standard in hotels
and multiple dwelling units. We intend to continue to penetrate both of these
markets through direct sales and strategic relationships by targeting major
hotel chains and real estate investment trusts which control large numbers of
multiple dwelling units.
Attract End-Users in Hotels and Multiple Dwelling Units. We intend to
stimulate the demand for our OverVoice services among end users by making
dedicated high-speed Internet access simple and affordable. Our OverVoice
technology enables us to offer multiple dwelling unit residents various
Internet service plans from entry level service (128 Kbps) starting at $24.95
per month to shared T-1 connectivity at up to $49.95 per month. In hotel rooms,
the OverVoice DeskJack, with its highly visible, step-by-step insructions,
makes accessing the Internet quick and easy for typically $9.95 for a 24-hour
stay.
Accelerate the Roll-Out of Our HyperDSL Services. We have initiated the
roll-out of a new dedicated, high-speed Internet access service using digital
subscriber line technology under the name HyperDSL. We believe that this
technology currently represents the most economical, dedicated high-speed
Internet solution for commercial customers. We currently offer our HyperDSL
services with Covad Communications Company and Bell Atlantic.
Expand Our Internet Backbone. We operate a nationwide network and have
peering agreements with most of the major backbone providers to exchange
Internet traffic over their respective networks. We currently maintain six
points of presence and intend to add at least ten additional points of presence
in 1999. In June 1998, we signed a ten-year fiber agreement with Qwest
Communications Corporation, under which we have access to all of Qwest's points
of presence nationwide, which totaled 130 as of February 15, 1999.
Leverage the OverVoice Platform to Deliver Future Services and Products. We
believe that our OverVoice technology provides a platform to deliver a variety
of broadband services and products to our customers, including Internet
protocol telephony, video conferencing, traditional video services, high
definition television (HDTV) and digital audio radio. We intend to expand our
service and product offerings through internal research and development, and by
acquiring complementary businesses and technologies.
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Recent Developments
Private Placement. In February 1999, Chancery Lane, L.P., an affiliate of R.
Theodore Ammon, a director of the Company, and CAIS-Sandler Partners, L.P., a
Delaware limited partnership, invested $11.5 million in the Company in exchange
for shares of the Company's Series A Convertible Preferred Stock. In addition,
the Company granted the holders of the preferred stock warrants to purchase up
to 3.0% of the total number of shares of common stock outstanding on a fully
diluted basis upon the completion of this offering, with the exercise price
equal to the initial public offering price.
Hilton Hotels Corporation. On December 23, 1998, we entered into a master
agreement with Hilton, under which Hilton has agreed to license us the right to
offer high-speed Internet access service in specified Hilton hotels throughout
the United States. In order to participate, each Hilton hotel must enter into
an addendum to the master agreement. As of February 19, 1999, 142 Hilton-owned,
managed or franchised hotels have notified Hilton that they intend to sign an
addendum to participate under the terms of the master agreement.
OnePoint Communications Corp. In April 1998, we entered into a trial
agreement with OnePoint Communications Corp., a provider of communications and
entertainment services to residents in multiple dwelling units. Under this
trial agreement, we have installed OverVoice in fourteen buildings within four
complexes.
We recently entered into a seven-year contract with OnePoint Communications
Corp. to install our OverVoice technology. Under this agreement, we anticipate
that we will install OverVoice in a minimum of 30 multiple dwelling unit
buildings with approximately 10,000 units. Additionally, together with OnePoint
Communications Corp., we will market high speed Internet services to
approximately 300 additional multiple dwelling unit buildings where OnePoint
Communications Corp. has a preferential right of entry to provide Internet and
other communications services.
The Restructuring. In October 1998 and February 1999, we completed two
transactions that resulted in the Company becoming a holding company with one
subsidiary, CAIS, Inc. In October 1998, we restructured the Company as a
holding company with CAIS, Inc., Cleartel Communications Limited Partnership
and Cleartel Communications, Inc. as subsidiaries. In February 1999, we: (1)
transferred the Company's partnership interests in Cleartel Communications
Limited Partnership to Cleartel Communications, Inc.; (2) liquidated Cleartel
Communications Limited Partnership; and (3) distributed to our existing
stockholders our shares in Cleartel Communications, Inc. The information in
this prospectus reflects these transactions.
3
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Company Information
We are located at 1255 22nd Street, N.W., Fourth Floor, Washington, D.C.
20037. Our telephone number is (202) 715-1300, and our Internet address is
www.cais.com. Information available on our Web site is not part of this
prospectus.
The Offering
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<S> <C>
Common stock offered by the Company................ shares
Common stock to be outstanding after the offering.. shares, based on the number of
shares outstanding on , 1999. This does
not include an aggregate of shares issuable
pursuant to the exercise of warrants and stock
options outstanding as of , 1999. This
figure also assumes that the underwriters do
not exercise their over-allotment option.
Over-allotment option.............................. Up to shares. If the over-allotment option
is exercised in full by the underwriters at
the public offering price, the total public
offering price, underwriters discounts and
proceeds to the Company will be $ , $ and
$ , respectively.
Use of proceeds.................................... To expand our business, including capital
expenditures, increased sales and marketing,
and for additional working capital associated
with the roll-out of our OverVoice technology
and digital subscriber line services. To
finance the build-out of our network
infrastructure, research and development,
repayment of indebtedness, redemption of
shares of Series B Cumulative Mandatory
Redeemable Convertible Preferred Stock and
possible strategic acquisitions of
complementary businesses, customer bases,
products or technologies, as well as for
general corporate purposes.
Proposed Nasdaq National Market symbol............. "CAIS"
</TABLE>
Risk Factors
Investing in our shares of common stock involves a high degree of risk. You
should read "Risk Factors" beginning on page 7 as well as the other cautionary
statements throughout the prospectus to ensure you understand the risks
associated with an investment in our common stock.
Additional Information
For additional information concerning the common stock, see "Description of
Capital Stock" and "Where You Can Find More Information."
4
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SUMMARY FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Predecessor Successor
--------------------------------------- ------------------------------
Period from Period from
January 1, 1996 May 11, 1996 Year Ended
Year Ended December 31, to to December 31,
----------------------- May 10, December 31, ------------
1994 1995 1996 1996 1997 1998
----------- ----------- --------------- ------------ ------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data: (1)
Net revenues....................................... $481 $2,240 $1,287 $ 2,410 $ 4,556 $ 5,315
Cost of services................................... 124 697 323 834 2,010 3,118
Operating expenses................................. 267 596 381 2,478 6,844 12,664
Interest and other expense (income)................ 1 3 (2) 212 288 1,101
---- ------ ------ ------- ------- --------
Income (loss) from continuing operations........... $ 89 $ 944 $ 585 $(1,114) $(4,586) $(11,568)
==== ====== ====== ======= ======= ========
Basic and diluted loss per common share from
continuing operations............................. $ (0.11) $ (0.48) $ (1.17)
Weighted--average common shares outstanding--basic
and diluted....................................... 9,648 9,648 9,869
======= ======= ========
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<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------------
Pro Pro Forma
Actual Forma (2) As Adjusted (3)
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<S> <C> <C> <C>
Balance Sheet Data:
Cash...................................... $ 95 $ 9,750 $
Working (deficit) capital ................ (9,374) 3,266
Total assets.............................. 15,678 15,227
Long-term debt, net of current portion.... 10,767 6,183
Stockholders' deficit..................... (13,604) (12,904)
</TABLE>
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(1) The historical financial data set forth for the periods ended, or as of
dates, on or prior to May 10, 1996, reflect the results of operations of
Capital Area Internet Service, Inc. prior to its acquisition by the
Company. This data is shown under the caption "Predecessor." The historical
financial data subsequent to May 10, 1996 reflect the results of operations
of the Company's continuing operations. See "Certain Relationships and
Related Transactions."
(2) The Pro Forma balances give effect to:
. the issuance of Series A Convertible Preferred Stock in February 1999 for
gross proceeds of $11,500,000 ($3,500,000 in cash and an $8,000,000
unconditional promissory note), less issuance costs of $135,000, the
repayment of $1,500,000 of borrowings from Cleartel Communications
Limited Partnership, and the payment of $210,000 to extend the ING Credit
Agreement;
. the Spin-off of Cleartel Communications, Inc. to our stockholders in
February 1999 and the related $700,000 of Owners' Deficit as of December
31, 1998;
. the Company's assumption of debt in the aggregate principal amount of
$1,450,000 originally payable by Cleartel Communications Limited
Partnership ("Cleartel LP") to Ulysses G. Auger, Sr., a director of the
Company, in exchange for an equal reduction in the account payable by the
Company to Cleartel LP;
5
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. the Company's issuance of Series B Cumulative Mandatory Redeemable
Preferred Stock to Ulysses G. Auger, Sr. in exchange for the retirement
of the $1,450,000 of assumed debt;
. the issuance of additional Series B Cumulative Mandatory Redeemable
Convertible Preferred Stock in exchange for $3,107,000 of related party
debt;
. the collection of the note receivable for $8,000,000 related to the
issuance of Series A Convertible Preferred Stock; and
. the warrants issued in connection with the Series A Convertible Preferred
Stock will be valued upon determination of the terms of this offering,
and have not been valued in the accompanying table.
(3) The Pro Forma as adjusted balances give effect to:
. the issuance of shares of common stock in the offering and application
of the net proceeds therefrom;
. the conversion of the Series A Convertible Preferred Stock upon the
closing of the offering;
. the redemption of $3,000,000 in aggregate face value of Series B
Cumulative Mandatory Redeemable Convertible Preferred Stock and the
conversion of the remaining shares into common stock;
. the repayment of remaining amounts due to Cleartel Communications, Inc.
and amounts outstanding under the ING Credit Agreement;
. the write-off of unamortized debt discount and deferred financing costs
to be recorded upon the repayment of borrowings outstanding under the ING
Credit Agreement; and
. the acceleration of deferred compensation expense upon the acceleration
of the vesting of options to purchase common stock held by the President
and Chief Operating Officer upon signing the underwriting agreement for
this offering.
See "Use of Proceeds," "Capitalization" and "The Offering."
6
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RISK FACTORS
You should carefully consider the following factors and other information in
this document before you decide whether to purchase our common stock. The risks
set forth below are in addition to risks that apply to most businesses,
including risks of competition and reliance on employees.
We Have Had A Limited Operating History During Which We Have Incurred
Significant Net Losses, Experienced Negative Cash Flows And Accumulated A
Significant Deficit
Our limited historical operating data may make it more difficult for you to
evaluate our performance. We incurred a net loss for the fiscal year ended
December 31, 1997 of approximately $2.7 million, and we incurred net losses and
negative cash flows from operations for the fiscal year ended December 31, 1998
in the amounts of approximately $12.2 million and $3.2 million, respectively.
On December 31, 1998, we had a stockholders' deficit of approximately $13.6
million.
Following the completion of this offering, we believe that we will incur
further losses, in part due to expenses incurred in connection with the roll-
out of OverVoice. However, we cannot assure you that after incurring these
additional losses and expenses:
. there will be an increase in revenues;
. we will gain profits in future operating periods; or
. we will have sufficient cash available to meet continuing losses and/or
necessary capital expenditures.
We May Not Be Able To Manage Our Potential Rapid Growth And Expansion
Effectively
Our business strategy depends in large part on our ability to rapidly deploy
OverVoice. This will require significant capital expenditures and we expect to
fund our near-term capital requirements through the funds raised in this
offering. Further expansion of our business over the long term will require
substantial additional capital and will likely require additional outside
financing. This growth will also increase our operating complexity as well as
the level of responsibility for both existing and new management personnel. As
a result, in order to manage our growth, we must, among other things:
. continue to implement and improve our operational, financial and
management information systems, including our billing, accounts
receivable and payables tracking, fixed assets and other financial
management systems;
. hire and train additional qualified personnel; and
. continue to expand and upgrade our network infrastructure.
We also expect that demands on our network infrastructure and technical
support resources will increase rapidly as our customer base continues to grow.
We may therefore experience difficulties meeting a high demand for services in
the future. We cannot assure you that our infrastructure, technical support or
other resources will be sufficient to facilitate this growth. As we strive to
increase network utilization, there will be additional demands on our customer
support, sales and marketing resources. Competition for qualified employees is
intense and salaries are escalating very quickly. In addition, the process of
locating such personnel with the combination of skills and attributes required
to carry out our strategy is often lengthy.
Our failure to manage our growth effectively could have a material adverse
effect on our business, financial condition and results of operations.
We May Need Additional Capital To Finance Our Growth And Capital Requirements
We intend to rapidly enhance and develop our network and effect a broad-
based roll-out of OverVoice in order to attain our business goals. We intend to
add at least ten additional points of presence from third-party providers in
1999 and make substantial capital investments in our own points of presence or
otherwise as
7
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dictated by customer demand or strategic considerations. If we do not have
enough cash from this offering, cash on hand and cash generated from our
operations to meet these cash requirements, we will need to seek alternative
sources of financing to carry out our growth and operating plans. We may not be
able to raise any such cash on terms acceptable to us or at all. Financings may
be on terms that are dilutive or potentially dilutive to our stockholders. If
alternative sources of financing are required, but are insufficient or
unavailable, we will be required to modify our growth and operating plans,
which may negatively affect our operations, financial condition and stock
performance.
The Inline Agreement Requires Us To Pay Ongoing Royalties
We are required to pay Inline Connection Corporation royalties equal to
between 3.0% and 5.5% of net sales of the OverVoice technology. In the rare
cases where we do not provide the Internet access or own the OverVoice
equipment installed, this percentage may be as high as 70.0%. If we sublicense
the patents and pending patent applications relating to the OverVoice
technology to a third party, we are required to pay Inline Connection
Corporation a percentage of the income received from the sublicense.
Additionally, we have minimum annual royalty payments starting at $100,000 for
the current year and increasing to $250,000. If we fail to pay the minimum
payments, or otherwise breach our agreement with Inline Connection Corporation,
we will lose our exclusive right to use the OverVoice technology in hotels and
multiple dwelling units, which would have a material adverse effect on our
business, financial condition and results of operations.
Our Business Is Subject To Risks Of Technological Change And Evolving Industry
Standards
Our future success will depend, in part, on our ability to: (1) offer
services that address the increasingly sophisticated and varied needs of our
current and prospective customers, and (2) respond to technological advances
and emerging industry standards and practices on a timely and cost-effective
basis. Internet access operations are characterized by:
. rapidly changing and unproven technology;
. evolving industry standards;
. changing customer needs; and
. numerous competitive services and product offerings.
We cannot assure you that:
. future advances in technology will be beneficial to, or compatible with,
our business;
. we will be able to incorporate such advances on a cost-effective or
timely basis; or
. such advances will not render our services unnecessary or less cost-
effective.
Although we intend to support emerging standards, we cannot assure you that
industry standards will be established, or that, if established, we will be
able to conform to the new standards in a timely fashion or maintain a
competitive position in the market. In addition, we cannot assure you that
products, services or technologies developed by others will not render our
services noncompetitive, unnecessary or obsolete.
We Operate In A Highly Competitive Market
We operate in a highly competitive environment for each of our lines of
business and we believe that competition is increasing. The competitive
environments for our different lines of business are as follows:
OverVoice. We face several major groups of competitors in the business of
providing high-speed Internet access to hotels and multiple dwelling units.
These include local exchange carriers and other digital subscriber line
providers, cable TV companies and other providers using cable modems, and
installation firms that upgrade the wiring in hotels and multiple dwelling unit
buildings. Many of our competitors have extensive marketplace presence and
greater technological and financial resources than we do.
8
<PAGE>
In addition, the OverVoice technology also competes with technologies using
other transmission media, such as coaxial cable, wireless facilities and fiber
optic cable. To the extent that telecommunications service providers, hotels,
multiple dwelling units or single family residences choose to install any of
these alternative transmission media, demand for OverVoice may decline.
CAIS Internet. Because the Internet services market has no substantial
barriers to entry, we expect that competition will continue to intensify. Our
principal competitors include other tier one national backbone providers such
as UUNET Technologies, Inc., PSINet Inc., BBN (a GTE subsidiary), and other
providers of dedicated high-speed Internet access including DSL, T-1 and
wireless access. To a lesser extent, we also compete for dedicated and dial-up
access and Web services business with regional, tier two Internet service
providers and cable companies that operate in the same geographic markets that
we serve. Accordingly, we expect the market for Internet access services to
continue to grow and to be highly competitive with a variety of regional and
national players vying for new business. In many instances, we compete directly
with our downstream Internet service provider customers. Eventually, we expect
some form of a market consolidation to occur, with those Internet service
providers that furnish the most value-added solutions ultimately surviving.
Some Of Our Contracts Are Nonexclusive And We May Not Be Able To Recover Our
Installation Costs
We have incurred, and will continue to incur, significant up-front costs
installing OverVoice in hotels. Certain of our agreements to provide services,
including our agreement with Hilton Hotels Corporation, do not require hotel
owners and operators to offer our services exclusively. As a result, hotels may
allow others to offer Internet access services that compete with our service,
even though we have incurred the cost of installing OverVoice. In addition, our
trial and long-term agreements for both hotels and multiple dwelling units
generally do not contain any minimum use requirements.
We May Not Be Able To Protect Our Patent Rights
We are a licensee and joint-owner with Inline Connection Corporation of
certain domestic and foreign patents and patent applications relating to the
OverVoice technology. As our competitive advantage depends on this technology,
our success relies substantially on our ability to protect the OverVoice
technology, both domestically and abroad. We face the following two major risks
in connection with our patent rights.
(1) Others may infringe on our patent rights, resulting in:
. lack of competitiveness in the market;
. expense of time and resources to protect our patents; and
. dilution of the brand value of our service.
(2) Although we do not believe this to be the case, we may infringe others'
patents, resulting in:
. significant expense in defending our patents, even in the case of a
frivolous suit;
. requirement to pay damages; and
. costly and potentially impracticable redesign of our technology.
Any of the above could have a materially adverse affect on our business,
financial condition and results of operations.
We Depend Upon Our Suppliers
In order to provide Internet access and other on-line services to our
customers, we lease long distance fiber optic telecommunications lines from
national telecommunications services providers. We depend upon these providers
substantially.
9
<PAGE>
Certain of our suppliers, including regional Bell operating companies and
competitive local exchange carriers, are currently subject to various price
constraints, including tariff controls, which in the future may change. In
addition, pending regulatory proposals may affect the prices charged to us by
the regional Bell operating companies and competitive local exchange carriers.
These regulatory changes could result in increased prices for products and
services, which could have a material adverse effect on our business, financial
condition or results of operations.
We rely wholly on other companies to supply our network infrastructure
(including telecommunications services and networking equipment) which, in the
quantities and quality we require, is available only from sole or limited
sources. We cannot assure you that our suppliers will not:
. compete directly with us;
. enter into exclusive arrangements with our competitors; or
. stop selling their products or components to us at commercially
reasonable prices, or at all.
In addition, we do not manufacture our proprietary OverVoice equipment, such
as wall jacks and the OverVoice DeskJack; rather we depend on third parties to
manufacture and supply it. Any interruption in the operations of any of these
manufacturers could adversely affect our ability to meet our customers'
requirements.
Our Network Infrastructure Depends Upon Third Party Providers
The Internet relies on the exchange of traffic over a network of networks
that is owned and operated by many parties. We currently exchange traffic with
other Internet service providers with whom we maintain relationships. These
exchange agreements are not regulated and may be changed. If they become
regulated, modified or are altogether terminated, we may have to find
alternate, more expensive means to exchange traffic, or we may not be able to
do so, which would have a material adverse affect on our business, financial
condition or results of operations.
We Are Subject To Risks Associated With Acquisitions Of Assets And Businesses
As part of our business strategy, we may acquire assets or businesses that
complement our current operations. Any future acquisitions will be accompanied
by the risks commonly encountered in such transactions, including:
. the difficulty of assimilating the operations and personnel of the
companies;
. the potential disruption of our ongoing business;
. the costs associated with the development and integration of acquired
operations;
. the inability of management to maximize our financial and strategic
position by the successful incorporation of licensed or acquired
technology into our service offerings;
. the maintenance of uniform standards, controls, procedures and policies;
. the impairment of relationships with employees and customers as a result
of changes in management, and higher customer attrition with respect to
customers obtained through acquisitions; and
. the impact on our liquidity.
Additionally, any future acquisitions may give rise to financial risks
including both our incurrence of indebtedness to finance such acquisitions and
the need to service this indebtedness.
In addition, expansion through joint ventures with strategic partners
provides us with additional potential risks including:
. the potential that our joint venture partner may not have economic,
business or legal interests or goals that are consistent with ours or
those of the joint venture; and
10
<PAGE>
. the potential that our joint venture partner may be unable to meet its
economic or other obligations and that we may be required to fulfill
those obligations.
Our Operations Are Subject To Risks Of System Failure
Our operations depend upon our ability to protect our network against damage
from acts of nature, power failures, telecommunications failures and similar
events. Because we lease our lines from long-distance telecommunications
companies, Internet backbone providers, the regional Bell operating companies
and competitive local exchange carriers, we depend upon those companies for
physical repair and maintenance of those lines. Despite the precautions we and
our telecommunications providers take, the occurrence of a natural disaster,
fire, electrical outage or other unanticipated problems at one of our
facilities may cause interruptions in the services we provide. Such
interruptions in operations could have a material adverse effect on our
business, financial condition or results of operations.
Our System May Be Vulnerable To Viruses, Break-ins And Other Security Risks
Despite the implementation of network security measures, the core of our
Internet network infrastructure is vulnerable to computer viruses, break-ins
and similar disruptive problems. We may experience future interruptions in
service as a result of the accidental or intentional actions of Internet users,
current and former employees or others. Unauthorized use could also potentially
jeopardize the security of confidential information stored in our computer
systems and the computer systems of our customers. Although we intend to
continue to implement security measures to prevent this, these measures have
occasionally been circumvented in the past, and we cannot assure you that the
measures we implement will not be circumvented in the future. In addition,
eliminating such viruses and remedying such security problems may cause
interruptions, delays or cessation of service to our customers that could have
a material adverse effect on our business, financial condition or results of
operations. We do not carry any insurance against these risks because it is
unavailable at a reasonable cost.
Our Success Depends Upon Management And Other Key Personnel
Our success depends in significant part upon the continued service of our
senior management personnel and certain other employees who possess
longstanding industry relationships and technical knowledge of our operations.
While we do not maintain any "key person" insurance, we have entered into
employment agreements with certain key employees. Our future success also
depends on our ability to attract, train, retain and motivate highly skilled
personnel. Competition for qualified, high-level telecommunications personnel
is intense and we cannot assure you that we will be able to attract and retain
such personnel. The loss of the services of one or more of our key individuals,
or the failure to attract and retain additional key personnel, could have a
material adverse effect on our business, financial condition or results of
operation.
We Depend Upon Effective Management Information Systems
We depend upon information systems to provide service to our customers,
manage our network, collect billing information and perform other vital
functions. Like other systems, our management information systems are subject
to hardware defects and software bugs, the existence of which may be outside
our control. Technical difficulties with our hardware or software could
materially adversely affect our business, financial condition or results of
operations.
We May Be Subject To Government Regulation And Potential Taxes
We provide Internet access, in part, through transmissions over public
telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for communications. As an Internet service
provider, we are not currently subject to direct regulation by the Federal
Communications Commission or any other agency, other than regulations
applicable to businesses generally. In a report to Congress
11
<PAGE>
adopted on April 10, 1998, the Federal Communications Commission reaffirmed
that Internet service providers should be classified as unregulated
"information service providers" rather than regulated "telecommunications
providers" under the terms of the Telecommunications Act of 1996, as amended.
This finding is important because it means that we are not subject to
regulations that apply to telephone companies and similar carriers. We also are
not required to contribute a percentage of our gross revenues to support
"universal service" subsidies for local telephone services and other public
policy objectives, such as enhanced communications systems for schools,
libraries and certain health care providers. Although there can be no
assurance, the Federal Communications Commission action may also discourage
states from separately regulating Internet service providers as
telecommunications carriers or imposing similar subsidy obligations.
Nevertheless, Internet-related regulatory policies are continuing to
develop, and it is possible that we could be exposed to regulation in the
future. For example, in the same report to Congress, the Federal Communications
Commission stated its intention to consider whether to regulate voice and fax
telephony services provided over the Internet as "telecommunications" even
though Internet access itself would not be regulated. The Federal
Communications Commission is also considering whether such Internet-based
telephone service should be subject to universal service support obligations,
or pay carrier access charges on the same basis as traditional
telecommunications companies.
Local telephone companies assess access charges to long distance companies
for the use of the local telephone network to originate and terminate long
distance calls, generally on a per-minute basis. Access charges have been a
matter of continuing dispute, with long distance companies complaining that the
rates are substantially in excess of cost, and local telephone companies
arguing that access rates are justified to subsidize lower local rates for end
users and other purposes. Both local and long distance companies, however,
contend that Internet-based telephony should be subject to these charges. We
have no current plans to install gateway equipment and offer telephony, and so
we do not believe we would be directly affected by these developments. However,
we cannot predict whether these debates will cause the Federal Communications
Commission to reconsider its current policy of not regulating Internet service
providers.
In addition, a number of state and local government officials have asserted
the right or indicated a willingness to impose taxes on Internet-related
services and commerce, including sales, use and access taxes. We cannot
accurately predict whether the imposition of any such taxes would have a
material adverse effect on our business, financial condition or results of
operations.
We May Be Liable For Information Sent Through Our Network
The law relating to the liability of Internet service providers and on-line
services companies for information carried on, stored on, or disseminated
through their network is unsettled, even with the recent enactment of the
Digital Millennium Copyright Act. We believe that it is currently also
unsettled as to whether the Telecommunications Act of 1996, as amended,
prohibits and imposes liability for any of the services we provide should the
content of information transmitted be subject to the statute. While no one has
ever filed a claim against us relating to information carried on, stored on, or
disseminated through our network, someone may file a claim of that type in the
future and may be successful in imposing liability on us. If that happens, we
may have to spend significant amounts of money to defend ourselves against
these claims and, if we are not successful in our defense, the amount of
damages that we will have to pay may be significant. Any costs that we incur as
a result of defending these claims or the amount of liability that we may
suffer if our defense is not successful could materially adversely affect our
business, financial condition or results of operation.
If, as the law in this area develops, we become liable for information
carried on, stored on, or disseminated through our network, we may decide to
take steps to reduce our exposure to this type of liability. This may require
us to spend significant amounts of money for new equipment and may also require
us to discontinue offering certain of our products or services.
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<PAGE>
Due to the increasing popularity and use of the Internet, it is possible
that additional laws and regulations may be adopted with respect to the
Internet, covering issues such as content, privacy, access to certain content
by minors, pricing, bulk e-mail (spam), encryption standards, consumer
protection, electronic commerce, taxation, copyright infringement and other
intellectual property issues. We cannot predict the impact, if any, that future
regulatory changes or developments may have on our business, financial
condition, or results of operation. Changes in the regulatory environment
relating to the Internet access industry, including regulatory changes that
directly or indirectly affect telecommunication costs or increase the
likelihood or scope of competition from regional telephone companies or others,
could have a material adverse effect on our business, financial condition or
results of operation.
We May Not Be Able To Protect Our Servicemarks And Trademarks
We intend to protect and defend our name, servicemarks and trademarks in the
United States and internationally. We achieved federal registration for several
of our trademarks, including the mark CAIS, and filed for federal trademark
protection for a number of other marks which we use or intend to use, for
example OVERVOICE. We cannot assure you that:
. our efforts to protect our proprietary rights in the U.S. or abroad will
be successful;
. other companies will not challenge our use of our trademarks and
servicemarks; or
. we will have sufficient funds to withstand such challenges or claims,
regardless of their merit.
If we are unable to protect our proprietary rights it could have a material
adverse effect on our business, financial condition and results of operations.
We Will Have Broad Discretion In Applying The Proceeds Of The Offering
We estimate that we will receive net proceeds from this offering of
approximately $ million (approximately $ million if the underwriters' over-
allotment option is exercised in full) after deducting estimated underwriting
discounts and commissions and other fees and expenses. We intend to use the net
proceeds from this offering to fund expansion of our business, including
capital expenditures, increased sales and marketing and for working capital
associated with the roll-out of our OverVoice technology and digital subscriber
line (DSL) services. In addition, we intend to use a portion of the proceeds to
further build-out our network infrastructure nationwide. The Company also
intends to use proceeds from the offering to finance research and development
of future products and services, as well as for general corporate purposes. In
addition, we intend to use proceeds from the offering to repay indebtedness in
the aggregate principal amount of approximately $9.0 million and to redeem
shares of Series B Cumulative Mandatory Redeemable Convertible Preferred Stock
with an aggregate face value of $3.0 million. We also from time to time
consider the acquisition of complementary businesses, customer bases, products
or technologies, and may use proceeds of the offering to make such
acquisitions. However, these are estimates only and there could be significant
variations in the actual use of proceeds. Accordingly, we will have broad
discretion as to the application of such proceeds without prior stockholder
approval.
Our Directors Are Not Personally Liable For Breach Of Fiduciary Duties
As permitted by the Delaware General Corporation Law, our Certificate of
Incorporation includes a provision eliminating the personal liability of our
directors for monetary damages for breach or alleged breach of their fiduciary
duties as directors, subject to certain exceptions. In addition, pursuant to
our By-Laws and separate indemnification agreements, we must indemnify our
officers and directors under certain circumstances, including those
circumstances in which indemnification would otherwise be discretionary. We
also must advance to our officers and directors expenses incurred in connection
with proceedings against them for which they may be indemnified. We are not
currently aware of any pending or threatened litigation or proceeding involving
any of our directors, officers, employees or agents in which indemnification
would be required or permitted.
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The Executive Officers and Directors of the Company, As A Group, Control The
Company
As of February , 1999, the executive officers and directors of the Company,
as a group, beneficially owned or controlled approximately % of the
outstanding shares of common stock on a fully diluted basis. Consequently, as a
practical matter, even after this offering, the executive officers and
directors of the Company, as a group, will be able to control the election of
our Board of Directors, management policy and all fundamental corporate
actions, including mergers, substantial acquisitions and dispositions of
assets.
Future Sales Of Our Common Stock Could Have A Negative Impact On The Market
Price Of Our Common Stock
Sales of a substantial number of shares of common stock in the public market
following this offering, or the appearance that such shares are available for
sale, could adversely affect the market price for the Company's common stock.
Upon completion of the offering, the Company will have outstanding shares
of common stock. In addition to these shares, upon completion of the offering:
. shares will be issuable upon the exercise of options granted;
. shares will be issuable upon the exercise of warrants;
. 2,827,168 shares of common stock will be issuable upon the conversion of
Series A Convertible Preferred Stock; and
. shares of common stock will be issuable upon the conversion of
Series B Cumulative Mandatory Redeemable Convertible Preferred Stock.
The Company may also grant options for up to additional shares of
common stock under the Company's Amended and Restated 1998 Equity Incentive
Plan.
The Company and certain stockholders of the Company (including Chancery
Lane, L.P. and all directors and officers of the Company) who will hold, upon
consummation of the offering, an aggregate of approximately shares of
common stock and options, warrants and preferred stock exercisable for or
convertible into a total of additional shares of common stock, have agreed
pursuant to lock-up agreements with representatives of our underwriters, not to
offer, sell, contract to sell or otherwise dispose of any common stock, or any
options, warrants or other securities convertible into or exercisable for
common stock for 180 days after the date of this prospectus, subject to certain
exceptions.
Upon the expiration of the lock-up agreements, 8,930,535 shares of common
stock outstanding upon completion of the offering will be eligible for sale in
the public market pursuant to Securities Act Rule 144. In addition, holders of
the Series A Convertible Preferred Stock and warrants have certain demand and
piggyback registration rights covering the shares of common stock issuable upon
exercise of these instruments. Following the consummation of the offering, the
Company intends to register an aggregate of 3,534,495 shares of common stock
issuable upon the exercise of options granted under the Amended and Restated
1998 Equity Incentive Plan and under other compensatory arrangements.
We are unable to predict the effect that sales made under Rule 144, upon the
exercise of registration rights or otherwise may have on the then prevailing
market price of the common stock.
There Is Currently No Public Market For The Common Stock And Our Stock Price
May Fluctuate Significantly In The Future
Prior to this offering, there was no public market for the common stock and
we cannot assure you that an active trading market will develop or continue
after this offering. The initial public offering price will be determined by
negotiation between us and the representatives of the underwriters and may not
be indicative of the price that will prevail in the open market. See
"Underwriting" for a discussion of the factors to be
14
<PAGE>
considered in determining the initial public offering price. The market price
of the shares of common stock is likely to be highly volatile and could be
subject to wide fluctuations in response to factors such as:
. actual or anticipated variations in our results of operations;
. announcements of technological innovations;
. new services introduced by us or our competitors;
. conditions in the economy in general and in the Internet service
provider sectors in particular;
. inflated price to earning ratios in the telecommunications industry;
. changes in financial estimates by securities analysts;
. conditions and trends in the Internet;
. general market conditions; and
. sales of a substantial number of shares of common stock in the public
market or the appearance that such shares are eligible for sale.
In addition, in the past, following periods of volatility in the market
price of a company's securities, class action litigation has often been
instituted against such companies. Such litigation, if instituted, could result
in substantial costs and a diversion of management's attention and resources,
which could have a material adverse effect on our business, financial condition
or results of operation.
Investors Will Experience Immediate And Substantial Dilution
The initial public offering price is substantially higher than the book
value per share of the outstanding common stock. As a result, investors
purchasing common stock will experience immediate and substantial dilution in
the pro forma combined net tangible book value of their shares of $ per
share. Upon the issuance of additional shares of common stock in the future,
whether pursuant to the exercise of outstanding convertible securities,
warrants or options, purchasers of common stock in the offering may experience
further dilution.
The Ability Of Stockholders To Effect Changes In Control Of The Company Is
Limited
There are provisions in our Certificate of Incorporation and By-Laws and the
Delaware General Corporation Law that discourage and make it more difficult for
a third party to acquire, or attempt to acquire, control of the Company. In
particular, our Certificate of Incorporation divides the Board of Directors
into three classes of directors, serving staggered three-year terms. Our
Certificate of Incorporation also grants our Board of Directors the authority
to issue, without stockholder approval, one or more series of preferred stock
having such preferences, powers and relative, participating, optional and other
rights (including preferences over the common stock respecting dividends and
distributions and voting rights) as the Board of Directors may determine. The
issuance of this "blank-check" preferred stock could render more difficult or
discourage an attempt to obtain control of our Company by means of a tender
offer, merger, proxy contest or otherwise. The Certificate of Incorporation
further provides that stockholder action can be taken only at an annual or
special meeting of stockholders and cannot be taken by written consent in lieu
of a meeting. The Certificate of Incorporation and the By-Laws also provide
that, except as otherwise required by law, special meetings of the stockholders
can only be called pursuant to a resolution adopted by a majority of the Board
of Directors or by the chief executive officer of the Company. In addition, the
By-Laws establish an advance notice procedure for stockholder proposals to be
brought before an annual meeting of our stockholders, including proposed
nominations of persons for election to the Board of Directors. Certain
provisions of the Delaware General Corporation Law, including Section 203, may
also discourage takeover attempts that have not been approved by our Board of
Directors.
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We Do Not Anticipate That We Will Pay Cash Dividends
We plan to retain future net income, if any, to fund internal growth.
Therefore, we do not anticipate paying any cash dividends on the common stock
in the foreseeable future.
Failure To Obtain Year 2000 Compliance May Have Adverse Effects On The Company
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. Our failure to correct a material Year 2000 problem
could result in an interruption in, or a failure of, certain of our normal
business activities or operations. During 1998, we established a Year 2000
compliance program to coordinate appropriate activity and report to our Board
of Directors with regard to Year 2000 issues. We continue to assess the impact
of Year 2000 issues on our internal computer, operational and financial
systems, and to review with our key vendors and suppliers, the compliance of
their systems with Year 2000 processing requirements. We currently believe that
our most reasonably likely worst case scenario related to the Year 2000 is
associated with potential concerns with our customers' and suppliers' Internet
operations. The failure of such parties to ensure Year 2000 compliance would
lead to decreased Internet usage and the delay or inability to obtain necessary
data communication and telecommunication capacity. These factors could in turn
have a material adverse effect on our business, financial condition or results
of operation.
This Prospectus Contains Forward-Looking Information
Some of the statements contained in this prospectus discuss future
expectations and business strategies or state other "forward-looking"
information. Those statements are subject to known and unknown risks,
uncertainties and other factors that could cause the actual results to differ
materially from those contemplated by the statements. You should carefully
consider all of the risk factors discussed in this prospectus.
16
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USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $ million (approximately $ million if the underwriters' over-
allotment option is exercised in full) after deducting estimated underwriting
discounts and commissions and other fees and expenses. We intend to use the net
proceeds from this offering to expand our business, including capital
expenditures, increased sales and marketing and working capital associated with
the roll-out of our OverVoice technology and digital subscriber line (DSL)
services and to further build-out our network infrastructure nationwide. In
addition, we intend to use proceeds from the offering to (1) repay
approximately $7,000,000 of outstanding indebtedness under the credit agreement
the Company, together with CAIS Inc. and certain of its affiliates entered into
with ING (U.S.) Capital Corporation, which bears interest at the one-month
LIBOR rate plus 5%, due September 4, 1999; (2) to repay a non-interest bearing
account payable in the amount of approximately $2,000,000 owed to Cleartel
Communications, Inc.; and (3) to redeem shares of Series B Cumulative Mandatory
Redeemable Convertible Preferred Stock with an aggregate face value of $3.0
million. The Company also intends to use proceeds from the offering to finance
research and development of future products and services, as well as for
general corporate purposes. We also from time to time consider the acquisition
of complementary businesses, customer bases, products or technologies, and may
use proceeds of the offering to make such acquisitions.
We currently intend to allocate substantial proceeds to each of the
foregoing categories. However, the precise allocation of funds among these uses
will depend on future technological, regulatory and other developments in or
affecting our business, the competitive climate in which we operate and the
emergence of future opportunities. Pending such uses, we intend to invest the
net proceeds of this offering in short-term, investment grade interest-bearing
securities. See "Risk Factors--We Will Have Broad Discretion In Applying The
Proceeds Of The Offering."
See "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources," and
"Certain Relationships and Related Transactions."
DIVIDEND POLICY
We plan to retain all of our earnings, if any, to finance the expansion of
our business and for general corporate purposes and do not anticipate paying
any cash dividends on the common stock for the foreseeable future. Our future
dividend policy will be determined by the Board of Directors on the basis of
various factors, including our results of operations, financial condition,
capital requirements and investment opportunities.
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CAPITALIZATION
The following table sets forth our cash, short-term debt and capitalization
as of December 31, 1998, (1) on an actual basis, (2) on a pro forma basis and
(3) on a pro forma as adjusted basis to give effect to the pro forma
adjustments and to give effect to this offering and the application of the
estimated net proceeds of the offering. You should read this table together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's historical financial statements, including the
related notes thereto, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash.................................... $ 95 $ 9,750 $
======== ======= ========
Short-term debt:
Payable to discontinued operations...... $ 5,342 $ 2,392 $
======== ======= ========
Long-term debt:
Bridge Loan, net of unamortized debt
discount of $817...................... $ 6,183 $ 6,183 $
Notes payable to related parties, net
of current portion.................... 1,983 --
Long-term liabilities of discontinued
operations............................ 2,601 --
10,767 6,183
-------- ------- --------
Series A Convertible Preferred Stock,
2,827,168 shares authorized, issued and
outstanding............................ -- 11,365
-------- ------- --------
Series B Cumulative Mandatory Redeemable
Convertible Preferred Stock, 1,119,679
shares authorized, issued and
outstanding............................ -- 4,557
-------- ------- --------
Stockholders' (deficit) equity:
Common stock, $0.01 par value,
100,000,000 shares authorized,
9,965,000; 9,965,000 and issued
and outstanding(3).................... 100 100
Additional paid-in capital............. 7,544 7,544
Warrants outstanding(4)................ 1,226 1,226
Deferred compensation.................. (2,888) (2,888)
Accumulated deficit.................... (19,586) (18,886)
-------- ------- --------
Total stockholders' (deficit)
equity.............................. (13,604) (12,904)
-------- ------- --------
Total Capitalization................. $ (2,837) $ 9,201 $
======== ======= ========
</TABLE>
- -------
(1) The Pro Forma balances give effect to:
. the issuance of Series A Convertible Preferred Stock in February 1999 for
$11,500,000 ($3,500,000 in cash and an $8,000,000 unconditional
promissory note), less issuance costs of $135,000, and the repayment of
$1,500,000 of amounts due to Cleartel Communications Limited Partnership;
. the Spin-off of Cleartel Communications, Inc. to our stockholders in
February 1999 and the related $700,000 of Owners' Deficit as of
December 31, 1998;
. the assumption of related party notes payable of approximately $1,450,000
from Cleartel in exchange for an equal reduction in amounts due to
Cleartel, and the subsequent conversion to Series B Cumulative Mandatory
Redeemable Convertible Preferred Stock thereof;
. the issuance of additional Series B Cumulative Mandatory Redeemable
Convertible Preferred Stock in payment of $3,107,000 of related party
debt; and
. the collection of the note receivable for $8,000,000 related to the
issuance of Series A Convertible Preferred Stock; and
. the payment of $210,000 to extend the ING Credit Agreement
(2) The Pro Forma balances give effect to:
. the issuance of Series A Convertible Preferred Stock in February 1999 for
gross proceeds of $11,500,000 ($3,500,000 in cash and an $8,000,000
unconditional promissory note), less issuance costs of $135,000, the
repayment of $1,500,000 of borrowings from Cleartel Communications
Limited Partnership, and the payment of $210,000 to extend the ING Credit
Agreement;
. the Spin-off of Cleartel Communications, Inc. to our stockholders in
February 1999 and the related $700,000 of Owners' Deficit as of
December 31, 1998;
. the Company's assumption of debt in the aggregate principal amount of
$1,450,000 originally payable by Cleartel Communications Limited
Partnership ("Cleartel LP") to Ulysses G. Auger, Sr., a director of the
Company, in exchange for an equal reduction in the account payable by the
Company to Cleartel LP;
. the Company's issuance of Series B Cumulative Mandatory Redeemable
Preferred Stock to Ulysses G. Auger, Sr. in exchange for the retirement
of the $1,450,000 of assumed debt;
. the issuance of additional Series B Cumulative Mandatory Redeemable
Convertible Preferred Stock in exchange for $3,107,000 of related party
debt; and
. the collection of the note receivable for $8,000,000 related to the
issuance of Series A Convertible Preferred Stock.
(3) The Pro Forma as adjusted balances give effect to:
. the issuance of shares of common stock in the offering and application
of the net proceeds therefrom;
. the conversion of the Series A Convertible Preferred Stock upon the
closing of the offering;
. the redemption of $3,000,000 in aggregate face value of Series B
Cumulative Mandatory Redeemable Convertible Preferred Stock and the
conversion of the remaining shares into common stock;
. the repayment of remaining amounts due to Cleartel Communications, Inc.
and amounts outstanding under the ING Credit Agreement;
. the write-off of unamortized debt discount and deferred financing costs
to be recorded upon the repayment of borrowings outstanding under the ING
Credit Agreement; and
. the acceleration of deferred compensation expense upon the acceleration
of the vesting of options to purchase common stock held by the President
and Chief Operating Officer upon signing the underwriting agreement for
this offering.
(4) The warrants issued in connection with the Series A Convertible Preferred
Stock will be valued upon determination of the terms of this offering, and
have not been valued in the accompanying table.
18
<PAGE>
DILUTION
The Company's pro forma net tangible book value as of December 31, 1998 was
, or $ per share of common stock. Pro forma net tangible book value per
share is equal to the Company's total pro forma tangible assets less its total
pro forma liabilities divided by the number of shares of common stock
outstanding. After giving effect to the sale by the Company of shares of
common stock offered hereby, at an assumed initial public offering price of $
per share, and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds," the Company's pro forma net tangible book
value at December 31, 1998, would have been approximately $ million, or
approximately $ per share. This represents an immediate increase of $ per
share in the pro forma net tangible book value to existing stockholders and an
immediate dilution of $ per share in pro forma net tangible book value to new
investors purchasing common stock in the offering.
The following table illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........ $
Pro forma net tangible book value per share before
the offering.......................................
Increase per share attributable to new investors.....
Pro forma net tangible book value per share after
the offering.........................................
Dilution per share to new investors....................
</TABLE>
The following table gives effect, on a pro forma basis, to the number of
shares of common stock purchased from the Company, the total consideration paid
and the average price per share paid by existing stockholders and the new
investors purchasing shares of common stock in the offering (before deducting
underwriting discounts and commissions and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES
PURCHASED TOTAL CONSIDERATION
-------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT(1) PER SHARE
------ ------- ------------------- -------------
<S> <C> <C> <C> <C>
Existing stockholders.......... % $ $
New investors..................
--- --- ----
Total.......................... %
=== === ====
</TABLE>
- --------
(1) Total consideration paid by existing stockholders includes only cash
consideration for common stock, warrants, Series A Convertible Preferred
Stock and Series B Cumulative Mandatory Redeemable Convertible Preferred
Stock.
19
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere herein. The selected financial data for the fiscal years
ended December 31, 1996, 1997 and 1998 are derived from the Company's financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants and included elsewhere herein. The selected financial data for the
period from January 1, 1996 through May 10, 1996 are derived from Capital Area
Internet Service Inc.'s ("Capital Area") financial statements which have been
audited by Arthur Andersen LLP, independent public accountants and are
presented seperately herein. The selected financial data for the fiscal years
ended December 31, 1994 and 1995 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of the financial position and results of operations for
these periods. The financial data set forth for the periods ended, or as of
dates, on or prior to May 10, 1996 reflect the results of operations of Capital
Area prior to its acquisition by CAIS, Inc. Capital Area is captioned as
"predecessor." The historical financial data subsequent to May 10, 1996 reflect
the results of operations of the Company's continuing operations. See "Certain
Relationships and Related Transactions--Organization of the Company." The
operating results for the period ended December 31, 1998 are not necessarily
indicative of the results to be expected for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
---------------------------- ------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, 1996 MAY 11, 1996 YEAR ENDED
DECEMBER 31, TO TO DECEMBER 31,
------------ MAY 10, DECEMBER 31, -----------------
1994 1995 1996 1996 1997 1998
----- ------ --------------- ------------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues............ $ 481 $2,240 $1,287 $ 2,410 $ 4,556 $ 5,315
Cost of services........ 124 697 323 834 2,010 3,118
Operating expenses:
Selling, general and
administrative....... 228 514 339 2,126 5,550 10,407
Depreciation and
amortization......... 39 82 42 352 678 831
Non-cash
compensation......... -- -- -- -- 616 1,426
----- ------ ------ ------- ------- --------
Total operating
expenses........... 267 596 381 2,478 6,844 12,664
----- ------ ------ ------- ------- --------
Income (loss) from
operations 90 947 583 (902) (4,298) (10,467)
Interest and other
expense (income)....... 1 3 (2) 212 288 1,101
----- ------ ------ ------- ------- --------
Income (loss) from
continuing operations.. $ 89 $ 944 $ 585 $(1,114) $(4,586) $(11,568)
===== ====== ====== ======= ======= ========
Loss per share from
continuing operations.. $ (0.11) $ (0.48) $ (1.17)
======= ======= ========
Weighted-average common
shares outstanding -
basic and diluted...... 9,648 9,648 9,869
======= ======= ========
BUSINESS SEGMENTS:
Net revenues:
Internet services..... $ 481 $2,240 $1,287 $ 2,410 $ 4,556 $ 5,278
OverVoice............. -- -- -- -- -- 37
----- ------ ------ ------- ------- --------
Total............... $ 481 $2,240 $1,287 $ 2,410 $ 4,556 $ 5,315
----- ------ ------ ------- ------- --------
Income (loss) from
continuing operations:
Internet services..... $ 89 $ 944 $ 585 $(1,114) $(3,807) $ (8,228)
OverVoice............. -- -- -- -- (779) (3,340)
----- ------ ------ ------- ------- --------
Total............... $ 89 $ 944 $ 585 $(1,114) $(4,586) $(11,568)
----- ------ ------ ------- ------- --------
OTHER FINANCIAL DATA:
EBITDA(1)............... $ 129 $1,029 $ 625 $ (550) $(3,620) $ (9,636)
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------- -----------------------
DECEMBER 31, DECEMBER 31,
------------- -----------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 50 $ 113 $ 73 $ 149 $ 95
Working capital (deficit).............. 48 454 (3,755) (6,440) (9,374)
Total assets........................... 139 997 13,120 15,038 15,678
Long-term liabilities, net of current
portion............................... 23 -- 4,863 4,110 10,767
Stockholders' equity (deficit)......... 111 748 (3,133) (5,278) (13,604)
</TABLE>
- -------
(1) EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA is presented to enhance understanding of the Company's
operating results and should not be construed (1) as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles ("GAAP"), as an indicator of the Company's operating
performance or (2) as an alternative to cash flows from operating
activities (as determined in accordance with GAAP) as a measure of
liquidity. EBITDA as calculated by the Company may be calculated
differently than EBITDA for other companies. See the Company's Consolidated
Financial Statements and the related Notes thereto contained elsewhere in
this prospectus.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto appearing
elsewhere in this prospectus.
Overview
During the years presented, the Company has derived most of its revenue from
the sale of various Internet services, including dedicated Internet access
services, Web hosting and domain registration services and, to a lesser extent,
dial-up Internet access. During this period the Company has incurred
significant costs and devoted substantial resources associated with the
research, development and trial deployment of its OverVoice technology. In
addition, the Company intends to make significant investments in its nationwide
network infrastructure in conjunction with OverVoice and its other dedicated
high-speed Internet services. The Company also plans to devote considerable
sales and marketing resources to the sale of dedicated high-speed Internet
access using its OverVoice technology in hotels and multiple dwelling units
("MDUs") and digital subscriber line ("DSL") services in the commercial and
residential markets. The Company plans to continue to expand its research and
development activities to develop new products and services to be offered using
the OverVoice technology.
The Company's nationwide deployment of OverVoice and other services, and the
expansion of its network, will result in increased cost of services, selling,
general and administrative expenses and capital expenditures. The Company's
ability to generate positive cash flow from operations and achieve
profitability is dependent upon the Company's ability to successfully expand
its customer base for OverVoice and other services and achieve further
operating efficiencies. There can be no assurance that the Company will be able
to achieve or sustain revenue growth, positive cash flow or profitability in
the future.
Statements of Operations
The Company records revenues for all services when the services are provided
to commercial and other users of the Company's Internet access and Web hosting
services. Amounts for services billed in advance of the service period are
recorded as unearned revenues.
The Company's costs include: (1) cost of services; (2) selling, general and
administrative expenses; (3) research and development; (4) depreciation and
amortization, which includes the amortization of goodwill recorded as a result
of the acquisition of Capital Area in May 1996; (5) non-cash compensation
attributable to the grant of options to certain executives; and (6) interest
and other expense.
Cost of services represents primarily recurring expenses for the lease of
data facilities from national and local fiber providers. These costs include
long haul bandwidth and local interconnection charges.
Selling, general and administrative costs are incurred in the areas of sales
and marketing, customer support, network operations and maintenance,
engineering, accounting and administration. Selling, general and administrative
costs will increase over time as the Company's operations, including the
nationwide deployment of OverVoice services and the expansion of its HyperDSL
services, increase. In addition, significant levels of marketing activity may
be necessary for the Company to build or increase its customer base among MDU
residents and hotel guests to a significant enough size in a particular
building or market. Any such increased marketing efforts may have a negative
effect on earnings.
During 1997, the Company granted options to purchase common stock to William
M. Caldwell, IV, the Company's President and Evans K. Anderson, the Company's
Chief Operating Officer and Executive Vice President of Sales and Marketing. As
a result of these grants, the Company recorded paid-in capital of $4,930,000
and unearned compensation of $4,930,000. Of this unearned compensation,
$616,000 and $1,426,000 were charged to expense during the fiscal years ended
December 31, 1997 and 1998, respectively.
21
<PAGE>
For the years ended December 31, 1996, 1997 and 1998, the Company's
operations generated net losses. As of December 31, 1997 and 1998, the Company
had negative working capital of approximately $6,440,000 and $9,374,000,
respectively, and a stockholders' deficit of approximately $5,278,000 and
$13,604,000, respectively.
History
The Company was incorporated in Delaware in December 1997, under the name
CGX Communications, Inc. ("CGX"), to serve as a holding company for CAIS, Inc.
and Cleartel Communications Limited Partnership ("Cleartel LP"). CAIS, Inc. was
formed as a Virginia corporation by certain current stockholders of the Company
in May 1996, to acquire Capital Area, a tier one ISP that was owned by persons
unaffiliated with the Company. CAIS, Inc. acquired all of the outstanding
capital stock of Capital Area for approximately $3.07 million. Capital Area
merged with and into CAIS, Inc. in May 1996.
In October 1998, the Company completed a reorganization whereby CAIS, Inc.,
Cleartel Communications, Inc. ("Cleartel") and Cleartel LP became wholly owned
subsidiaries of the Company (the "Reorganization"). The Company issued common
stock in exchange for the ownership of these entities. The Reorganization was
accounted for on a basis similar to a pooling-of-interests, since the Company,
Cleartel, Cleartel LP and CAIS, Inc. were under common ownership.
In February 1999, CGX transferred all of its limited partnership interests
in Cleartel LP to Cleartel and Cleartel LP was dissolved. The Company then
completed the spin-off of Cleartel (the "Spin-off") by means of a distribution
of all of its shares in Cleartel to the Company's stockholders pro rata based
on their percentage ownership of the outstanding shares of the Company. As a
result of the Spin-off, Cleartel ceased to be a subsidiary of the Company. In
addition, CGX changed its name to CAIS Internet, Inc.
Prior to the Reorganization in October 1998, CAIS, Inc. and Cleartel LP were
not subject to federal income taxes since any federal tax effects were passed
through to such entity's S corporation shareholders (as to CAIS, Inc.) or its
partners (as to Cleartel LP). Cleartel LP was subject to state unincorporated
business franchise taxes on any profits in the District of Columbia. In
addition, Cleartel LP has reimbursed its limited partners for any state tax
liabilities related to allocated taxable income. Since the Company is a C
corporation, all earnings and losses generated after the Reorganization are no
longer passed through to the Company's stockholders.
The Spin-off of Cleartel in February 1999 was a taxable transaction.
Accordingly, the Company will be subject to income taxes on the excess of the
fair value of the spun-off assets (stock) over the Company's basis in the
assets distributed. Management believes that the net operating losses available
for carryforward into 1999 together with the losses expected to be generated in
1999 will offset any potential gain for income tax purposes. To the extent that
net operating losses are used to offset the taxable gain upon the Spin-off,
such operating losses will not be available to offset any future operating
income. If carryforward losses are used to offset the gain from the Spin-off,
the Company may be subject to the Alternative Minimum Tax ("AMT"). Any AMT
imposed would be allowed as a credit to offset future regular tax liability.
The Consolidated Financial Statements include the results of operations of
the Company, its wholly owned subsidiary, CAIS, Inc., and Cleartel LP, for the
years ended December 31, 1996, 1997 and 1998 and the balance sheets as of
December 31, 1997 and 1998. The Company's results of continuing operations for
1996 only include operating results from May 11, 1996 (the date of CAIS, Inc.'s
acquisition of Capital Area) through December 31, 1996. The results of Cleartel
LP for these years and the applicable balance sheets at those dates have been
presented as discontinued operations in accordance with Accounting Principles
Board ("APB") Opinion No. 30.
22
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain items
from the Company's Consolidated Statements of Operations and their percentage
of net revenues. Operating results for any period are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
Period from Years Ended December 31,
May 11, 1996 to --------------------------------
December 31, 1996 % 1997 % 1998 %
----------------- --- -------- ---- --------- ----
(in thousands except for percentages)
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Internet Services...... $ 2,410 100% $ 4,556 100% $ 5,278 99%
OverVoice.............. -- -- -- -- 37 1
------- --- -------- ---- --------- ----
Total.................. 2,410 100 4,556 100 5,315 100
------- --- -------- ---- --------- ----
Cost of services:
Internet Services...... 834 35 2,010 44 3,016 57
OverVoice.............. -- -- -- -- 102 2
------- --- -------- ---- --------- ----
Total.................. 834 35 2,010 44 3,118 59
------- --- -------- ---- --------- ----
Operating expenses:
Internet Services...... 2,381 98 6,110 134 9,677 182
OverVoice.............. 97 4 734 16 2,987 56
------- --- -------- ---- --------- ----
Total.................. 2,478 102 6,844 150 12,664 238
------- --- -------- ---- --------- ----
Loss from operations.... (902) (37) (4,298) (94) (10,467) (197)
Interest and other
expense................ 212 9 288 6 1,101 21
------- --- -------- ---- --------- ----
Loss from continuing
operations............. (1,114) (46) (4,586) (100) (11,568) (218)
Income (loss) from
discontinued
operations............. 799 33 1,923 42 (671) (13)
------- --- -------- ---- --------- ----
Net loss................ $ (315) (13)% $ (2,663) (58)% $ (12,239) (231)%
======= === ======== ==== ========= ====
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net revenues. Net revenues for the year ended December 31, 1998 totaled
approximately $5,315,000, compared to approximately $4,556,000 for the year
ended December 31, 1997. Net revenues increased primarily due to an increase of
$793,000 resulting from the sale of dedicated Internet access services and an
increase of $237,000 from the sale of Web hosting services. Both of these
increases were due to an increase in the number of customers for these
services. This increase in net revenues was offset by a decrease in consulting
revenues from $159,000 in 1997 to zero in 1998.
Cost of services. Cost of services for the year ended December 31, 1998
totaled approximately $3,118,000, compared to approximately $2,010,000 for the
year ended December 31, 1997. This increase resulted primarily from an increase
of $944,000 due to the purchase of additional nationwide bandwidth and the
expansion to new geographic locations. The Company also incurred bandwidth and
local connection charges of $102,000 in 1998 for the deployment of OverVoice in
trial properties. There was no OverVoice related cost of services for 1997.
Selling, general and administrative. Selling, general and administrative
expenses for the year ended December 31, 1998 totaled approximately
$10,407,000, compared to approximately $5,550,000 for the year ended December
31, 1997. This increase resulted primarily from increases of $1,101,000
attributable to Internet services payroll, $2,341,000 related to OverVoice
costs (e.g., payroll, market trials and marketing and professional fees and
expenses) and $347,000 for professional fees relating to the Reorganization.
Depreciation and amortization. Depreciation and amortization totaled
approximately $831,000 for the year ended December 31, 1998, compared to
approximately $678,000 for the year ended December 31, 1997. This increase was
attributable primarily to the purchase of capital equipment necessary to
support the expansion of the Company's network.
23
<PAGE>
Non-cash compensation. Non-cash compensation totaled approximately
$1,426,000 for the year ended December 31, 1998, compared to approximately
$616,000 for the year ended December 31, 1997. This increase reflects
amortization of deferred compensation for an entire year in 1998 compared to a
partial year in 1997.
Interest and other expense. Interest and other expense totaled approximately
$1,101,000 for the year ended December 31, 1998, compared to approximately
$288,000 for the year ended December 31, 1997. This increase was attributable
primarily to interest on indebtedness incurred, including amortization of
financing costs relating to the ING Credit Agreement.
Loss from continuing operations. Loss from continuing operations totaled
approximately $11,568,000 for the year ended December 31, 1998, compared to
approximately $4,586,000 for the year ended December 31, 1997, due to the
foregoing factors.
Income (loss) from discontinued operations. Loss from discontinued
operations totaled $671,000 for the year ended December 31, 1998, compared to
income of approximately $1,923,000 for the year ended December 31, 1997. This
decrease in earnings resulted primarily from a reduction in net revenues
generated from operator assisted telephone calls.
Year Ended December 31, 1997 Compared to the Period from May 11, 1996 to
December 31, 1996
Net revenues. Net revenues for the year ended December 31, 1997 totaled
approximately $4,556,000. Net revenues for the year ended December 31, 1996
consisted of approximately $2,410,000 for the period from May 11, 1996 to
December 31, 1996 and approximately $1,287,000 with respect to Capital Area for
the period from January 1, 1996 to May 10, 1996, for a total of approximately
$3,697,000. Net revenues increased primarily due to a $859,000 increase in
sales of dedicated Internet access services, a $250,000 increase in dial-up
revenues and a $60,000 increase resulting from the sale of Web hosting
services. Both of these increases were primarily due to an increase in the
number of customers for these services.
Cost of services. Cost of services for the year ended December 31, 1997
totaled approximately $2,010,000. Cost of services for the year ended December
31, 1996 consisted of approximately $834,000 for the period from May 11, 1996
to December 31, 1996 and $323,000 with respect to Capital Area for the period
from January 1, 1996 to May 1996, for a total of $1,157,000. This increase
resulted primarily from building network redundancy and the purchase of
additional nationwide bandwidth for dedicated access customers.
Selling, general and administrative. Selling, general and administrative
expenses for the year ended December 31, 1997 totaled approximately $5,550,000.
Selling, general and administrative expenses for the year ended December 31,
1996 consisted of approximately $2,126,000 for the period from May 11, 1996 to
December 31, 1996 and $339,000 with respect to Capital Area for the period from
January 1, 1996 to May 10, 1996, for a total of $2,465,000. A major portion of
this increase consisted of an additional $1,559,000 in payroll costs related to
new employees in the areas of sales, operations, and engineering and, to a
lesser extent, various expenditures related to the initial marketing and
development of, and the purchase of $402,000 of market trial equipment for
OverVoice.
Depreciation and amortization. Depreciation and amortization totaled
approximately $678,000 for the year ended December 31, 1997. Depreciation and
amortization for the year ended December 31, 1996 consisted of $352,000 for the
period from May 11, 1996 to December 31, 1996 and $42,000 with respect to
Capital Area for the period from January 1, 1996 to May 10, 1996, for a total
of $394,000. This increase was attributable primarily to the purchase of
capital equipment necessary to support the expansion of the Company's network
and a full year's amortization of goodwill and interest costs relating to the
acquisition of Capital Area in May 1996.
Non-cash compensation. Non-cash compensation totaled approximately $616,000
for the year ended December 31, 1997, reflecting the amortization of deferred
compensation incurred upon the grant of options to purchase shares of the
Company's common stock in 1997 to two executive officers. There was no non-cash
compensation for 1996.
24
<PAGE>
Interest and other expense. Interest and other expense totaled approximately
$288,000 for the year ended December 31, 1997, compared to approximately
$212,000 for the period from May 11, 1996 to December 31, 1996. This increase
was attributable primarily to debt incurred by CAIS, Inc. in May 1996 to
finance the acquisition of Capital Area.
Loss from continuing operations. Loss from continuing operations totaled
approximately $4,586,000 for the year ended December 31, 1997. Loss from
continuing operations for the year ended December 31, 1996 consisted of
$1,114,000 for the period from May 11, 1996 to December 31, 1996 and income of
$585,000 for the period from January 1, 1996 to May 10, 1996 for a total loss
of $529,000, due to the foregoing factors.
Income from discontinued operations. Income from discontinued operations
totaled $1,923,000 for the year ended December 31, 1997, compared to $799,000
for the year ended December 31, 1996. This was due primarily to rate increases
charged to customers for long distance telephone calls.
Liquidity and Capital Resources
To date, the Company has satisfied its cash requirements primarily through
borrowings, the sale of capital stock and internally generated funds. The
Company's continuing operations have been financed in part from operating
profits and cash flows generated from its now discontinued operation (i.e.,
Cleartel). Net cash provided by (used in) operating activities for continuing
operations for the years ended December 31, 1996, 1997 and 1998 was
approximately $804,000, $(97,000) and ($4,939,000), respectively. Cash used in
operating activities in each period was primarily affected by the net losses
caused by increased costs relating to the Company's expansion in infrastructure
and personnel for its Internet-related businesses.
In connection with the acquisition of Capital Area on May 10, 1996 the
Company obtained a $2,000,000 bank loan from First Union National Bank
("FUNB"). Interest on the loan accrued at a rate of prime plus one
and one-half percent, or 9.75% at that date, with payments on a five-year
amortization schedule and a maturity date of May 10, 1999. In October 1996, the
Company and FUNB entered into an interest rate swap agreement in which the
effective interest rate on the remaining principal balance of approximately
$1,833,000 was fixed at 8.65%. In December 1997, the Company refinanced this
loan. This resulted in an increase in the principal balance outstanding at that
time from $1,400,000 to $2,000,000. In addition, the maturity date of the
refinanced note and the swap agreement was extended to December 2000.
In September 1998, the Company, together with CAIS and certain of their
affiliates, entered into a credit agreement, as amended, with ING (U.S.)
Capital Corporation to borrow up to $7,000,000 to repay existing debt with
FUNB, fund the development of the OverVoice program and for general corporate
purposes (the "ING Credit Agreement"). The loans extended under the ING Credit
Agreement bear interest at the one-month LIBOR rate plus 5%. The principal,
premium and interest on any outstanding loan will convert to senior secured
notes bearing interest at a rate of 5% over the 5-year U.S. Treasury Securities
rate if borrowings under the ING Credit Agreement are not repaid by September
4, 1999. The Company is in compliance with the terms of the ING Credit
Agreement. The current outstanding principal balance under the ING Credit
Agreement is $7,000,000.
In February 1999, the Company converted approximately $4.6 million of
indebtedness owed to Ulysses G. Auger, Sr. and Ulysses G. Auger, II into
1,119,679 shares of the Company's Series B Cumulative Mandatory Redeemable
Convertible Preferred Stock, par value $.01 per share (the "Series B Shares").
See "Certain Relationships and Related Party Transactions."
In February 1999, after the Spin-off, the Company issued $11.5 million of
Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A
Shares"). The Company received $3.5 million in cash and an unconditional
promissory note due in March 1999 for the remaining $8 million. The Company
will use $10 million of the proceeds for capital expenditures and general
corporate purposes, with the remaining $1.5 million being used to reduce
outstanding debt owed by the Company to Cleartel. See "Certain Relationships
and Related Party Transactions."
25
<PAGE>
As of February 19, 1999, the Company had cash on hand of approximately
$3,500,000. The Company expects that its cash and financing needs in 1999 can
be met by cash on hand and additional capital financing arrangements (including
the net proceeds of this offering). If such sources of financing are
insufficient or unavailable, or if the Company experiences shortfalls in
anticipated revenue or increases in anticipated expenses, the Company would
curtail the planned roll-out of OverVoice and reduce marketing and development
activities.
Network Capacity. In June 1998, the Company signed a ten-year fiber
agreement with Qwest Communications Corporation ("Qwest"). The agreement calls
for a graduated commitment to purchase $100 million of services over a ten-year
period.
OverVoice License and Royalty Agreement. The Company entered into a license
agreement with Inline Connection Corporation ("Inline") in November 1996,
pursuant to which Inline granted the Company an exclusive license to use, make,
sub-license, or sell the OverVoice technology in hotels and MDUs. We have
minimum annual royalty obligations to Inline which began at $100,000 in 1998
and increase to a maximum of $250,000 during the term of the agreement. Unless
terminated by the Company with thirty days' notice, the agreement remains in
effect through the full life of all existing or future patents related to the
technology or future enhancements. In consideration for meeting the $750,000
compensation benchmark set forth in the license agreement, in January 1999,
Inline assigned the Company a 50% ownership interest in the OverVoice patents
and patent applications covered by the Inline agreement.
Terk Litigation Settlement. On or about August 5, 1997, Inline instituted an
arbitration proceeding against Terk Technologies Corp. ("Terk") to terminate
Inline's contract with Terk, based on Terk's failure to perform under the
contract's best efforts clause. On or about September 24, 1998, Terk
counterclaimed and filed a lawsuit against CAIS, Inc., Ulysses G. Auger, II,
Inline and others, for, among other things, patent infringement of U.S. Patent
No 5 010 399 and other patent properties owned by or assigned to Inline and/or
a principal of Inline. On January 24, 1999, CAIS, Inc., Inline and Terk entered
into a settlement agreement pursuant to which the parties agreed to dismiss the
case against all parties, with prejudice. As a result of the settlement
agreement the Company agreed to pay Terk $500,000. $250,000 of the payment was
made in February 1999, an additional $150,000 is payable on or before July 1,
1999, and the remaining $100,000 is payable on or before July 1, 2000. The
Company also agreed to issue Terk 25,000 shares of common stock and to issue
additional shares if the 25,000 shares, multiplied by the price at which shares
are issued in this offering, does not equal or exceed $250,000. In exchange,
Terk and Inline modified their contract changing Terk's license from exclusive
to nonexclusive and eliminating Terk's ability to sublicense. As a result, the
Company now has the right to install the OverVoice technology in single family
residences and the exclusive right to sublicense such technology to third
parties.
The Company from time to time engages in discussions involving potential
business acquisitions. Depending on the circumstances, the Company may not
disclose material acquisitions until completion of a definitive agreement. The
Company may determine to raise additional debt or equity capital to finance
potential acquisitions and/or to fund accelerated growth. Any significant
acquisitions or increases in the Company's growth rate could materially affect
the Company's operating and financial expectations and results, liquidity and
capital resources.
Year 2000 Issues
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the Year 2000 is
approached and reached. Our failure to correct a material Year 2000 problem
could result in an interruption in, or a failure of, certain of our normal
business activities or operations. During 1998, we established a Year 2000
compliance program to coordinate appropriate activity and report to our Board
of Directors with regard to Year 2000 issues. We continue to assess the impact
of Year 2000 issues on our internal computer, operational and financial
systems, and to review with our key vendors and suppliers, the compliance of
their systems with Year 2000 processing requirements. We currently believe that
our most
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<PAGE>
reasonably likely worst case scenario related to the Year 2000 is associated
with potential concerns with our customers' and suppliers' Internet operations.
The failure of such parties to ensure Year 2000 compliance would lead to
decreased Internet usage and the delay or inability to obtain necessary data
communication and telecommunication capacity.
During the year ended December 31, 1998, the Company spent over $1.4 million
for capital expenditures related to the upgrade and continuing build-out of its
technical operations and network. The Company believes that all of this
equipment is Year 2000 compliant. We expect to incur additional costs in 1999
to implement the remainder of our Year 2000 program, and we believe that these
amounts will not be material. In addition, we expect to acquire a new billing
and customer care system as part of our business strategy, which the Company
believes will also be Year 2000 compliant. These additional costs are based on
our best estimates and, in our opinion, will not have a material adverse effect
on our business, financial condition and results of operations. If the actual
costs of implementing our Year 2000 program significantly exceed our estimates,
it may have a material adverse effect on our business, financial condition or
results of operations.
There can be no assurance that we will be able to timely and successfully
modify our products, services and systems to be Year 2000 compliant. If we fail
to do so, it may have a material adverse effect on our business, financial
condition or results of operations. Currently, we do not have a contingency
plan if our systems fail as a result of Year 2000 related issues.
27
<PAGE>
BUSINESS
Overview
CAIS Internet, Inc. is a tier one Internet Service Provider ("ISP"). We
focus on providing the most cost-effective, dedicated high-speed Internet
connections to commercial and residential customers primarily using DSL and our
patented OverVoice technology. We offer our commercial customers dedicated
high-speed Internet access, including our new HyperDSL services that we
currently provide with Covad Communications Company ("Covad") and Bell
Atlantic. Additionally, our OverVoice technology enables us to offer a multi-
user, dedicated high-speed Internet solution to residential customers by
creating an Ethernet local area network in a hotel, MDU or single family home
more cost-effectively than alternative technologies, including cable modems,
DSL services or Category 5 ("CAT5") rewiring upgrades.
We use our OverVoice technology to simultaneously transmit voice and data
over a single traditional copper telephone line at speeds of up to 300 times
those of conventional 28.8k dial-up modems. This enables an OverVoice user to
have both dedicated high-speed Internet access and complete use of the
telephone at the same time over one telephone line. By combining the OverVoice
technology with any dedicated high-speed Internet connection, such as DSL, T-1
or wireless, we can provide a single, dedicated high-speed Internet connection
that can be shared simultaneously among many users in an MDU building, hotel or
single family home. Today, we believe that the economies of scale associated
with the OverVoice technology are most obvious when providing high-speed
Internet access to concentrated residential communities such as MDUs and
hotels.
Although our primary focus for OverVoice initially will be on the hotel and
MDU markets, we believe that the demand for high-speed Internet access in
single family homes and the trend toward using more than one personal computer
at home, will also make OverVoice the most cost-effective solution for
providing dedicated high-speed Internet access in single family homes and for
"home networking." As of February 15, 1999, we have installed the OverVoice
technology in over 1,900 apartment units in 15 MDU buildings and in over 1,900
guest rooms in eight hotels. Additionally, we have signed an agreement for the
nationwide roll-out of OverVoice with Hilton Hotels Corporation ("Hilton") and
an agreement with OnePoint Communications Corp. ("OnePoint") to install
OverVoice in certain MDU buildings where OnePoint has agreements to provide
Internet and other communications services.
Industry Background
Internet access and enhanced Internet services represent two of the fastest
growing segments of the telecommunications services marketplace. According to
industry estimates, the number of Internet users in the United States who
access the World Wide Web reached approximately 29.2 million in 1997 and is
forecasted to grow to approximately 72.1 million by the year 2000. According to
International Data Corporation, total ISP revenues in the United States are
projected to grow from $4.6 billion in 1997 to $18.3 billion in 2000.
Currently, individuals most commonly access the Internet through a dial-up
service. However, dial-up access has several drawbacks including:
. delays when down-loading data and images from the Internet;
. requiring that a user pay both its ISP for Internet access and its
telephone company for the local call;
. frequent busy signals;
. mid-use cut-offs (drops) from service;
. long connection delays; and
. loss of the use of the customer's phone line service while accessing the
Internet.
Due to the inconveniences of dial-up Internet service, most businesses that
are large enough to justify the costs opt for a dedicated high-speed Internet
connection, such as a T-1. Smaller businesses are also moving rapidly toward
high-speed access solutions as newer technologies like DSL become available.
However, until
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recently, high-speed Internet access has been unavailable to most single family
and multifamily homes and to hotel guests due to the cost and difficulty of
implementing such service.
Demand is ever increasing for cost-effective, high-speed Internet
connectivity in the hotel, business and residential communities. Internet usage
continues to be stimulated by the increasing number of Web sites, the
increasing sophistication of Internet browsers and software applications, and
the proliferation of bandwidth-intensive information (such as streaming video
and audio) published on the Internet. Increased Internet use and the
availability of powerful new tools for the development and distribution of
Internet content have led to an explosion of Internet-based services, such as
advertising, online magazines, specialized news feeds, interactive games and
educational and entertainment applications, that are increasingly incorporating
multimedia information such as video and near-CD-quality audio clips. The
Internet has the potential to become a platform through which consumers and
businesses easily access rich multimedia information and entertainment,
creating new sources of revenue for advertisers, content providers and
businesses. The infrastructure necessary to support this greater bandwidth, and
the resulting multimedia applications, is the threshold issue to realizing the
potential of the Internet as a medium for communication, education,
entertainment and commerce.
We believe that increased demand and evolving technology make the hotel and
MDU markets attractive for high-speed dedicated Internet access. The economies
of scale present in the hotel and MDU markets create the opportunity to price
high-speed dedicated Internet access services at levels comparable to current
dial-up services. The increasing use by hotel guests of dial-up Internet access
is overloading many hotels' phone systems. This has resulted in increasing
service problems and heightened concerns for the safety of hotel guests (and
the hotel's associated liability) who may be unable to obtain help promptly in
an emergency. As a result, hotels are increasingly confronted with the
expensive option of upgrading their private branch exchange (PBX) switches to
handle the increased traffic. In addition, many MDU property owners believe
high-speed Internet access is an attractive building amenity for enhancing
rental and occupancy rates.
Major hotel chains and MDU property owners are currently evaluating
alternative solutions to meet the need for faster Internet connections and
simultaneous voice and data transmission. Examples of such solutions are:
. second phone lines and more powerful telecommunications switching
systems (PBX) within a building, which are very costly and fail to
address the need for higher connection speeds;
. CAT5 rewiring, which involves the labor and capital intensive solution
of rewiring a building, resulting in significant cost, construction,
disturbance and time; and
. high speed technologies, including DSL and cable modems, which are less
expensive than comparable T-1 connections, but require a separate DSL or
cable modem for each personal computer or laptop connection in a home,
apartment unit or hotel room. While these and other technologies exist,
to date none has been widely deployed as a solution for high-speed
Internet connectivity.
THE OVERVOICE SOLUTION
We believe that our OverVoice technology is the most cost-effective,
dedicated high-speed Internet solution for hotel guests and MDU residents. We
also believe OverVoice to be the most cost-effective solution for providing
dedicated high-speed Internet access in single family homes and for "home-
networking."
We use our OverVoice technology to simultaneously transmit voice and data
over a single copper telephone line at speeds of up to 300 times those of
conventional 28.8k dial-up modems. This enables an OverVoice user to have both
dedicated high-speed Internet access and complete use of the telephone at the
same time over one traditional telephone line. While we believe DSL technology
is the most cost-effective high-speed Internet solution available to our
commercial customers today, we believe that its point-to-point nature (i.e.,
each Internet user requiring an expensive DSL modem and therefore his own
Internet connection) significantly impedes its widespread deployment in the
residential market. OverVoice's point-to-multipoint technology enables us to
create an Ethernet local area network within a hotel, MDU building or single
family home. By combining our OverVoice technology with any dedicated high-
speed Internet connection, such as DSL, T-1 or wireless, we can
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<PAGE>
provide a single high-speed Internet connection which can be shared
simultaneously among many users in a hotel, MDU building or single family home.
Our OverVoice technology allows the coexistence of multiple signals (voice,
data and, in the future, video) on the same wire, by protecting the natural
frequency range of each signal from interference with the other signals. The
pictorial below demonstrates how, through the use of OverVoice technology,
voice, data and video can co-exist simultaneously on a single traditional
copper wire.
[GRAPH APPEARS HERE]
Standard telephone service (POTS - Plain Old Telephone Service) operates
between 0 and 5KHz, while standard 10baseT Ethernet (which is the standard for
most of the world's local area networks) operates between 3 and 15MHz. The
future video signal will operate between 15 and 30 MHz.
In hotels and MDUs, the OverVoice solution requires only a retrofit with
OverVoice equipment in the telephone closet and the installation of proprietary
OverVoice telephone jacks in each hotel guest room or apartment unit. The
OverVoice passive circuitry uses electronic filters to separate signals at the
control unit and at each wall jack. The OverVoice wall jack has two ports, one
which connects to the telephone and the other which connects to an Ethernet
adapter card inside the user's computer.
The OverVoice wall jack has two ports, one which connects to the telephone
and the other which connects to an Ethernet adapter card inside the user's
computer. Ethernet is the standard networking protocol used to create local
area networks. To connect to a local area network, computers require an
Ethernet adapter card, which is a standard supplemental hardware device that
can easily be installed into most computers and typically costs approximately
$50. In most cases, an Ethernet card is required for any high speed Internet
connectivity, including T1, cable modem or DSL services.
The Company also expects in the near future to offer a universal serial bus
("USB") connectivity option for OverVoice. The USB is a new standard plug-in
protocol being integrated into most new computers (i.e., a new port to plug in
devices, such as printers). With a USB connection, the user will have the
ability to connect directly to an Ethernet network without an Ethernet adapter
card.
The Company is in the final stages of developing the OverVoice DeskJack to
be installed in hotel guest rooms. The OverVoice DeskJack has both Ethernet and
USB connections, thereby allowing hotel guests to choose the connection method
that best suits their needs. Its highly visible, step-by-step instructions
direct the hotel guest through the log-on page to the CAIS Internet promotional
home page.
We can install the OverVoice technology in an average-sized hotel or MDU
building (300 units) for approximately $225 per hotel guest room or apartment
unit, which we believe is less than half the cost of any competing technology.
In addition, we can install OverVoice in a hotel or MDU building with very
minimal disruption to the property owners, hotel guests or MDU residents.
MARKET OPPORTUNITY
We believe that the domestic hotel segment represents a significant market
opportunity for the Company. Nationwide, we estimate that as of December 31,
1997, there were 49,000 hotel properties with a total of 3.8
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million hotel rooms. In the top ten hotel markets we estimate that there were
more than 3,600 properties with a total of 630,000 rooms. During the initial
roll-out of our OverVoice technology, we will focus on larger hotels and those
most likely to cater to business travelers. According to the American Hotel and
Motel Association, as of December 31, 1997, hotel properties with 300 or more
rooms represented 3.0% of all hotel properties, but 20.8% of total hotel rooms.
Examples of the companies operating within this segment include familiar hotel
chains such as Hilton, Sheraton, Hyatt, Wyndham, Westin and Marriott.
We believe that the domestic MDU segment is another highly promising market
for OverVoice. As of November 1998, approximately 30% of the U.S. population,
or over 81 million people, lived in MDUs and there were over four million
apartment units in buildings with 50 or more units. In the top ten U.S.
metropolitan markets alone, there were over two million apartment units in such
buildings. Within those markets, we intend to initially target Class A and B
buildings, whose residents typically have higher incomes and are more likely to
be Internet users. Within the top ten U.S. metropolitan markets, as of December
31, 1997, there were approximately 2.2 million apartment units in Class A and B
buildings.
Although we intend to initially roll-out our OverVoice technology in the
United States, we believe that international markets represent another
significant opportunity. International demand for Internet access is expected
to increase as a result of a number of factors, including worldwide economic
growth, global deregulation of the telecommunications market, technological
advancements and the introduction of new services. Outside the United States,
we estimate that as of January 1, 1998, there were over 250,000 hotel
properties comprising 8 million hotel rooms.
We believe that the single family home market offers a significant
opportunity for OverVoice in the future. According to industry sources, as of
December 1998, 38% of U.S. households with Internet access have at least two
personal computers. We believe that the demand for simultaneous high-speed
Internet access and interoperability between multiple personal computers in a
single family home or MDU will further increase the demand for OverVoice.
Approximately 99% of single family homes in the United States have standard
copper telephone wire that can support home networking using OverVoice.
National Contracts and Long-Term Commitments
Hilton Hotels Corporation. On December 23, 1998, we entered into a master
agreement with Hilton, under which Hilton agreed to license us the right to
offer high-speed Internet access service in certain guest rooms, meeting rooms
and other areas in specified Hilton hotels throughout the United States. In
order to participate, each Hilton hotel must enter into an addendum to the
master agreement. As of February 19, 1999, 142 Hilton-owned, managed or
franchised hotels have notified Hilton that they intend to sign an addendum to
participate under the terms of the master agreement.
The initial term of the agreement is for either two or three years,
depending on the total room count of the specific Hilton hotel, with an option
for a multi-year extension. Under the agreement, we are responsible for the
costs of installing, maintaining and operating all necessary equipment, and as
a result we will incur significant up-front costs. See "Risk Factors--Some Of
Our Contracts Are Nonexclusive And We May Not Be Able To Recover Our
Installation Costs."
OnePoint Communications Corp. In April 1998, we entered into a trial
agreement with OnePoint, a provider of communications and entertainment
services to residents in MDUs. Under this trial agreement, we installed
OverVoice in fourteen buildings within four complexes.
We recently entered into a seven-year contract with OnePoint to install our
OverVoice technology. Under this agreement, we anticipate that we will install
OverVoice in a minimum of 30 MDU buildings with approximately 10,000 units.
Additionally, together with OnePoint, we will market high-speed Internet
service to approximately 300 additional MDU buildings where OnePoint has a
preferential right of entry to provide Internet and other communications
services.
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Under the agreement, the Company generally bears all of the costs of
providing Internet services to the MDU and receives 90% to 98% of the net
revenues from the sale of services, with OnePoint receiving the remaining
revenues. OnePoint has the option of contributing 25% of the costs of providing
Internet services to specified MDU buildings. In those circumstances,
OnePoint's share of net revenues would range from 15% to 25%.
Ongoing Trials
As set forth in the following tables, as of February 15, 1999, we have
ongoing agreements for the installation of OverVoice technology in 15 MDU
buildings and 13 hotels across the United States. OverVoice systems already are
fully installed and operating on a trial basis in 8 hotels and 15 MDU
buildings. We typically initiate a 90 to 120 day trial with a major hotel chain
or MDU real estate investment trust ("REIT") with the goal of signing a long-
term contract.
HOTELS
<TABLE>
<CAPTION>
Number of Units Target
Property Location Committed to Trial Installation Date Completion Date
- -------- -------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Washington Marriott..... Washington, D.C. 418 6/1/98
Embassy Square.......... Washington, D.C. 232 4/29/98
Bellevue Courtyard...... Bellevue, WA 131 5/6/98
Sea Tac Marriott........ Seattle, WA 459 6/15/98
La Jolla Marriott....... La Jolla, CA 360 5/22/98
Anaheim Hilton.......... Anaheim, CA 20 12/98
Las Colinas
Wyndham(/1/)........... Irving, TX 185 7/30/98
Sunnyvale Wyndham(/1/).. Sunnyvale, CA 179 7/30/98
Metro Marriott.......... Washington, D.C. 163 3/99
Westin Peachtree
Plaza(/2/)............. Atlanta, GA 200 4/99
The Washington Court
Hotel.................. Washington, D.C. 264 3/31/99
Westin Innisbrook(/2/).. Palm Harbor, FL 200 3/99
BWI Airport
Marriott(/2/).......... Baltimore, MD 200 5/1/99
</TABLE>
- --------
(1) The trial period for these properties concluded in December 1998. We are
currently negotiating a long-term contract for these properties.
(2) These properties are owned by Starwood Hotels and Resorts Worldwide, Inc.
and are the first of up to six properties which will be installed in
accordance with the Starwood trial agreement.
MDUs
<TABLE>
<CAPTION>
Number of
Property Location Installed Units Completion Date
- -------- -------- --------------- ---------------
<S> <C> <C> <C>
Arlington Court House......... Arlington, VA 396 3/31/98
Lincoln Towers................ Arlington, VA 673 6/8/98
Water Park Towers............. Arlington, VA 323 7/98
Springfield Station (5
buildings)................... Springfield, VA 280 7/98
Summit Fair Lakes (7
buildings)................... Fairfax, VA 280 12/17/98
</TABLE>
Business Strategy
Our objective is to become a leading national provider of dedicated high-
speed Internet services. The following are key elements of our business
strategy to achieve this objective:
Offer the Most Cost-Effective, Dedicated High-Speed Internet Access to Our
Customers. We believe our OverVoice technology is the most cost-effective,
dedicated high-speed Internet solution for hotel guests and MDU residents. In
addition, we believe OverVoice is less expensive to install than competing
technologies,
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such as DSL, cable modems and CAT5 rewiring. We use our OverVoice technology to
deliver T-1 or higher Internet access speeds to hotel rooms and apartment
units, while allowing the user to simultaneously access voice services on the
telephone. We also focus on providing the most cost-effective, dedicated high-
speed Internet access for commercial customers through our HyperDSL services,
which we are currently rolling-out with Covad and Bell Atlantic.
Roll-out Our OverVoice Technology Nationwide. Our goal is to make our
OverVoice technology the de facto high-speed Internet access standard in hotels
and MDUs. We intend to continue to penetrate the hotel and MDU markets through
both direct sales and strategic relationships. We have signed an agreement for
the roll-out of OverVoice with Hilton hotels throughout North America. In
addition, we are currently rolling-out OverVoice to MDUs with OnePoint. We have
currently installed OverVoice in selected properties of Marriott International
(including Marriott and Courtyard) and Patriot American (including Wyndham
hotels and Summerfield Suites). Installations are pending with Starwood Hotels
and Resorts Worldwide, Inc. (including Sheraton and Westin hotels) and Harbaugh
Hotel Corp.
Attract End-Users in Hotels and MDUs. We intend to stimulate the demand for
our OverVoice services among hotel guests by making dedicated high-speed
Internet access simple and affordable. In hotel rooms, the OverVoice DeskJack
(an access device into which hotel guests plug their laptop computer), with its
highly visible, step-by-step instructions, makes accessing the Internet quick
and easy. We also believe that the use of OverVoice services in hotel meeting
rooms will further increase the awareness of, and demand for, our services in
hotel guest rooms by business travelers who gain exposure while in the meeting
room. Our OverVoice technology allows us to offer MDU residents multiple
Internet connection speeds at different price points, under our rate shaper
program. This program allows us to offer an MDU resident dedicated high-speed
Internet access at an entry level connection speed and price. We are then able
to upgrade the service to meet the user's demand for faster Internet connection
speeds.
Accelerate the Roll-out of Our HyperDSL Services. We have initiated the
roll-out of a new dedicated, high-speed Internet access service using DSL
technology under the name HyperDSL. Unlike traditional forms of dedicated
Internet access, DSL uses the customer's existing copper voice telephone wire
to deliver high-speed Internet service. We believe DSL technology currently
represents the most economical dedicated high-speed Internet solution for
commercial customers. In addition, we believe that DSL technology, used in
conjunction with OverVoice, provides the most cost-effective Internet solution
for single-family residences requiring multiple points of access.
Expand Our Internet Backbone. We operate a nationwide clear channel DS-3,
OC-3 and asynchronous transfer mode network and have peering agreements with
most of the major backbone providers to exchange Internet traffic over their
respective networks. We currently maintain six points of presence ("POPs") in
Washington, D.C., McLean, VA, New York, San Francisco, Baltimore and Chicago.
We intend to add at least ten additional POPs in major metropolitan areas such
as Dallas, Philadelphia, Phoenix, Los Angeles, Seattle, Atlanta, Miami and
Orlando by the end of 1999. In addition, in June 1998, we signed a ten-year
fiber agreement with Qwest, under which we have access to all of Qwest's POPs
nationwide, which totaled 130 as of February 15, 1999. We intend to continue to
evaluate strategic relationships and acquisitions that will allow us to further
expand this network.
Leverage the OverVoice Platform to Deliver Future Services and Products. The
OverVoice platform creates a cost-effective Ethernet local area network in a
hotel, MDU building or single family residence. This platform enables us to
deliver a variety of broadband services and products to our customers. We are
developing a broad array of services and products including Internet protocol
telephony, video conferencing, traditional video services, high definition
television (HDTV) and digital audio radio. We intend to expand our service and
product offerings through internal research and development, and by acquiring
complementary businesses and technologies.
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Services
The Company currently offers a variety of services under two brand names as
illustrated by the following table:
<TABLE>
<CAPTION>
Brand Service Lines Pricing
----- ------------------------------------- ----------------------------
<S> <C> <C>
OverVoice............... Hotel Guest Room Service $7.95 to $14.95 per 24 hours
Hotel Meeting Room Service Varies by property
MDU Service $24.95 to $49.95 per month
CAIS Internet........... HyperDSL $57.95 to $699 per month
Web Hosting $69 to $295 per month
Dedicated Access
Fractional DS-3 to full DS-3 $5,500 to $30,000 per month
Fractional T-1 to full T-1 $695 to $1,750 per month
Dial-Up and Other Narrowband Services $24.95 to $250 per month
</TABLE>
The following subsections describe each of our brand names and their
related product lines.
OverVoice Services
Hotel Guest Room Service. We provide OverVoice services to hotel guests by
placing our OverVoice DeskJack (pictured below) beside the telephone. The
OverVoice DeskJack provides simple, step-by-step directions on how to access
the Internet. The guest first plugs an Ethernet-enabled, or USB-enabled,
laptop into an Ethernet port or USB port within the OverVoice DeskJack. Once
connected, the guest launches the Web browser, logs-on to the OverVoice server
and is launched on to the Internet starting at the CAIS Internet promotional
home page. The guest will have dedicated high-speed Internet access and may
leave the laptop connected to the Internet for the duration of the stay, all
while having the option to simultaneously talk on the same telephone line. A
hotel guest is typically charged between $7.95 and $14.95 per 24-hour stay in
a hotel, comparable to that of in-room hotel entertainment services.
. Highly visible in-room
marketing
The OverVoice DeskJack . Ethernet card or USB port
connectivity
. Step-by-step simple
instructions
[PICTURE OF OVERVOICE DESK JACK]
Meeting Room Service. Hotels typically have dedicated sales staff to
solicit meeting room business. As corporate and independent meeting planners
have particular needs, hotels offer meeting room customers a menu of
facilities, including Internet services, guest room availability and food
services. Once the planner has selected a particular hotel, hotel sales books
the meeting room and arranges for the particular add-ons requested. A turn key
marketing program for hotel sales staff will assist them in selling OverVoice
Internet access to currently booked and prospective corporate meeting
customers.
Prior to the availability of OverVoice, corporate meeting planners and
hotel facilities generally had only two options for providing Internet
services. The first option is dial-up Internet access, which has several
drawbacks including: (1) delays when down-loading data and images, (2)
frequent busy signals, (3) dropped connections, and (4) long connection
delays. The second option is to make special arrangements for a temporary
dedicated high-speed Internet connection which: (1) typically takes up to 60
days to order; and (2) usually requires a minimum 1-month commitment and the
payment of installation fees, which is very expensive.
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By installing OverVoice in the meeting and conference areas, a cost-
effective and simple to use high-speed Internet solution is immediately
available to the property staff, the corporate meeting planner and meeting room
guests. The user simply connects the Ethernet-enabled computer to the OverVoice
wall jack in the room. The user then has dedicated high-speed Internet access
at various price points and is able to simply launch the Web browser and access
all Internet applications. Once connected, the OverVoice server prompts the
property management system to bill the user for the appropriate Internet
connection charge. We anticipate that hotels will be able to offer this
instantaneous, high-speed Internet connection for corporate meetings at a
fraction of the current cost of establishing a dedicated connection. We believe
that the meeting room program will also increase OverVoice brand recognition
and credibility among business travelers who gain exposure to the technology
while in the meeting room.
MDU Service. Once an apartment or condominium building is installed with the
high-speed OverVoice technology, we can provide Internet access to all of its
residents. Prior to launching OverVoice in a particular building, we generally
pre-market the service to residents through building management, using flyers
and direct mailings. We also typically have a marketing day in the building
during which we distribute marketing materials, demonstrate the system and
answer questions. Once OverVoice is installed, the resident simply connects the
Ethernet-enabled computer to the OverVoice wall jack in the apartment unit. The
resident then has dedicated high-speed Internet access and is able to launch
the Web browser and access all Internet applications. Our rate shaping server
allows us to tailor the speed of the user's Internet connection and to offer
multiple connection speeds at different price points. An MDU resident is
typically charged between $24.95 and $49.95 per month for OverVoice service,
depending upon the transmission speed choice.
We believe that our pricing is extremely competitive with typical $19.95 to
$21.95 per month dial-up services. In order for a resident to enjoy
simultaneous voice and data transmission, a dial-up user must incur the cost of
a second phone line and is limited to the much slower access speeds of
traditional dial-up modems. While cable modems and DSL allow high-speed
dedicated access, both involve equipment costs to the provider well in excess
of those of the OverVoice solution. In addition, unlike cable modems and DSL,
OverVoice enables the user to have multiple points of access within one unit on
a cost-effective basis.
CAIS Internet Services
The primary services we offer are HyperDSL, Web hosting, dedicated access
and dial-up access. As of February 15, 1999, we had over 370 dedicated access
subscribers and over 500 Web hosting customers.
HyperDSL Services. We have initiated the roll-out of a new dedicated, high-
speed Internet access service using DSL technology under the name HyperDSL.
Unlike traditional forms of dedicated Internet access, DSL services use the
customer's existing copper voice telephone wire to deliver high-speed Internet
access.
HyperLINK DSL is our consumer-grade DSL service for the residential,
home office and small business markets. We currently provide the service in
conjunction with Bell Atlantic. After a two-year trial with Bell Atlantic,
HyperLINK DSL was introduced in the Washington, D.C. metro area. In 1999,
we intend to enter eight additional major metropolitan areas, including
Baltimore, New York, Philadelphia, Chicago, Dallas, San Fransisco, Miami
and Los Angeles. HyperLINK DSL services currently range in price from
$57.95 to $187.95 per month. Installation fees are approximately $425,
which includes approximately $325 for the purchase of a required DSL modem.
HyperLAN DSL is our DSL service for the small and medium-sized business
markets, which we currently offer jointly with Covad. We believe that
HyperLAN DSL will be attractive to business customers who traditionally
have been unwilling to pay the higher costs of conventional dedicated high-
speed Internet access. In addition, we believe that this service will
attract customers who currently incur the cost of high-speed Internet
access and who will now for a comparable cost be able to significantly
increase their bandwidth. We currently offer this service in Washington,
D.C. In 1999, we intend to enter eight additional major metropolitan areas,
including Baltimore, New York, Philadelphia, Chicago, Dallas, San
Fransisco, Miami and Los Angeles. Under the terms of our agreement with
Covad, we co-develop and implement
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targeted marketing and advertising programs to stimulate sales. HyperLAN
DSL services range in price from $129 to $699 per month. Installation fees,
including equipment, generally range from $999 to $1,099.
Web Hosting Service. Web hosting can be defined as housing a customer's Web
pages on our servers. Web hosting is an ideal solution for customers who want
to "publish" Web pages on the Internet without purchasing, configuring,
maintaining and administering the necessary sophisticated hardware and
software. Due to economies of scale, we can generally offer Web hosting
solutions far more sophisticated than customers can provide for themselves. Our
staff of Internet engineers and system administrators enables us to offer
multiple platforms for Web hosting. These hosting servers are located within
our POP infrastructure and make use of multiple high bandwidth connections to
the Internet backbone. File structure directories, domain name registration and
security privileges are set-up for customers on our hosting servers, thus
enabling customers to remotely "publish" their content for distribution over
the Internet. In addition, we provide network and systems administration and
maintenance, tape back-ups and security. Web hosting services range in price
from $69 to $295 per month.
High-Speed Dedicated Access Service. We provide dedicated access services to
other ISPs and commercial customers. See "--Customers." This type of
connectivity is generally used to connect local area networks, wide area
networks or server applications to the Internet, ensuring a dedicated
connection. These services include a wide range of connectivity options
tailored to the requirements of the customer, including: T-1 (1.54 Mbps) or
fractional T-1 connections and DS-3 (45 Mbps) or fractional DS-3 connections.
Dedicated services range in price from $695 to $30,000 per month depending on
the connection type. Installation fees generally range from $300 to $5,000.
Dial-Up and Other Narrowband Services. We offer high-quality, digital dial-
up, dedicated dial-up, integrated services digital network connections (ISDN)
and dedicated integrated services digital network connections, with Internet
access speeds up to 128 Kbps. These are primarily amenity services provided to
dedicated access services customers upon request, but are not marketed
generally. Dial-up and other narrowband services range in price from $24.95 to
$250 per month.
New Products and Services
We intend to continue expanding the OverVoice product line as well as
introducing additional integrated communications services that leverage the
convergence of voice and data communications. Because OverVoice is a point-to-
multipoint distribution technology, we believe that it is particularly well-
suited for a wide array of existing and new applications, including Internet
protocol telephony services, laser disk video services, digital audio radio and
high definition television (HDTV). We will continue to research and develop new
products and services to be offered in the future, using the OverVoice
technology.
Sales and Marketing
OverVoice. We market OverVoice services primarily through our direct sales
group which: (1) focuses on securing hotel chains' endorsements of OverVoice as
the preferred Internet infrastructure solution for the chain's properties, and
(2) sells directly to hotel properties owned or managed by the hotel chain and
to hotel chain franchisees. In addition, we are continuing to aggressively
pursue opportunities to increase OverVoice awareness within the hospitality and
MDU industries. We participate in major industry trade shows and events such as
HITEC (Hospitality Industry Technology Exposition and Conference), IH/M&RS
(International Hotel, Motel and Restaurant Show), NAREIT (National Association
of Real Estate Investment Trusts) Annual Convention and COMNET (Communications
Network).
We also continue to identify strategic partners that have existing
relationships with hotel chains, MDUs and MDU/REITs for the installation and
maintenance of various communications services in these properties. This allows
us to package OverVoice in a pre-existing "bundle" of services, thus providing
the opportunity to maximize in-building penetration rates. We believe that by
working directly with hotel chains, REITS and carefully selected strategic
partners, OverVoice will become the industry standard Internet infrastructure
solution.
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CAIS Internet. We offer Internet services to ISPs, commercial dedicated
accounts and small and medium-sized businesses using a direct sales force.
Direct mail and print advertising is utilized to both further
generate sales leads and to build awareness of the Company and our services. In
addition, we are regularly featured in the Boardwatch directory of national
Internet backbone providers and exhibit at select trade shows. With respect to
dial-up and other narrowband services, leads are handled on a "demand only"
basis by a technical support division. Finally, public relations efforts and a
routine program of press releases and contacts are conducted to focus attention
on the Company in the print, on-line and TV media.
Customers
OverVoice. The ultimate customers for our services are hotel guests and MDU
residents. In the hotel market, we primarily target the frequent business
traveler with a laptop computer who needs to be connected to the Internet. We
believe that our OverVoice technology overcomes the connection problems that
these customers currently encounter with dial-up service while enabling them to
use the same telephone line for conversations and Internet access
simultaneously. In the MDU market, we target individuals in Class A and B
apartment buildings who typically already own a personal computer and have some
experience with the Internet and/or on-line services.
CAIS Internet. As a tier one ISP, we have historically offered dedicated
Internet access to tier two ISPs in the Washington, D.C. metro area and select
international markets. As of February 15, 1999, we continue to provide
dedicated Internet connections to more than 50 ISPs in the Washington, D.C.
area and 5 international ISPs in Europe, Latin America and Asia. Over the past
year, we have actively sought to diversify our dedicated customer base to
commercial and other institutional accounts, while maintaining a presence in
the ISP market. As of February 15, 1999, we had 324 business customers for
high-speed dedicated Internet access. We also maintain a base of over 3,200
dial-up and other narrowband accounts, though this is not a market we actively
pursue. Furthermore, we have developed a base of more than 500 small and
medium-sized businesses as Web site hosting customers since June 1997.
For the fiscal year ended December 31, 1998, one customer, Hongkong Telecom,
accounted for 15% of the Company's consolidated net revenues.
Customer Service
Our Customer and Account Management division provides comprehensive customer
support. The division consists of three principal departments: Customer
Support, Technical Support and Account Management. As of February 15, 1999,
this division consisted of 34 persons. We intend to continue to emphasize
customer support for the nationwide roll-out of OverVoice and our HyperDSL
services.
The Customer Support and Technical Support departments maintain quality
service standards and respond to customer inquiries 24 hours a day, 365 days a
year. Established standards are continuously monitored and evaluated through
detailed trouble tickets, phone logs, bandwidth utilization reports, server
log-in reports as well as network and service up time reports. Our technical
support representatives are trained in an effort to ensure superior customer
service. The Technical Support department is further strengthened by a network
operations center, located in McLean, VA, which continuously monitors our
network and supporting infrastructure. We are currently building a second
network operations center in our corporate headquarters in Washington, D.C. The
new network operations center will utilize state-of-the-art network monitoring
and will include remote capabilities. Once the second network operations center
is complete, we will continue to maintain the McLean, VA network operations
center as a redundant facility. The Account Management department acts as a
single point of contact for major account customers for the coordination,
management and implementation of all of our services.
Network Topology
Our infrastructure is a nationwide clear-channel DS-3, OC-3 and asynchronous
transfer mode network. We provide high-speed Internet access from our POPs to
commercial and residential customers through dedicated
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high-capacity leased lines over local exchange facilities. In June 1998, we
entered into a 10-year fiber agreement with Qwest, under which we have access
to all of Qwest's POPs nationwide, which totaled 130 as of February 15, 1999.
Access to these POPs enables us to provide OverVoice services to customers
throughout the country. We are migrating our existing asynchronous transfer
mode backbone links to the Qwest fiber network.
We currently maintain six POPs in Washington, D.C., McLean, VA, New York,
San Francisco, Baltimore, and Chicago. By the end of 1999 we intend to have at
least 10 additional POPs located within the following cities: Dallas, Boston,
Philadelphia, Phoenix, Los Angeles, Seattle, Houston, Atlanta, Miami and
Orlando. The network is monitored 24 hours per day, 365 days per year from our
network operations center in McLean, VA.
We maintain private and public peering arrangements with most major ISPs. We
will continue to add additional private and public peering, as necessary to
deliver the highest quality of service to our customers.
Suppliers
Equipment Procurement and Manufacturing. Q-TEL Subsidiary of GTE Codetel
("Q-Tel"), the manufacturing subsidiary of Compania Dominicana de Telefonos, c.
por a. (also known as GTE Codetel, a wholly owned subsidiary of GTE Corporation
) has begun production of 10,000 OverVoice control units. Q-Tel is an offshore
manufacturing facility that performs functions for major U.S. telecom equipment
providers such as Lucent Technologies and Nortel Networks, Inc. Currently, Q-
Tel is able to produce the control units for substantially less than domestic
manufacturers. The initial shipment is expected to be delivered by mid-March.
Equipment Warehousing, Distribution and Installation. We intend to support
the nationwide roll-out of OverVoice through strategic relationships with
warehousing, distribution and installation companies. We have entered into an
agreement with Farnor Enterprises, Inc. to receive, barcode, warehouse and
distribute nationally OverVoice equipment inventory. We have made arrangements
with AmeriLink d/b/a NaCom, Volt Information Sciences, Inc. and MasTec, Inc. to
perform national OverVoice installation functions. All three of these companies
have experience in handling thousands of work orders per week, have attended
OverVoice installation training provided by The Siemon Company and are
designated as Certified Installers of the Siemon Cabling System. We believe
that these relationships will enable us to deploy OverVoice under large
national contracts promptly and on a cost-effective basis.
The OverVoice technology is economical, easy to implement and does not
involve a disruptive installation procedure. We can install the OverVoice
technology in an average size hotel or MDU (300 units) in two to three weeks
for approximately $225 per hotel guest room or apartment unit. Installation can
be accomplished at full occupancy, as the in-room installation time is only 10-
15 minutes per room.
Competition
We operate in a highly competitive environment for each of our lines of
business and we believe that competition is increasing. The competitive
environments for our different lines of business are as follows:
OverVoice. We face several major groups of competitors in the business of
providing high-speed Internet access to hotels and MDUs. These include local
exchange carriers and other DSL providers, cable TV companies and other
providers using cable modems, and installation firms that deploy CAT5 rewiring
in hotels and MDUs. Although we believe OverVoice is the most cost-effective,
user-friendly and easily deployable high-speed Internet infrastructure solution
available, several of our competitors have extensive marketplace presence and
much greater technological and financial resources than we possess.
In addition, the OverVoice technology also competes with technologies using
other transmission media, such as coaxial cable, wireless facilities and fiber
optic cable. To the extent that telecommunications service providers, hotels,
MDUs or single family residences choose to install any of these alternative
transmission media, demand for OverVoice may decline.
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CAIS Internet. Because the Internet services market has no substantial
barriers to entry, we expect that competition will continue to intensify. Our
principal competitors include other tier one national backbone providers such
as UUNET Technologies, Inc., PSINet Inc. and BBN (a GTE subsidiary). To a
lesser extent, we also compete for dedicated and dial-up access and Web
services business with regional, tier two ISPs and cable companies that operate
in the same geographic markets that we serve. Accordingly, we expect the market
for Internet access services to continue to grow and to be highly competitive
with a variety of regional and national players vying for new business. In many
instances, we compete directly with our downstream tier two ISP customers.
Eventually, we expect some form of a market consolidation to occur, with those
ISPs that furnish the most value-added solutions ultimately surviving.
Government Regulation; Potential Taxes
We provide Internet access, in part, through transmissions over public
telephone lines. These transmissions are governed by regulatory policies
establishing charges and terms for communications. As an ISP, we are not
currently subject to direct regulation by the Federal Communications Commission
(the "FCC") or any other agency, other than regulations applicable to
businesses generally. In a report to Congress adopted on April 10, 1998, the
FCC reaffirmed that ISPs should be classified as unregulated "information
service providers" rather than regulated "telecommunications providers" under
the terms of the Telecommunications Act of 1996, as amended.
This finding is important because it means that we are not subject to
regulations that apply to telephone companies and similar carriers. We also are
not required to contribute a percentage of our gross revenues to support
"universal service" subsidies for local telephone services and other public
policy objectives, such as enhanced communications systems for schools,
libraries and certain health care providers. Although there can be no
assurance, the FCC action may also discourage states from separately regulating
ISPs as telecommunications carriers or imposing similar subsidy obligations.
Nevertheless, Internet-related regulatory policies are continuing to
develop, and it is possible that we could be exposed to regulation in the
future. For example, in the same report to Congress, the FCC stated its
intention to consider whether to regulate voice and fax telephony services
provided over the Internet as "telecommunications" even though Internet access
itself would not be regulated. The FCC is also considering whether such
Internet-based telephone service should be subject to universal service support
obligations, or pay carrier access charges on the same basis as traditional
telecommunications companies.
Local telephone companies assess access charges to long distance companies
for the use of the local telephone network to originate and terminate long
distance calls, generally on a per-minute basis. Access charges have been a
matter of continuing dispute, with long distance companies complaining that the
rates are substantially in excess of cost, and local telephone companies
arguing that access rates are justified to subsidize lower local rates for end
users and other purposes. Both local and long distance companies, however,
contend that Internet-based telephony should be subject to these charges. We
have no current plans to install gateway equipment and offer telephony, and so
we do not believe we would be directly affected by these developments. However,
we cannot predict whether these debates will cause the FCC to reconsider its
current policy of not regulating ISPs.
In addition, a number of state and local government officials have asserted
the right or indicated a willingness to impose taxes on Internet-related
services and commerce, including sales, use and access taxes. We cannot
accurately predict whether the imposition of any such taxes would have a
material adverse effect on our business, financial condition or results of
operations.
Patents and Other Proprietary Information
We are a licensee and joint-owner of certain patents and patent applications
of Inline relating to the OverVoice technology. We, together with Inline, have
a total of two U.S. patents and nine U.S. patent applications. Two of these
nine patent applications have recently been allowed and, therefore, are
expected to become patents in the next few months.
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The first U.S. patent granted relates to transmission of video over active
voice telephone wires. Related patents have also been obtained in Canada,
Germany, France and the United Kingdom. In addition, an application was
recently allowed in South Korea and a divisional application was filed in
Europe.
The second U.S. patent granted relates to some or all aspects of the
following systems, among others:
. provision of high-speed Internet service through the communication of
Ethernet signals over the active telephone wiring in residences, hotels,
apartment buildings and similar structures;
. provision of video services over the telephone wiring in the same
structures;
. provision of WebTV-type services over the telephone wiring in these
structures;
. creation of a standard Ethernet network, using existing telephone
wiring, among all personal computers in a structure; and
. communication of Ethernet signals over 1,000 feet over a single active
telephone line.
Novel ideas are embodied in many of the different parts that make up these
systems. Among these parts are:
. different electronic processes for converting the video and data
signals;
. special connectors that are easy to install, convenient to use and
promote smooth signal flow across the wiring;
. different arrangements of the components to facilitate the operation of
the systems; and
. special "command and control" procedures that help implement the
different applications.
Of the two allowed applications, one is a continuation of the first U.S.
patent and the other describes new features related to communication of video
and data over active telephone wires. These additional features are also
embodied in applications filed by Inline in Israel and under the Patent
Cooperation Treaty, and in applications we have filed in Canada, Europe,
Mexico, Australia and New Zealand.
Inline Agreement. We have a license agreement with Inline, pursuant to which
Inline granted us rights to all patents and patent applications relating to the
OverVoice technology (the "Patent Rights"). In the United States, we have the
exclusive right to make, use and sell the OverVoice technology for all
structures except for single family residential units and certain food
establishments, for which we have non-exclusive rights. We further have the
exclusive right to make, use and sell under all foreign patents and patent
applications relating to the OverVoice technology for all structures except for
single family residential units and certain food establishments, for which we
have non-exclusive rights, with the exception of Israel, which Inline reserved
for itself.
We own 50% of all U.S. and foreign (with the exception of Israel) patents
and patent applications relating to the OverVoice technology. We own the patent
applications we filed in Canada, Europe, Mexico, Australia and New Zealand.
Inline retains the authority to control prosecution and maintenance of the
Patent Rights, except for the patent applications we own. However, if Inline
decides not to: (1) file a patent application; (2) prevent a patent application
from being abandoned; or (3) keep a patent or application in force, we may
elect to have Inline assign the patent, application or invention to us. We have
the right to enforce the Patent Rights against potential infringers, although
we must share any recovery with Inline.
Legal Proceedings
We are not a party to any lawsuit or proceeding which, in the opinion of our
management, is likely to have a material adverse effect on our business,
financial condition or results of operation.
Employees
As of February 15, 1999, we employed approximately 109 full-time employees.
In addition to our full-time employees, we also employ part-time personnel from
time to time in various departments. None of our
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employees are covered by a collective bargaining agreement. We believe that our
employee relations are satisfactory. See "Risk Factors--We May Not Be Able To
Manage Our Potential Rapid Growth And Expansion Effectively."
Properties
Our principal executive offices are located in Washington, D.C. In addition
to our corporate headquarters, we lease office space in a number of locations
across the United States. We do not believe that any of these locations are
material to our operations. The leases expire at various times between December
31, 1999 and February 15, 2009.
<TABLE>
<CAPTION>
Location Type Square Footage
- -------- ------ --------------
<S> <C> <C>
McLean, Virginia.......................................... Office 7,033
McLean, Virginia.......................................... Office 1,566
Washington, D.C........................................... Office 32,500
</TABLE>
We consider that, in general, our physical properties are well maintained,
in good operating condition and adequate for our purposes.
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MANAGEMENT
Officers, Directors and Other Key Employees
The officers, directors and other key employees of the Company, and their
ages as of February 15, 1999 are set forth below.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Ulysses G. Auger, II(2)........... 46 Chairman of the Board and Chief
Executive Officer
William M. Caldwell, IV........... 51 President and Director
Evans K. Anderson................. 51 Chief Operating Officer and Executive
President of Sales and Marketing
Richard W. Durkee................. 42 Vice President of Information Technology
and Operations
Barton R. Groh.................... 45 Vice President, Chief Financial Officer
and Treasurer
Michael G. Plantamura............. 43 Vice President, Secretary and General
Counsel
Laura A. Neuman................... 33 Vice President of Sales
Duncan M. Fitchet, Jr. ........... 44 Vice President of Marketing and Business
Development
Tara Pierson Dunning.............. 35 Vice President of Customer and Account
Management of CAIS, Inc.
Ulysses G. Auger, Sr.............. 77 Director
Richard F. Levin(1)(2)............ 45 Director
Vernon L. Fotheringham(1)(2)...... 50 Director
R. Theodore Ammon................. 49 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Ulysses G. Auger, II has served as the Chairman of the Board and Chief
Executive Officer of the Company since January 1998. Mr. Auger has an extensive
background in the telecommunications industry, and is a three-term member of
the Board of Directors of Comptel, a telecommunications industry trade
association with approximately 225 member companies. Until February 1999, Mr.
Auger chaired Comptel's IP Committee, which was formed to address Internet
issues affecting the telecommunications industry. In 1987, Mr. Auger founded
Cleartel and has served as a director since July 1987. Mr. Auger also served as
President of Cleartel from August 1987 to June 1988, and then again from June
1990 to February 1999. In addition, Mr. Auger has served as President and a
Board Member of CAIS, Inc. since May 1996, and assumed the roles of Chairman of
the Board and Chief Executive Officer of CAIS, Inc. in January 1998. Mr. Auger
is the son of Ulysses G. Auger, Sr., a director of the Company.
William M. Caldwell, IV has served as a member of the Board of Directors of
the Company since January 1998 and of CAIS, Inc. since May 1996, as the
Company's Vice Chairman from January 1998 to February 1999 and as the Company's
and CAIS, Inc.'s President since February 1999. Mr. Caldwell also served as the
Vice Chairman of CAIS, Inc. and Cleartel from September 1997 to February 1999.
Since June 1995, Mr. Caldwell also has served as a member of the Board of
Directors of Cleartel. Mr. Caldwell has an extensive background in the areas of
marketing, financial management, investment banking and general corporate
management. Prior to joining CAIS, Inc. and Cleartel, from 1993 to August 1997,
Mr. Caldwell served as President of Digital Satellite Broadcasting Corporation.
Prior to 1993, Mr. Caldwell founded The Union Jack Group, an investment banking
advisory firm, and served as a Vice President in Corporate Finance at Kidder
Peabody. In addition, Mr. Caldwell
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also has served as both President and Chief Financial Officer of Van Vorst
Industries, an international home furnishing manufacturer; as Vice President of
Marketing for Flying Tiger Line, Inc., one of the world's largest all-cargo air
carriers before its acquisition by Federal Express Corporation; and a
consultant with Booz Allen, Hamilton Inc. Mr. Caldwell currently sits on the
Board of directors for both Lee Pharmaceuticals and King Koil Franchising, Inc.
Evans K. Anderson has served as the Chief Operating Officer and Executive
Vice President of Sales and Marketing of the Company and CAIS, Inc. since
February 1999. Prior to that, he served as the Company's and CAIS Inc.'s Senior
Vice President of Sales and Marketing and the General Manager of CAIS, Inc.
from January 1998 to February 1999. Mr. Anderson also has served as a member of
the Board of Directors of CAIS, Inc. since December 1997. In addition, from
June 1998 to February 1999, Mr. Anderson served as Cleartel's Senior Vice
President of Sales and Marketing. Mr. Anderson brings 20 years of experience in
the telecommunications and related industries and is currently responsible for
all of the Company's and CAIS, Inc.'s sales and marketing functions and for
CAIS, Inc.'s overall management, including customer service, technical support,
OverVoice operations and account management. Prior to joining CAIS, Inc., from
March 1996 to March 1997, Mr. Anderson served as Director of Sales for the
Northeast region for Advanced Radio Telecom, a leading provider of advanced
38GHz digital wireless technology. From January 1993 to February 1996, Mr.
Anderson was a principal in Vitel International, Inc., a nationwide provider of
sales and distribution for Airborne Express and telecommunications products.
Prior to 1993, Mr. Anderson held the position of Executive Vice President of
Sales and Marketing at Oncor Communications, a communications company, where he
was responsible for the sales, marketing and customer service functions. Prior
to that, Mr. Anderson served as Director of Sales with Contel Texocom, a
national distributor of telecommunications equipment, and held various sales
and management positions with ITT U.S.T.S. and Sprint Communications Company,
L.P.
Richard W. Durkee has served as the Company's Vice President of Information
Technology and Operations since September 1998. Mr. Durkee also has served as
CAIS, Inc.'s Vice President of Information Technology and Operations since
September 1998, and served in the same capacity at Cleartel from September 1998
to February 1999. Mr. Durkee has over 20 years of experience in Systems and
Network Development, Operations and Management. Prior to joining the Company,
from April 1996 to September 1998, Mr. Durkee served as Director of Information
Technology for ORBCOMM Global, L.P., a global messaging and data communications
company. From March 1995 to March 1996, Mr. Durkee served as Vice President,
Information Technology and Network Operations, for GTS/Global Link, a
facilities based provider of telecommunications services. From June 1989 to
February 1995, Mr. Durkee served as Director of Information Systems for Oncor
Communications, Inc.
Barton R. Groh has served as the Company's Vice President, Chief Financial
Officer and Treasurer since January 1998. Mr. Groh also has served as CAIS,
Inc.'s Vice President and Chief Financial Officer since May 1996, as CAIS,
Inc.'s Assistant Secretary since December 1996, and as CAIS, Inc.'s Treasurer
since December 1997. Mr. Groh joined Cleartel in July 1989 as Director of
Finance and Administration and served as Cleartel's Vice President and Chief
Financial Officer from June 1992 to February 1999. In addition, Mr. Groh served
as Cleartel's Assistant Secretary from June 1993 to February 1999 and as
Cleartel's Treasurer from June 1998 to February 1999. Prior to joining
Cleartel, Mr. Groh held positions as a Senior Auditor with Price Waterhouse
from 1974 to 1979, as an accounting manager with Comsat Corporation from 1979
to 1987, and as Controller, Franchise Operations with Entre Computer Centers
from 1987 to 1989. Mr. Groh is a Certified Public Accountant.
Michael G. Plantamura has served as the Company's Vice President, Secretary
and General Counsel since January 1998. Mr. Plantamura also has served as Vice
President and General Counsel of CAIS, Inc. since September 1996, and as CAIS,
Inc.'s Secretary since December 1997. From September 1996 to February 1999, Mr.
Plantamura served as Vice President and General Counsel of Cleartel and as
Cleartel's Secretary from June 1998 to February 1999. Mr. Plantamura is
currently responsible for all of the Company's and CAIS, Inc.'s legal,
regulatory, human resources, corporate, contract and litigation issues. From
April 1996 to September 1996, Mr. Plantamura served as Cleartel's Director of
Legal and Regulatory Affairs, and from May 1996 to September 1996, Mr.
Plantamura held the same position at CAIS, Inc. From December 1986 to March
1996, Mr. Plantamura served as in-house General Counsel for WBDC-TV50,
Washington, D.C. and WUNI-TV27, Worcester/Boston, MA.
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Laura A. Neuman has served as the Company's Vice President of Sales since
June 1998. Ms. Neuman's responsibilities include sales team development,
revenue generation, negotiating contracts and developing partnerships. Ms.
Neuman joined CAIS, Inc. in October 1997 as Director of OverVoice Development
and since June 1998 she has served as Vice President of Sales for CAIS Internet
and OverVoice. Prior to joining CAIS, Inc., from February 1997 to October 1997,
Ms. Neuman served as Channel Sales Manager for DIGEX Inc., an Internet service
provider. From October 1996 to January 1997, Ms. Neuman operated her own
independent consulting business. From January 1994 to September 1996, Ms.
Neuman served as Major Relationships Manager and Manager--Account Management
for National Data Corporation.
Duncan M. Fitchet, Jr. has served as the Company's Vice President of
Marketing and Business Development since January 1998. Mr. Fitchet also has
served as Vice President of Marketing and Business Development for CAIS, Inc.
since January 1997, and held the same position at Cleartel from January 1997 to
February 1999. Mr. Fitchet's responsibilities include strategic planning and
marketing strategies, product management, market research, product and service
promotions, public relations and marketing communications activities. From May
1996 to December 1996, Mr. Fitchet served as Director of Marketing and Business
Development for CAIS, Inc., and from August 1995 to December 1996, Mr. Fitchet
held the same position at Cleartel. Prior to joining Cleartel, from June 1991
to August 1995, Mr. Fitchet served as Senior Group Product Manager at GTE
Telephone Operations.
Tara Pierson Dunning has served as CAIS, Inc.'s Vice President of Customer
and Account Management since September 1998. Previously, Ms. Dunning served as
Director of Marketing for the Company from January 1998 to September 1998;
Director of Marketing for CAIS, Inc. and Cleartel from October 1997 to
September 1998; Director of Business Development for CAIS, Inc. and Cleartel
from January 1997 to October 1997; and as Manager of Business Development for
CAIS, Inc. and Cleartel from September 1996 to December 1996. Prior to joining
CAIS, Inc. and Cleartel, from September 1993 to September 1996, Ms. Dunning
founded and served as Vice President of Marketing for New Vision
Communications.
Ulysses G. Auger, Sr. has served as a member of the Board of Directors of
the Company since December 1997. Mr. Auger served as Secretary, Treasurer and a
director of Cleartel from June 1993 to June 1998. From April 1996 to December
1997, Mr. Auger served as Secretary, Treasurer and a director of CAIS, Inc. Mr.
Auger is a private investor and entrepeneur who founded the nationally renowned
Blackie's House of Beef in 1946. Mr. Auger's financial interests include
hotels, commercial real estate and Mid-Atlantic region restaurants. Mr. Auger,
Sr. is the father of Ulysses G. Auger, II, the Chairman of the Board and Chief
Executive Officer of the Company.
Richard F. Levin has served as a member of the Board of Directors of the
Company since December 1997. Mr. Levin also served as a member of the Board of
Directors of Cleartel from June 1995 to June 1998. Mr. Levin is a partner in
the Washington, D.C. law firm of Grossberg, Yochelson, Fox and Beyda, where he
has practiced since 1979.
Vernon L. Fotheringham has served as a member of the Board of Directors of
the Company since January 1999. Mr. Fotheringham has served as Chairman,
President and Chief Executive Officer of Nutel Corporation since August 1998.
From December 1995 to August 1998, Mr. Fotheringham served as Chairman and
Chief Executive Officer of Advanced Radio Telecom. Prior to that, from April
1993 to December 1995, Mr. Fotheringham served as President and Chief Executive
Officer of Norcom Networks Corporation, a nationwide provider of mobile
satellite services. Over the last ten years, Mr. Fotheringham has advised
several businesses in the telecommunications industry, including American
Mobile Satellite Corporation, ClairCom Communications and McCaw Cellular
Communications, Inc.
R. Theodore Ammon has served as a member of the Board of Directors of the
Company since February 1999. Mr. Ammon has served as the Chairman of the Board
of Big Flower Holdings, Inc. (and predecessors) since its inception in 1993 and
was the Chief Executive Officer of a Big Flower Holdings, Inc. predecessor from
inception until April 1997. Mr. Ammon is also a director of Big Flower Press
Holdings, Inc., a subsidiary of Big Flower Holdings, Inc. Mr. Ammon was a
General Partner of Kohlberg Kravis Roberts & Co. from 1990
44
<PAGE>
to 1992, and an executive of such firm prior to 1990. Mr. Ammon is also a
member of the Board of Directors of Host Marriott Corporation and Chairman of
the Board of Directors of 24/7 Media, Inc. In addition, Mr. Ammon serves on the
Board of Directors of the New York YMCA, The Municipal Art Society of New York,
Jazz@Lincoln Center and on the Board of Trustees of Bucknell University.
All officers serve at the discretion of the Board.
Board Committees
The Board has established an Audit Committee and a Compensation Committee.
The Audit Committee will review the results and scope of the audit and other
services provided by the Company's independent accountants and consists of
Messrs. Auger, II, Levin and Fotheringham. The Compensation Committee will
approve salaries and certain incentive compensation for management and key
employees of the Company and administer the Company's Amended and Restated 1998
Equity Incentive Plan and consists of Messrs. Levin and Fotheringham.
Executive Compensation
The following table sets forth certain summary information concerning
compensation for services in all capacities awarded to, earned by or paid to,
the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company, whose aggregate cash and cash
equivalent compensation exceeded $100,000 (collectively, the "Named Officers"),
with respect to the fiscal year ended December 31, 1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
-------------------------------------------- ------------
Other Securities All
Salary Bonus Annual Underlying Other
Name and Principal Position Year ($) ($) Compensation($)(1) Options(#) Compensation
- --------------------------- ----- -------- ------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ulysses G. Auger, II..... 1998 $280,140 $28,000 -- -- --
Chairman of the Board
and
Chief Executive Officer
William M. Caldwell, IV.. 1998 237,498(2) -- -- 1,733,075(3) --
President and Director
Evans K. Anderson........ 1998 179,956 -- -- 437,220(4) --
Chief Operating Officer
and Executive Vice
President
of Sales and Marketing
Laura A. Neuman.......... 1998 148,076 50,000 -- 60,000(5) --
Vice President of Sales
of CAIS, Inc.
Duncan M. Fitchet, Jr. .. 1998 127,961 10,000 -- 40,000(6) --
Vice President of
Marketing
and Business Development
</TABLE>
- --------
(1) Each of the Company's officers received perquisites and other personal
benefits in addition to salary and bonuses. The aggregate amount of such
perquisites and other personal benefits, however, does not exceed the
lesser of $50,000 or 10% of the total of the annual salary and bonus
reported for any of the Named Officers for 1998.
(2) Mr. Caldwell received a base salary of $206,922 and $30,576 in deferred
income during 1998.
(3) In exchange for Mr. Caldwell's ownership interest in CAIS, Inc., Mr.
Caldwell was awarded options to purchase 97,465 shares of the Company's
common stock at an exercise price of $.9732 per share. In connection with
his employment agreement, Mr. Caldwell was awarded options to purchase
1,635,610 shares of the Company's common stock at an exercise price of
$.9732 per share.
45
<PAGE>
(4) Mr. Anderson was awarded options to purchase 100,000 shares of the
Company's common stock at an exercise price of $3.07 per share on April 15,
1998. In connection with his employment agreement. Mr. Anderson was awarded
options to purchase 301,420 shares of the Company's common stock at an
exercise price of $1.1942 per share. On December 10, 1998, pursuant to the
1998 Equity Incentive Plan, Mr. Anderson was awarded options to purchase
35,800 shares of the Company's common stock, at an exercise price of $4.31
per share.
(5) Ms. Neuman was awarded options to purchase 20,000 shares of the Company's
common stock, at an exercise price of $3.07 per share, on April 15, 1998
and options to purchase 40,000 shares of the Company's common stock at the
same exercise price per share on June 29, 1998.
(6) Mr. Fitchet was awarded options to purchase 40,000 shares of the Company's
common stock, at an exercise price of $3.07 per share, on April 15, 1998.
The following table sets forth certain information regarding options to
acquire common stock granted to the Named Officers with respect to the fiscal
year ended December 31, 1998. There were no stock appreciation rights granted
in 1998.
Options Granted in Fiscal Year 1998
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed
Annual
Rates of
Stock Price
Percent of Appreciation for
Total Options Exercise Option Term(1)
Options Granted in Price Expiration ----------------------
Name Granted Fiscal Year ($/sh) Date 5%($) 10%($)
---- --------- ------------- -------- ----------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ulysses G. Auger, II..... -- -- -- -- -- --
William M. Caldwell, IV.. 97,465(2) 3.3% $ .9732 October 2, 2008 $ 392,540 $ 97,464
1,635,610(3) 54.6 .9732 October 2, 2008 6,587,419 11,432,260
Evans K. Anderson........ 100,000 3.3 3.07 April 15, 2008 193,070 489,280
301,420(4) 10.1 1.1942 October 2, 2008 1,147,355 2,040,191
35,800 1.3 4.31 December 10, 2008 97,036 245,910
Laura A. Neuman.......... 20,000 .7 3.07 April 15, 2008 38,614 97,856
40,000 1.3 3.07 June 29, 2008 77,228 195,712
Duncan M. Fitchet, Jr. .. 40,000 1.3 3.07 April 15, 2008 77,228 195,712
</TABLE>
- --------
(1) The dollar amounts under these columns are the results of calculations at
assumed rates of stock appreciation of 5% and 10%. These assumed rates of
growth were selected for illustration purposes only. They are not intended
to forecast possible future appreciation, if any, of stock prices. No gain
to the optionees is possible without an increase in stock prices, which
will benefit all stockholders.
(2) In exchange for Mr. Caldwell's ownership interest in CAIS, Inc., on October
2, 1998, Mr. Caldwell was awarded options to purchase 97,465 shares of the
Company's common stock at an exercise price of $.9732 per share.
(3) In connection with his employment agreement, Mr. Caldwell was awarded
options to purchase 1,635,610 shares of the Company's common stock at an
exercise price of $.9732 per share.
(4) In connection with his employment agreement, Mr. Anderson was awarded
options to purchase 301,420 shares of the Company's common stock at an
exercise price of $1.1942 per share.
46
<PAGE>
FISCAL YEAR END OPTION VALUES
The following table sets forth certain information regarding unexercised
options held by the Named Officers with respect to the fiscal year ended
December 31, 1998. There were no options exercised in 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
--------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
Ulysses G. Auger, II.... -- -- -- --
William M. Caldwell,
IV..................... -- 1,733,075 -- $5,782,924
Evans K. Anderson....... -- 437,220 -- 1,063,164
Laura A. Neuman......... -- 60,000 -- 74,400
Duncan M. Fitchet,
Jr. ................... -- 40,000 -- 49,600
</TABLE>
- --------
(1) The calculations of the value of unexercised options are based on the
difference between the fair market value per share of the common stock on
December 31, 1998 ($4.31), and the exercise price of each option,
multiplied by the number of shares covered by the option.
EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
On September 8, 1997, the Company entered into an employment agreement with
William M. Caldwell, IV. The agreement, as amended, provides that Mr. Caldwell
will be employed as the Company's President. The term of the agreement is for a
period of four years commencing on September 8, 1997. The agreement establishes
a base salary of $175,000 per annum. Such base salary is subject to such
periodic increase as the Company may determine. If the Company terminates Mr.
Caldwell's employment without cause, Mr. Caldwell shall be entitled to receive
nine months of his then current base salary. The agreement contains non-
competition and non-solicitation covenants which prohibit Mr. Caldwell, during
the term of his employment and for a period of 24 months thereafter, from
engaging in competition with the Company or from soliciting any of the
Company's customers. The agreement also prohibits Mr. Caldwell from disclosing
confidential or proprietary information of the Company. In connection with his
employment agreement, Mr. Caldwell was granted options for 1,635,610 shares of
the Company's common stock at an exercise price of $.9732 per share, of which
50% of the options vest after Mr. Caldwell's third employment year and 50% of
the options vest at the end of Mr. Caldwell's fourth employment year. As a
result of this offering, however, 75% of the options will vest on the day the
underwriting agreement relating to an initial public offering is signed and 25%
of the options will vest at the end of Mr. Caldwell's fourth employment year.
On June 3, 1997, the Company entered into an employment agreement with Evans
K. Anderson. The agreement, as amended, provides that Mr. Anderson will be
employed as the Company's Chief Operating Officer and Executive Vice President
of Sales and Marketing. The term of the agreement is for a period of four years
commencing on March 3, 1997. The agreement established an initial base salary
of $125,000 per annum, and as of November 1, 1997, a base salary of $150,000
per annum. Such base salary is subject to such periodic increase as the Company
may determine. If the Company terminates Mr. Anderson's employment without
cause, Mr. Anderson shall be entitled to receive nine months of his then
current base salary. The agreement contains non-competition and non-
solicitation covenants which prohibit Mr. Anderson, during the term of his
employment and for a period of twenty-four months thereafter, from engaging in
competition with the Company or from soliciting any of the Company's customers.
The agreement also prohibits Mr. Anderson from disclosing confidential or
proprietary information of the Company. In connection with his employment
agreement. Mr. Anderson was granted options to purchase 301,420 shares of the
Company's common stock at an exercise price of $1.1942 per share, of which one
third of the options vest after Mr. Anderson's third employment year and the
remaining two-thirds of the options vest at the end of Mr. Anderson's fourth
employment year. As a result of this offering, however, one third of the
options will vest on the day the underwriting agreement relating to an initial
public offering is signed and two-thirds of the options will vest at the end of
Mr. Anderson's fourth employment year.
47
<PAGE>
On June 29, 1998, the Company entered into an employment agreement with
Laura A. Neuman. The agreement provides that Ms. Neuman will be employed as the
Company's Vice President of Sales. The term of the agreement is for a period of
one year commencing on June 29, 1998. Ms. Neuman and the Company may extend the
term of the agreement by mutual consent. The agreement establishes a base
salary of $150,000 per annum. Such base salary is subject to such periodic
increase as the Company may determine. In addition, the agreement entitles Ms.
Neuman to receive cash incentive compensation of $25,000 per quarter for
achieving a minimum of 70% of the Company's budgeted performance target.
Subject to vesting and forfeiture provisions contained therein, the agreement
further grants Ms. Neuman options to purchase 40,000 shares of the Company's
common stock at an exercise price of $3.07 per share. As a result of this
offering, however, one eighth of the options (5,000) will vest on the day the
underwriting agreement relating to an initial public offering is signed. If the
Company terminates Ms. Neuman's employment without cause, Ms. Neuman shall be
entitled to receive six months of her then current base salary, plus a pro-
rated amount equal to six months of the calculated cash incentive compensation
immediately upon such termination. The agreement contains non-competition and
non-solicitation covenants which prohibit Ms. Neuman, during the term of her
employment and for a period of 24 months thereafter, from engaging in
competition with the Company or from soliciting any of the Company's customers.
The agreement also prohibits Ms. Neuman from disclosing confidential or
proprietary information of the Company.
AMENDED AND RESTATED STOCK OPTION PLAN
On February 12, 1999, the Board of Directors of the Company adopted and the
stockholders of the Company approved the Amended and Restated 1998 Equity
Incentive Plan (the "Stock Option Plan"), which provides for the grant to
officers, key employees and directors of the Company and its subsidiaries of
both "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and stock options that
are nonqualified for federal income tax purposes. The total number of shares
for which options may be granted pursuant to the Stock Option Plan and the
maximum number of shares for which options may be granted to any person is
1,500,000 shares, subject to certain adjustments reflecting changes in the
Company's capitalization. As of February 15, 1999, options to purchase
1,180,800 shares of the Company's common stock were outstanding under the Stock
Option Plan. The Stock Option Plan is currently administered by the Company's
Board of Directors. Upon the completion of this offering, the Stock Option Plan
will be administered by the Compensation Committee. The Compensation Committee
will determine, among other things, which officers, employees and directors
will receive options under the plan, the time when options will be granted, the
type of option (incentive stock options, nonqualified stock options, or both)
to be granted, the number of shares subject to each option, the time or times
when the options will become exercisable, and, subject to certain conditions
discussed below, the option price and duration.
The exercise price of incentive and nonqualified stock options will be
determined by the Compensation Committee, but may not be less than the fair
market value of the common stock on the date of grant and the term of any such
option may not exceed ten years from the date of grant. With respect to any
Stock Option Plan participant who owns stock representing more than 10% of the
voting power of all classes of the outstanding capital stock of the Company or
of its subsidiaries, the exercise price of any incentive stock option may not
be less than 110% of the fair market value of such shares on the date of grant
and the term of such option may not exceed five years from the date of grant.
Payment of the option price may be made in cash or, with the approval of the
Compensation Committee, in shares of common stock having a fair market value in
the aggregate equal to the option price. Options granted pursuant to the Stock
Option Plan are not transferable, except by will or the laws of descent and
distribution. During an optionee's lifetime, the option is exercisable only by
the optionee.
The Compensation Committee has the right at any time and from time to time
to amend or modify the Stock Option Plan, without the consent of the Company's
stockholders or optionees; provided, that no such
48
<PAGE>
action may adversely affect options previously granted without the optionee's
consent, and provided further that no such action, without the approval of a
majority of the stockholders of the Company, may increase the total number of
shares of common stock which may be purchased pursuant to options under the
plan, increase the total number of shares of common stock which may be
purchased pursuant to options under the plan by any person, expand the class of
persons eligible to receive grants of options under the plan, decrease the
minimum option price, extend the maximum term of options granted under the
plan, extend the term of the plan or change the performance criteria on which
the granting of options is based.
Promptly after the completion of this offering, the Company expects to file
with the SEC a registration statement on Form S-8 covering the shares of common
stock underlying the options granted under the Stock Option Plan and other
compensatory plans and arrangements.
DIRECTORS AND OFFICERS INSURANCE
Upon the closing of this offering, the Company intends to obtain directors
and officers liability and company reimbursement insurance. Under the policy,
the insurance carrier will pay, on behalf of directors and officers of the
Company, certain losses incurred as a result of certain wrongful acts by such
persons, for which they would not otherwise be indemnified by the Company.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's capital stock after giving effect to the offering
by:
. each person known by the Company to beneficially own 5% or more of any
class of the Company's capital stock;
. each director of the Company;
. each executive officer of the Company that is a Named Officer; and
. all directors and executive officers of the Company as a group.
All persons listed have an address in care of the Company's principal
executive offices and have sole voting and investment power with respect to
their shares unless otherwise indicated. All information with respect to
beneficial ownership has been furnished to the Company by the respective
stockholders of the Company.
<TABLE>
<CAPTION>
Shares Beneficially
Owned after Offering(/1/)
----------------------------------
Common Stock
----------------------------------
Name Number Percent
---- ---------------- -------------
<S> <C> <C>
Ulysses G. Auger, II........................... 4,824,214(2) %
William M. Caldwell, IV........................ 1,324,173(3)
Evans K. Anderson.............................. 134,323(4)
Laura A. Neuman................................ 11,660(5)
Duncan M. Fitchet, Jr. ........................ 13,320(6)
Ulysses G. Auger, Sr. ......................... 4,726,758(7)
Richard F. Levin............................... 15,000(8)
Vernon L. Fotheringham......................... 15,000(8)
R. Theodore Ammon.............................. 2,775,480(9)
All executive officers and directors as a group
(13 persons).................................. 13,975,808(10)
</TABLE>
- --------
* Less than 1%
(1) Under the SEC's rules, a person is deemed to be the beneficial owner of a
security if such person has or shares the power to vote or direct the
voting of such security or the power to dispose or direct the disposition
of such security. A person is also deemed to be a beneficial owner of a
security if that person has the right to acquire beneficial ownership
within 60 days. Accordingly, more than one person may be deemed to be a
beneficial owner of the same security. Unless otherwise indicated by
footnote, the named entities or individuals have sole voting and investment
power with respect to the shares of common stock beneficially owned.
(2) Includes shares issuable upon the conversion of the remaining outstanding
Series B Shares upon consummation of the offering.
(3) Includes 1,324,173 shares which may be acquired upon the exercise of
options exercisable within 60 days following the offering.
(4) Includes 134,323 shares which may be acquired upon the exercise of options
exercisable within 60 days following the offering.
(5) Includes 11,660 shares which may be acquired upon the exercise of options
exercisable within 60 days following the offering.
(6) Includes 13,320 shares which may be acquired upon the exercise of options
exercisable within 60 days following the offering.
(7) Includes shares issuable upon the conversion of the remaining outstanding
Series B Shares upon consummation of the offering.
(8) Includes 15,000 shares which are currently exercisable.
(9) Includes 2,458,407 Series A Shares.
(10) Includes shares issuable upon the conversion of the remaining
outstanding Series B Shares upon consummation of the offering.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Organization of the Company
The Company is a closely held corporation. It was organized under Delaware
law in December 1997 under the name CGX Communications, Inc., as a holding
company. The Company changed its name to CAIS Internet, Inc. in February 1999.
CAIS, Inc., currently the Company's only subsidiary, was formed by certain
current stockholders of the Company to acquire Capital Area, a tier one ISP
that was owned by persons unaffiliated with the Company.
In October 1998, the Company completed a reorganization pursuant to which,
among other things:
. CAIS, Inc. was merged with a newly formed acquisition subsidiary of the
Company, with CAIS, Inc. surviving as a wholly owned subsidiary of the
Company;
. Cleartel, which owns certain telecommunications authorizations and is
the general partner of Cleartel LP, a long distance telecommunications
entity owned substantially by the shareholders of CAIS, Inc., was merged
with a second newly formed acquisition subsidiary of the Company, with
Cleartel surviving as a wholly owned subsidiary of the Company;
. the former shareholders of CAIS, Inc. and Cleartel exchanged their
shares in such companies for shares of the Company's common stock at a
rate of 62,938 shares of the Company's common stock for each share of
Cleartel common stock and at a rate of 500 shares of the Company's
common stock for each share of CAIS, Inc.'s common stock;
. the limited partners of Cleartel LP who were substantially the
shareholders of Cleartel, exchanged their limited partnership interests
in Cleartel LP at a rate of 5,349.7 shares of the Company's common stock
for each 1% limited partnership interest in Cleartel LP; and
. the Company acquired all of the limited partnership interests in
Cleartel LP and Cleartel became the sole general partner of Cleartel LP
with a 1% general partnership interest.
In February 1999, the Company transferred all of its limited partnership
interests in Cleartel LP to Cleartel and Cleartel LP was dissolved. The Company
then completed the Spin-off of Cleartel by means of a distribution of all of
its shares in Cleartel to the Company's stockholders pro rata based on their
percentage ownership of the outstanding shares of the Company. As a result of
the Spin-off, Cleartel ceased to be a subsidiary of the Company.
Intercompany Relationships
Prior to and after the Reorganization, the Company, Cleartel LP, Cleartel
and CAIS, Inc. were all under common ownership and management. During that
time, all of these companies purchased goods, services and facilities from each
other.
As of December 31, 1996, 1997 and 1998, the Company owed Cleartel LP
indebtedness totaling approximately $980,000, $3,735,000 and $5,342,000,
respectively, for monies advanced from Cleartel LP to the Company (the
"Cleartel Loan"). As of the date of the Spin-off, the aggregate amount of the
Cleartel Loan was $4,941,000. This balance was reduced by $1,450,000 as a
result of the Company's assumption of a note payable by Cleartel LP to Ulysses
G. Auger, Sr., a director of the Company. See "--Loans to and from Executive
Officers and Affiliates." The Cleartel Loan balance was further reduced by an
additional $1,500,000 with a portion of the proceeds from the Company's
issuance of Series A Shares. As a result of these reductions, the total
principal amount of the Cleartel Loan as of February 19, 1999 was $1,991,000.
No interest is payable in respect of the Cleartel Loan.
The Company will provide certain administrative and other support services
to Cleartel pursuant to a services agreement for cost plus a fixed percentage
until Cleartel replaces this arrangement with its own services or outsources
such support from third parties, which is expected to occur by the end of 1999.
In addition, Cleartel will sublease certain office space from the Company at
the Company's headquarters offices in Washington, D.C., pursuant to a sublease
agreement between the Company and Cleartel.
51
<PAGE>
Cleartel may also purchase dedicated Internet connections from CAIS, Inc. The
Company believes that these arrangements are at least as favorable to the
Company as those which could have been negotiated with an unaffiliated third
party.
The Company may purchase certain services from Cleartel including, but not
limited to: (1) the license of certain co-location space at Cleartel's switch
site facilities in Washington, D.C.; (2) the purchase of certain long distance
telephone and other telecommunications services; and (3) the purchase of
certain private branch exchange, telephone and other telecommunications
equipment and computer equipment.
Real Property Leases
Until February 25, 1999, Cleartel LP leased its corporate headquarters
office space from Ulysses G. Auger, Sr., a director of the Company, and Lulu H.
Auger, his wife. The lease for the space expired on February 28, 1996; however,
the parties verbally agreed to extend the lease until February 25, 1999.
Cleartel LP paid total annual rents of $180,000 for the space during each of
the years ended December 31, 1996, 1997 and 1998. The Company believes that the
terms of the lease, including the rental rate, were at least as favorable to
the Company as those which could have been negotiated with an unaffiliated
third party.
On November 21, 1998, the Company entered into a ten-year lease for its
corporate headquarters office space commencing February 15, 1999. Ulysses G.
Auger, Sr. and Lulu H. Auger hold a 44.8% limited partnership interest in the
entity which owns the building. Annual base rent is $861,250, subject to annual
adjustments. The Company believes that the terms of the lease, including the
rental rate, are at least as favorable to the Company as those which could have
been negotiated with an unaffiliated third party.
Indemnification Agreements
The Company has entered into indemnification agreements with its directors
and certain of its senior executive officers. Pursuant to the terms of the
indemnification agreements, each of the senior executive officers and directors
of the Company will be indemnified by the Company to the fullest extent
permitted by Delaware law in the event such officer is made or threatened to be
made a party to a claim arising out of such person acting in his capacity as an
officer or director of the Company.
Loans to and from Executive Officers and Affiliates
CAIS, Inc. had a note payable due to Ulysses G. Auger, II, the Company's
Chairman and Chief Executive Officer, in the principal amount of $100,000,
dated as of March 15, 1996. The note bore interest at a rate of 10% per annum,
and was payable as follows: accrued interest due monthly on the 15th day of
each month, and the $100,000 in principal due on March 15, 1999.
CAIS, Inc. had a note payable due to Ulysses G. Auger, II in the principal
amount of $250,000, dated as of October 31, 1997. The note bore interest at a
rate of 10% per annum, and was payable as follows: accrued interest due monthly
on the last day of each month, and the $250,000 in principal due on April 30,
1999.
CAIS, Inc. had a note payable due to Ulysses G. Auger, Sr., a director of
the Company, in the principal amount of $1,000,000, dated as of May 8, 1996.
The note bore interest at a rate of 13% per annum, and was payable as follows:
monthly installments of $10,000 plus interest commencing on June 8, 1996, and
continuing thereafter on the 8th of each month, until May 8, 1999, whereupon
the remaining outstanding principal balance and any accrued and unpaid interest
are due.
The Company had a note payable due to Ulysses G. Auger, Sr. in the principal
amount of $500,000, dated as of February 27, 1998. The note bore interest at a
rate of 10% per annum, and was payable as follows: accrued interest due monthly
on the 27th day of each month, and the $500,000 in principal due on February
27, 1999.
The Company had a note payable due to Ulysses G. Auger, Sr. in the amount of
$500,000, dated as of July 9, 1998. The note bore interest at a rate of 10% per
annum, and was payable as follows: accrued interest due quarterly on the 9th
day of each month, and the $500,000 in principal due on July 9, 1999.
52
<PAGE>
The Company had a note payable due to Ulysses G. Auger, Sr. in the principal
amount of $1,000,000, dated as of January 6, 1999. The note bore interest at a
rate of 10% per annum, and was payable as follows: accrued interest due
quarterly on the 6th day of each quarter, and the $1,000,000 in principal due
on demand upon thirty days advance written notice by the holder of the note to
the Company.
All of the foregoing promissory notes were subordinated to the loans made to
these companies by ING (U.S.) Capital Corporation, pursuant to the ING Credit
Agreement.
Cleartel LP had a note payable due to Ulysses G. Auger, Sr. in the principal
amount of $2.1 million, dated as of January 2, 1994. The note bore interest at
a rate of 1% per annum, plus the prime rate, and was payable as follows:
accrued interest in arrears due monthly on the first day of each month, and the
principal balance, together with all interest accrued and unpaid, due on August
1, 2001.
Immediately prior to the Spin-off, (1) Mr. Auger, Sr. contributed $650,000
of such principal to the capital of Cleartel and forgave accrued interest of
$434,123; and (2) in consideration of indebtedness in the aggregate principal
amount of $4,941,000 owed by CAIS, Inc. to Cleartel LP, the Company assumed the
remaining obligations on this note in the aggregate principal amount of
$1,450,000.
Immediately prior to the Spin-off, (1) all of the foregoing remaining
indebtedness owed by the Company and CAIS, Inc. to Ulysses G. Auger, Sr., in
the aggregate principal amount of $4,083,000, plus accrued interest thereon
totaling $89,757, was exchanged for a total of 1,025,247 Series B Shares; and
(2) all of the foregoing indebtedness owed by CAIS, Inc. to Ulysses G. Auger,
II, in the aggregate principal amount of $350,000, plus accrued interest
thereon totaling $34,339, was exchanged for a total of 94,432 Series B Shares.
The ING Credit Agreement
In September 1998, the Company, together with CAIS, Inc. and certain of
their affiliates, entered into the ING Credit Agreement with ING (U.S.) Capital
Corporation to borrow up to $7,000,000 to repay existing debt, fund the
development and roll-out of the OverVoice program and for general corporate
purposes. The loans extended under the ING Credit Agreement bear interest at
the one-month LIBOR rate plus 5%. The principal, premium and interest on any
outstanding loan will convert to senior secured notes bearing interest at a
rate of 5% over the 5-year U.S. Treasury Securities rate if borrowings under
the ING Credit Agreement are not repaid by September 4, 1999. Pursuant to the
ING Credit Agreement, ING (U.S.) Capital Corporation was granted warrants to
purchase 390,000 shares of the Company's common stock at an exercise price of
$0.01 per share and was paid fees totaling $345,000. In addition, if the ING
Credit Agreement is not paid in full by September 4, 1999, ING (U.S.) Capital
Corporation will receive warrants to purchase 3.0% of the Company's outstanding
shares on a fully diluted basis. In connection with an amendment to the ING
Credit Agreement, the Company paid a $210,000 extension fee. The Company is in
compliance with the terms of the ING Credit Agreement. The current outstanding
principal balance under the ING Credit Agreement is $7,000,000.
Other Transactions
For the past several years, Richard F. Levin, a director of the Company, has
performed legal services on the Company's behalf in his capacity as a partner
in the Washington, D.C., law firm of Grossberg, Yochelson, Fox & Beyda.
However, at no time were the fees paid by the Company to the law firm in excess
of 5% of the law firm's gross revenues. The Company believes that the costs of
such services are at least as favorable to the Company as those which could
have been negotiated with an unaffiliated third party.
Issuances of Securities
On April 22, 1998, 317,073 shares of common stock were issued to R. Theodore
Ammon at $3.15378 per share for an aggregate price of $1,000,000.
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<PAGE>
On October 2, 1998, in connection with the Reorganization, the Company
exchanged 5,349.7 shares of common stock for each 1.0% limited partnership
interest in Cleartel LP, 62,938 shares of common stock for each share of
Cleartel common stock and 500 shares of common stock for each share of CAIS,
Inc. common stock. As a result, the Company issued an aggregate of 1,034,970
shares of common stock as follows:
Ulysses G. Auger, Sr., 245,000 shares of common stock in exchange for his
shares of CAIS, Inc. and 267,483 shares of common stock in exchange for
his shares of Cleartel and limited partnership interest in Cleartel LP;
Ulysses G. Auger, II, 250,000 shares of common stock in exchange for his
shares of CAIS, Inc. and 259,527 shares of common stock in exchange for
his shares of Cleartel and limited partnership interest in Cleartel LP;
The Constandinos Ulysses Francisco Auger Economides Trust, 500 shares of
common stock in exchange for its shares of CAIS, Inc. and 796 shares of
common stock in exchange for its shares of Cleartel and limited
partnership interest in Cleartel LP;
The Constandina Francisca Auger Economides Trust, 500 shares of common
stock in exchange for its shares of CAIS, Inc. and 796 shares of common
stock in exchange for its shares of Cleartel and limited partnership
interest in Cleartel LP;
The Vassiliki Illias Auger Economides Trust, 500 shares of common stock
in exchange for its shares of CAIS, Inc. and 796 shares of common stock
in exchange for its shares of Cleartel and limited partnership interest
in Cleartel LP;
The Annabel-Rose Auger Trust, 500 shares of common stock in exchange for
its shares of CAIS, Inc. and 796 shares of common stock in exchange for
its shares of Cleartel and limited partnership interest in Cleartel LP;
The James Frederick Auger Trust, 500 shares of common stock in exchange
for its shares of CAIS, Inc. and 796 shares of common stock in exchange
for its shares of Cleartel and limited partnership interest in Cleartel
LP;
The Ulysses George Hawthorne Auger, III Trust, 500 shares of common stock
in exchange for its shares of CAIS, Inc. and 796 shares of common stock
in exchange for its shares of Cleartel and limited partnership interest
in Cleartel LP;
The Alexander Robert Auger Trust, 500 shares of common stock in exchange
for its shares of CAIS, Inc. and 796 shares of common stock in exchange
for its shares of Cleartel and limited partnership interest in Cleartel
LP;
The Gregory Ulysses Auger, II Trust, 500 shares of common stock in
exchange for its shares of CAIS, Inc. and 796 shares of common stock in
exchange for its shares of Cleartel and limited partnership interest in
Cleartel LP;
The Bridgette Kathryn Auger Trust, 500 shares of common stock in exchange
for its shares of CAIS, Inc. and 796 shares of common stock in exchange
for its shares of Cleartel and limited partnership interest in Cleartel
LP; and
The Nicholas William Randolph Auger Trust, 500 shares of common stock in
exchange for its shares of CAIS, Inc. and 796 shares of common stock in
exchange for its shares of Cleartel and limited partnership interest in
Cleartel LP.
54
<PAGE>
On February 12, 1999, pursuant to a private placement and in exchange for
approximately $4.6 million of indebtedness owed by the Company or CAIS, Inc. to
Ulysses G. Auger, Sr. and Ulysses G. Auger, II, the Company issued 1,119,679
Series B Shares to Ulysses G. Auger, Sr. and Ulysses G. Auger, II.
On February 19, 1999, pursuant to a private placement, the Company issued:
2,458,407 Series A Shares and warrants to purchase an aggregate of 2.61% of
the total outstanding shares of common stock upon completion of this
offering on a fully diluted basis (except for shares issued upon the
conversion of the Series B Shares), at an exercise price of the initial
public offering price per share to Chancery Lane, L.P. for the aggregate
consideration of $10,000,000; and
368,761 Series A Shares and warrants to purchase an aggregate of .39% of
the total outstanding shares of common stock upon completion of this
offering on a fully diluted basis (except for shares issued upon the
conversion of the Series B Shares), at an exercise price of the initial
public offering price per share to CAIS-Sandler Partners, L.P. for the
aggregate consideration of $1,500,000.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of our capital stock does not purport to
be complete and is qualified in its entirety by reference to the terms of the
capital stock contained in our Certificate of Incorporation.
General
Our authorized capital stock consists of 100,000,000 shares of common stock,
par value $.01 per share, and 25,000,000 shares of preferred stock, par value
$.01 per share, of which 2,827,168 shares are designated as Series A Shares,
and 1,119,679 shares are designated as Series B Shares.
Common Stock
Holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock,
including the Series B Shares, the holders of common stock are entitled to
receive ratably the dividends, if any, that may be declared from time to time
by the Board of Directors out of funds legally available for such dividends. We
have never declared a dividend and do not anticipate doing so in the
foreseeable future. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, subject to the prior rights of the
preferred stock, the holders of common stock are entitled to share ratably in
any remaining assets after payment of liabilities. The common stock has no
preemptive or other subscription rights and is not subject to any future calls
or assessments. There are no conversion rights or redemption or sinking fund
provisions applicable to shares of common stock. All of the outstanding shares
of common stock are fully paid and nonassessable.
Preferred Stock
The preferred stock may be issued from time to time by the Board as shares
of one or more classes or series. Subject to the provisions of our Amended and
Restated Certificate of Incorporation (the "Restated Certificate") and
limitations prescribed by law, the Board is expressly authorized to issue the
shares, fix the number of shares, change the number of shares constituting any
series, and provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights, and
liquidation preferences of the shares constituting any class or series of the
preferred stock, in each case without any further action or vote by the
stockholders.
One of the effects of undesignated preferred stock may be to enable the
Board to render more difficult or to discourage an attempt to obtain control of
the Company by means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of the Company's management. The issuance of
shares of the preferred stock pursuant to the Board's authority described above
may adversely affect the rights of the holders of common stock. For example,
preferred stock issued by the Company may rank prior to common stock as to
dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of common stock. Accordingly,
the issuance of shares of preferred stock may discourage bids for common stock
or may otherwise adversely affect the market price of common stock.
Series A Shares. The Series A Shares are convertible at the option of the
holder, initially on a one-to-one basis, into common stock. The Series A Shares
will automatically convert into common stock upon the earlier of: (1) an
initial public offering for aggregate offering proceeds of at least $35 million
and an offering price per share equal to at least $8.14 (a "Qualified IPO");
(2) in the case of a non-qualified initial public offering, if the closing
price of the common stock equals at least $16.28 for a period of 20 consecutive
days (a "Non-Qualified
56
<PAGE>
IPO Conversion Event"); or (3) by the affirmative vote of at least 75% of the
then outstanding Series A Shares. The Series A Shares rank senior to the common
stock and Series B Shares in the event of a liquidation of the Company. The
Series A Shares are entitled to a liquidation preference equal to the full
conversion price per share, an 8% cumulative return and all accumulated but
unpaid dividends thereon. The Series A Shares will vote with the common stock
on an as-converted basis. However, the consent of the holders of 75% of the
Series A Shares is required for actions that: (1) materially and adversely
affect the Series A Shares' rights; (2) increase the number of shares
designated as Series A Shares; (3) pay or declare dividends or redeem,
repurchase or acquire shares of junior stock; (4) enter into certain employment
agreements; (5) enter into an acquisition, merger, reorganization or re-
capitalization transaction; (6) transfer shares of the Company's common stock
to a third party enabling him to elect a majority of the Company's Board of
Directors; (7) enter into financial commitments in excess of $250,000; (8)
dismiss or hire certain executive officers; (9) approve the Company's annual
budget; (10) permit the existence of certain liens; (11) incur certain debt; or
(12) liquidate or dissolve the Company. The Series A Shares rank pari-passu
with the common stock and the Series B Shares on any declared dividends. The
Series A Shares shall participate on an as-if converted basis on all dividends
paid on common stock. The Series A Shares are entitled to unlimited pro rata
piggy back registration rights. Once the Company is public, Chancery Lane,
L.P., will be entitled to demand and piggy back registration rights under
certain circumstances. The Series A Shares are entitled to anti-dilution
protection. Until the Company is a public company, Chancery Lane, L.P. will
have the right to designate one director to the Company's Board of Directors.
Upon the election of a majority of the Series A Shares, at any time after
February 1, 2004, the Series A Shareholders may require the Company to redeem
shares at a price equal to the greater of: (1) the conversion price per share
plus accumulated but unpaid dividends and an 8% cumulative return, or (2) the
fair market value.
Series B Shares. Upon consummation of a Qualified IPO, the Company shall
redeem for cash $3.0 million in aggregate face amount of the Series B Shares,
comprising $2.65 million held by Ulysses G. Auger, Sr. and $350,000 held by
Ulysses G. Auger, II. Any accrued but unpaid dividends thereon shall be paid in
cash at the time of such redemption. Any remaining Series B Shares shall
automatically convert into common stock on the earlier of: (1) the consummation
of a Qualified IPO, or (2) a Non-Qualified IPO Conversion Event. The conversion
price per share shall be the price to the public in any such public offering.
The Series B Shares shall rank junior to the Series A Shares, but senior to
common stock, with respect to liquidation preference. The Series B Shares are
entitled to a liquidation preference of $4,557,096 plus interest thereon at
the rate of 8.0% per annum and accumulated but unpaid dividends. The Series B
Shares will vote with the common stock on an as-converted basis. However, the
consent of the holders of 75% of the Series B Shares is required for actions
that: (1) materially and adversely affect the Series B Shares' rights; (2)
increase the number of shares designated as Series B Shares; (3) pay or declare
dividends or redeem, repurchase or acquire shares of junior stock; or (4)
liquidate or dissolve the Company.
Debt Warrants
Pursuant to the ING Credit Agreement, on September 4, 1998, the Company
granted to ING (U.S.) Capital Corporation warrants to purchase 390,000 shares
of the Company's common stock at an exercise price of $0.01 per share. In
connection with the warrants, ING (U.S.) Capital Corporation received both
demand and piggyback registration rights and is entitled to anti-dilution
protection. The warrants expire September 4, 2008. In the event the ING Credit
Agreement is not paid in full by September 4, 1999, ING (U.S.) Capital
Corporation will receive additional warrants to purchase 3.0% of the Company's
outstanding shares on a fully diluted basis.
Equity Warrants
The holders of Series A Shares (Chancery Lane, L.P. and CAIS-Sandler
Partners, L.P.) will receive, on a pro rata basis, warrants for shares of
common stock equal to 3.0% of the total number of shares of common stock
outstanding at the close of this offering. The warrants will have an exercise
price equal to the price per share of the common stock in this offering. The
holders of Series A Shares will receive registration rights and are entitled to
anti-dilution protection. The warrants expire February 19, 2009.
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<PAGE>
Statutory Business Combination Provision
Upon consummation of the offering, the Company will be subject to the
provisions of Section 203 ("Section 203") of the Delaware General Corporation
Law (the "DGCL"). Section 203 provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or an affiliate or associate of such person, who is
an "interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless:
. the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the Board of
Directors of the corporation before the person becomes an interested
stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction is commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and officers and (b) by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
. on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's board of directors
and by the holders of at least 66 2/3% of the corporation's outstanding
voting stock at an annual or special meeting, excluding shares owned by
the interested stockholder. Under Section 203, an "interested
stockholder" is defined as any person who is (x) the owner of 15% or
more of the outstanding voting stock of the corporation or (y) an
affiliate or associate of the corporation and who was the owner of 15%
or more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested
stockholder.
The provisions of Section 203 could delay or frustrate a change in control
of the Company, deny stockholders the receipt of a premium on their common
stock and have an adverse effect on the common stock. The provisions also could
discourage, impede or prevent a merger or tender offer, even if such event
would be favorable to the interests of stockholders. The Company's
stockholders, by adopting an amendment to the Restated Certificate, may elect
not to be governed by Section 203, which election would be effective 12 months
after such adoption.
Limitations on Directors' Liability
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. This duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors could be accountable to corporations and their stockholders for
monetary damages for conduct that does not satisfy their duty of care. Although
Delaware law does not change directors' duty of care, it enables corporations
to limit available relief to equitable remedies such as injunction or
rescission. The Company's Restated Certificate limits the liability of the
Company's directors to the Company and its stockholders to the fullest extent
permitted by Delaware law. Specifically, directors of the Company will not be
personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability for:
. any breach of the director's duty of loyalty to the Company or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in DGCL Section 174; or
. any transaction from which the director derived an improper personal
benefit.
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<PAGE>
The inclusion of this provision in the Restated Certificate may have the
effect of reducing the likelihood of derivative litigation against directors,
and may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefitted the Company and its
stockholders.
Potential Anti-takeover Effect of Certain Provisions of the Certificate of
Incorporation and By-Laws
The Restated Certificate and By-Laws contain other provisions that could
have an anti-takeover effect. The provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board and in
the policies formulated by the Board. These provisions also are intended to
help ensure that the Board, if confronted by an unsolicited proposal from a
third party which has acquired a block of stock of the Company, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interest of the
stockholders. The following is a summary of such provisions included in the
Restated Certificate and By-Laws of the Company.
The Restated Certificate divides the Board of Directors into three classes
of directors, serving staggered three-year terms. The Restated Certificate also
provides that stockholder action can be taken only at an annual or special
meeting of stockholders and cannot be taken by written consent in lieu of a
meeting. The Restated Certificate and the By-Laws provide that, except as
otherwise required by law, special meetings of the stockholders can only be
called pursuant to a resolution adopted by a majority of the Board or by the
chief executive officer of the Company. Stockholders will not be permitted to
call a special meeting or to require the Board to call a special meeting.
The By-Laws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders of the Company,
including proposed nominations of persons for election to the Board.
Stockholders at an annual meeting may only consider proposals or nominations
specified in the notice of meeting or brought before the meeting by or at the
direction of the Board or by a stockholder who was a stockholder of record on
the record date for the meeting, who is entitled to vote at the meeting and who
has given to the Company's Secretary timely written notice, in proper form, of
the stockholder's intention to bring that business before the meeting. Although
the By-Laws do not give the Board the power to approve or disapprove
stockholder nominations of candidates or proposals regarding other business to
be conducted at an annual meeting, the aforementioned procedures may have the
effect of prohibiting stockholders from raising proposals at annual meetings if
the proper procedures are not followed or may discourage or deter a potential
acquiror from conducting a solicitation of proxies to elect its own slate of
directors or otherwise attempting to obtain control of the Company.
The Restated Certificate and By-Laws provide that the affirmative vote of
holders of at least 66 2/3% of the total votes eligible to be cast in the
election of directors is required to amend, alter, change or repeal certain of
their provisions. This requirement of a super-majority vote to approve
amendments to the Restated Certificate and By-Laws could enable a minority of
the Company's stockholders to exercise veto power over any such amendments. The
Board has no current plans to formulate or effect additional measures that
could have an anti-takeover effect.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock will be American
Securities Transfer & Trust, Inc.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the common stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the common stock in the
public market following the offering. The shares being sold in the offering
will be freely tradable unless held by affiliates of the Company. Upon
completion of the offering: (1) executive officers and directors of the Company
will own an aggregate of (a) shares of common stock, (b) options to acquire
shares of common stock, (c) an aggregate of 2,827,168 Series A Shares
currently convertible into 2,827,168 shares of common stock (subject to
antidilution protection), (d) an aggregate of 1,119,679 Series B Shares
convertible in certain circumstances into shares of common stock, and
(e) warrants exercisable for shares of common stock; and (2) ING (U.S.)
Capital Corporation will hold warrants exercisable for 390,000 shares of common
stock. The securities issued prior to the offering have not been registered
under the Securities Act, and, therefore, may not be sold unless registered
under the Securities Act or sold pursuant to an exemption form registration,
such as the exemption provided by Rule 144.
In general, under Rule 144, if one year has elapsed since the later of the
date of the acquisition of restricted shares of common stock from the Company
or from any affiliate of the Company, the acquiror or subsequent holder thereof
may 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 1.0% of
the then outstanding shares of the common stock, or the average weekly trading
volume of the common stock on the Nasdaq National Market during the four
calendar weeks preceding the date on which notice of the proposed sale is sent
to the SEC. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of the acquisition of restricted shares of common stock from the Company
or any affiliate of the Company, a person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale would be
entitled to sell such shares under Rule 144 without regard to the volume
imitations, manner of sale provisions or notice requirements.
The Company and certain stockholders of the Company (including Chancery
Lane, L.P. and all directors and officers of the Company) owning in the
aggregate shares of common stock, options and warrants exercisable for
shares of common stock and preferred stock convertible into shares of
common stock, have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of common stock, options or warrants to acquire shares of
common stock or securities convertible into or exchangeable for, any rights to
purchase or acquire, shares of common stock during the 180 days after the date
of this prospectus, subject to certain limited exceptions. The Company has
agreed to provide registration rights with respect to the common stock issued
to certain existing stockholders, including .
The Company intends to register the 3,534,495 shares of common stock
reserved for issuance upon exercise of stock options granted pursuant to the
Stock Option Plan and under other compensatory arrangements as soon as
practicable after the date of this prospectus. See "Management," "Description
of Capital Stock" and "Underwriting."
Prior to the offering, there has been no public market for the common stock,
and no prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price for the
common stock prevailing from time to time. Nevertheless, sales, or the
availability for sale, of substantial amounts of the common stock in the public
market could adversely affect prevailing market prices and the ability of the
Company to raise equity capital in the future.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated , 1999, the underwriters named below, who are represented by ING
Baring Furman Selz LLC (the "Representative"), have severally agreed to
purchase from the Company the number of shares of common stock set forth
opposite their names below.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
ING Baring Furman Selz LLC..................................
---
Total.....................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The underwriters are obligated to
purchase and accept delivery of all the shares of common stock (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The underwriters propose initially to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to certain other
dealers, a concession not in excess of $ per share. After the initial offering
of the shares of common stock, the public offering price and other selling
terms may be changed by the Representative at any time without notice.
The following table shows the underwriting fees to be paid to the
underwriters by the Company in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option
to purchase additional shares of common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Other expenses of this offering (including the registration fees and the
fees of financial printers, counsel and accountants) payable by the Company are
expected to be approximately $ .
The Company has granted to the underwriters an option, exercisable within 30
days after the date of this prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of common stock
at the public offering price less the underwriting discounts and commissions.
The underwriters may exercise such option solely to cover over-allotments, if
any, made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such underwriter's percentage underwriting commitment as indicated in
the table above.
The Company has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect of any of
those liabilities.
Each of the Company, its executive officers, directors and stockholders has
agreed, subject to certain exceptions, not to: (1) issue, 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
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<PAGE>
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into, exercisable or exchangeable for, or represent the
right to receive common stock, except the Company may issue and sell common
stock pursuant to (A) any employee stock plan stock ownership plan or dividend
reinvestment plan of the Company, (B) this offering, or (C) pursuant to the
exercise of the warrants held by ING (U.S.) Capital Corporation; or (2) grant
any options or warrants to purchase common stock or enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any common stock (regardless of whether any of
the transactions described in clause (1) or (2) is to be settled by the
delivery of common stock, or such other securities, in cash or otherwise) for a
period of 180 days after the date of this prospectus without the prior written
consent of ING Baring Furman Selz LLC. In addition, during such period, the
Company has also agreed not to file any registration statement with respect to,
and each of its executive officers, directors and certain stockholders of the
Company has agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of ING Baring Furman Selz LLC.
At the request of the Company, the underwriters have reserved for sale, at
the initial public offering price, shares of common stock offered hereby to
be sold to certain directors, officers and employees of the Company and other
persons who have expressed an interest in purchasing such shares. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
which 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 the other shares offered by this prospectus.
In September 1998, the Company and certain other affiliates of the Company
(the "Borrowers") entered into a credit agreement with ING (U.S.) Capital
Corporation, an affiliate of ING Baring Furman Selz LLC, whereby ING (U.S.)
Capital Corporation agreed to lend the Borrowers up to $7,000,000. In
connection with the ING Credit Agreement, ING (U.S.) Capital Corporation
received warrants to purchase 390,000 shares of common stock of the Company at
an exercise price of $0.01 per share, which amount and price are subject to
change under certain circumstances and fees of $555,000. The Company is
repaying this loan using some of the proceeds of this offering.
Other than in the United States, no action has been taken by the Company or
the underwriters that would permit a public offering of the shares of common
stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of common stock offered hereby may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about, and to observe, any restrictions
relating to the offering of the common stock and the distribution of this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock offered hereby in any jurisdiction in
which such an offer or solicitation is unlawful.
The Representative has informed the Company that the underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority without the prior written approval of the customer.
Prior to this offering, there has been no public market for the common stock
of the Company. Consequently, the initial public offering price has been
determined by negotiations between the Company and the Representative. Among
the factors considered in determining the initial public offering price were
the history of and prospects for the Company's business and the industry in
which it competes, an assessment of the Company's management and the present
state of the Company's development, the past and present revenues, earnings and
cash flows of the Company, the prospects for growth of the Company's revenues,
earnings and cash flows, the current state of the economy in the United States
and the current level of economic activity in the industry in which the Company
competes and in related or comparable industries, and
62
<PAGE>
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies which are comparable to the
Company.
The Company has applied to list the common stock on The Nasdaq National
Market, under the symbol "CAIS."
Until the distribution of the common stock of the Company is completed,
rules of the SEC may limit the ability of the underwriters and certain selling
group members to bid for and purchase the common stock. As an exception to
these rules, the Representative is permitted to engage in certain transactions
that stabilize the price of the common stock. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of the
common stock.
If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares of the common
stock than are set forth on the cover pages of this prospectus, the
Representative may reduce that short position by purchasing the common stock in
the open market. The Representative may also elect to reduce any short position
by exercising all or part of the over-allotment option described above.
The Representative may also impose a penalty bid on certain underwriters and
selling group members. This means that if the Representative purchases shares
of the common stock in the open market to reduce the underwriters' short
position or to stabilize the price of the common stock, it may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the common stock to the extent that
it were to discourage resales of the common stock.
Neither the Company 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 the common stock. In addition, neither
the Company nor any of the underwriters makes any representation that the
Representative will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters relating to the offering and sale of the common stock
will be passed upon for the Company by Swidler Berlin Shereff Friedman, LLP,
3000 K Street, N.W., Suite 300, Washington, D.C. 20007, and for the
underwriters by Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New
York 10112.
EXPERTS
The audited financial statements of the Company and Capital Area Internet
Service, Inc. included in this prospectus and the audited financial statement
schedule of the Company included in the registration statement of which this
prospectus forms a part 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
giving said reports.
63
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
CAIS Internet, Inc., Consolidated Financial Statements
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1996, 1997 and 1998..................................................... F-5
Consolidated Statements of Changes in Stockholders' Deficit for the Years
Ended December 31, 1996, 1997 and 1998.................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998..................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Capital Area Internet Service, Inc. (Predecessor Company)
Report of Independent Public Accountants................................. F-23
Statement of Operations for the Period from January 1, 1996 to May 10,
1996.................................................................... F-24
Statement of Changes in Stockholders' Equity for the Period from January
1, 1996 to
May 10, 1996............................................................ F-25
Statement of Cash Flows for the Period from January 1, 1996 to May 10,
1996.................................................................... F-26
Notes to Financial Statements............................................ F-27
</TABLE>
F-1
<PAGE>
Report of Independent Public Accountants
To CAIS Internet, Inc. and subsidiaries
(formerly CGX Communications, Inc.):
We have audited the accompanying consolidated balance sheets of CAIS Internet,
Inc. (a Delaware corporation, formerly CGX Communications, Inc.) and
subsidiaries, as of December 31, 1997 and 1998, and the related consolidated
statements of operations, changes in stockholders' deficit, and cash flows for
each of the three years in the period ended 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 generally accepted auditing
standards. Those standards require that we plan and perform an 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CAIS
Internet, Inc. and subsidiaries, as of December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Arthur Andersen LLP
Washington, D.C.
February 19, 1999
F-2
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
Consolidated Balance Sheets
(in thousands)
Assets
<TABLE>
<CAPTION>
December 31
---------------
1997 1998
------- -------
<S> <C> <C>
Current assets:
Cash......................................................... $ 149 $ 95
Accounts receivable, net of allowance for doubtful accounts
of $179 and $137, respectively.............................. 466 648
Prepaid expenses and other current assets.................... 79 228
Net current assets of discontinued operations (Note 3)....... 9,072 8,170
------- -------
Total current assets...................................... 9,766 9,141
------- -------
Property and equipment, net................................... 1,149 2,638
Deferred debt financing and offering costs, net............... -- 529
Intangible assets, net of accumulated amortization of
approximately $586 and $968, respectively.................... 1,816 1,434
Noncurrent assets of discontinued operations (Note 3)......... 2,307 1,936
------- -------
Total noncurrent assets................................... 5,272 6,537
------- -------
Total assets.............................................. $15,038 $15,678
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
Consolidated Balance Sheets
(in thousands except share and per share data)
Liabilities and Stockholders' Deficit
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses ...................... $ 1,038 $ 4,396
Current portion of long-term debt........................... 2,000 --
Payable to discontinued operations.......................... 3,735 5,342
Notes payable to related parties ........................... 173 --
Unearned revenues........................................... 456 572
Net current liabilities of discontinued operations (Note
3)......................................................... 8,804 8,205
------- -------
Total current liabilities................................ 16,206 18,515
------- -------
Bridge loan, net of unamortized debt discount of $817........ -- 6,183
Notes payable to related parties, net of current portion
(Note 9).................................................... 1,342 1,983
Long-term liabilities of discontinued operations (Note 3).... 2,768 2,601
------- -------
Total liabilities........................................ 20,316 29,282
------- -------
Commitments and contingencies (Notes 1, 6, 7, 8, 9, 10, and
12)
Stockholders' deficit (Note 10):
Common stock, $0.01 par value; 100,000,000 shares
authorized; 9,648,000 and
9,965,000 shares issued and outstanding, respectively...... 97 100
Additional paid-in capital.................................. 6,230 7,544
Warrants outstanding........................................ -- 1,226
Deferred compensation....................................... (4,314) (2,888)
Accumulated deficit......................................... (7,291) (19,586)
------- -------
Total stockholders' deficit.............................. (5,278) (13,604)
------- -------
Total liabilities and stockholders' deficit.............. $15,038 $15,678
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December
31,
-------------------------
1996 1997 1998
------ ------- --------
<S> <C> <C> <C>
Net revenues........................................ $2,410 $ 4,556 $ 5,315
Cost of services.................................... 834 2,010 3,118
Operating expenses:
Selling, general and administrative................ 2,126 5,550 10,407
Depreciation and amortization...................... 352 678 831
Non-cash compensation.............................. -- 616 1,426
------ ------- --------
Total operating expenses.......................... 2,478 6,844 12,664
------ ------- --------
Loss from operations................................ (902) (4,298) (10,467)
Interest and other (income) expense:
Interest income.................................... (1) (2) --
Interest expense................................... 213 283 1,090
Other expense, net................................. -- 7 11
------ ------- --------
Total interest and other expense.................. 212 288 1,101
------ ------- --------
Loss from continuing operations before income
taxes.............................................. (1,114) (4,586) (11,568)
Provision for income taxes.......................... -- -- --
------ ------- --------
Loss from continuing operations................... (1,114) (4,586) (11,568)
Income (loss) from discontinued operations of
Cleartel (less applicable state (taxes) benefit of
$(30), $(108), and $34, respectively).............. 799 1,923 (671)
------ ------- --------
Net loss.......................................... $ (315) $(2,663) $(12,239)
====== ======= ========
Basic and diluted earnings (loss) per share:
Continuing operations.............................. $(0.11) $ (0.48) $ (1.17)
Discontinued operations............................ 0.08 0.20 (0.07)
------ ------- --------
Total............................................. $(0.03) $ (0.28) $ (1.24)
====== ======= ========
Weighted-average common shares outstanding--basic
and diluted 9,648 9,648 9,869
====== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
Consolidated Statements of Changes in Stockholders' Deficit
For the Years Ended December 31, 1996, 1997, and 1998
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In Warrants Deferred Accumulated
Shares Par Capital Outstanding Compensation Deficit Total
------- ----- ---------- ----------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995....... 9,648 $ 97 $ -- $ -- $ -- $ (4,139) $ (4,042)
Capital contribution... -- -- 1,300 -- -- -- 1,300
Distributions declared
to equity holders..... -- -- -- -- -- (76) (76)
Net loss............... -- -- -- -- -- (315) (315)
------ ----- ------ ------ ------- -------- --------
December 31, 1996....... 9,648 $ 97 1,300 -- -- (4,530) (3,133)
Unearned compensation
pursuant to issuance
of stock options...... -- -- 4,930 -- (4,930) -- --
Amortization of
unearned
compensation.......... -- -- -- -- 616 -- 616
Distributions declared
to equity holders..... -- -- -- -- -- (98) (98)
Net loss............... -- -- -- -- -- (2,663) (2,663)
------ ----- ------ ------ ------- -------- --------
December 31, 1997....... 9,648 97 6,230 -- (4,314) (7,291) (5,278)
Capital contribution... -- -- 317 -- -- -- 317
Distributions declared
to equity holders..... -- -- -- -- -- (56) (56)
Issuance of common
stock................. 317 3 997 -- -- -- 1,000
Amortization of
unearned
compensation.......... -- -- -- -- 1,426 -- 1,426
Warrants issued in
connection with Bridge
Loan (Note 7)......... -- -- -- 1,226 -- -- 1,226
Net loss............... -- -- -- -- -- (12,239) (12,239)
------ ----- ------ ------ ------- -------- --------
December 31, 1998....... 9,965 $ 100 $7,544 $1,226 $(2,888) $(19,586) $(13,604)
====== ===== ====== ====== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Years Ended December
31,
-------------------------
1996 1997 1998
------ ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (315) $(2,663) $(12,239)
Adjustments to reconcile net loss to net cash
provided by operating
activities:
Compensation pursuant to stock options........... -- 616 1,426
Amortization of debt discount and deferred
financing costs................................. -- -- 555
Loss on disposal of fixed assets................. -- 63 --
Depreciation and amortization.................... 352 678 831
Depreciation and amortization of discontinued
operations...................................... 684 668 520
Changes in operating assets and liabilities, net
of Capital Area acquisition:
Accounts receivable, net........................ 67 (104) (182)
Prepaid expenses and other current assets....... (18) (46) (148)
Accounts payable and accrued expenses........... 424 380 2,984
Payable to discontinued operations.............. 980 2,755 1,047
Unearned revenues............................... 113 147 116
Changes in operating assets and liabilities of
discontinued operations........................ (888) (1,802) 1,882
------ ------- --------
Net cash provided by (used in) operating
activities.................................... 1,399 692 (3,208)
------ ------- --------
Cash flows from investing activities:
Purchases of property and equipment................ (542) (556) (1,435)
Purchases of property and equipment of discontinued
operations........................................ (623) (551) (387)
Payment for Capital Area acquisition............... (3,068) -- --
Net payments received on notes receivable.......... 13 129 (265)
Net payments received on related party accounts
receivable........................................ 190 180 317
------ ------- --------
Net cash used in investing activities.......... (4,030) (798) (1,770)
------ ------- --------
Cash flows from financing activities:
Net (repayments) borrowings under receivables-based
credit facility of discontinued operations........ 38 (211) (1,451)
Borrowings under Bridge Loan....................... -- -- 7,000
Borrowings under long-term debt.................... 2,000 600 --
Repayments under long-term debt.................... (233) (367) (2,000)
Borrowings under notes payable--related parties.... 1,100 675 1,000
Repayments under notes payable--related parties.... (114) (162) (107)
Principal payments under capital lease
obligations....................................... (250) (337) (173)
Payment of loan commitment, debt financing and
offering costs.................................... (82) (16) (345)
Proceeds from issuance of common stock............. -- -- 1,000
Distribution to equity holders..................... (43) -- --
------ ------- --------
Net cash provided by financing activities...... 2,416 182 4,924
------ ------- --------
Net (decrease) increase in cash..................... (215) 76 (54)
Cash, beginning of year............................. 288 73 149
------ ------- --------
Cash, end of year................................... $ 73 $ 149 $ 95
====== ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest of continuing operations.... $ 190 $ 246 $ 412
====== ======= ========
Cash paid for interest of discontinued operations.. $ 832 $ 870 $ 791
====== ======= ========
Supplemental disclosure of noncash activities:
Equipment acquired under capital lease of
discontinued operations........................... $ 80 $ -- $ 228
====== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Description:
Organization
CAIS Internet, Inc. (the "Company") was incorporated under the name CGX
Communications, Inc. ("CGX") as a "C" corporation in Delaware in December 1997
to serve as a holding company for two operating entities, CAIS, Inc. ("CAIS"),
a Virginia "S" Corporation, and Cleartel Communications Limited Partnership
("Cleartel"), a District of Columbia partnership. The Company completed a
reorganization in October 1998 such that CAIS and Cleartel became wholly owned
subsidiaries of the Company. The reorganization has been accounted for similar
to a pooling-of-interests as CAIS and Cleartel were under common ownership. The
Company changed its name from CGX Communications, Inc. to CAIS Internet, Inc.
in February 1999.
CAIS was formed in May 1996 by the owners of Cleartel to acquire Capital
Area Internet Service, Inc. ("Capital Area") from its founders. It is a tier
one Internet Service Provider ("ISP"), connecting with other major internet
providers at various equipment locations in the United States. CAIS sells full-
time, dedicated connections to the Internet to commercial customers, dial-up
connections to the Internet to residential and smaller commercial customers,
and various ancillary Internet services, including hosting of web sites. It is
also a licensee and joint-owner of a new Internet technology that allows high-
speed data and voice traffic to travel simultaneously over one standard
telephone line. CAIS is marketing this technology under the name of OverVoice
for use primarily in hotels and apartment buildings (multiple dwelling units,
or "MDU's").
Cleartel began operations in 1987 to provide operator-assisted long-distance
telephone services to hotels and payphones, and provides commercial and
residential long-distance services, mainly in the eastern United States.
Cleartel's corporate headquarters and telephone switch equipment are located in
Washington, D.C. Operator services are provided as part of a contractual
relationship with a subsidiary of GTE International, located in the Dominican
Republic. A second operator center has been maintained in the corporate offices
in Washington for overflow traffic and redundancy. In February 1999, the
Company spun-off Cleartel to the Company's stockholders (see Notes 2 and 3).
Risks and Other Important Factors
The Company's net loss from continuing operations has increased from
$1,114,000 in 1996 to $11,568,000 in 1998. As of December 31, 1998, the Company
had negative working capital of approximately $9,374,000, and an accumulated
deficit of approximately $19,586,000. The Company has financed its operations
with various debt and equity placements. The Company's continuing operations
have also been financed in part from operating profits and cash flows generated
from its now discontinued operation (Cleartel). As more fully described in Note
7, the Company obtained a $7,000,000 bridge loan in September 1998, which has
been fully drawn by the Company as of December 1998. In January 1999 the
Company borrowed $1,000,000 from a stockholder (See Note 9). As described in
Note 10, the Company issued $11,500,000 of convertible preferred stock in
February 1999 after the spin-off of Cleartel. The Company received $3,500,000
in cash, $1,500,000 of which was used to repay amounts due to Cleartel in
February 1999, and an unconditional promissory note due in March 1999 for the
remaining $8,000,000. In addition to this preferred stock issuance, Management
intends to obtain equipment financing to help fund the roll-out of OverVoice.
Management believes that without additional financing such as the equipment
financing or the Company's anticipated initial public offering (the "IPO") in
1999, the Company would curtail the planned roll-out of OverVoice and reduce
marketing and development activities.
F-8
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
There can be no assurance that additional capital will be available to the
Company or that the terms of such capital will be acceptable to management.
Further, there can be no assurance that the Company will generate positive cash
flows or income from operations in the future.
The Company is subject to various risks in connection with the operation of
its business. These risks include, but are not limited to, regulations,
dependence on effective billing and information systems, intense competition,
rapid technological change, and any effects on the Company or its suppliers
relating to the Year 2000 issue. The Company's future plans are substantially
dependent on the successful roll-out of OverVoice. Net revenues generated from
OverVoice through December 31, 1998 were approximately $37,000. There can be no
assurance that the Company will be successful in its roll-out of OverVoice nor
can there be any assurance that the Company will be successful in defending its
related patent rights. Many of the Company's competitors are significantly
larger and have substantially greater financial, technical, and marketing
resources than the Company.
Year 2000
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect the Company's ability to
conduct normal business operations. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the Company, including those related
to the efforts of customers, suppliers, or other third parties will be fully
resolved.
2. Summary of Significant Accounting Principles:
Consolidated Financial Statements
The consolidated financial statements include the results of CAIS, Inc.
after its acquisition of Capital Area on May 11, 1996 through December 31, 1996
and for the years ended December 31, 1997 and 1998. They also include the
results of Cleartel, presented as discontinued operations, for the years ended
December 31, 1996, 1997 and 1998.
In February 1999, the Company spun-off its operator and long-distance
services subsidiary, Cleartel, to its stockholders as a noncash distribution.
The spin-off has been presented as discontinued operations and, accordingly,
the Company has presented its financial statements for all periods prior to
that date in accordance with Accounting Principles Board ("APB") Opinion No.
30. All expenses related to members of senior management that will be
continuing with the Company are included within income from continuing
operations.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company records revenues for all services when the services are provided
to customers. Amounts for services billed in advance of the service period are
recorded as unearned revenues and recognized as revenue when earned.
Cost of Services
Cost of services represent primarily recurring expenses for the lease of
data facilities from national and local fiber providers. These direct charges
include long haul bandwidth and local interconnection charges.
F-9
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The carrying amounts for current assets and liabilities, other than the
current portion of notes payable to related parties, approximate their fair
value due to their short maturity. The fair value of notes payable to related
parties cannot be reasonably and practicably estimated due to the unique nature
of the related underlying transactions and terms (see Note 9). However, given
the terms and conditions of these instruments, if these financial instruments
were with unrelated parties, interest rates and payment terms could be
substantially different than the currently stated rates and terms.
Property and Equipment
Property and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets ranging from three to five
years, or for leasehold improvements, the life of the lease, if shorter. Costs
of additions and improvements are capitalized and repairs and maintenance are
charged to expense as incurred. Upon sale or retirement of property and
equipment, the costs and related accumulated depreciation are eliminated from
the accompanying consolidated balance sheets, and any resulting gain or loss is
reflected in the accompanying consolidated statements of operations.
Debt Discount and Deferred Debt Financing and Offering Costs
As more fully discussed in Note 7, in September 1998, the Company entered
into a bridge loan facility (the "Bridge Loan") with an investment banking
firm. Debt discount costs of $1,226,000 represent amounts attributable to the
redeemable warrants issued in connection with the Bridge Loan. The unamortized
debt discount as of December 31, 1998, was approximately $817,000. These costs
are reflected as an offset to the related Bridge Loan in the accompanying
consolidated balance sheets as of December 31, 1998. Unamortized deferred debt
financing costs of approximately $292,000 represent other direct financing
costs incurred in connection with the placement of the Bridge Loan. Both the
debt discount and the deferred financing costs are being amortized over the
extended one-year term of the Bridge Loan using the effective interest method.
In connection with the Company's anticipated IPO, the Company also has
incurred direct costs of $237,000 associated with the offering. These costs are
reflected as deferred offering costs and will be offset against the proceeds
from the anticipated IPO or expensed if the IPO is unsuccessful.
Excess of Cost over Net Assets Acquired (Goodwill)
Goodwill recorded as a result of the acquisition of Capital Area by CAIS in
1996 (see Note 4) is being amortized over seven years. The Company continually
evaluates whether events and circumstances have occurred which indicate that
the remaining estimated useful life of goodwill may warrant revision or that
the remaining balance of goodwill may not be recoverable. Management believes
that no such impairment existed as of December 31, 1998. Goodwill for all
periods presented is included in intangible assets in the accompanying
consolidated balance sheets, net of accumulated amortization.
Amortization of goodwill was approximately $212,000, $329,000, and $382,000
for the years ended December 31, 1996, 1997, and 1998, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. For trade
accounts receivable, the risk is limited due to the large number of customers,
the dispersion of those customers across many industries and geographic
regions, and the ability to terminate access on delinquent accounts.
F-10
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Recently Adopted Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires "comprehensive income" and the
components of "other comprehensive income," to be reported in the financial
statements and/or notes thereto. There was no difference between the Company's
net loss and its total comprehensive loss for the years ended December 31,
1996, 1997, and 1998.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" requires an entity to disclose financial and descriptive
information about its reportable operating segments. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers. The Company has adopted SFAS No. 131 for the year
ended December 31, 1998 (see Note 13).
In July 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999, and its purpose is to replace existing
pronouncements with a single, integrated accounting framework for derivatives
and hedging activities. The Company has not yet evaluated the effect of this
standard on the financial statements. The Company will adopt this standard in
its December 31, 1999 financial statements.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." It provides guidance on accounting for
costs of computer software developed or obtained for internal use. It is
effective for fiscal years beginning after December 15, 1998, for projects in
progress and prospectively, with earlier application encouraged. The Company
has not yet evaluated the effect of this standard on the financial statements.
The Company will adopt this standard in its December 31, 1999 financial
statements.
Stock Compensation
The Company accounts for its stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted SFAS No.
123, "Accounting for Stock-Based Compensation," for disclosure purposes. The
Company has recognized non-cash compensation expense on certain stock options
granted to management (see Note 10).
Interest Rate Swaps
In late 1996, the Company entered into a forward interest rate swap
agreement to hedge its interest rate exposure. The Company was the fixed rate
payor and the lender was the floating rate payor. The swap, which did not
involve any exchange of the underlying principal amount, had been designated as
a hedge. As discussed in Note 8, the swap agreement was terminated in September
1998 upon repayment of the related bank loan. The net settlement amount under
the swap agreement resulted in a charge to interest expense of $39,000 in the
accompanying statements of operations.
Income Taxes
Until the Company's reorganization in October 1998, the federal income tax
obligations of CAIS and Cleartel were passed through to their respective
subchapter S shareholders and partners. Cleartel was subject to state
unincorporated business franchise taxes on any profits in the District of
Columbia.
The Company accounts for federal, state and local income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred
tax assets and liabilities are computed based on the difference between the
financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. SFAS No. 109 requires that a net deferred tax asset
be reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the net
deferred tax asset will not be realized.
F-11
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Loss Per Share
SFAS No. 128, "Earnings Per Share," requires dual presentation of basic and
diluted earnings per share on the face of the statements of operations. Basic
earnings per share excludes dilution and is computed by dividing income or loss
available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Options to purchase approximately 2,034,000 and 2,946,000 shares of common
stock were excluded from the computation of diluted loss per share in 1997 and
1998, respectively, and warrants to purchase approximately 390,000 shares of
common stock were excluded from the computation of diluted loss per share in
1998, because inclusion of these options and warrants would have an anti-
dilutive effect on loss per share.
3.Spin-off/Discontinued Operations:
On February 12, 1999, the Company completed a spin-off of Cleartel, its
operator and long-distance services subsidiary, pursuant to which ownership of
Cleartel was transferred to the Company's stockholders. The Company distributed
all of the shares of common stock to its stockholders on a pro rata basis, and
the holders of options to acquire the Company's stock and warrants were granted
stapled rights to acquire shares in Cleartel. For financial reporting purposes,
the Company has presented the results of operations for Cleartel as
discontinued operations. A summary of the statement of the assets and
liabilities of discontinued operations are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, Date of Spin-Off
1998 February 12, 1999
------------ -----------------
<S> <C> <C>
Balance Sheets
Cash........................................... $ 21 $ 1
Accounts receivable, net of allowance for
doubtful accounts of $1,450 and $1,395,
respectively.................................. 2,224 2,129
Notes receivable, current...................... 530 437
Advances receivable from CAIS.................. 5,342 4,941
Prepaid expenses and other assets.............. 53 59
------- ------
Total current assets......................... 8,170 7,567
------- ------
Property and equipment, net of accumulated
depreciation of $3,142 and $3,201,
respectively.................................. 1,305 1,260
Notes receivable, net of current portion....... 607 632
Other noncurrent assets........................ 24 27
------- ------
Total noncurrent assets...................... 1,936 1,919
------- ------
Total assets................................. $10,106 $9,486
======= ======
Accounts payable and accrued liabilities....... $ 5,410 $4,827
Borrowings under receivable-based financing.... 2,714 3,027
Capital leases, current........................ 81 77
------- ------
Total current liabilities.................... 8,205 7,931
------- ------
Notes payable to related party................. 2,100 1,450
Accrued interest to related party.............. 411 --
Capital leases, net of current portion......... 69 62
Other liabilities.............................. 21 --
------- ------
Total liabilities............................ 10,806 9,443
------- ------
Owners' (deficit) equity....................... (700) 43
------- ------
Total liabilities and owners' deficit........ $10,106 $9,486
======= ======
Statement of Changes in Owners' Deficit
Beginning owners' deficit, December 31, 1998... $ (700)
Conversion of related party debt to equity..... 1,083
Net loss....................................... (340)
------
Ending owners' equity, February 12, 1999....... $ 43
======
</TABLE>
F-12
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of results for the discontinued operations for the years ended
December 31, 1996, 1997, and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Statements of Operations:
Net revenues.................................. $32,484 $33,959 $27,424
Operating expenses:
Cost of services............................ 19,685 19,319 17,880
Selling, general, and administrative........ 10,475 11,158 8,996
Depreciation and amortization............... 684 668 519
------- ------- -------
Total operating expenses.................. 30,844 31,145 27,395
------- ------- -------
Income from operations........................ 1,640 2,814 29
Interest expense, net of interest income...... 811 783 734
------- ------- -------
Income (loss) before taxes.................... 829 2,031 (705)
(Provision) benefit for state taxes........... (30) (108) 34
------- ------- -------
Net income (loss)............................. $ 799 $ 1,923 $ (671)
======= ======= =======
</TABLE>
Income (loss) related to discontinued operations reflect those revenues and
expenses directly incurred by Cleartel and allocations of shared corporate
costs based primarily on methodologies established by management between the
Company and Cleartel to reflect the cost sharing agreement between both
companies.
During the years ended December 31, 1996, 1997, and 1998, CAIS and Cleartel
shared certain support services such as bookkeeping, information systems, and
advertising and marketing support. After the spin-off, the Company will provide
these services at cost plus a fixed percentage until Cleartel replaces this
arrangement with its own services in 1999. Amounts charged for services are
included as an offset to the respective operating expenses in the accompanying
statements of operations. A summary of these transactions for the years ended
December 31, 1996, 1997, and 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Bookkeeping, MIS, advertising, and marketing support..... $272 $302 $227
Office lease............................................. $159 $161 $164
</TABLE>
Through December 31, 1998, profits and cash flows from Cleartel were used to
finance operating losses at CAIS. This obligation of the Company as of February
12, 1999, was approximately $4,941,000 and was reduced to $1,991,000 in
February 1999 upon cash payments of $1,500,000 and the Company's assumption of
related party debt totaling $1,450,000 from Cleartel. The remaining balance is
due at the earlier of thirty days after the closing date of the anticipated IPO
or June 30, 2000.
4. Acquisition:
CAIS purchased the capital stock and operations of Capital Area on May 10,
1996 for a purchase price of approximately $3,100,000, including penalties
related to closing delays. The purchase price (plus the closing delay
penalties) was paid to the sellers at closing and was financed through loans of
$2,000,000 from a bank (Note 8), $1,000,000 from a stockholder and $100,000
from another stockholder (Note 9).
F-13
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company recorded goodwill in 1996 related to the acquisition of Capital
Area in the amount of approximately $2,402,000. The goodwill is being amortized
over seven years. The Company accounted for the acquisition under purchase
accounting.
5. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ ------
<S> <C> <C>
Internet equipment........................................ $ 660 $1,287
OverVoice Equipment....................................... -- 802
Computer hardware and software............................ 154 384
Office furniture and fixtures............................. 662 747
Leasehold improvements.................................... 46 207
------ ------
1,522 3,427
Less Accumulated depreciation............................. (373) (789)
------ ------
$1,149 $2,638
====== ======
</TABLE>
6. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Accounts payable........................................... $ 823 $2,917
Accrued salaries and vacation.............................. 69 186
Accrued legal settlement (Note 12)......................... -- 500
Accrued professional fees.................................. 60 495
Accrued interest........................................... 27 150
Other...................................................... 59 148
------ ------
$1,038 $4,396
====== ======
</TABLE>
7. Bridge Loan:
On September 4, 1998, the Company signed an agreement for a $7 million
Bridge Loan with the Company's investment banking firm. The Bridge Loan
required a commitment fee and a facility fee totaling $345,000. The Bridge Loan
was for a six-month term, converting to a five-year Senior Note if not repaid
prior to expiration of the initial term. In February 1999, the initial term was
extended to September 1999 for an additional fee of $210,000. Borrowings bear
interest at a rate of LIBOR plus 5 percent (10.625 percent as of December 31,
1998). The Bridge Loan was secured by substantially all of the assets of the
Company and Cleartel. The Bridge Loan contains certain covenants and
restrictions, including, but not limited to, limitations on additional
indebtedness, acquisition or transfer of assets, payment of dividends, new
ventures or mergers, and issuance of additional equity. In February 1999, the
agreement was revised such that Cleartel is no longer a borrower and Cleartel's
assets no longer serve as security for the loan. In addition, the revised
agreement allows specific indebtedness and specific equity issuances. The use
of proceeds is limited to repayment of the Bank Loan, funding for OverVoice
expenditures, and general corporate purposes. The weighted-average interest
rate under the Bridge Loan during 1998 was approximately 10 percent. The amount
of interest expense incurred related to the Bridge Loan, including amortization
of the debt discount and deferred debt financing costs totaled approximately
$747,000 during 1998.
F-14
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In connection with the Bridge Loan, the Company issued the investment
banking firm warrants to acquire 3 percent of the diluted outstanding shares of
common stock of the Company or 390,000 shares at September 4, 1998. The
warrants have an exercise price of $0.01 per share and expire on the tenth
anniversary after issuance, or September 4, 2008. The warrants fully vested
upon closing of the Bridge Loan and include certain anti-dilution provisions.
The fair value of the warrants, totaling approximately $1,226,000, is
classified as a component of additional paid-in capital as of December 31,
1998.
8.Bank Loan and Interest Rate Swap
In connection with the acquisition of Capital Area on May 10, 1996, the
Company obtained a $2,000,000 loan from a bank (the "Bank Loan"). Interest on
the Bank Loan accrued at a rate of prime plus one and one-half percent (9.75
percent at that date), with payments on a five-year amortization schedule and a
maturity date of May 10, 1999. The Bank Loan was guaranteed by one of the
principal stockholders of the Company and was secured by investments from
another principal stockholder of the Company.
On October 17, 1996, CAIS entered into an interest rate swap transaction
with the bank, and refinanced the remaining principal balance of approximately
$1,833,000 at that time into a new promissory note. Interest on the refinanced
note was based on the LIBOR rate, plus 2 percent. The bank also entered into a
hedging transaction to control fluctuation in the LIBOR rate, which had the
effect of converting the variable interest rate on the Bank Loan into a fixed
rate of 8.65 percent as of December 31, 1996.
On December 5, 1997, CAIS again refinanced the Bank Loan to increase the
principal balance outstanding at that time of $1,400,000 to the original
$2,000,000, thus netting CAIS $600,000 in cash proceeds. In addition, the
maturity date of the refinanced Bank Loan and the swap agreement was extended
to December 10, 2000.
On September 4, 1998, the entire Bank Loan principal and interest and
interest rate swap totaling $1,782,000 was paid off with proceeds from the
Bridge Loan (see Note 7). The amount of interest expense incurred related to
the Bank Loan was $115,000, $137,000, and $151,000 for the years ended December
31, 1996, 1997, and 1998, respectively.
9. Transactions with Related-Parties:
Notes Payable to Related Parties
Notes payable to related parties of $1,515,000 and $1,983,000 as of December
31, 1997 and 1998, respectively, consist of notes payable to stockholders with
interest accruing at annual rates of 10 to 13 percent. In February 1999,
related party notes totaling $4,433,000, including the $1,983,000 outstanding
as of December 31, 1998, the $1,450,000 assumed from Cleartel, and the
$1,000,000 borrowed in 1999, were converted into cumulative mandatory
redeemable convertible preferred stock (see Note 10).
Interest expense of approximately $97,000, $131,000, and $128,000 was
accrued during the years ended December 31, 1996, 1997, and 1998, respectively,
related to related party loans.
In January 1999, a principal stockholder lent $1,000,000 to the Company
under a note which accrues interest quarterly at 10 percent with principal due
on the earlier of thirty days after the closing date of the anticipated IPO or
March 31, 2000. As described above, the note was converted into cumulative
mandatory redeemable convertible preferred stock in February 1999.
Related Party Lease
During the years ended December 31, 1996, 1997 and 1998, the Company leased
a building in Washington D.C. for their corporate headquarters from a
stockholder. Rent expense of $180,000 was incurred
F-15
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
for this lease during the years ended December 31, 1996, 1997, and 1998.
Beginning in February 1999, the Company will be relocating to a new building in
Washington, D.C. that is approximately 45 percent owned by the same stockholder
and his spouse.
10.Stockholders' Deficit:
Common Stock
On April 22, 1998, an individual invested $1,000,000 in the Company in
exchange for approximately 317,000 shares of common stock. Since the Company
had not yet been reorganized, the investor received a 2.439 percent equity
interest in CAIS and Cleartel, subject to any future corporate restructurings.
In February 1999, the Company increased its authorized common stock from
25,000,000 to 100,000,000 shares of common stock.
Convertible Preferred Stock
In February 1999, the Company authorized the issuance of up to 25,000,000
shares of preferred stock, par value $0.01 per share. Of these authorized
shares, 2,827,168 shares have been designated as Series A Convertible Preferred
Stock, par value $0.01 per share (the "Series A Shares") and 1,119,679 shares
have been designated as Series B Cumulative Mandatory Redeemable Convertible
Preferred Stock, par value $0.01 per share (the "Series B Shares").
In February 1999, after the Spin-off, the Company issued 2,827,168 Series A
Shares for total gross proceeds of $11,500,000. The Company received $3,500,000
in cash, $1,500,000 of which was used to pay amounts due to Cleartel, and an
unconditional promissory note due in March 1999 for the remaining $8,000,000.
The Series A Shares are convertible at the option of the holder, initially on a
one-to-one basis into common stock. The shares automatically convert into
common stock upon certain events including a qualified IPO as defined in the
certificate of incorporation. The Series A Shares are entitled to a liquidation
preference equal to $11,500,000, plus a return of 8 percent per annum thereon,
and all accrued but unpaid dividends thereon. The Series A Shares vote with the
common stock on an as converted basis. The Series A Shares contain certain
protective provisions regarding significant business decisions affecting the
Company's future operations such as to increase the number of shares designated
as Series A; pay or declare dividends or redeem, repurchase or acquire shares
of junior stock; enter into certain employment agreements; enter into an
acquisition, merger, reorganization or re-capitalization transaction; enter
into financial commitments in excess of $250,000; and, liquidate or dissolve
the Company, among other protective provisions. The holders of the Series A
Shares may require the Company to redeem the shares on February 1, 2004 at a
price equal to the greater of the liquidation preference or the fair market
value. The Company also issued to the purchasers of the Series A Shares,
warrants to purchase a number of shares of common stock equal to 3.0% of the
total number of shares outstanding at the close of the IPO. The warrants will
have an exercise price equal to the price per share of common stock at the IPO.
In February 1999, after the Spin-off, the Company issued 1,119,679 Series B
Shares in exchange for indebtedness, including accrued interest, totaling
$4,557,000 payable by the Company to the Stockholders. Upon consummation of a
qualified IPO, as defined, the Company is required to redeem for cash
$3,000,000 of the face amount of the Series B Shares, plus a return of 8
percent per annum thereon, and all accrued but unpaid dividends thereon. Any
remaining Series B Shares convert into common stock at the IPO on the earlier
of a qualified IPO at the IPO price or the conversion of the Series A Shares
upon a nonqualified IPO. The Series B Shares are entitled to a liquidation
preference of $4,557,000, a return of 8 percent per annum thereon, plus all
accumulated but unpaid dividends thereon. The Series B Shares vote with the
common stock on a one-for-one basis. The Series B Shares also contain certain
protective provisions regarding
F-16
<PAGE>
CAIS INTERNET, INC.
(FORMERLY CGX COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
significant business decisions affecting the Company's future operations,
including voting rights with respect to increasing the number of shares
designated as Series B Shares, paying or declaring dividends to redeem,
repurchase or acquire shares of junior stock, and liquidating or dissolving the
Company.
EXECUTIVE STOCK OPTIONS
During 1997, the Company issued stock options to two members of executive
management as part of their four-year employment contracts. Since the Company
had not yet been reorganized at the time of the grants, the executives received
options to purchase equal interests in CAIS, Inc. and Cleartel. In February
1997, one of the members of executive management received options to acquire
approximately 301,000 shares of common stock at an exercise price of $1.19 per
share. One-third of these options vest at the earlier of the day the
underwriting agreement relating to an IPO is signed or the end of year three of
the employment contract and the remainder at the end of year four of the
employment contract. In September 1997, another member of executive management
received options to acquire approximately 1,733,000 shares of common stock at
an exercise price of $0.9732 per share. Approximately 97,000 options fully vest
on April 1, 1999. Of the remaining 1,636,000 options, 50 percent vest at the
end of employment years three and four, respectively. If the Company completes
an IPO prior to the end of employment year two, 75 percent of these remaining
options will vest on the day the underwriting agreement relating to an IPO is
signed, with the remaining 25 percent vesting at the end of employment year
four.
As a result of these grants, the Company recorded deferred compensation of
$4,930,000 to be amortized over the vesting period relating to these options.
The amount of deferred compensation was based upon the difference between the
estimated fair market value of the Company at the date of the grants and the
applicable exercise prices. Accordingly, the Company amortized $616,000 and
$1,426,000 for the years ended December 31, 1997 and 1998, respectively, in the
consolidated statements of operations.
EMPLOYEE STOCK OPTION PLAN
On March 24, 1998, the Company's stockholders approved the 1998 Equity
Incentive Plan (the "Stock Option Plan"). In February 1999, the Stock Option
Plan was amended and currently provides for the grant of both incentive and
nonstatutory stock options to eligible employees and consultants of the Company
and reserves 1,500,000 shares of common stock for issuance under the Stock
Option Plan. Options granted under the Stock Option Plan must have an exercise
price of no less than fair market value of the Company's common stock at the
date of grant and expire ten years after grant date. As of December 31, 1998,
approximately 912,000 shares were outstanding under the Stock Option Plan. The
stock options outstanding under the Stock Option Plan generally vest over three
to four year periods.
A summary of the Company's aggregate stock option activity and related
information under the Stock Option Plan, including the Executive Stock Options,
is as follows (in thousands, except per share prices):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
----------------- -----------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
period................................... -- $ -- 2,034 $1.00
Granted................................... 2,034 1.00 960 3.13
Exercised ................................ -- -- -- --
Forfeited................................. -- -- 48 3.07
----- ----- ----- -----
Options outstanding at end of period...... 2,034 $1.00 2,946 $1.66
===== ===== ===== =====
Options exercisable at end of period...... -- $-- -- $ --
===== ===== ===== =====
</TABLE>
F-17
<PAGE>
CAIS INTERNET, INC.
(FORMERLY CGX COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exercise prices for options outstanding under the Plan and for the Executive
Stock Options as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS WEIGHTED-AVERAGE
RANGE OF EXERCISE OUTSTANDING REMAINING CONTRACTUAL WEIGHTED-AVERAGE
PRICES (IN THOUSANDS) LIFE IN YEARS EXERCISE PRICE
- ----------------- ----------------- --------------------- ----------------
<S> <C> <C> <C>
$0.97 1,733 8.67 $0.97
$1.19 301 8.42 $1.19
$3.07 866 9.31 $3.07
$4.31 46 9.96 $4.31
----------- ----- ---- -----
$0.97-$4.31 2,946 8.85 $1.66
=========== ===== ==== =====
</TABLE>
The Company has elected to account for stock and stock rights in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and has
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation."
Had compensation cost for the Company's employee stock options been
determined based on fair value at the grant date, consistent with the
provisions of SFAS No. 123, the Company's net loss from continuing operations
and loss per share from continuing operations would have been (in thousands,
except per share data):
<TABLE>
<CAPTION>
1997 1998
------- --------
<S> <C> <C>
Loss from continuing operations pro forma............... $(4,859) $(12,125)
Basic and diluted loss per share from continuing
operations pro forma................................... $ (0.50) $ (1.23)
</TABLE>
The fair value of options granted in the years ended December 31, 1997 and
1998, were estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions: risk-free interest rates
of 5.68 and 4.55 percent, respectively, no dividend yield, weighted-average
expected lives of the options of 4 years, and expected volatility of 70
percent. There were no options granted in 1996.
The weighted-average fair value of options granted during the year ended
December 31, 1997 and 1998, were $2.64, and $1.75, respectively. For purposes
of pro forma disclosures, the estimated fair value of the options are amortized
to expense over the estimated service period. The options granted in 1997 were
granted below fair market value, while options granted in 1998 were granted at
fair market value.
11. INCOME TAXES:
Until the Company's Reorganization in October 1998, all earnings and losses
were passed through to the individual equity holders. At December 31, 1998, the
Company had net operating loss carryforwards of approximately $3,954,000 for
income tax purposes that expire in 2018. Net operating loss carryforwards are
subject to review and possible adjustment by the Internal Revenue Service and
may be limited in the event of changes in ownership pursuant to Section 382 of
the Internal Revenue Code.
The Spin-off of Cleartel in February 1999 was a taxable transaction.
Accordingly, the Company will be subject to income taxes on the excess of the
fair value of the spun-off assets (stock) over the Company's basis in the
assets distributed. Management believes that the net operating losses available
for carryforward into 1999 together with the losses expected to be generated in
1999 will offset any potential gain for income tax purposes. To the extent that
net operating losses are used to offset the taxable gain upon the Spin-off,
such operating losses will not be available to offset any future operating
income. If carryforward losses are used to offset the gain from the Spin-off,
the Company may be subject to the Alternative Minimum Tax ("AMT"). Any AMT
imposed would be allowed as a credit to offset future regular tax liability.
F-18
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's net deferred tax asset as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 1,582
Unearned stock compensation....................................... 817
Allowance for doubtful accounts................................... 635
Book over tax goodwill............................................ 190
Accrued vacation.................................................. 56
Other deferred tax assets......................................... 154
-------
Total deferred tax assets....................................... 3,434
Deferred tax liabilities:
Tax over book depreciation........................................ (84)
-------
Net deferred tax asset.............................................. 3,350
Valuation allowance for net deferred tax assets..................... (3,350)
-------
$ --
=======
</TABLE>
The Company has determined that the net deferred tax assets as of December
31, 1998 do not satisfy the recognition criteria set forth in SFAS No. 109.
Accordingly a valuation allowance was recorded against the applicable net
deferred tax assets.
12. Commitments and Contingencies:
Leases
The Company leases office space under noncancellable operating leases, one
of which was from a related party (see Note 9). The Company entered into a new
lease in 1999 for office space for its corporate headquarters. The lease term
will commence in February 1999 for a period of ten years. The initial base
annual rent will be approximately $861,000 per year with annual rent
escalations of 2 percent each year thereafter. The Company will have no
remaining lease obligation in its existing corporate headquarters office space,
after it has completed the office move.
The new building is approximately 45% owned by one of the principal
stockholders of the Company and his wife. The Company believes that the terms
of the lease, including the rental rate, are at least as favorable to the
Company as those which could have been negotiated with an unaffiliated third
party.
Total rental expense for operating leases, including related party rent, was
approximately $241,000, $300,000, and $329,000 for the years ended December 31,
1996, 1997, and 1998, respectively.
Minimum future lease payments at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
1999............................................................... $ 910
2000............................................................... 1,042
2001............................................................... 1,008
2002............................................................... 914
2003............................................................... 932
2004 and thereafter................................................ 5,080
------
$9,886
======
</TABLE>
F-19
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
OverVoice Litigation
The Company, one of its principal officers and the corporate inventor of
OverVoice (the "Corporate Inventor") were named as defendants in a federal
civil action filed in the Eastern District of New York in September 1998. The
plaintiff alleged patent infringement, unfair competition, breach of contract
and related claims. On January 24, 1999, the parties in this litigation signed
a Settlement Agreement (the "Settlement"). Under the terms of the Settlement,
the Company agreed to pay the plaintiff $500,000 as follows: $250,000 upon
dismissal of this action, $150,000 on or before July 1, 1999, and $100,000 on
or before July 1, 2000. The Company also agreed to issue the plaintiff 25,000
shares of common stock and to issue additional shares if the 25,000 shares,
multiplied by the price at which shares are issued in this offering, does not
equal or exceed $250,000. In exchange, the plaintiff also agreed to modify
their exclusive license agreement with the Corporate Inventor to a nonexclusive
agreement. As a result, the Company now has the right to install the OverVoice
technology in single family residences and food establishments. The Company
also granted the plaintiff the right to purchase an additional 25,000 shares of
common stock at the offering price in any IPO.
From time to time, certain other claims and suits have been filed or are
pending against the Company and senior management. In management's opinion,
resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Network Capacity
In June 1998, CAIS signed a Memorandum of Understanding ("MOU") with Qwest
Communications, Inc. This agreement will provide the basis for a long-term
contractual relationship to provide considerable nationwide bandwidth capacity
at prices which are significantly below the Company's current cost structures.
Although the agreement calls for a commitment to purchase $100 million of
services over a ten-year period, the commitment for the first three years of
the agreement only totals $5 million.
License and Royalty Agreement
In November 1996, the Company and the Corporate Inventor entered into a
license agreement that provided the Company with an option to acquire an
exclusive license to use, make, sub-license or sell the OverVoice technology,
subject only to certain geographical and pre-existing contract limitations
described in the license agreement. The Company paid $50,000 for this option
and an additional $50,000 when it exercised its option to acquire the license
in April 1997. Unless the Company terminates the license agreement, it will
remain in effect until the lapse of the last patent existing at the time of the
agreement or any additional patents filed during the term. Following the
exercise of the option, the Company agreed to expend up to $200,000 for
research and development efforts to design and build a system that incorporated
the patented technology, and to hire the individual inventor of OverVoice
("Individual Inventor") for a two year consulting contract.
The license agreement calls for royalties to be paid to the Corporate
Inventor equal to a variable percentage of net revenues, depending both upon
the specific type of service provided and the total annual revenue from all
services. The royalty percentage for services in which the Company is an active
participant either by selling proprietary equipment or by selling Internet
services ranges up to 5.5%. In cases where the Company is an inactive
participant and merely sub-licenses its rights, the Corporate Inventor receives
a royalty percentage that ranges from 40-70%. Management plans to remain an
active participant in all or substantially all OverVoice activities at this
time.
The Company has annual royalty obligations to the Corporate Inventor of
$100,000 for 1998 and increasing to a maximum of $250,000 per year during the
term of the agreement, unless the license agreement is terminated at the
Company's option.
F-20
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In August 1997, the Corporate Inventor and the Company signed an amendment
that states that the Company would advance funds for approved expenses related
to patent applications. As of December 31, 1997 and 1998, respectively, the
Company has recorded notes receivables for patent fund advances totaling
$38,000 and $82,000. These notes receivable balances have been fully reserved
in the accompanying consolidated balance sheets.
In a January 1999 amendment, the Company and the Corporate Inventor agreed
to transfer 50% of the patent ownership to the Company.
13. Segment Reporting
The Company has two reportable segments: "Internet Services" and
"OverVoice." During the years presented, the Company derived most of its
revenue from the sale of dedicated Internet access services, Web hosting and
dial-up Internet access ("Internet Services"). During 1998, the Company began
to market dedicated high-speed Internet access to hotels and multiple dwelling
units ("MDUs") using OverVoice.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Since OverVoice is a new
product, its revenues and costs are being reported on an incremental basis
without any allocations of corporate overhead. Interest is allocated based upon
the respective percentage of losses before interest of the two segments. The
evaluation of the OverVoice segment's performance is only based on the
accumulation of revenues and specific costs identified to OverVoice operations.
The following is a summary of information about each of the Company's
reportable segments that are used by the Company to measure the segment's
operations (in thousands):
<TABLE>
<CAPTION>
1998
--------------------------------
Internet
Services OverVoice Consolidated
-------- --------- ------------
<S> <C> <C> <C>
Revenues....................................... $ 5,278 $ 37 $ 5,315
Depreciation and amortization.................. 824 7 831
Interest expense............................... 802 288 1,090
Segment losses................................. (8,228) (3,340) (11,568)
Segment assets................................. 2,404 882 3,286
Expenditures for segment assets................ 623 812 1,435
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------
Internet
Services OverVoice Consolidated
-------- --------- ------------
<S> <C> <C> <C>
Revenues....................................... $ 4,556 $ -- $ 4,556
Depreciation and amortization.................. 678 -- 678
Interest expense............................... 238 45 283
Segment losses................................. (3,807) (779) (4,586)
Segment assets................................. 1,615 -- 1,615
Expenditures for segment assets................ 556 -- 556
</TABLE>
All 1996 results relate to the Internet Services segment except for $97,000
of research and development expenses.
F-21
<PAGE>
CAIS INTERNET, INC.
(formerly CGX Communications, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a reconciliation of the reportable segments' losses and
assets to the Company's consolidated totals (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Losses
Total losses for reportable segments........................ $(4,586) $(11,568)
Income (loss) from discontinued operations.................. 1,923 (671)
------- --------
Consolidated net loss....................................... $(2,663) $(12,239)
======= ========
Assets
Total assets for reportable segments........................ $ 1,615 $ 3,286
Total current assets, excluding reportable segment assets... 9,300 8,493
Deferred financing and offering costs, net.................. -- 529
Intangible assets, net...................................... 1,816 1,434
Noncurrent assets of discontinued operations................ 2,307 1,936
------- --------
Consolidated total assets................................... $15,038 $ 15,678
======= ========
</TABLE>
Major Customer and Geographical Information
During the year ended December 31, 1998, one customer in Hong Kong
represented 15 percent of the Company's consolidated net revenues.
Substantially all other net revenues were earned from customers in the United
States.
14. Regulatory Matters
At the present time, ISPs like the Company are not subject to direct
regulation by the Federal Communications Commission ("FCC") even though they
provide Internet access through transmission over public telephone lines.
However, as the growth of the Internet industry continues, there has been
considerable discussion and debate about whether the industry should be
subjected to regulation. This regulation could include universal service
subsidies for local telephone services and enhanced communications systems for
schools, libraries and certain health care providers. Local telephone companies
could be allowed to charge ISPs for the use of their local telephone network to
originate calls, similar to charges currently assessed on long distance
telecommunications companies. In addition, many state and local government
officials have asserted the right or indicated a willingness to impose taxes on
Internet-related services and commerce, including sales, use and excise taxes.
F-22
<PAGE>
Report of Independent Public Accountants
To Capital Area Internet Service, Inc.:
We have audited the accompanying statements of operations, changes in
stockholders' equity and cash flows of Capital Area Internet Service, Inc. (a
Virginia S corporation), for the period from January 1, 1996, to May 10, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Capital Area Internet
Service, Inc. and its cash flows for the period from January 1, 1996, to
May 10, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
February 19, 1999
F-23
<PAGE>
Capital Area Internet Service, Inc.
(Predecessor Company)
Statement of Operations
For the Period From January 1, 1996 to May 10, 1996
(In Thousands)
<TABLE>
<S> <C>
Net revenues............................................................ $1,287
Cost of services........................................................ 323
Operating expenses:
Selling, general and administrative................................... 339
Depreciation.......................................................... 42
------
Total operating expenses.......................................... 381
------
Income from operations.................................................. 583
Other income.......................................................... 2
------
Net income.............................................................. $ 585
======
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
Capital Area Internet Service, Inc.
(Predecessor Company)
Statement of Changes in Stockholders' Equity
For the Period From January 1, 1996 to May 10, 1996
(In Thousands)
<TABLE>
<CAPTION>
Common Stock Additional
-------------- Paid-In Retained
Shares Par Capital Earnings Total
------- ----- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996............... 1,000 $ 1 $474 $ 273 $ 748
Distribution to stockholders......... -- -- -- (500) (500)
Net income........................... -- -- -- 585 585
------- ----- ---- ----- -----
Balance, May 10, 1996.................. 1,000 $ 1 $474 $ 358 $ 833
======= ===== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
Capital Area Internet Service, Inc.
(Predecessor Company)
Statement of Cash Flows
For the Period From January 1, 1996 to May 10, 1996
(In Thousands)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income............................................................ $ 585
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation........................................................ 42
Changes in operating assets and liabilities:
Accounts receivable, net.......................................... (11)
Inventory......................................................... 57
Other current assets.............................................. (15)
Accounts payable.................................................. 85
Accrued liabilities............................................... 95
Unearned revenues................................................. 62
-----
Net cash provided by operating activities....................... 900
-----
Cash flows from investing activities:
Purchases of property and equipment................................... (225)
-----
Net cash used in investing activities........................... (225)
-----
Cash flows from financing activities:
Distribution to shareholders.......................................... (500)
-----
Net cash used in financing activities........................... (500)
-----
Net increase in cash.................................................... 175
Cash at January 1, 1996................................................. 113
-----
Cash at May 10, 1996.................................................... $ 288
=====
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
Capital Area Internet Service, Inc.
(Predecessor Company)
Notes to Financial Statements
For the Period From January 1, 1996 to May 10, 1996
1. Business Description:
Capital Area Internet Service, Inc. ("Capital Area"), a Virginia S corporation,
was formed in October 1995 as a tier one Internet services provider connecting
with other major Internet providers at various equipment locations in the
United States.
Capital Area was formerly known as Pimmit Run Research, a sole proprietorship,
from 1993 until its name and structure change in 1995.
Capital Area was acquired on May 10, 1996, by the owners of Cleartel through
their commonly-controlled Virginia "S" corporation, CAIS. CAIS purchased the
capital stock and operations of Capital Area for a purchase price of
approximately $3,100,000. The purchase was accounted for under purchase
accounting.
2. Significant Accounting Principles:
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
The Company records revenues for all telecommunications services when the
services are provided to customers. Amounts for services billed in advance of
the service period are recorded as unearned revenues.
Cost of Services
Cost of services represents primarily recurring expenses for the lease of data
facilities from national and local fiber providers. These direct charges
include long haul bandwidth and local interconnection charges.
Income Taxes
Capital Area was not subject to federal income taxes for the period from
January 1 through May 10, 1996. Any federal tax effects on Capital Area were
passed through to the Subchapter S shareholders.
3. Stockholders' Equity:
As of May 10, 1996, prior to the acquisition, Capital Area had 5,000 shares of
no par common stock authorized for issuance. Of these authorized shares, 1,000
shares were issued and outstanding to two individuals. In April 1996, the
shareholders received a distribution totaling $500,000 for taxes related to the
period prior to May 10, 1996.
F-27
<PAGE>
Capital Area Internet Service, Inc.
(Predecessor Company)
Notes to Financial Statements--(Continued)
For the Period From January 1, 1996 to May 10, 1996
4. Commitments and Contingencies:
Leases
Capital Area leased office space for their headquarters. Total rental expense
for operating leases was approximately $36,000 for the period from January 1
through May 10, 1996.
F-28
<PAGE>
[INSIDE BACK COVER]
The graphic is a map of the United States which illustrates our current
POPs as well as planned POPs to be installed in 1999 and 2000. Red lines
indicate the connections between POPs which will form our network backbone.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any informa-
tion or to represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus is an
offer to sell or a solicitation of an offer to buy only the shares offered
hereby, but only under circumstances and in jurisdictions where it is lawful
to do so. The information contained in this prospectus is current only as of
its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... iii
Cautionary Note Regarding Forward-Looking Information.................... iii
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 17
Dividend Policy.......................................................... 17
Capitalization........................................................... 18
Dilution................................................................. 19
Selected Financial Data.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 28
Management............................................................... 42
Principal Stockholders................................................... 50
Certain Relationships and Related Transactions........................... 51
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 60
Underwriting............................................................. 61
Legal Matters............................................................ 63
Index to Consolidated Financial Statements............................... F-1
Report of Independent Public Accountants................................. S-1
</TABLE>
Until , 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the shares of common stock, whether or not partici-
pating in this distribution, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
Shares
[INSERT LOGO]
Common Stock
----------------
PROSPECTUS
----------------
ING Baring Furman Selz LLC
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The table below sets forth the expenses to be incurred by the Company in
connection with the issuance and distribution of the shares registered for
offer and sale hereby, other than underwriting discounts and commissions. All
amounts shown represent estimates except the Securities Act of 1933, as amended
(the "Securities Act"), registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee under the Securities Act of 1933................... $20,850
NASD filing fee..................................................... 8,000
Nasdaq National Market fee.......................................... *
Printing expenses................................................... *
Registrar and Transfer Agent's fees and expenses.................... *
Accountants' fees and expenses...................................... *
Legal fees and expenses (not including Blue Sky).................... *
Blue Sky fees and expenses.......................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law (the "DGCL"), a
corporation may indemnify its directors, officers, employees and agents and its
former directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorney's fees), as well as judgement, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The DGCL provides,
however, that such person must have acted in good faith and in a manner such
person reasonably believed to be in (or not opposed to) the best interests of
the corporation and, in the case of a criminal action, such person must have
had no reasonable cause to believe his or her conduct was unlawful. In
addition, the DGCL does not permit indemnification in an action or suit by or
in the right of the corporation, where such person has been adjudged liable to
the corporation, unless, and only to the extent that, a court determines that
such person fairly and reasonably is entitled to indemnity for costs the court
deems proper in light of liability adjudication. Indemnity is mandatory to the
extent a claim, issue or matter has been successfully defended.
The Company's Certificate of Incorporation and By-Laws provide that, to the
extent permitted by law, the Company shall fully indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending,
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was or has agreed to become a director, officer, employee, or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, employee benefit, plan or other enterprise, or by reason of any action
alleged to have been taken or omitted in such capacity, and may indemnify any
person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that the person is or was or
has agreed to become an employee or agent of the Company, or is or was serving
or has agreed to serve at the request of the Company as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding and any appeal therefrom, if the person acted
in good faith and in a manner reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect
II-1
<PAGE>
to any criminal action or proceeding had no reasonable cause to believe the
person's conduct was unlawful; except that in the case of an action or suit by
or in the right of the Company to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such proceeding, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Company unless and only to the extent that the Delaware Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
The Certificate of Incorporation and By-Laws further provide that the
Company shall advance expenses incurred by a director or officer in defending
any such action if the director or officer undertakes to repay such amount if
it is determined that the director or officer is not entitled to
indemnification. The Company also shall purchase and maintain insurance to
protect itself and any such director, officer, or other person against any
liability asserted against him and incurred by him in respect of such service
whether or not the Company would have the power to indemnify him against such
liability by law or under the provisions of the Company's Certificate of
Incorporation or By-Laws.
Further, the Company has entered into indemnification agreements with its
directors and certain of its senior executive officers. Pursuant to the terms
of the indemnification agreements, each of the senior executive officers and
directors of the Company will be indemnified by the Company to the fullest
extent permitted by Delaware law in the event such officer is made or
threatened to be made a party to a claim arising out of such person acting in
his capacity as an officer or director of the Company.
Additionally, the Underwriting Agreement provides for indemnification by the
Underwriters of the directors, officers and controlling persons of the Company
against certain liabilities, including liabilities under the Securities Act,
under certain circumstances.
Item 15. Recent Sales of Unregistered Securities.
The following paragraphs of this Item 15 describe all sales of securities by
the Company within the past three years which were not registered under the
Securities Act.
On January 1, 1998, the Company issued:
4,214,275 shares of common stock to Ulysses G. Auger, Sr. for the
aggregate consideration of $42,142.75.
4,314,687 shares of common stock to Ulysses G. Auger, II for the
aggregate consideration of $43,146.87.
8,450 shares of common stock to The Constandinos Ulysses
Francisco Auger Economides Trust for the aggregate consideration
of $84.50.
8,450 shares of common stock to The Constandina Francisca Auger
Economides Trust for the aggregate consideration of $84.50.
8,450 shares of common stock to The Vassiliki Illias Auger
Economides Trust for the aggregate consideration of $84.50.
8,450 shares of common stock to The Annabel-Rose Auger Trust for
the aggregate consideration of $84.50.
8,450 shares of common stock to The James Frederick Auger Trust
for the aggregate consideration of $84.50.
II-2
<PAGE>
8,450 shares of common stock to The Ulysses George Hawthorne Auger, III
Trust for the aggregate consideration of $84.50;
8,450 shares of common stock to The Alexander Robert Auger Trust for the
aggregate consideration of $84.50;
8,450 shares of common stock to The Gregory Ulysses Auger, II Trust for
the aggregate consideration of $84.50;
8,450 shares of common stock to The Bridgette Kathryn Auger Trust for
the aggregate consideration of $84.50; and
8,450 shares of common stock to The Nicholas William Randolph Auger
Trust for the aggregate consideration of $84.50.
On April 22, 1998, 317,073 shares of common stock were issued to R. Theodore
Ammon at a price of $3.15378 per share for an aggregate price of $1,000,000.
On October 2, 1998, in connection with the Reorganization, the Company
exchanged 5,349.7 shares of common stock for each 1% limited partnership
interest in Cleartel LP, 62,938 shares of common stock for each share of
Cleartel common stock and 500 shares of common stock for each share of CAIS,
Inc. common stock. As a result, the Company issued an aggregate of 1,034,970
shares of common stock as follows:
Ulysses G. Auger, Sr., 245,000 shares of common stock in exchange for
his shares of CAIS, Inc. and 267,483 shares of common stock in exchange
for his shares of Cleartel and limited partnership interest in Cleartel
LP;
Ulysses G. Auger, II, 250,000 shares of common stock in exchange for his
shares of CAIS, Inc. and 259,527 shares of common stock in exchange for
his shares of Cleartel and limited partnership interest in Cleartel LP;
The Constandinos Ulysses Francisco Auger Economides Trust, 500 shares of
common stock in exchange for its shares of CAIS, Inc. and 796 shares of
common stock in exchange for its shares of Cleartel and limited
partnership interest in Cleartel LP;
The Constandina Francisca Auger Economides Trust, 500 shares of common
stock in exchange for its shares of CAIS, Inc. and 796 shares of common
stock in exchange for its shares of Cleartel and limited partnership
interest in Cleartel LP;
The Vassiliki Illias Auger Economides Trust, 500 shares of common stock
in exchange for its shares of CAIS, Inc. and 796 shares of common stock
in exchange for its shares of Cleartel and limited partnership interest
in Cleartel LP;
The Annabel-Rose Auger Trust, 500 shares of common stock in exchange for
its shares of CAIS, Inc. and 796 shares of common stock in exchange for
its shares of Cleartel and limited partnership interest in Cleartel LP;
The James Frederick Auger Trust, 500 shares of common stock in exchange
for its shares of CAIS, Inc. and 796 shares of common stock in exchange
for its shares of Cleartel and limited partnership interest in Cleartel
LP;
The Ulysses George Hawthorne Auger, III Trust, 500 shares of common
stock in exchange for its shares of CAIS, Inc. and 796 shares of common
stock in exchange for its shares of Cleartel and limited partnership
interest in Cleartel LP;
The Alexander Robert Auger Trust, 500 shares of common stock in exchange
for its shares of CAIS, Inc. and 796 shares of common stock in exchange
for its shares of Cleartel and limited partnership interest in Cleartel
LP;
II-3
<PAGE>
The Gregory Ulysses Auger, II Trust, 500 shares of common stock in
exchange for its shares of CAIS, Inc. and 796 shares of common stock in
exchange for its shares of Cleartel and limited partnership interest in
Cleartel LP;
The Bridgette Kathryn Auger Trust, 500 shares of common stock in
exchange for its shares of CAIS, Inc. and 796 shares of common stock in
exchange for its shares of Cleartel and limited partnership interest in
Cleartel LP; and
The Nicholas William Randolph Auger Trust, 500 shares of common stock in
exchange for its shares of CAIS, Inc. and 796 shares of common stock in
exchange for its shares of Cleartel and limited partnership interest in
Cleartel LP.
On October 2, 1998, the Company granted options for 97,465 shares of common
stock to William M. Caldwell, IV, at an exercise price of $.9732 per share in
exchange for Mr. Caldwell's ownership interest in CAIS, Inc.
In connection with their respective employment agreements, on October 2,
1998, Messrs. Caldwell and Anderson were issued replacement options as follows:
Options for 1,635,610 shares of common stock were granted to William M.
Caldwell, IV, at an exercise price of $.9732 per share.
Options for 301,420 shares of common stock were granted to Evans K.
Anderson, at an exercise price of $1.1942 per share.
On October 2, 1998, pursuant to the ING Credit Agreement dated September 4,
1998, the Company executed a Warrant Certificate issuing warrants to purchase
an aggregate of 390,000 shares of common stock, at an exercise price of $.01
per share, to ING (U.S.) Capital Corporation, or its registered assigns.
On January 24, pursuant to a Settlement Agreement, the Company agreed to
issue 25,000 shares of common stock to Terk Technologies Corp. ("Terk") and, if
necessary, such additional shares of common stock such that the total shares
delivered to Terk multiplied by the initial public offering price equals
$250,000. The Company also granted Terk the right to purchase up to 25,000
additional shares of common stock as part of this initial public offering in
connection with the Company's directed share program.
On February 12, 1999, pursuant to a private placement and in exchange for
approximately $4.6 million of indebtedness owed by the Company or CAIS, Inc. to
Ulysses G. Auger, Sr. and Ulysses G. Auger, II, the Company issued 1,119,679
Series B Shares to Ulysses G. Auger, Sr. and Ulysses G. Auger, II.
On February 19, 1999, pursuant to a private placement, the Company issued:
2,458,407 Series A Shares and warrants to purchase an aggregate of 2.61% of
the total outstanding shares of common stock upon completion of this
offering on a fully diluted basis (except for shares issued upon the
conversion of the Series B Shares), at an exercise price of the initial
public offering price per share to Chancery Lane, L.P. for the aggregate
consideration of $10,000,000; and
368,761 Series A Shares and warrants to purchase an aggregate of .39% of the
total outstanding shares of common stock upon completion of this offering on
a fully diluted basis (except for shares issued upon the conversion of the
Series B Shares), at an exercise price of the initial public offering price
per share to CAIS-Sandler Partners, L.P. for the aggregate consideration of
$1,500,000.
Amended and Restated Stock Option Plan. See "Management--Amended and
Restated Stock Option Plan," which is incorporated by reference herein from the
prospectus included in Part I of this registration statement.
II-4
<PAGE>
Each issuance of securities described above was made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act as a
transaction by an issuer not involving any public offering. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with the Company, to information about the Company.
Item 16. Exhibits and Financial Statement Schedules
(A) Exhibits.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit
Number Description
------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of CAIS Internet, Inc.
3.2 Amended and Restated By-Laws of CAIS Internet, Inc.
4.1 Specimen Common Stock Certificate.
4.2 Warrant Agreement, dated September 4, 1998.
4.3 Common Stock Warrant, among CAIS Internet, Inc. and Chancery Lane,
L.P., dated February 19, 1999.
4.4 Common Stock Warrant, among CAIS Internet, Inc. and CAIS-Sandler
Partners, L.P., dated February 19, 1999.
4.5 Stockholders Agreement, dated February 19, 1999.
**5.1 Opinion of Swidler Berlin Shereff Friedman, LLP.
10.1 Investment Agreement, among the Company, CAIS, Inc. and R. Theodore
Ammon, dated April 22, 1998.
*10.2 Credit Agreement, as amended, by ING (U.S.) Capital Corporation to the
Company, CAIS, Inc. and certain of the Company's affiliates for
$7,000,000, dated September 4, 1998.
10.3 Series A Preferred Stock and Warrant Purchase Agreement, among the
Company, Chancery Lane, L.P. and CAIS-Sandler Partners, L.P., dated
February 19, 1999.
10.4 Exchange Agreement, among the Company, the limited partners of
Cleartel LP, Cleartel, Inc. and the shareholders of Cleartel, Inc.,
dated October 2, 1998.
10.5 Agreement of Merger among the Company, CAIS, Inc. and CGX2 Merger
Corp., dated October 2, 1998.
10.6 Amended and Restated Employment Agreement, among CAIS, Inc. and Evans
K. Anderson, dated June 3, 1997.
10.7 Assignment and Assumption Agreement and Release, among the Company,
CAIS, Inc. and Evans K. Anderson, dated October 2, 1998.
*10.8 Amendment to Amended and Restated Employment Agreement, among the the
Company, CAIS, Inc. and Evans K. Anderson, dated February 22, 1999.
10.9 Amended and Restated Employment Agreement, among CAIS, Inc. and
William M. Caldwell, IV, dated September 8, 1997.
10.10 Assignment and Assumption Agreement and Release, among the Company,
CAIS, Inc. and William M. Caldwell, IV, dated October 2, 1998.
*10.11 Amendment to Amended and Restated Employment Agreement, among the
Company, CAIS, Inc. and William M. Caldwell, IV, dated February 22,
1999.
10.12 Employment Agreement, among the Company and Laura Neuman, dated June
29, 1998.
P10.13 Agreement for Cooperative Use of Communication Patents, Purchase of an
Option to Obtain Intellectual Property Rights, among Inline Connection
Corporation and CAIS, Inc., dated November 5, 1996.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit
Number Description
------- -----------
<C> <S>
10.14 Letter Agreement Extending Option Period provided in the Agreement for
Cooperative Use of Communication Patents, among Inline Connection
Corporation and CAIS, Inc., dated February 28, 1997.
10.15 Letter Exercising Option Pursuant to Agreement for Cooperative Use of
Communication Patents, among Inline Connection Corporation and CAIS,
Inc., dated April 4, 1997.
10.16 Letter Amendment Agreement to Agreement for Cooperative Use of
Communication Patents, among Inline Connection Corporation and CAIS,
Inc., dated August 1, 1997.
10.17 Letter Amendment Agreement to Agreement for Cooperative Use of
Communication Patents, among Inline Connection Corporation and CAIS,
Inc., dated October 21, 1997.
10.18 Application Transfer for Inline PCT Serial No. PCT/US97/12045, among
Inline Connection Corporation and CAIS, Inc., dated January 6, 1999.
10.19 Assignment of USSN 08/893,403 and PCT/US97/12045, among Inline
Connection Corporation and CAIS, Inc., dated January 6, 1999.
10.20 Letter Amendment Agreement to Agreement for Cooperative Use of
Communication Patents among Inline Connection Corporation and CAIS,
Inc., dated January 26, 1999.
10.21 Assignment of 50% of Certain Patent Properties, among Inline
Connection Corporation and CAIS, Inc., dated January 26, 1999.
10.22 Assignment of Certain Trademarks, among Cleartel Communications, Inc.
and CAIS, Inc., dated February 9, 1999.
10.23 CAIS Internet Services Agreement, among CAIS, Inc. and Hongkong
Telecom, dated October 24, 1997.
10.24 Collaboration on IPORT Market Trial Agreement, among CAIS, Inc. and
Microsoft Corporation, dated February 18, 1998.
P10.25 CAIS IPORT Integrator License Agreement, among CAIS and ATCOM, Inc.
d/b/a ATCOM/INFO dated September 10, 1998.
P10.26 Marketing Associate Solution Alliance Agreement, among CAIS, Inc. and
Unisys Corporation, dated November 11, 1998.
P10.27 Master License Agreement for High Speed Internet Service, among Hilton
Hotels Corporation and CAIS, Inc., dated December 23, 1998.
P10.28 Agreement for High Speed Internet Access Service in Multiple Dwelling
Units, among CAIS, Inc. and OnePoint Communications Corp., dated
February 19, 1999.
10.29 Deed of Lease, among Ramay Family Partnership and CAIS, Inc., dated
July 28, 1997.
10.30 Deed of Lease, among Ramay Family Partnership and CAIS, Inc., dated
May 28, 1998.
10.31 Office Building Lease for 1255 22nd Street, among 1255 22nd Street
Associates Limited Partnership and the Company, dated November 21,
1998.
10.32 Settlement Agreement, among CAIS, Inc. and Terk Technologies Corp.,
dated January 24, 1999.
10.33 The Company's Amended and Restated 1998 Equity Incentive Plan, dated
February 12, 1999.
**21.1 List of Subsidiaries.
**23.1 Consent of Swidler Berlin Shereff Friedman, LLP (filed as part of
Exhibit 5.1).
**23.2 Consent of Arthur Andersen, LLP.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit
Number Description
------- -----------
<C> <S>
**24.1 Power of Attorney (set forth on signature page).
*27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
p Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the SEC.
(B) Financial Statement Schedules.*
* To be completed by amendment.
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
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by 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 Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 Securities 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, 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this amendment to Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Washington D.C.,
on March 16, 1999.
CAIS INTERNET, INC.
/s/ Ulysses G. Auger, II
By: __________________________________
Ulysses G. Auger, II
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Ulysses G. Auger, II, and William M.
Caldwell, IV, and each of them acting individually, as his attorneys-in-fact
and agents, each with full power of substitution and resubstitution, for him in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to Registration Statement has been signed by the following persons
in the capacities indicated on March 16, 1999.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
Chairman of the Board and Chief Executive
- ----------------------------- Officer (Principal Executive Officer)
Ulysses G. Auger, II
* President and Director March 16, 1999
- -----------------------------
William M. Caldwell, IV
* Vice President, Treasurer and Chief Financial March 16, 1999
- ----------------------------- Officer (Principal Financial and Accounting
Barton R. Groh Officer)
* Director March 16, 1999
- -----------------------------
Ulysses G. Auger, Sr.
* Director March 16, 1999
- -----------------------------
Richard F. Levin
* Director March 16, 1999
- -----------------------------
Vernon L. Fotheringham
Director
- -----------------------------
R. Theodore Ammon
</TABLE>
*Ulysses G. Auger, II, by signing his name hereto signs this document on behalf
of each of the persons so indicated above pursuant to the powers of attorney
duly executed by such persons and previously filed with the Securities and
Exchange Commission.
II-8
<PAGE>
Report of Independent Public Accountants
To CAIS Internet, Inc. and subsidiaries
(formerly CGX Communications, Inc.):
We have audited, in accordance with generally accepted auditing standards,
the financial statements of CAIS Internet, Inc. (a Delaware corporation,
formerly CGX Communications, Inc.) and subsidiaries, included in this
Registration Statement and have issued our report thereon dated February 19,
1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule II--Valuation and
Qualifying Accounts is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
February 19, 1999
S-1
<PAGE>
CAIS Internet, Inc.
(formerly CGX Communications, Inc.)
Schedule II--Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1997 and 1998
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs End of
Description of Period and Expenses Deductions(a) Period
----------- ---------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Deduction on the Balance
Sheet from the asset to
which it applies:
Allowance for doubtful
accounts
Year ended December 31,
1996...................... $ 52 $173 $ (88) $137
Year ended December 31,
1997...................... 137 106 (64) 179
Year ended December 31,
1998...................... 179 80 (122) 137
</TABLE>
- --------
(a) Represents amounts written off as uncollectible.
S-2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CGX COMMUNICATIONS, INC.
CGX Communications, Inc. (the "Corporation"), a corporation organized and
-----------
existing under the General Corporation Law of the State of Delaware, hereby
certifies as follows:
1. The name of the corporation is CGX Communications, Inc. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of the State of Delaware on December 4, 1997.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware (the "Corporation Law"), this Amended and Restated Certificate
---------------
of Incorporation (this "Restated Certificate") (it being understood that any
--------------------
references to this Restated Certificate shall include any duly authorized
certificate of designation) amends and restates the existing Certificate of
Incorporation of the Corporation in its entirety.
______________________________________________________________________________
ARTICLE I
The name of this Corporation is CAIS Internet, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 15 East North Street, City of Dover, County of Kent, Delaware 19901. The
name of the Corporation's registered agent at such address is HIQ Corporate
Services, Inc.
ARTICLE III
The nature of the business or purposes to be conducted by 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.
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two
----------------
classes of capital stock to be designated respectively "Common Stock" and
------------
"Preferred Stock." The total number of shares of Common Stock the Corporation
- ----------------
shall have authority to issue is 100,000,000 with par value of $.01 per share.
The total number of shares of Preferred Stock the Corporation shall have
authority to issue is 25,000,000 with par value of $.01 per share, of which
2,827,168 shares shall be designated
<PAGE>
as Series A Preferred Stock (the "Series A Preferred"), and 1,119,679 shares
------------------
shall be designated as Series B Preferred Stock (the "Series B Preferred"). The
------------------
Board of Directors is expressly authorized to provide for the classification and
reclassification of any unissued shares of Preferred Stock and the issuance
thereof in one or more classes or series without the approval of the
stockholders.
B. Rights, Preferences, Privileges and Restrictions of Preferred Stock
-------------------------------------------------------------------
Generally. The Preferred Stock authorized hereby may be issued from time to time
- ---------
in one or more series ("Series"). Subject to compliance with applicable
------
protective voting rights which may have been or may be granted to the Preferred
Stock or any Series thereof in any certificates of designation or the
Corporation's certificate of incorporation as amended from time to time (the
"Certificate of Incorporation") (collectively, the "Protective Provisions"), but
- ----------------------------- ---------------------
notwithstanding any other rights of the Preferred Stock or any Series thereof,
the Board of Directors expressly is authorized to provide by resolution and by
filing a certificate of designation pursuant to the Delaware General Corporation
Law, for the issuance from time to time of the shares of Preferred Stock in one
or more Series, to establish from time to time the number of shares to be
included in each such Series, and to fix the designation, powers, preferences
and other rights of the shares of each such Series and to fix the
qualifications, limitations and restrictions thereon, including, but without
limiting the generality of the foregoing, the following: (i) the number of
shares constituting that Series and the distinctive designation of that Series;
(ii) the dividend rate on the shares of that Series, whether dividends shall be
cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of that Series; (iii)
whether that Series shall have voting rights, in addition to the voting rights
provided by law, and, if so, the terms of such voting rights; (iv) whether that
Series shall have conversion privileges and, if so, the terms and conditions of
such conversion, including provision for adjustment of the conversion rate in
such events as the Board of Directors shall determine; (v) whether or not the
shares of that Series shall be redeemable, and, if so, the terms and conditions
of such redemption, including the dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates; (vi)
whether that Series shall have a sinking fund for the redemption or purchase of
shares of that Series, and, if so, the terms and amount of such sinking fund;
(vii) the rights of the shares of that Series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that Series; and
(viii) any other relative powers, preferences and rights of that series, and
qualifications, limitations or restrictions on that Series. Subject to
compliance with the applicable Protective Provisions, privileges, preferences
and restrictions of any such additional Series of Preferred Stock may be
subordinated to, pari passu with (including, without limitation, with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
Series of Preferred Stock or class of Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors also is authorized to
increase or decrease the number of shares of any Series of Preferred Stock
(other than the Series A Preferred or the Series B Preferred), prior or
subsequent to the issue of that Series, but not below the number of shares of
such Series then outstanding. In case the number of shares of any Series of
Preferred Stock 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. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Preferred Stock of each Series shall
2
<PAGE>
be entitled to receive only such amount or amounts as shall have been fixed by
the Certificate of Incorporation, any applicable certificate of designations or
by the resolution or resolutions of the Board of Directors providing for the
issuance of such Series.
C. Rights, Preferences, Privileges and Restrictions of Series A
------------------------------------------------------------
Preferred, Series B Preferred and Common Stock. The rights, preferences,
- ----------------------------------------------
privileges and restrictions granted to and imposed upon the Series A Preferred,
the Series B Preferred and the Common Stock are as set forth below in this
Division C.
1. Dividend Rights. The holders of Series A Preferred and the Series B
---------------
Preferred each shall be entitled to receive, when, as and if declared by the
Corporation's Board of Directors, out of assets of the Corporation that are by
law available for such payment, for all distributions of funds and assets of the
Corporation, dividends at the same time and on the same basis as the holders of
Common Stock (each holder of shares of Series A Preferred and Series B Preferred
to be entitled to the same amount of dividends as would have been declared or
paid thereon had such shares been converted into Common Stock as of the record
date fixed for determining the holders of Common Stock entitled to receive such
dividends).
2. Liquidation Rights.
------------------
(a) (i) In the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the holders of Series A
Preferred shall be entitled to receive, prior and in preference to any
distribution of any assets of the Corporation to the holders of the Series B
Preferred or the Common Stock by reason of their ownership thereof, an amount
(the "Series A Preferred Preferential Amount") equal to the sum of (A) $4.07 per
--------------------------------------
share as appropriately adjusted for any stock dividends, combinations, splits or
the like with respect to such shares (the "Original Series A Issue Price"), (B)
-----------------------------
annual interest thereon from the date of issuance of the Series A Preferred to
the date of the payment of the liquidating distribution at a rate equal to eight
percent per annum and (C) an amount equal to all declared but unpaid dividends
on such shares. If in the event of any liquidation, dissolution or winding up
of the Corporation, either voluntary or involuntary, the assets and funds thus
distributed among the holders of the Series A Preferred shall be insufficient to
permit the payment to such holders of the full aforesaid Series A Preferred
Preferential Amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of the Series
A Preferred in proportion to the aggregate Series A Preferred Preferential
Amount of all shares of Series A Preferred then held by them bears to the
aggregate Series A Preferential Amount of all shares of Series A Preferred
outstanding as of the date of the liquidating distribution upon the occurrence
of such event.
(b) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, and after payment has been made to
the holders of the Series A Preferred of the full Series A Preferential Amount,
the holders of Series B Preferred shall be entitled to receive, prior and in
preference to any distribution of assets of the Corporation to the holders of
the Common Stock by reason of their ownership thereof, an amount (the "Series B
--------
Preferred Preferential Amount") equal to the sum of (i) $4.07 per share as
- -----------------------------
appropriately adjusted for any stock dividends, combinations, splits or the like
with respect to such shares (the
3
<PAGE>
"Original Series B Issue Price"), (ii) annual interest thereon from the date of
-----------------------------
issuance of the Series B Preferred at a rate equal to eight percent per annum
and (iii) an amount equal to all declared but unpaid dividends on such shares.
If in the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the assets and funds thus
distributed among the holders of the Series B Preferred shall be insufficient to
permit the payment to such holders of the full aforesaid Series B Preferred
Preferential Amount, then the entire assets and funds of the Corporation legally
available for distribution (after payment of the full Series A Preferential
Amount) shall be distributed among the holders of the Series B Preferred in
proportion to the aggregate Series B Preferred Preferential Amount of all shares
of Series B Preferred then held by them bears to the aggregate Series B
Preferential Amount of all shares of Series B Preferred outstanding as of the
date of the liquidating distribution upon the occurrence of such event.
(c) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after payment has been made to
the holders of the Series A Preferred and Series B Preferred of the full amounts
to which they shall be entitled as aforesaid, the holders of the Series A
Preferred (assuming for such purposes the conversion thereof into Common Stock)
and the Common Stock shall be entitled to share ratably in the entire remaining
assets and funds of the Corporation legally available for distribution, based on
the number of shares of Common Stock held.
(d) Notwithstanding the foregoing paragraphs (a) through (c), in the
event of any liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, if the total value of the assets that would be
available for distribution after payment of the full Series B Preferential
Amount (but prior to the payment of the Series A Preferential Amount) to the
holders of the Common Stock (assuming for purposes of such calculation the
conversion of all securities convertible into Common Stock), is equal to or
greater than $8.14 per share (as adjusted appropriately for stock dividends,
combinations, splits or the like), then all such assets shall be distributed (i)
first, to the holders of the Series B Preferred in payment of the full Series B
Preferential Amount, pro rata based upon the number of shares of Series B
Preferred owned by each stockholder and no more, and (ii) second, to the holders
of the Series A Preferred and the Common Stock pro rata based upon the number
of shares of Common Stock owned by each stockholder (assuming for such purposes
the conversion of all Series A Preferred into Common Stock).
(e) (i) At the affirmative election (by vote or written consent, as
provided by law) of the holders of a majority in the aggregate of the then
outstanding shares of Series A Preferred, for purposes of this Section 2, a
liquidation, dissolution or winding up of the Corporation shall be deemed to be
occasioned by, and to include, the following: (A) the acquisition of a majority
of the voting power of the Corporation by another entity or person or group of
entities or persons by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation, but excluding any merger effected exclusively for the purpose of
changing the domicile of the Corporation); (B) the sale of all or substantially
all of the assets of the Corporation; (unless in either case specified in clause
(A) or (B) the Corporation's stockholders of record as constituted immediately
prior to such acquisition or sale will, immediately
4
<PAGE>
after such acquisition or sale (by virtue of securities issued as consideration
for the Corporation's acquisition or sale or otherwise) hold at least 50% of the
voting power of the surviving or acquiring entity); and (C) a Triggering Event
(as hereinafter defined). Any such transaction contemplated by clause (A) or (B)
of this subsection IV.C.2(e)(i) shall be hereinafter referred to as a "Corporate
---------
Transaction." The term "Triggering Event" shall mean any of the following
- ------------ ----------------
events:
(A) the signing by an authorized officer of the Corporation
of a petition for relief under Title 11, United States Code, as currently in
effect or amended;
(B) the commencement of any involuntary bankruptcy case or
other proceeding against the Corporation under Title 11, United States Code, as
currently in effect or amended (provided that if such case or proceeding is
dismissed within 60 days after the date of such commencement, then a Triggering
Event arising solely pursuant to this clause (B) as a result of such case or
proceeding shall be dismissed) or the appointment of a trustee, receiver,
liquidator, custodian or sequestrator (or other similar official) for the
Corporation or any substantial part of its property;
(C) the making by the Corporation of an assignment for the
benefit of creditors generally; or
(D) the failure or inability of the Corporation to pay its
debts generally as they become due.
(ii) If the consideration received by the Corporation in any
Corporate Transaction is other than cash, for purposes of determining the value
of any assets of the Corporation which are to be distributed to the stockholders
of the Corporation in any liquidation, winding up or dissolution, its value will
be deemed to be its fair market value, as determined below:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability covered by subsection
IV.C.2(e)(ii)(B) below:
(1) if traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or market over the 30-day
period ending three days prior to the closing;
(2) if actively traded over-the-counter other than
through the Nasdaq National Market, the value shall be deemed to be the average
of the closing bid or sale prices (whichever is applicable) over the 30-day
period ending three days prior to the closing; and
(3) if there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of a majority of the voting power of all then
outstanding shares of Preferred Stock, with holders of a majority of the shares
of Series A Preferred voting in favor thereof.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a
5
<PAGE>
stockholder's status as an affiliate or former affiliate) shall be to make an
appropriate discount from the market value determined as above in subsection
IV.C.2(e)(ii)(A)(1), (2) or (3) to reflect the approximate fair market value
thereof, as mutually determined by the Corporation and the holders of a majority
of the voting power of all then outstanding shares of Preferred Stock, with
holders of a majority of the shares of Series A Preferred voting in favor
thereof.
(C) The value of assets other than securities will be
their fair market value as mutually determined by the Corporation and the
holders of a majority of the voting power of all then outstanding shares of
Preferred Stock, with holders of a majority of the shares of Series A Preferred
voting in favor thereof.
(D) If the Corporation and holders of Preferred Stock are
unable mutually to determine the value of any securities or other assets as
provided above, then the fair market value of such securities or other assets
shall be determined as follows:
(1) The Corporation and a representative (the
"Representative") of the holders of a majority of the voting power of all then
--------------
outstanding shares of Preferred Stock shall negotiate in good faith to determine
the fair market value of such securities or assets. Such Representative shall be
selected by holders of a majority of the voting power of all the outstanding
shares of Preferred Stock, with the holders of a majority of the shares of
Series A Preferred voting in favor thereof. If the Corporation and the
Representative so agree, the fair market value shall be the amount so agreed
upon.
(2) If no such agreement is reached within 30 days
after negotiations commence, the Corporation, subject to the approval of the
Representative (which approval shall not be unreasonably withheld, conditioned
or delayed), shall within 15 business days thereafter select an investment
banker to value such securities or assets. Such investment banker shall be of
national standing and shall be independent of parties to the dispute. The
Corporation shall give the representatives of the investment banker full access
to all information that they may reasonably request concerning the Corporation.
Within 30 days of its selection, such investment banker shall determine the fair
market value for such securities or assets, which determination shall be final
and binding. The costs of the investment banker shall be paid solely by the
Corporation.
(3) The investment banker appointed for purposes of
determining the fair market value of such securities or assets may apply such
factors and discounts as are customarily utilized.
(iii) The Corporation shall give each holder of record of
Preferred Stock written notice of such impending Corporate Transaction not later
than 20 days prior to the stockholders' meeting called to approve such Corporate
Transaction, or 20 days prior to the closing of such Corporate Transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such Corporate Transaction. The first of such notices shall describe
the material terms and conditions of the impending Corporate Transaction and the
provisions of this Section 2, and the Corporation shall thereafter give such
holders prompt notice of any material changes. The Corporate Transaction shall
in no event take place sooner than 20 days after the Corporation has
6
<PAGE>
given the first notice provided for herein or sooner than ten days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of Preferred Stock then outstanding.
3. Conversion. The holders of the Series A Preferred and Series B
----------
Preferred shall have conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Each share of Series A Preferred shall be convertible, at the
option of the holder and without payment of additional consideration, at any
time after the date of issuance of such share, at the office of the Corporation
or any transfer agent for such stock, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Series A Issue Price by the Series A Conversion Price, determined as hereafter
provided, in effect on the date the certificate is surrendered for conversion.
The initial price at which shares of Common Stock shall be deliverable upon
conversion of shares of each series of Series A Preferred (the "Series A
--------
Conversion Price") shall be the Original Series A Issue Price; provided,
- ----------------
however, that the Series A Conversion Price shall be subject to adjustment as
hereinafter provided.
(b) (i) Each share of Series A Preferred shall automatically be
converted into fully paid and nonassessable shares of Common Stock upon the
occurrence of the earliest of any one of the following events (the "Series A
--------
Mandatory Conversion Events"):
- ---------------------------
(A) Upon the affirmative vote of the holders of at least 75
percent of the outstanding Series A Preferred voting separately as a class to
cause all outstanding shares of Series A Preferred to be converted.
(B) Upon the closing of a firm commitment 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 Corporation to the public at (1)
a per share public offering price (prior to underwriter commissions and offering
expenses) of not less than $8.14 (appropriately adjusted for any stock splits,
stock dividends, recapitalizations and similar transactions) and (2) an
aggregate price (prior to underwriter's commissions and offering expenses) of
not less than $35,000,000 (such offering a "Qualified IPO"). In the event of the
-------------
automatic conversion of the Series A Preferred upon the closing of a Qualified
IPO as aforesaid, the person(s) entitled to receive the Common Stock issuable
upon such conversion of the Series A Preferred shall not be deemed to have
converted such Series A Preferred until immediately prior to such closing.
(C) Following the closing of a public offering pursuant to
an effective registration statement under the Securities Act covering the offer
and sale of Common Stock to the public which is not a Qualified IPO (a
"Nonqualified IPO"), upon the twentieth consecutive business day upon which the
----------------
Common Stock has closed at a price of not less than $16.28 per share on each
such day (appropriately adjusted for any stock splits, stock dividends,
recapitalizations and similar transactions). In the event of the automatic
conversion of the Series A
7
<PAGE>
Preferred following a Nonqualified IPO as aforesaid, the person(s) entitled to
receive the Common Stock upon such conversion of the Series A Preferred shall
not be deemed to have converted such Series A Preferred until immediately
following the close of business on the business day on which the applicable
requirements of this subsection IV.C.3(b)(i)(C) are satisfied.
The number of shares of Common Stock into which each share of Series A Preferred
shall be converted pursuant to this subsection IV.C.3(b)(i) shall be determined
by dividing the Original Series A Issue Price by the Series A Conversion Price,
determined as hereafter provided, in effect on the date of the applicable Series
A Mandatory Conversion Event.
(ii) Each share of Series B Preferred shall automatically be
converted into shares of fully paid and nonassessable Common Stock upon the
occurrence of the earlier of any one of the following events (the "Series B
--------
Mandatory Conversion Events"):
- ---------------------------
(A) Upon the closing of a Qualified IPO (but
subsequent to the related partial redemption of Series B Preferred required
pursuant to subsection IV.C.4(b) below) (provided that in no event (including
the absence of legally available funds to redeem such shares) shall the 737,100
shares of Series B Preferred referred to in subsection IV.C.4(b)(i) below be
converted into Common Stock).
(B) Upon the mandatory conversion of the Series A
Preferred pursuant to subsection IV.C.3(b)(i)(C) following the closing of a
Nonqualified IPO
The number of shares of Common Stock into which each share of Series B Preferred
shall be converted pursuant to this subsection IV.C.3(b)(ii) shall be determined
by dividing the Original Series B Issue Price by the price at which the Common
Stock is sold by the Company in the Qualified IPO or the Nonqualified IPO, as
applicable, giving rise to such conversion.
(c) No fractional shares of Common Stock shall be issued upon
conversion of the Series A Preferred or Series B Preferred. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price, Series B Conversion Price or fair market
value of the Common Stock, as applicable. Before any holder of Series A
Preferred shall be entitled to convert the same into full shares of Common Stock
pursuant to subsection IV.C.3(a) above, or in the event that any Series A
Preferred or Series B Preferred is automatically converted into Common Stock
pursuant to subsection (b) above, the holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred or Series B Preferred, as applicable,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same; provided, however, that in the event of an automatic
conversion pursuant to subsection IV.C.3(b) above, the outstanding shares of
Series A Preferred and Series B Preferred subject to conversion 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 Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Series A Preferred or Series B Preferred,
8
<PAGE>
as applicable, are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Series A Preferred or Series B Preferred, as
applicable, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid and a check payable to
the holder in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Common Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Series A Preferred or Series B Preferred, as
applicable, to be converted, or in the case of automatic conversion on the date
of occurrence of the applicable Series A Mandatory Conversion Event or Series B
Mandatory Conversion Event (and subject to the further provisions of subsection
IV.C.3(b)), and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
(d) (i) (A) Subject to subsection IV.C.3(d)(i)(B), if the
Corporation shall issue, after the time this Restated Certificate becomes
effective (the "Effective Time"), any Additional Stock (as defined below)
--------------
without consideration or for a consideration per share less than the Series A
Conversion Price in effect immediately prior to the issuance of such Additional
Stock, the Series A Conversion Price in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price determined by multiplying such Series A Conversion Price by
a fraction, the numerator of which shall be the number of shares of Common Stock
which would be outstanding immediately prior to such issuance assuming the
conversion of all outstanding shares of Series A Preferred into Common Stock
(not including shares excluded from the definition of Additional Stock by
subsection IV.C.3(d)(ii)) plus the number of shares of Common Stock that the
aggregate consideration received by the Corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock which would be outstanding immediately prior to
such issuance assuming the conversion of all outstanding shares of Series A
Preferred into Common Stock (not including shares excluded from the definition
of Additional Stock by subsection IV.C.3(d)(ii)) plus the number of shares of
such Additional Stock.
(B) No adjustment of the Series A Conversion Price shall be
made in an amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be carried
forward and shall be taken into account in any subsequent adjustment. Except to
the limited extent provided for in subsections IV.C.(d)(E)(3) and (4) below, no
adjustment of such Series A Conversion Price pursuant to this subsection
IV.C.3(d)(i) shall have the effect of increasing the Conversion Price above the
Series A Conversion Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any
9
<PAGE>
reasonable discounts, commissions or other expenses allowed, paid or incurred by
the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith by
the Corporation's Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or
after the Effective Time) of options to purchase or rights to subscribe for
Common Stock, securities by their terms convertible into or exchangeable for
Common Stock or options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply for all
purposes of this subsection IV.C.3(d)(i) and subsection IV.C.3(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in subsections
IV.C.3(d)(i)(C) and (D)), if any, received by the Corporation upon the issuance
of such options or rights plus the minimum exercise price provided in such
options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in subsections IV.C.3(d)(i)(C) and (D)).
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable to the Corporation
upon exercise of such options or rights or upon conversion of or in exchange for
the antidilution provisions thereof, the Series A Conversion Price, to the
extent in any way affected by or computed using such options, rights or
securities, shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
10
<PAGE>
(4) Upon the expiration of any such options or rights,
the termination of any such rights to covert or exchange or the expiration of
any options or rights related to such convertible or exchangeable securities,
the Series A Conversion Price, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities which remain
in effect) actually based upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise of the options or
rights related to such securities.
(5) The number of shares of Common Stock deemed issued
and the consideration deemed paid therefor pursuant to subsections
IV.C.3(d)(i)(E)(l) and (2) shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either subsection
IV.C.3(d)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have been issued pursuant to subsection IV.C.3(d)(i)(E)) by
the Corporation after the Effective Time other than the following:
(A) shares of Common Stock issued pursuant to a transaction
described in subsection IV.C.3(d)(iii), (e) or (f) hereof;
(B) shares of Common Stock issued or deemed issued to
employees, consultants, directors or vendors (if in transactions with primarily
nonfinancing purposes) of the Corporation directly or pursuant to a stock option
plan, restricted stock plan or other compensatory plan or arrangement approved
by the Board of Directors of the Corporation at any time when the total number
of shares of Common Stock so issuable or issued (and not repurchased at cost by
the Corporation in connection with the termination of employment) does not
exceed 1,500,000 (as appropriately adjusted for any stock dividends,
combinations, splits or the like with respect to shares of Common Stock) plus
such additional number of shares of Common Stock issued or deemed issued for
like purposes as shall be approved by holders of at least 75 percent of the then
outstanding shares of Series A Preferred;
(C) shares of Common Stock issued or deemed issued pursuant
to warrants issued by the Corporation pursuant to either (1) the Warrant
Agreement dated as of September 4, 1998 among the Corporation, Cleartel
Communications, Inc., CAIS, Inc. and ING (U.S.) Capital Corporation, Inc. (the
"ING Warrant Agreement") at any time when the total number of shares of Common
---------------------
Stock so issuable or issued does not exceed 390,000 (as appropriately adjusted
for any stock dividends, combinations, splits or the like with respect to shares
of Common Stock), (2) the Series A Preferred Stock and Warrant Purchase
Agreement dated as of February 19, 1999 among the Corporation and the several
purchasers set forth therein, (3) pursuant to the conversion of the Series B
Preferred or (4) options to purchase up to 2,033,926 shares of Common Stock
presently held by two management employees of the Corporation;
(D) up to 500,000 shares of Common Stock (as appropriately
adjusted for any stock dividends, combinations, splits or the like with respect
to shares of Common
11
<PAGE>
Stock) issued or deemed issued to a corporation, partnership or other entity
with which the Corporation is seeking to establish a partnership, joint venture
or other business relationship plus such additional number of shares of Common
Stock issued or deemed issued for like purposes as are approved by the holders
of at least 75 percent of the then outstanding Series A Preferred;
(E) shares of Common Stock issued or deemed issued in
connection with any high-yield debt financing undertaken by the Corporation (but
excluding for purposes of this subsection IV.C.3(d)(ii)(E) any conversion into
senior secured notes of the term loan extended to the Corporation pursuant to
the Credit Agreement dated as of September 4, 1998 among the Corporation,
certain affiliates thereof and ING (U.S.) Capital Corporation in accordance with
the terms thereof);
(F) shares of Common Stock issued or deemed issued
pursuant to that certain Settlement Agreement dated January 24, 1999 between
CAIS, Inc. and Terk Technologies Corp. as in effect on the date hereof; and
(G) shares of Common Stock issued or deemed issued in
connection with the acquisition by the Corporation of the stock or assets of
another corporation, partnership or other entity.
(iii) In the event the Corporation should at any time or from
time to time after the Effective Time fix a record date for the effectuation of
a split or subdivision of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such holder
------------------------
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Series A
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share of Series A Preferred shall
be increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to the aggregate number of
shares of Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time in the manner provided for
deemed issuances in subsection IV.C.3(d)(i)(E).
(iv) If the number of shares of Common Stock outstanding at any
time after the Effective Time is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination, the
Series A Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of such shares of Series A
Preferred shall be decreased in proportion to such decrease in outstanding
shares of Common Stock.
12
<PAGE>
(e) In the event the Corporation shall declare a distribution payable
in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options or
rights not referred to in subsection IV.C.3(d)(iii), then, in each such case for
the purpose of this subsection IV.C.3(e), the holders of the Series A Preferred
and Series B Preferred, respectively, shall be entitled to a share of any such
distribution as follows: all distributions shall be made to the holders of the
Series A Preferred, the Series B Preferred and the Common Stock in the same
priorities and order of distribution and in the same proportions as
distributions of funds and assets are to be made in the case of a liquidation,
dissolution or winding-up of the Corporation. All amounts so distributed to the
holders of Series A Preferred and Series B Preferred, respectively, in
accordance therewith shall be credited toward the payment of the Series A
Preferential Amount to be paid to the holders of the Series A Preferred and the
Series B Preferential Amount to be paid to the holders of the Series B
Preferred, as applicable.
(f) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger, sale of assets or other transaction provided for elsewhere in this
Section 3 or in Section 2), provision shall be made so that the holders of the
Series A Preferred and Series B Preferred, respectively, shall thereafter be
entitled to receive upon conversion of the Series A Preferred the number of
shares of stock or other securities or property of the Corporation or otherwise,
to which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 3 with
respect to the rights of the holders of the Series A Preferred and Series B
Preferred, respectively, after the recapitalization to the end that the
provisions of this Section 3 (including adjustment of the Series A Conversion
Price then in effect and the number of shares purchasable upon conversion of the
Series A Preferred) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) The Corporation will not, by amendment of this Restated
Certificate, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by the Corporation under this Restated Certificate, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section IV.C.3 and in the taking of all such action as may be necessary
or appropriate in order to protect the respective conversion rights of the
holders of the Series A Preferred and Series B Preferred against impairment.
(h) Upon the occurrence of each adjustment or readjustment of the
Series A Conversion Price pursuant to this Section 3, the Corporation at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms of this Restated Certificate and cause independent public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of Series A Preferred a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred, furnish or cause to be
furnished to such holder a like certificate setting forth (A) such adjustments
and readjustments, (B) the Series A Conversion Price at the time in effect and
(C) the number of shares
13
<PAGE>
of Common Stock and the amount, if any, of other property that at the time would
be received upon the conversion of the Series A Preferred.
(i) In the event of any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining the holders of
such securities who are entitled to receive any dividend or other distribution,
whether in cash, property, stock or other securities, or any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
mail to each holder of Series A Preferred and Series B Preferred at least 20
days prior to the date specified in such notice, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or rights, and the amount and character of such dividend,
distribution or right.
(j) The Corporation 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 Preferred and the Series
B Preferred, 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 Preferred and the Series B Preferred. 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 Preferred and/or
Series B Preferred, the Corporation 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.
(k) Any notice required by the provisions of this Section IV.C.3 to
be given to the holders of shares of Series A Preferred and/or Series B
Preferred shall be deemed given if deposited in the United States mail, postage
prepaid, and addressed to each holder of record at the address appearing on the
books of the Corporation.
(l) In the event any shares of Series A Preferred or Series B
Preferred shall be converted pursuant to this Section V.C.3, the shares so
converted shall be canceled and shall not be reissuable by the Corporation.
4. Redemption.
----------
(a) (i) At any time after February 1, 2004, upon the written request
of the holders of at least a majority of the then issued and outstanding Series
A Preferred, the Corporation shall redeem the Series A Preferred specified in
such request, up to the maximum amount the Corporation may lawfully redeem out
of funds legally available therefor, by paying in cash therefor a sum per share
equal to the greater of (A) the sum of (1) the Original Series A Issue Price,
(2) annual interest thereon from the date of issuance of the Series A Preferred
at a rate equal to eight percent per annum and (3) an amount equal to all
declared and unpaid dividends on such shares as of the date called for
redemption, and (B) the fair market value of the Series A Preferred as of the
date of the receipt by the Corporation of such written request for redemption of
the Series A Preferred. For purposes of this subsection IV.C.4(a), the fair
market value of the Series A Preferred
14
<PAGE>
will be the fair market value as mutually determined by the Corporation and the
holders of a majority of the voting power of the Series A Preferred to be
redeemed.
(ii) If the Corporation and the holders of a majority of the
voting power of the Series A Preferred to be redeemed are unable mutually to
determine the fair market value of the Series A Preferred, then such fair market
value shall be determined in accordance with the following procedures:
(A) The Corporation and a representative (the
"Representative") of the holders of a majority of the voting power of the
--------------
holders of the Series A Preferred that have requested redemption pursuant to
subsection IV.C.4(a) (i) shall negotiate in good faith to determine the fair
market value of such securities or assets. Such Representative shall be selected
by holders of a majority of the voting power of the holders of the Series A
Preferred that have requested redemption pursuant to subsection IV.C.4(a)(i). If
the Corporation and the Representative so agree, the fair market value shall be
the amount so agreed upon.
(B) If no such agreement is reached within 30 days
after negotiations commence, the Corporation, subject to the approval of the
Representative (which approval shall not be unreasonably withheld, conditioned
or delayed), shall within 15 business days thereafter each select an investment
banker to value such securities or assets. Such investment banker shall be of
national standing and shall be independent of the parties to the dispute. The
Corporation shall give the representatives of such investment banker full access
to all information that they may reasonably request concerning the Corporation.
Within 30 days of its selection, such investment banker shall determine the fair
market value for such securities or assets, which determination shall be
conclusive and binding. The cost of the investment banker shall be paid solely
by the Corporation.
(C) The investment banker appointed for purposes of
determining the fair market value of the Series A Preferred may apply such
factors and discounts as are customarily utilized.
(iii) In the event of any redemption of only a part of the
Series A Preferred requested to be redeemed pursuant to subsection IV.C.4(a)(i),
the Corporation shall effect such redemption pro rata according to the number of
shares held by each holder entitled to redemption of such holder's Series A
Preferred.
(b) (i) Upon the closing of a Qualified IPO the Corporation
shall redeem 737,100 shares of Series B Preferred, up to the maximum amount the
Corporation may lawfully redeem out of funds legally available therefor, by
paying in cash therefor an amount per share equal to the sum of (A) the Original
Series B Issue Price, (B) annual interest thereon from the date of issuance of
the Series B Preferred at a rate equal to eight percent per annum and (C) an
amount equal to all declared and unpaid dividends on such shares as of the date
called for redemption.
(ii) Upon the Closing of a Corporate Transaction, the
Corporation shall redeem all of the outstanding Series B Preferred, up to the
maximum amount the Corporation may
15
<PAGE>
lawfully redeem out of funds legally available therefor, by paying in cash
therefor an amount equal to the sum of (A) the Original Series B Issue Price,
(B) annual interest thereon from the date of issuance of the Series A Preferred
at a rate equal to eight percent per annum and (C) an amount per share equal to
all declared and unpaid dividends on such shares as of the date called for
redemption.
(iii) In the event of any redemption of only a part of the
Series B Preferred pursuant to subsection IV.C.4(b)(i) or (ii), the Corporation
shall effect such redemption pro rata according to the number of shares held by
each holder entitled to redemption of such holder's Series B Preferred (or as
otherwise unanimously directed by such holders).
(c) At least 20 but no more than 60 days prior to the date fixed by
the Corporation to redeem any shares of Series A Preferred or Series B Preferred
pursuant to subsections IV.C.4(a) or IV.C.4(b) above, as applicable, (the
"Redemption Date"), the Corporation shall mail written notice (the "Redemption
--------------- ----------
Notice"), first class postage prepaid, to each holder of record (at the close of
- ------
business on the business day preceding the day on which notice is given) of the
Preferred Stock to be redeemed, at the address last shown on the records of the
Corporation for such holder or given by the holder to the Corporation for the
purpose of notice or if no such address appears or is given at the place where
the principal executive office of the Corporation is located, notifying such
holder of the redemption to be effected, specifying the number of shares to be
redeemed from such holder, the Redemption Date, the price per share to be paid
(the "Redemption Price"), the place at which payment may be obtained and the
----------------
date on which such holder's rights as a holder of such shares terminate and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, such holder's certificate or certificates representing the
shares to be redeemed. Except as provided in subsection IV.C.4(d), on or after
the Redemption Date, each holder of Preferred Stock to be redeemed shall
surrender to the Corporation the certificate or certificates representing such
shares, in the manner and at the place designated in the Redemption Notice, and
thereupon the Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be canceled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(d) From and after the applicable Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of such shares as holders of Series A Preferred or Series B Preferred,
as applicable (except the right to receive the Redemption Price without interest
subsequent to the Redemption Date upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of the Series A Preferred or Series B Preferred, as
applicable, on any Redemption Date are insufficient to redeem the total number
of shares of such Preferred Stock to be redeemed on such date, those funds which
are legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed. The shares of
Preferred Stock not redeemed shall remain outstanding and entitled to all the
powers, preferences and rights provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the
16
<PAGE>
Corporation has become obligated to redeem on any Redemption Date but which it
has not redeemed.
(e) On or prior to the Redemption Date, the Corporation shall deposit
the Redemption Price of all shares of the Preferred Stock designated for
redemption in the Redemption Notice, and not yet redeemed or converted, with a
bank or trust corporation having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the respective holders of the
shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holders on or after the
Redemption date, upon receipt of notification from the Corporation that such
holder has surrendered his, her or its share certificate to the Corporation
pursuant to subsection IV.C.4(c) above. From and after the date of the deposit
the shares so called for redemption shall be redeemed, and as of the date of
such deposit (but only after the Redemption Date), the deposit shall constitute
full payment of the shares to their holders, and the shares shall be deemed to
be no 1onger outstanding, and the holders thereof shall cease to be stockholders
with respect to such shares and shall have no rights with respect thereto except
the rights to receive from the bank or trust corporation payment of the
Redemption Price of the shares, without interest, upon surrender of their
certificates therefore. Such instructions shall also provide that any moneys
deposited by the Corporation pursuant to this subsection IV.C.4(e) for the
redemption of shares thereafter converted into shares of the Common Stock
pursuant to Section IV.C.3 prior to the Redemption Date shall be returned to the
Corporation forthwith upon such conversion. The balance of any moneys deposited
by the Corporation pursuant to this subsection IV.C.4(e) remaining unclaimed at
the expiration of two years following the Redemption Date shall thereafter be
returned to this Corporation upon its request expressed in a resolution of its
Board of Directors.
(f) Any Series A Preferred and Series B Preferred Stock redeemed
pursuant to this subsection IV.C.4 shall not be reissued.
5. Voting Rights. The holders of shares of Series A Preferred, Series B
-------------
Preferred and Common Stock shall have the following voting rights:
(a) Except as required by law or as otherwise provided herein or in
any agreement between the Corporation and its stockholders, the holders of
shares of the Series A Preferred, the Series B Preferred and the Common Stock
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation, including the election of directors, and shall
have no special voting rights.
(b) Each holder of shares of Series A Preferred shall be entitled to
the number of votes equal to the number of shares of Common Stock, rounded to
the nearest whole number, into which such shares of Series A Preferred could be
converted on the record date for the determination of the stockholders entitled
to vote (pursuant to subsection IV.C.3(a)). Fractional votes by the holders of
the Series A Preferred shall not, however, be permitted and any fractional
voting rights shall be rounded to the nearest whole number.
17
<PAGE>
(c) Each holder of shares of Series B Preferred shall be entitled to
one vote per share (as appropriately adjusted for any stock dividends,
combinations, splits or the like with respect to such shares or the Common
Stock). Fractional votes by the holders of the Series B Preferred shall not,
however, be permitted and any fractional voting rights shall be rounded to the
nearest whole number.
(d) Each holder of Common Stock shall be entitled to one vote per
share on all matters coming before the holders of the Common Stock for a vote.
Fractional votes by the holders of the Common Stock shall not, however, be
permitted and any fractional voting rights shall be rounded to the nearest whole
number.
6. Protective Provisions.
---------------------
(a) So long as any shares of Series A Preferred are outstanding,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least 75 percent in the aggregate of the then
outstanding shares of Series A Preferred (voting on an as-converted basis) the
Corporation shall not take (and shall not permit any of its subsidiaries to
take) any of the following actions:
(i) amend the Certificate of Incorporation or the By-Laws of
the Corporation to alter or change the rights, preferences, privileges or powers
of the Series A Preferred or the holders thereof, or increase or decrease the
number of authorized shares of Series A Preferred;
(ii) authorize or create any new class or series of capital
stock or any instrument convertible into or exchangeable for such capital stock,
or authorize any increase in the authorized number of shares of any existing
class or series of capital stock that has any preference or priority over, or is
on a parity with, the Series A Preferred with respect to voting, dividends or
upon liquidation;
(iii) declare or pay any dividends in cash, stock or other
property;
(iv) commence the redemption, repurchase or other acquisition
of any Common Stock, or of any other Series of Preferred Stock ranking on a
parity with or junior to the Series A Preferred with respect to dividends or
upon liquidation; provided, however, that the foregoing prohibition shall not
apply to any repurchase of Common Stock from any director, officer, employee or
agent of the Corporation or any of its subsidiaries if such repurchase is
approved by a majority of the directors of the Corporation who have no personal
interest in such redemption;
(v) approve or enter into any agreement to which any director,
officer, employee or stockholder of the Corporation is directly or indirectly a
party or beneficiary (including any employee benefit, bonus or stock plan if
such will provide more benefits than are then provided to any such person);
provided, however, that the foregoing prohibition shall not apply to any such
agreement if such agreement is approved by a majority of the directors of the
Corporation who have no personal interest in such agreement;
18
<PAGE>
(vi) approve or enter into any Corporate Transaction (including
as such, for purposes of this clause only, transactions excluded from the
definition of Corporate Transaction by the parenthetical following clause (B) of
the definition thereof);
(vii) approve or enter into any agreement or other financial
commitment in excess of $250,000; provided, however, that the foregoing
limitation shall not apply to the making of capital expenditures;
(viii) terminate or approve the hiring or termination of the
employment of the Chief Financial Officer of the Corporation, or of any other
officer of the Corporation of equivalent or senior status;
(ix) approve the annual budget of the Corporation;
(x) make or commit to make any acquisition or capital
expenditure, or incur indebtedness or commit to incur indebtedness for money
borrowed or for the deferred purchase price of property (excluding the
incurrence of accounts payable incurred in the ordinary course of business) or
otherwise represented by a promissory note or similar instrument or in respect
to any guaranty, that is in excess of the amounts allocated thereto in the
annual budget of the Corporation;
(xi) incur indebtedness, unless the major terms thereof are set
forth in the annual budget of the Corporation (the major terms of indebtedness
shall mean interest rate, rights to equity in connection with such indebtedness,
and other terms determined by the Board of Directors of the Corporation to be of
material importance; provided, however, that nothing in this clause (xi) shall
prevent the incurrence of indebtedness where the major terms are more favorable
to the Corporation than those set forth in the annual budget);
(xii) grant or permit to exist any lien on any real or personal
property of the Corporation other than (A) liens in existence prior to the date
of the first issuance of shares of the Series A Preferred and (B) liens incurred
in the ordinary course of business and consistent with the prior practices of
the Corporation;
(xiii) liquidate or dissolve the Corporation; or
(xiv) take any action described in subsections IV.C.2(e)(i)(A)
or IV.C.2(e)(i)(C) above.
(b) So long as any shares of Series B Preferred are outstanding,
without first obtaining the approval (by vote or written consent, as provided by
law) of the holders of at least 75 percent in the aggregate of the then
outstanding shares of Series B Preferred (voting on an as- converted basis) the
Corporation shall not take any of the following actions:
19
<PAGE>
(i) amend the Certificate of Incorporation to alter or change
the rights, preferences or privileges of the Series B Preferred or increase or
decrease the number of authorized shares of Series B Preferred;
(ii) declare or pay any dividends in cash, stock or other
property;
(iii) commence the redemption of any Common Stock, or of any
other Series of Preferred Stock ranking on a parity with or junior to the Series
B Preferred with respect to dividends or upon liquidation, but excluding the
Series A Preferred; provided, however, that the foregoing prohibition shall not
apply to any repurchase of Common Stock from any director, officer, employee or
agent of the Corporation or any of its subsidiaries if such repurchase is
approved by a majority of the directors of the Corporation who have no personal
interest in such redemption;
(iv) liquidate or dissolve the Corporation; or
(v) take any action described in subsections IV.C.2(e)(i)(A) or
IV.C.2(e)(i)(C) above.
7. Preemptive Rights.
------------------
(a) Prior to the occurrence of a Series A Mandatory Conversion Event,
the holders of outstanding shares of Series A Preferred shall have the right to
subscribe to any or all (i) issuances of shares of capital stock of the
Corporation, (ii) issuances of securities convertible into or exchangeable for
shares of capital stock of the Corporation or (iii) grants of options or other
rights to purchase shares of capital stock of the Corporation, on the same terms
of such offerings to the extent equal to the proportion which the number of
shares of Series A Preferred (on an as converted basis) and Common Stock issued
on conversion thereof held by such holders bears to the Corporation's fully-
diluted capitalization (on an as-converted and as-exercised basis). Such right
shall be exercisable within 30 days after the receipt of written notice relating
to such issuances by the holders of the Series A Preferred. Such right shall
extend for each holder of the Series A Preferred to the same proportion of the
new issue of shares, convertible securities or options as such holder's
proportion of the outstanding shares. The right of holders of the Series A
Preferred to purchase new issues of shares or convertible securities or options
does not extend to (i) shares of Common Stock that do not constitute Additional
Stock or (ii) any securities issued pursuant to an underwritten public
offering.
(b) In addition to the right to purchase his, her or its pro rata
proportion of the new issue of shares, convertible securities or options, each
holder of the Series A Preferred who has subscribed for the entire number of
shares or units initially allocable to such holder shall have the additional
right to subscribe to his, her or its proportionate part of any shares or units
which have not been subscribed or by other holders of the Series A Preferred.
In case the total number of shares or units desired to be purchased by holders
of the Series A Preferred exercising this right of oversubscription exceeds the
total number of shares or other units which have not been initially subscribed
for by other holders of the Series A Preferred and are thus available for
purchase, each holder of the Series A Preferred exercising this right of
oversubscription shall be entitled to purchase
20
<PAGE>
a number of the shares or units not initially subscribed proportionate to the
number of shares already held by such holder. This procedure shall be repeated,
if necessary, until all of the shares or units not initially subscribed have
been allocated. The preemptive rights held by the holders of the Series A
Preferred pursuant to this Section IV.C.7 shall terminate on the earlier (i) the
date immediately prior to the closing date of a Qualified IPO and (ii) the date
of occurrence of any other Mandatory Conversion Event.
8. Status of Redeemed and Converted Stock. In the event any shares of
---------------------------------------
Preferred Stock shall be converted or redeemed pursuant to Section IV.C.3 or
IV.C.4 hereof, the shares so redeemed or converted shall be canceled and shall
not be issuable by the Corporation. The Restated Certificate shall be
appropriately amended to effect the corresponding reduction in the Corporation's
authorized capital stock.
D. Rights, Preferences, Privileges and Restrictions of Common Stock.
-----------------------------------------------------------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of capital stock of the Corporation at the time outstanding having prior
rights as to dividends, the holders of the Common Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of any assets of
the Corporation legally available therefor, such dividends as may be declared
from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in subsection IV.C.2.
3. Redemption. The Common Stock is not redeemable.
----------
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
In furtherance and not in limitation of the powers conferred by the
Corporation Law, the Board of Directors of the Corporation is expressly
authorized to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation by the affirmative vote of a majority of the total numbers of,
directors then in office. Any alteration or repeal of the By-Laws of the
Corporation by the stockholders of the Corporation shall require the affirmative
vote of at least a majority of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote on such alteration or
repeal, subject to Article XI hereof and Article VIII of the Corporation's By-
Laws.
ARTICLE VII
A. Stockholder Action. Election of directors need not be by written
------------------
ballot unless the By-Laws of the Corporation so provide. Subject to any rights
of holders of any series of Preferred Stock, from and after the date on which
the Common Stock is registered pursuant to the Securities
21
<PAGE>
Exchange Act of 1934, as amended (the "Exchange Act"), (i) any action required
------------
or permitted to be taken by the stockholders of the Corporation must be effected
at an annual or special meeting of stockholders of the Corporation and may not
be effected in lieu thereof by consent in writing by such stockholders, (ii)
special meetings of stockholders of the Corporation may be called only by either
the Board of Directors pursuant to a resolution adopted by the affirmative vote
of the majority of the total number of directors then in office or by the chief
executive officer of the Corporation and (iii) advance notice of stockholder
nominations of persons for election to the Board of Directors of the Corporation
and of business to be brought before any annual meeting of the stockholders by
the stockholders of the Corporation shall be given in the manner provided in the
By-Laws of the Corporation.
B. Number of Directors and Term of Office. Subject to any rights of
--------------------------------------
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, the number of directors which shall constitute the
Board of Directors of the Corporation shall be fixed from time to time in the
manner set forth in the By-Laws of the Corporation. From and after the date on
which the Common Stock is registered pursuant to the Exchange Act, the directors
of the Corporation shall be divided into three classes: Class I, Class II and
Class III. Membership in each such class shall be as nearly equal in number as
possible. The term of office of the initial Class I directors shall expire at
the annual election of directors by the stockholders of the Corporation in 2000;
the term of office of the initial Class II directors shall expire at the annual
election of directors by the stockholders of the Corporation in 2001; and the
term of office of the initial Class III directors shall expire at the annual
election of directors by the stockholders of the Corporation in 2002; or in each
case thereafter when their respective successors in each case are elected by the
stockholders and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office for cause. At each
succeeding annual election of directors by the stockholders of the Corporation
beginning in 2000, the directors chosen to succeed those whose terms then expire
shall be identified as being of the same class as the directors they succeed and
shall be elected for a term expiring at the third succeeding annual election of
directors by the stockholders of the Corporation, or thereafter when their
respective successors in each case are elected by the stockholders and
qualified. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, and any additional director of any
class elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of that
class, but in no case shall a decrease in the number of directors shorten the
term of any incumbent director.
C. Removal and Resignation. From and after the date on which the Common
-----------------------
Stock is registered pursuant to the Exchange Act, no director may be removed
from office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors voting
together as a single class; provided, however, that if the holders of any class
or series of capital stock are entitled by the provisions of this Restated
Certificate to elect one or more directors, such director or directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote. Any
director may resign at any time upon written notice to the Corporation.
22
<PAGE>
D. Vacancies and Newly Created Directorships. Subject to any rights of
-----------------------------------------
holders of any series of Preferred Stock to fill such newly created
directorships or vacancies, any newly created directorships resulting from any
increase in the authorized number of directors and any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal from
office for cause shall, unless otherwise provided by law or by resolution
approved by the affirmative vote of a majority of the total number of directors
then in office, be filled only by resolution approved by the affirmative vote of
a majority of the total number of directors then in office. Any director so
chosen shall hold office until the next election of the class for which such
director shall have been chosen, and until his successor shall have been duly
elected and qualified, unless he shall resign, die, become disqualified or be
removed for cause.
ARTICLE VIII
A. Dividends. The Board of Directors shall have authority from time to
---------
time to set apart out of any assets of the Corporation otherwise available from
dividends a reserve or reserves as working capital or for any other purpose or
purposes, and to abolish or add to any such reserve or reserves from time to
time as said Board may deem to be in the interest of the Corporation; and the
Board of Directors shall likewise have power to determine in its discretion,
except as herein otherwise provided, what part of the assets of the Corporation
available for dividends in excess of such reserve or reserves shall be declared
in dividends and paid to the stockholders of the Corporation.
B. Issuance of Stock. The shares of all classes of capital stock of the
-----------------
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of capital stock having a par value shall not
be issued for a consideration determined by the Board of Directors to be less
than such par value. The Board of Directors shall have authority, as provided by
law, to determine that only a part of the consideration which shall be received
by the Corporation for the shares of its capital stock which it shall issue from
time to time, shall be capital; provided, however, that, if all the shares
issued shall be shares having a par value, the amount of the part of such
consideration so determined to be capital shall be equal to the aggregate par
value of such shares. The excess, if any, at any time, of the total net assets
of the Corporation over the amount so determined to be capital, as aforesaid,
shall be surplus. All classes of capital stock of the Corporation shall be and
remain at all times nonassessable.
C. Options, etc. Subject to the Protective Provisions, the Board of
-------------
Directors is hereby expressly authorized in its discretion, in connection with
the issuance of any obligations or stock of the Corporation (but without
intending hereby to limit its general power so to do in other cases), to grant
rights or options to purchase capital stock of the Corporation of any class upon
such terms and during such period as the Board of Directors shall determine, and
to cause such rights to be evidenced by such warrants or other instruments as it
may deem advisable.
D. Inspection of Books and Records. The Board of Directors shall have
-------------------------------
power from time to time to determine to what extent and at what times and places
and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the
23
<PAGE>
inspection of the stockholders; and no stockholder shall have any right to
inspect any account or book or document of the Corporation (except as conferred
by the Corporation Law, a resolution of the Board of Directors or a contract
between the Corporation and any stockholder), unless and until authorized so to
do by resolution of the Board of Directors or of the stockholders of the
Corporation.
E. Location of Meetings, Books and Records. Except as otherwise provided
---------------------------------------
in the By-Laws, the stockholders of the Corporation and the Board of Directors
may hold their meetings and have an office or offices outside of the State of
Delaware and, subject to the provisions of the Corporation Law, may keep the
books of the Corporation outside of the State of Delaware at such places as may,
from time to time, be designated by the Board of Directors.
ARTICLE IX
To the fullest extent permitted by Corporation Law, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exception from liability or limitation thereof is not
permitted under the Corporation Law as the same exists or may hereafter be
amended. Neither any amendment nor repeal of this Article IX shall eliminate or
reduce the effect of this Article IX in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article IX, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
A. Indemnification of Directors and Officers. To the fullest extent
-----------------------------------------
permitted by law, the Corporation shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding.
B. Indemnification of Employees and Agents. To the fullest extent
---------------------------------------
permitted by law, the Corporation may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgment, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
C. Advancement of Expenses. The Corporation shall advance expenses
-----------------------
(including attorneys' fees) incurred by a director or officer in advance of the
final disposition of such action, suit or proceeding upon the receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that such director or officer is not entitled
to
24
<PAGE>
indemnification. The Corporation may advance expenses (including attorneys'
fees) incurred by an employee or agent in advance of the final disposition of
such action, suit or proceeding upon such terms and conditions, if any, as the
Board of Directors deems appropriate.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate in the manner nor or
hereinafter prescribed herein and by the Corporation Law, and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding anything contained in this Restated Certificate to the contrary,
Division A of Article IV, Article VII, Article X and Article XI of this Restated
Certificate shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least two-thirds of the voting power of the then outstanding
shares of capital stock of the Corporation entitled to vote on such alteration,
amendment or repeal, voting together as a single class (other than any
alteration or amendment to Part A of Article IV that increases the authorized
number of shares of Preferred Stock or Common Stock, which shall be subject to
amendment by the affirmative vote of the holders of a majority of the voting
power of the then outstanding shares of capital stock entitled to vote on such
amendment voting together as a single class).
ARTICLE XII
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.
ARTICLE XIII
In the event that any provision of this Certificate of Incorporation
(including any provision within a single section, paragraph or sentence) is held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been executed as of February 19, 1999.
CGX Communications, Inc
By: /s/ Ulysses G. Auger, II
--------------------------
Ulysses G. Auger, II
Chief Executive Officer
Attest:
/s/ Michael G. Plantamura
- --------------------------
Michael G. Plantamura
Secretary
25
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
CAIS INTERNET, INC.
ARTICLE I
OFFICES
Section 1.01. Registered Office. The address of the Corporation's
-----------------
registered office in the State of Delaware is 15 East North Street, Dover, Kent
County, Delaware 19901. The Corporation's registered agent at such address is
HIQ Corporate Services, Inc.
Section 1.02. Other Offices. The Corporation may also have other
-------------
offices located in or outside of the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 2.01. Time and Place of Meetings. All meetings of the
--------------------------
stockholders shall be held at such time and place, within or without the State
of Delaware as the Board of Directors may from time to time determine or as may
be designated in the notice of meeting or waiver of notice thereof, subject to
any provisions of the laws of the State of Delaware.
Section 2.02. Annual Meetings. Annual meetings of stockholders shall
---------------
be held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which meeting,
the stockholders shall vote for the election of directors and shall transact
such other business as may properly be brought before the meeting.
Section 2.03. Notice of Annual Meetings. Written notice of the
-------------------------
annual meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting. When a meeting is adjourned to another
place, date or time, written notice need not be given of the adjourned meeting
if the place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written notice of the place, date and time of the adjourned meeting, shall be
given in conformity herewith.
1
<PAGE>
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 2.04. Special Meetings. Special meetings of the
----------------
stockholders, for any purpose or purposes, unless otherwise prescribed by the
General Corporation Law of the State of Delaware or by the Certificate of
Incorporation, may be called at any time only by the Board of Directors of the
Corporation pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of Directors then in office or by the Chief
Executive Officer of the Corporation.
Section 2.05. Notice of Special Meetings. Written notice of a
--------------------------
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting. When a meeting is adjourned to
another place, date or time, written notice need not be given of the adjourned
meeting if the place, date and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the date of any
adjourned meeting is more than thirty (30) days after the date for which the
meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, date and time of the adjourned
meeting, shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.
Section 2.06. Notice of Stockholder Business; Nominations.
-------------------------------------------
(a) Annual Meeting of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors, or (C) by
any stockholder of the Corporation who is a stockholder of record at the time of
giving of the notice provided for in this Section 2.06 and who complies with the
notice procedures set forth in this Section 2.06.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of paragraph (a) (1) of
this Section 2.06, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the principal executive offices of the
Corporation no later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's
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notice shall set forth (A) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (B) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (C) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(1) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner; and (2) the class and number
of shares of the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)
(2) of this Section 2.06 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 2.06 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive office of the Corporation
not later than the close of business on the tenth (10th) day following the day
on which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
---------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (A) by or at the direction of the Board of
Directors or (B) provided that the Board of Directors has determined that
directors shall be elected at such meeting by any stockholder of the Corporation
who is a stockholder of record at the time of giving of notice of the special
meeting, who shall be entitled to vote at such meeting and who complies with the
notice procedures set forth in this Section 2.06. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be) for election to such position(s) as specified in
the Corporation's notice of meeting, if the stockholder's notice required by
paragraph (a) (2) or (a) (3) of this Section 2.06 shall be delivered to the
Secretary at the principal executive offices of the Corporation within the
notice periods set forth therein, as applicable.
(c) General.
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(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 2.06 shall be eligible to serve as
directors and only such business shall be conducted at such meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.06. Except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws, the chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in this Section 2.06
and, if any proposed nomination or business is not in compliance herewith, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.06, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the forgoing provisions of this Section 2.06, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 2.06 shall be deemed to affect any rights
(A) of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (B) of the holders of
any series of preferred stock to elect directors under specified circumstances.
(d) Amendment. Subject to Section 8.12 of these By-Laws, the
---------
provisions of this Section 2.06 are subject to alteration, amendment or repeal,
and new or conflicting provisions may be adopted by the affirmative vote of the
holders of not less than 66 2/3% of the voting power of all outstanding shares
of common stock of the Corporation.
Section 2.07. Organization. Such person as the Board of Directors
------------
may have designated or, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the secretary of
the meeting shall be such person as the chairman of the meeting appoints.
Section 2.08. Quorum. The holders of a majority of the stock issued
------
and outstanding and entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by the General Corporation
Law of the State of Delaware or by the Certificate of Incorporation. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time to another place, date or time. If a notice of any adjourned special
meeting of stockholders is sent to all stockholders entitled to vote thereat,
stating that it will be held with those present constituting a quorum, then
except as otherwise required by the General Corporation Law of the State of
Delaware, those present at such adjourned meeting shall constitute a quorum, and
all matters shall be determined by a majority of the votes cast at such meeting.
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Section 2.09. Voting. At any meeting of the stockholders, every
------
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting. Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or required by the General
Corporation Law of the State of Delaware. All voting, including on the election
of directors but excepting where otherwise required by the General Corporation
Law of the State of Delaware, may be by a voice vote.
Section 2.10. Proxies. Any stockholder entitled to vote at any
-------
meeting of the stockholders or to express consent to or dissent from corporate
action without a meeting may, by a written instrument signed by such stockholder
or his attorney-in-fact, authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. No such proxy
shall be voted or acted upon after the expiration of three years from the date
of such proxy, unless such proxy provides for a longer period. Every proxy
shall be revocable at the pleasure of the stockholder executing it, except in
those cases where applicable law provides that a proxy shall be irrevocable. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the
Secretary. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.
Section 2.11. Stock List. A complete list of stockholders entitled
----------
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified, or at the place where the meeting is to be held. The stock
list shall also be kept at the place of the meeting during the whole time
thereof and shall be open to the examination of any such stockholder who is
present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. Except as may otherwise be provided by
--------------
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation.
Section 3.02. Number and Term of Office. The number of directors
--------------------------
constituting the entire Board of Directors shall be six, which number, subject
to compliance with any applicable stockholder approval requirements set forth in
the Certificate of Incorporation or in any agreement among the stockholders of
the Corporation, may be modified from time to time by resolution of the Board of
Directors, but in no event shall the number of directors be less than one.
Effective upon the closing of the first sale of the Corporation's common stock
pursuant to a firmly underwritten registered public offering (the "IPO"), the
directors shall be divided into three (3) classes: Class I, Class II and Class
III. Membership in each such class shall be as nearly equal in number as
possible. The term of office of the initial Class I Directors shall expire at
the annual election of Directors by the stockholders of the Corporation in 2000;
the term of office of the initial Class II Directors shall expire at the annual
election of Directors by the stockholders of the Corporation in 2001; and the
term of office of the initial Class III Directors shall expire at the annual
election of Directors by the stockholders of the Corporation in 2002; or in each
case thereafter when their respective successors in each case are elected by the
stockholders and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office for cause. At each
succeeding annual election of Directors by the stockholders of the Corporation
beginning in 2000, the Directors chosen to succeed those whose terms then expire
shall be identified as being of the same class as the Directors they succeed and
shall be elected for a term expiring at the third succeeding annual election of
Directors by the stockholders of the Corporation, or thereafter when their
respective successors in each case are elected by the stockholders and
qualified. If the number of Directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of Directors
in each class as nearly equal as possible, and any additional Director of any
class elected to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of that
class, but in no case shall a decrease in the number of Directors shorten the
term of any incumbent Director.
Section 3.03. Annual or Regular Meetings; Notice. The annual meeting
----------------------------------
of the Board of Directors for the purpose of electing officers and for the
transaction of such other business as may come before the meeting shall be held
as soon as possible following adjournment of the annual meeting of the
stockholders at the place of such annual meeting of the stockholders. Notice of
such annual meeting of the Board of Directors need not be given. The Board of
Directors from time to time may by resolution provide for the holding of regular
meetings and fix the place (which may be within or without the State of
Delaware), date and hour of such meetings. Notice of regular meetings need not
be given, provided, however, that if the Board of Directors shall fix or change
the time or place of any regular meeting, notice of such action shall be mailed
promptly, or sent by telegram, radio or cable, to each director who shall not
have been present at the meeting at which such action
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was taken, addressed to him at his usual place of business, or shall be
delivered to him personally. Notice of such action need not be given to any
director who attends the first regular meeting after such action is taken
without protesting the lack of notice to him, prior to or at the commencement of
such meeting, or to any director who submits a signed waiver of notice, whether
before or after such meeting.
Section 3.04. Special Meetings; Notice. Special meetings of the
-------------------------
Board of Directors shall be held whenever called by the Chief Executive Officer
or, in the event of his absence or disability, by any Vice President or by the
Secretary at such place (within or without the State of Delaware), date and hour
as may be specified in the respective notices or waivers of notice of such
meetings. Special meetings of the Board of Directors may be called on 24 hours'
notice, if notice is given to each director personally or by telephone or
telegram, or on five days' notice, if notice is mailed to each director,
addressed to him at his usual place of business. Notice of any special meeting
need not be given to any director who attends such meeting without protesting
the lack of notice to him, prior to or at the commencement of such meeting, or
to any director who submits a signed waiver of notice, whether before or after
such meeting, and any business may be transacted thereat.
Section 3.05. Quorum; Voting. At all meetings of the Board of
--------------
Directors, a majority of the directors then in office shall constitute a quorum
for transaction of business, and the vote of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by the General
Corporation Law of the State of Delaware or by the Certificate of Incorporation.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 3.06. Adjournment. A majority of the directors present,
-----------
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting is not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each director.
Section 3.07. Action Without a Meeting. Unless otherwise restricted
------------------------
by the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or of such committee consent hereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
such committee.
Section 3.08. Regulations; Manner of Acting. To the extent
-----------------------------
consistent with applicable law, the Certificate of Incorporation and these By-
Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The directors shall act only as a Board, and the individual
directors shall have no power as such.
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Section 3.09. Participation in Meetings by Conference Telephone.
-------------------------------------------------
Members of the Board of Directors or of any committee thereof may participate in
a meeting of the Board of Directors or a committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting.
Section 3.10. Removal and Resignation. No director may be removed
-----------------------
from office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors voting
together as a single class; provided, however, that if the holders of any class
or series of capital stock are entitled to elect one or more directors, such
director or directors so elected may be removed without case only by the vote of
the holders of a majority of the outstanding shares of that class or series
entitled to vote. Any director may resign at any time upon written notice to
the Corporation.
Section 3.11. Vacancies and Newly Created Directorships. Subject to
-----------------------------------------
any rights of holders of any series of Preferred Stock to fill such newly
created directorships or vacancies any newly created directorships resulting
from any increase in the authorized number of directors and any vacancies in the
Board of Directors resulting form death, resignation, disqualification or
removal from office for cause shall, unless otherwise provided by law or by
resolution approved by the affirmative vote of a majority of the total number of
directors then in office, be filled only by resolution approved by the
affirmative vote of a majority of the total number of directors then in office.
Any director so chosen shall hold office until the next election of the class
for which such director shall have been chosen, and until his successor shall
have been duly elected and qualified, unless he shall resign, die, become
disqualified or be removed for cause.
Section 3.12. Compensation. The amount, if any, which each director
------------
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors.
Section 3.13. Reliance on Accounts and Reports, etc. A director, or
-------------------------------------
a member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE IV
COMMITTEES
Section 4.01. Generally. The Board of Directors shall designate an
---------
Audit Committee and a Compensation Committee, and may designate one or more
other committees, each committee to consist of one or more of the directors of
the Corporation. Any such committee shall
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<PAGE>
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution, or amending the By-Laws of the Corporation;
and unless the resolution or By-Laws expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
Section 4.02. Committee Procedure. Each committee may determine the
-------------------
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third of the members shall constitute a quorum unless the committee shall
consist of one (1) or two (2) members, in which event one member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Section 4.03. Executive Committee. The Board of Directors may, in
-------------------
its discretion by resolution passed by a majority of the Board of Directors,
designate an Executive Committee consisting of such number of directors as the
Board of Directors shall determine. The Executive Committee shall have and may
exercise all of the authority of the Board of Directors in the management of the
Corporation with respect to any matter that may require action prior to, or that
in the opinion of the Executive Committee may be inconvenient, inappropriate or
undesirable to be postponed until, the next meeting of the Board of Directors;
provided, however, that the Executive Committee shall not have the power or
authority of the Board of Directors in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or an amendment
to these By-Laws. Any member of the Board of Directors may request the chairman
of the Executive Committee to call a meeting of the Executive Committee with
respect to a specified subject.
Section 4.04. Audit Committee. The Audit Committee will review the
---------------
results and scope of the audit and other services, provided by the Corporation's
independent accountants.
Section 4.05. Compensation Committee. The Compensation Committee
----------------------
will approve salaries and certain incentive compensation for management and key
employees of the Corporation, and administer the Corporation's stock option and
other employee benefit plans.
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ARTICLE V
OFFICERS
Section 5.01 Number and Designation. The officers of the Corporation
----------------------
shall be a Chief Executive Officer, a President, a Chief Operating Officer, a
Secretary, a Vice Chairman and such other officers (e.g., one or more Vice
Presidents, a Treasurer and one or more Assistant Secretaries or Assistant
Treasurers) as the Board of Directors from time to time considers necessary for
the proper conduct of the business of the Corporation. Any two or more offices
may be held by the same person. Vacancies may be filled or new offices created
and filled at any meeting of the Board of Directors. Each officer shall hold
office until his or her successor shall have been duly elected and shall have
qualified or until his or her earlier death, resignation, or removal.
Section 5.02. Chief Executive Officer. The Chief Executive Officer
-----------------------
shall be the president of the Corporation and shall, in general, supervise and
control all of the business and affairs of the Corporation and perform all
duties incident to the offices of Chief Executive Officer and president and such
other duties as from time to time may be prescribed by the Board of Directors,
subject, however, to the control of the Board of Directors. When present, he
shall preside at all meetings of the stockholders and of the Board of Directors.
The Chief Executive Officer may sign, alone or with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, any deeds, mortgages, bonds, contracts, or other instruments that the
Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed.
Section 5.03. Secretary. The Secretary shall (a) keep the minutes of
---------
the stockholders' and of the Board of Directors' meetings and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these By-Laws or
as required by law; (c) be custodian of the corporate records; (d) keep a
register of the post office address of each stockholder, director or committee
member, which shall be furnished to the Secretary by such stockholder, director
or member; (e) have general charge of the stock transfer books of the
Corporation; and (f) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Chief Executive Officer or the Board of Directors.
Section 5.04. President. The President shall assist the Chief
---------
Executive Officer to supervise and control all of the business and affairs of
the Corporation and perform all duties incident to the office of President and
such other duties as from time to time may be prescribed by the Chief Executive
Officer or the Board of Directors. In the absence or disability of the Chief
Executive Officer, the President may, unless otherwise determined by the Board
of Directors, exercise the powers and perform the duties pertaining to the
office of the Chief Executive Officer.
Section 5.05 Chief Operating Officer. The Chief Operating Officer
-----------------------
shall assist the President to supervise and control all of the business and
affairs of the Corporation and perform all duties incident to the office of
Chief Operating Officer and such other duties as may from time to
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time be prescribed by the President. In the absence or disability of the
President, the Chief Operating Officer may, unless otherwise determined by the
Board of Directors, exercise and perform the duties of the President.
Section 5.06. Vice President. The Vice President or Vice Presidents
--------------
shall perform such duties as may be assigned to them from time to time by the
Board of Directors or by the Chief Executive Officer, if the Board of Directors
does not do so. In the absence or disability of the Vice Chairman, the
Executive Vice Presidents in order of seniority, or if none, the Senior Vice
Presidents, in order of seniority, or if none, the Vice Presidents in order of
seniority, may, unless otherwise determined by the Board of Directors, exercise
the powers and perform the duties pertaining to the office of the Vice Chairman,
except that if one or more Vice Presidents has been elected or appointed, the
person holding such office in order of seniority shall exercise the powers and
perform the duties of the office of the Vice Chairman.
Section 5.07. Treasurer. The Treasurer, or such other officer of the
---------
Corporation as may be named by the Board of Directors or appointed by the Chief
Executive Officer of the Corporation to perform such function, shall have charge
and custody of and be responsible for all funds and securities of the
Corporation, receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, deposit all such moneys in the name of
the Corporation in such banks, trust companies or other depositories, disburse
the funds of the Corporation as ordered by the Board of Directors or the Chief
Executive Officer of the Corporation or as otherwise required in the conduct of
the business of the Corporation, and render to the Chief Executive Officer of
the Corporation or the Board of Directors, upon request, an account of all his
transactions as Treasurer and on the financial condition of the Corporation.
The Treasurer, unless another officer of the Corporation is named by the Board
of Directors to perform such functions, shall have the duties and
responsibilities and shall exercise the authority and powers of the chief
financial officer of the Corporation, and shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Chief Executive Officer or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond (which shall be renewed regularly), in such sum and with such surety or
sureties as the Board of Directors shall determine for the faithful discharge of
his duties and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the Corporation.
Section 5.08. Assistant Treasurers and Assistant Secretaries.
----------------------------------------------
Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Treasurer or by the Secretary, respectively, or
by the Board of Directors or the Chief Executive Officer. If required by the
Board of Directors, the Assistant Treasurers shall give bonds (which shall be
renewed regularly) for the faithful discharge of their duties in such sums and
with such sureties as the Board of Directors shall determine.
Section 5.09. Compensation. The salaries of the officers shall be
------------
fixed from time to time by the Board of Directors or such officer as the Board
of Directors shall designate for such
11
<PAGE>
purpose or as it shall otherwise direct. No officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
Section 5.10. Removal and Resignation; Vacancies. Any officer may be
----------------------------------
removed with or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering a written notice of resignation,
signed by such officer, to the Board of Directors or the Chief Executive
Officer. Unless otherwise specified therein, such resignation shall take effect
upon delivery. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
Section 5.11. Authority and Duties of Officers. The officers of the
--------------------------------
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified by the Board of Directors, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law. In the event an officer other than the Chief Executive
Officer, the Secretary and the Vice Chairman is not elected by the Board of
Directors, the Board of Directors or the Chief Executive Officer may bestow and
delegate that officer's duties and powers on any other officer of the
Corporation.
Section 5.12. Failure to Elect. A failure to elect officers shall
----------------
not dissolve or otherwise affect the Corporation.
ARTICLE VI
CAPITAL STOCK
Section 6.01. Certificates. Each stockholder shall be entitled to a
------------
certificate signed by, or in the name of the Corporation by the Chief Executive
Officer, the Vice Chairman or a Vice President, and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the
number of shares owned by him or her. Any or all of the signatures on the
certificate may be facsimile.
Section 6.02. Uncertificated Shares. Subject to any conditions
---------------------
imposed by the General Corporation Law of the State of Delaware or by the
Certificate of Incorporation, the Board of Directors may provide by resolution
or resolutions that some or all of any or all classes or series of the stock of
the Corporation shall be uncertificated shares. Within a reasonable time after
the issuance or transfer of any uncertificated shares, the Corporation shall
send to the registered owner thereof any written notice prescribed by the
General Corporation Law.
Section 6.03. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
12
<PAGE>
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 6.04. Stock Transfers. The Board of Directors shall have the
---------------
power and authority to make all such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates of
stock. The Board of Directors may appoint transfer agents and registrars
thereof.
Section 6.05. Record Date. The Board of Directors may fix in advance
-----------
a date as a record date for the determination of the stockholders entitled to
notice of or to vote at any meeting of stockholders or to express consent (or
dissent) to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6.06. Registered Stockholders. Prior to due surrender of a
-----------------------
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
ARTICLE VII
INDEMNIFICATION
13
<PAGE>
Section 7.01. Nature of Indemnity. The Corporation shall indemnify
-------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of fact that the person is
or was or has agreed to become a director or officer of the Corporation, or is
or was serving or has agreed to serve at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that the person is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding and any appeal therefrom, if the person acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding had no reasonable cause to believe the person's conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
Section 7.02. Successful Defense. To the extent that a director,
------------------
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
7.01 hereof or in defense of any claim, issue or matter therein, the person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection therewith.
Section 7.03. Determination That Indemnification Is Proper. Any
--------------------------------------------
indemnification of a director or officer of the Corporation under Section 7.01
hereof (unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the director or officer is not
proper in the circumstances because the person has not met the applicable
standard of conduct set forth in Section 7.01 hereof. Any indemnification of an
employee or agent of the Corporation under Section 7.01 hereof (unless ordered
by a court) may be made by the Corporation upon a determination that
indemnification of the employee or agent is proper in the circumstances
14
<PAGE>
because the person has met the applicable standard of conduct set forth in
Section 7.01 hereof. Any such determination shall be made (1) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding; or (2) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; or (3) by the
stockholders.
Section 7.04. Advance Payment of Expenses. Expenses incurred by a
---------------------------
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that the person is not entitled to
be indemnified by the Corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's counsel to
represent such director, officer, employee or agent in any action, suit or
proceeding, whether or not the Corporation is a party to such action, suit or
proceeding.
Section 7.05. Procedure for Indemnification of Directors and
----------------------------------------------
Officers. Any indemnification of a director or officer of the Corporation under
Sections 7.01 and 7.02, or advance of costs, charges and expenses to a director
or officer under Section 7.04 of this Article, shall be made promptly, and in
any event within thirty (30) days, upon the written request of the director or
officer. If a determination by the Corporation that the director or officer is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty (60) days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If
the Corporation denies a written request for indemnity or advancement of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty (30) days, the right to indemnification or advances as
granted by this Article shall be enforceable by the director or officer in any
court of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 7.04 of this
Article where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Section 7.01 of this Article, but the burden of proving such defense shall be on
the Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 7.01 of this Article, nor the fact that
there has been an actual determination by the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 7.06. Survival; Preservation of Other Rights. The foregoing
--------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as
15
<PAGE>
the relevant provisions of the Delaware General Corporation Law are in effect
and any repeal or modification thereof shall not affect any right or obligation
then existing with respect to any state of facts then or previously existing or
any action, suit or proceeding previously or thereafter or brought or threatened
based in whole or in part upon any such state of facts. Such a "contract right"
may not be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in the person's official capacity and as to action
in another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 7.07. Insurance. The Corporation shall purchase and maintain
---------
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer or another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
the person and incurred by the person or on the person's behalf in any such
capacity, or arising out of the person's status as such, whether or not the
Corporation would have the power to indemnify the person against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 7.08. Severability. If this Article or any portion hereof
------------
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law
---------
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's capital stock.
A member of the Board of Directors, or a member of any committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors, or by any other person
16
<PAGE>
as to matters the director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid.
Section 8.02. Reserves. There may be set aside out of any funds of
--------
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve.
Section 8.03. Execution of Instruments. The Chief Executive Officer,
------------------------
the Vice Chairman, any Vice President, the Secretary or the Treasurer may enter
into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation. The Board of Directors or the Chief Executive
Officer may authorize any other officer or agent to enter into any contract or
execute and deliver any instrument in the name and on behalf of the Corporation.
Any such authorization may be general or limited to specific contracts or
instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
----------------------
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or the Chief Executive
Officer. Such authorization may be general or confined to specific instances.
Loans so authorized may be effected at any time for the Corporation from any
bank, trust company or other institution, or from any firm, corporation or
individual. All bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation issued for such loans shall be made, executed
and delivered as the Board of Directors or the Chief Executive Officer shall
authorize. When so authorized by the Board of Directors or the Chief Executive
Officer, any part of or all the properties, including contract rights, assets,
business or good will of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be
--------
deposited from time to time in such banks, trust companies or other depositories
as may be determined by the Board of Directors or the Chief Executive Officer,
or by such officers or agents as may be authorized by the Board of Directors or
the Chief Executive Officer to make such determination.
Section 8.06. Checks. All checks or demands for money and notes of
------
the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors or the
Chief Executive Officer from time to time may determine.
17
<PAGE>
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
----------------------------------
authorized by the Board of Directors or by the Chief Executive Officer, the Vice
Chairman, the Secretary or any other officers designated by the Board of
Directors or the Chief Executive Officer, the Corporation may sell, transfer,
endorse, and assign any shares of stock, bonds or other securities owned by or
held in the name of the Corporation, and may make, execute and deliver in the
name of the Corporation, under its corporate seal, any instruments that may be
appropriate to effect any such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. Unless otherwise determined by
---------------------
resolution of the Board of Directors, the Chief Executive Officer, the Vice
Chairman or any Vice President or Secretary shall have full power and authority
on behalf of the Corporation to attend any meeting of stockholders of any
corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock. Such officers
acting on behalf of the Corporation shall have full power and authority to
execute any instrument expressing consent to or dissent from any action of any
such corporation without a meeting. The Board of Directors may by resolution
from time to time confer such power and authority upon any other person or
persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
-----------
commence on the first day of January of each year (except for the Corporation's
first fiscal year, which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The Board of Directors may adopt a corporate seal
----
and use the same by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Section 8.11. Books and Records; Inspection. The Corporation shall
-----------------------------
keep correct and complete books and records of its accounts and transactions and
minutes of the proceedings of its stockholders and Board of Directors. The books
of the Corporation may be kept (subject to any provisions contained in the
General Corporation Law of the State of Delaware) outside the State of Delaware
at such place or places as may be designated from time to time by the Board of
Directors.
Section 8.12. Amendments. These By-Laws, or any of them, may be
----------
altered, amended or repealed, or new By-Laws may be made, at any meeting of the
Board of Directors, by vote of a majority of the Board of Directors, provided
that the proposed action in respect thereof shall be stated in the notice of
waiver of notice of such meeting or that all of the directors of the Corporation
shall be present at such meeting.
I hereby certify that the foregoing Amended and Restated By-Laws were
duly adopted by the Board of Directors of the Corporation on February 19,1999.
/s/ Michael G. Plantamura
--------------------------
Michael G. Plantamura, Secretary
18
<PAGE>
EXHIBIT 4.1
SEE REVERSE SIDE FOR RESTRICTIVE LEGEND
<TABLE>
<S> <C>
NUMBER SHARES
00 00
</TABLE>
CAIS INTERNET, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
25,000,000 SHARES COMMON STOCK PAR VALUE $0.01 EACH
This Certifies that SPECIMEN is the registered holder of XXXXXXXXX Shares fully
paid, non-assessable, and transferable only on the books of the Corporation by
the holder hereof in person or by Attorney upon surrender of this Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this __________ day of ______________ A.D.________
- -------------------------------- -----------------------------
Secretary Preesident
<PAGE>
For Value Received, _______________hereby sell, assign and transfer unto
___________________________________ ________________________ Shares represented
by the within Certificate, and do hereby irrevocably constitute and appoint
__________________________ Attorney to transfer the said Shares on the books of
the within named Corporation with full power of substitution in the premises.
Dated______________________ ____
In presence of _____________________________
___________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 4.2
WARRANT AGREEMENT
Dated as of September 4, 1998
by and among
CGX COMMUNICATIONS, INC.,
CLEARTEL COMMUNICATIONS, INC.,
CAIS, INC.
and
ING (U.S.) CAPITAL CORPORATION
WARRANT AGREEMENT (this "Agreement") is made and entered into as of
September 4, 1998 by and among CGX COMMUNICATIONS, INC., a Delaware corporation
("CGX"), CLEARTEL COMMUNICATIONS, INC., a District of Columbia corporation
("Cleartel"), CAIS, INC., a Virginia corporation ("CAIS"), the Holders of the
Warrants from time to time, and ING (U.S.) CAPITAL CORPORATION, as agent for
Holders of the Warrants (the "Agent").
WHEREAS, in consideration for, among other things, the transactions
contemplated by the Credit Documents (as defined below) the Warrant Issuers each
agree to issue Common Stock purchase warrants, as hereinafter described (the
"Warrants"), to purchase up to an aggregate of 3.0% of each of their respective
shares of Common Stock (as defined below) outstanding (on a fully-diluted basis)
as of the Issue Date, and subsequently on each 6-month anniversary of
<PAGE>
the Issue Date for so long as any obligations of the Borrowers (or Issuers),
Guarantors or other Obligors under the Credit Documents remain outstanding or
unsatisfied. Each Warrant entitles the holder thereof to purchase one share of
Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, and for the purpose of defining the respective
rights and obligations of the Warrant Issuers, the Agent and the Lenders and
Noteholders (as defined below), the parties hereto agree as follows:
Section 1. Certain Definitions. Capitalized defined terms used in
-------------------
this Agreement and not otherwise defined herein shall have the meanings given to
those terms in the Credit Agreement. As used in this Agreement, the following
terms shall have the following respective meanings:
"Agent" means ING (U.S.) Capital Corporation, New York, New York as
agent for the Lenders, or any successor thereto appointed by the Lenders
pursuant to Section 7.8 of the Credit Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Equity Securities" means Common Stock and securities
convertible into, or exercisable or exchangeable for, Common Stock or rights or
options to acquire Common Stock or such other securities, excluding the
Warrants.
"Common Stock" means the common stock, par value $.01 per share, of
each of the Warrant Issuers, and any other capital stock of the Warrant Issuers
into which such common stock may be converted or reclassified or that may be
issued in respect of, in exchange for, or in substitution for, such common stock
by reason of any stock splits, stock dividends, distributions, mergers,
consolidations or other like events.
"Conversion Date" means February 26, 1999.
"Credit Agreement" means the Credit Agreement dated as of September 4,
1998, by and among the Borrowers,
2
<PAGE>
the Owners referred to therein, the Lenders listed on the signature pages
thereto and the Agent.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated thereunder.
"Exercise Price" means the purchase price per share of Common Stock to
be paid upon the exercise of each Warrant in accordance with the terms hereof,
which price shall initially be $0.01 per share, subject to adjustment from time
to time pursuant to Section 12 hereof.
"Expiration Date" means September 4, 2008.
"Holder" means a Person who is the owner as shown on the Warrant
register maintained by the Warrant Issuers.
"Issue Date" means the date of the initial issuance of the Warrants,
which shall be the Closing Date under the Credit Agreement.
"Principal Office of Agent" means the Agent's office located at 135
East 57th Street, New York, New York, or such other office of the Agent as the
Agent shall designate from time to time in writing as its Principal Office for
the purposes of this Agreement.
"Registrable Securities" means any of (i) the Warrant Shares and (ii)
any other securities issued or issuable with respect to any Warrant Shares by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise, unless, in each case, such Warrant Shares and securities, if any,
have been offered and sold to the Holders pursuant to an effective Registration
Statement under the Securities Act declared effective prior to the date of
exercisability of the Warrants or the date such Warrant Shares and securities,
if any, may be sold to the public pursuant to Rule 144 without any restriction
on the amount of securities which may be sold by such Holders or the
satisfaction of any condition. As to any particular Registrable Securities held
by a Holder, such securities shall cease to be Registrable Securities when (i) a
Registration Statement with respect to the exercise or offering of such
securities by the Holder thereof shall have been declared effective under the
Securities Act and such
3
<PAGE>
securities shall have been exercised and/or disposed of by such Holder pursuant
to such Registration Statement, (ii) such securities may at the time of
determination be sold to the public pursuant to Rule 144 without any restriction
on the amount of securities which may be sold by such Holder (or any similar
provision then in force, but not Rule 144A) without the lapse of any further
time or the satisfaction of any condition, (iii) such securities shall have been
otherwise transferred by such Holder and new certificates for such securities
not bearing a legend restricting further transfer shall have been delivered by
the Warrant Issuers or their transfer agent and subsequent disposition of such
securities shall not require registration or qualification under the Securities
Act or any similar state law then in force or (iv) such securities shall have
ceased to be outstanding.
"Rule 144" shall mean Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144A) or regulation hereafter adopted by the Commission providing for
offers and sales of securities made in compliance therewith resulting in offers
and sales by subsequent holders that are not affiliates of an issuer of such
securities being free of the registration and prospectus delivery requirements
of the Securities Act.
"Rule 144A" shall mean Rule 144A promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute and the rules and regulations promulgated thereunder.
"Warrant Issuer" means Cleartel Communications, Inc., CGX
Communications, Inc. and CAIS, Inc., and on and subsequent to the Restructuring
Date, Warrant Issuer shall mean CGX Communications, Inc.
"Warrant Registration Rights Agreement" means the registration rights
agreement, dated as of the date hereof by and among CGX, Cleartel, CAIS and the
Agent relating to the Warrants and the Warrant Shares.
4
<PAGE>
"Warrant Shares" means the shares of Common Stock issued or issuable
upon the exercise of the Warrants.
Section 2. Reserved.
--------
Section 3. Issuance of Warrants; Warrant Certificates.
------------------------------------------
(a) The Warrants will be issued in the form of definitive
certificates, substantially in the form of Exhibit A (the "Warrant
Certificates"). Each Warrant shall provide that it shall represent the
aggregate amount of outstanding Warrants from time to time endorsed thereon and
that the aggregate amount of outstanding Warrants represented thereby may from
time to time be reduced or increased, as appropriate.
(b) The Warrants shall be initially issued on the Issue Date in the
amount of 3.0% of the then outstanding (on a fully-diluted basis) shares of the
Common Stock of each of the Warrant Issuers. On each six month anniversary
subsequent to the Issue Date, the Warrants each automatically shall be increased
in amount by 3.0% of the then outstanding (on a fully-diluted basis) shares of
the Common Stock of each of the Warrant Issuers until such time as there are no
outstanding Obligations of the Borrowers (or Issuers), Guarantors or other
Obligors under the Credit Documents.
Section 4. Execution of Warrant Certificates. Warrant Certificates
---------------------------------
shall be signed on behalf of each of the Warrant Issuers by such Warrant
Issuer's President or a Vice President and by its Secretary or an Assistant
Secretary under its corporate seal. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the present or any
future President, Vice President, Secretary or Assistant Secretary and may be
imprinted or otherwise reproduced on the Warrant Certificates and for that
purpose the Warrant Issuers may adopt and use the facsimile signature of any
person who shall have been President, Vice President, Secretary or Assistant
Secretary, notwithstanding the fact that at the time the Warrant Certificates
shall be countersigned and delivered or disposed of, such person shall have
ceased to hold such office. The seal of the Warrant Issuers may be in the form
of a facsimile thereof and may be impressed,
5
<PAGE>
affixed, imprinted or otherwise reproduced on the Warrant Certificates.
In case any officer of the Warrant Issuers who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by the Warrant Issuers, such
Warrant Certificates nevertheless may be countersigned and delivered or disposed
of as though such person had not ceased to be such officer of the Warrant
Issuers; and any Warrant Certificate may be signed on behalf of the Warrant
Issuers by any person who, at the actual date of the execution of such Warrant
Certificate, shall be a proper officer of the Warrant Issuers to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
Section 5. Registration. The Warrant Issuers, shall number and
------------
register the Warrant Certificates in a register as they are issued by the
Warrant Issuers.
The Warrant Issuers and the Agent may deem and treat the person in
whose name any Warrant is registered as the absolute owner(s) thereof, for all
purposes, and neither the Warrant Issuers nor the Agent shall be affected by any
notice to the contrary.
Section 6. Registration of Transfers and Exchanges.
---------------------------------------
(a) Transfer and Exchange of Warrants and Registrable Securities.
------------------------------------------------------------
When Warrants or Registrable Securities are presented to the Warrant Issuers
with a request:
(i) to register their transfer; or
(ii) to exchange such Warrants for an equal number of Warrants of
other authorized denominations,
the Warrant Issuers shall register the transfer or make the exchange as
requested if the following requirements are met:
(x) the Warrants presented or surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Warrant Issuers,
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<PAGE>
duly executed by the Holder thereof or by his attorney-in-fact, duly authorized
in writing; and
(y) in the case of Registrable Securities, such request shall be
accompanied by the following additional information and documents (all of which
may be submitted by facsimile), as applicable:
(A) if such Registrable Security is being delivered to the
Warrant Issuers by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to that
effect (in substantially the form of Exhibit B hereto);
(B) if such Registrable Security is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A) in
accordance with Rule 144A or (2) pursuant to an exemption from
registration in accordance with Rule 144 (and based on an opinion of
counsel if the Warrant Issuers so request) or (3) pursuant to an
effective registration statement under the Securities Act, a
certification to that effect (in substantially the form of Exhibit B
hereto);
(C) if such Registrable Security is being transferred pursuant
to an exemption from registration in accordance with Rule 904 under
the Securities Act (and based on an opinion of counsel if the Warrant
Issuers so request), a certification to that effect (in substantially
the form of Exhibit B hereto); or
(D) if such Registrable Security is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act (and based on an opinion of counsel if the Warrant
Issuers so request), a certification to that effect (in substantially
the form of Exhibit B hereto).
(b) Legends.
-------
(i) Except for any Registrable Security sold or transferred as
discussed in clause (ii) below, each Warrant Certificate (and all Warrants
issued in
7
<PAGE>
exchange therefor or substitution thereof) and each certificate representing the
Warrant Shares shall bear a legend in substantially the following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY AND THE SECURITIES DELIVERED
UPON EXERCISE THEREOF MAY NOT BE EXERCISED, OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY
AND THE SECURITIES DELIVERED UPON THE EXERCISE THEREOF IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A.
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF
THE ISSUER THAT (A) SUCH SECURITY AND THE SECURITIES DELIVERED UPON
EXERCISE HEREOF MAY BE EXERCISED, RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A , (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON
THAT IS NOT A U.S. PERSON (AS DEFINED IN RULE 902 UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE
SECURITIES ACT, OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (IN THE CASE OF (b),
(c) or (d), UPON AN OPINION OF COUNSEL AND WRITTEN CERTIFICATION IF
THE ISSUER OR WARRANT AGENT, REGISTRAR OR TRANSFER AGENT FOR THE
SECURITIES SO REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR
ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT
8
<PAGE>
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY AND THE SECURITIES DELIVERED UPON EXERCISE
HEREOF OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Registrable Security pursuant to
an effective registration statement under the Securities Act, pursuant to
Rule 144(k) or pursuant to an opinion of counsel reasonably satisfactory to
the Warrant Issuers that no legend is required, the Holder thereof shall be
permitted to exchange such Registrable Security for a Warrant that does not
bear the legend set forth in clause (i) above and rescind any restriction
on the transfer of such Registrable Security.
(c) Obligations with respect to Transfers and Exchanges of Warrants.
---------------------------------------------------------------
(i) To permit registrations of transfers and exchanges, the Warrant
Issuers shall execute in accordance with the provisions of Section 5 and
this Section 6, Warrants as required pursuant to the provisions of this
Section 6. Notwithstanding anything to the contrary contained herein, the
Warrant Issuers shall refuse to register any transfer of the Warrants not
made in accordance with Regulation S, pursuant to registration under the
Securities Act or pursuant to an available exemption from the registration
requirements of the Securities Act; provided, however, that if a foreign
-------- -------
law prevents the Warrant Issuers from refusing to register securities
transfers, the Warrant Issuers shall implement other reasonable measures
designed to prevent transfers of the Warrants not made in accordance with
Regulation S, pursuant to registration under the Securities Act or pursuant
to an available exemption from the registration requirements of the
Securities Act.
(ii) All Warrants issued upon any registration of transfer or
exchange of Warrants shall be the valid obligations of the Warrant Issuers,
entitled to the same benefits under this Warrant Agreement, as the Warrants
surrendered upon such registration of transfer or exchange.
9
<PAGE>
(iii) Prior to due presentment for registration of transfer of any
Warrant, the Warrant Issuers may deem and treat the person in whose name
any Warrant is registered as the absolute owner of such Warrant and the
Warrant Issuers shall not be affected by notice to the contrary.
(iv) No service charge shall be made to a Holder for any registration
of transfer or exchange.
(j) Exchange of Warrants After Restructuring Date. Upon the
---------------------------------------------
effectiveness of the Restructuring, CGX, as the sole parent holding company for
Cleartel and CAIS (a) automatically shall become the sole Warrant Issuer of
Warrants in an aggregate amount equivalent to the percentage of its Common Stock
(on a fully diluted basis) then outstanding as the applicable percentages of
Warrants to which the Warrant Holders would have been entitled to prior to the
Restructuring Date and (b) shall assume all of Cleartel's and CAIS' obligations
under this Agreement and the Warrant Registration Rights Agreement. As of the
Restructuring Date, the outstanding Warrants shall be exchanged for Warrants
representing Warrants issued by CGX in accordance with this Section 6.
Section 7. Terms of Warrants; Exercise of Warrants. Subject to the
---------------------------------------
terms of this Agreement, each Warrant Holder shall have the right, which may be
exercised at any time and from time to time, in whole or in part, commencing at
9:00 a.m., New York City time, commencing on the 30th day after the Closing Date
and ending at 5:00 p.m., New York City time, on the Expiration Date, to receive
from the Warrant Issuers the number of fully paid and nonassessable Warrant
Shares which the Holder may at the time be entitled to receive on exercise of
such Warrants and payment of the Exercise Price then in effect for such Warrant
Shares; provided, however, that no Warrant Holder shall be entitled to exercise
-------- -------
such Holder's Warrants at any time, unless, at the time of exercise, (i) a
registration statement under the Securities Act relating to the Warrant Shares
has been filed with, and declared effective by, the Commission, and no stop
order suspending the effectiveness of such registration statement has been
issued by the Commission or (ii) the issuance of the Warrant Shares is permitted
pursuant to an exemption from the registration requirements of the Securities
Act. Subject to the provisions of the following paragraph of this Section 7,
10
<PAGE>
each Warrant not exercised prior to 5:00 p.m., New York City time, on the
Expiration Date shall become void and all rights thereunder and all rights in
respect thereof under this Agreement shall cease as of such time. No adjustments
as to dividends will be made upon exercise of the Warrants.
The Warrant Issuers shall give notice not less than 90, and not more
than 120, days prior to the Expiration Date to the Holders of all then
outstanding Warrants to the effect that the Warrants will terminate and become
void as of 5:00 p.m., New York City time, on the Expiration Date. If the Warrant
Issuers fail to give such notice, the Warrants will not expire until 90 days
after the Warrant Issuers give such notice, provided, however, in no event will
Holders be entitled to any damages or other remedy for the Warrant Issuers'
failure to give such notice other than any such extension.
A Warrant may be exercised upon surrender to the Warrant Issuers of
the certificate or certificates evidencing the Warrant to be exercised with the
form of election to purchase on the reverse thereof properly completed and
signed, which signature shall be guaranteed by a bank or trust company having an
office or correspondent in the United States or a broker or dealer which is a
member of a registered securities exchange or the National Association of
Securities Dealers, Inc., and upon payment to the Warrant Issuers of the
Exercise Price as adjusted as herein provided, for each of the Warrant Shares in
respect of which such Warrants are then exercised. Payment of the aggregate
Exercise Price shall be made in cash or by certified or official bank check,
payable to the order of the Warrant Issuers. In the alternative, each Holder may
exercise its right to receive Warrant Shares (i) on a net basis, such that
without the exchange of any funds, the Holder receives that number of Warrant
Shares otherwise issuable upon exercise of its Warrants less that number of
Warrant Shares having a fair market value equal to the aggregate Exercise Price
that would otherwise have been paid by the Holder for the Warrant Shares being
issued, (ii) by tendering Loans or converted Notes having an aggregate principal
amount, plus accrued but unpaid interest, if any, thereon, to the date of
exercise equal to the aggregate Exercise Price that would otherwise have been
paid by the Holder for the Warrant Shares being issued, or (iii) by a
combination of the procedures in clauses (i) and (ii). For purposes of the
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<PAGE>
foregoing sentence, "fair market value" of the Warrant Shares shall be as
determined by the Boards of Directors of the Warrant Issuers in good faith and
evidenced by a resolution thereof. The Warrant Issuers shall notify the Holders
in writing of any such determination of fair market value.
Subject to the provisions of Section 8 hereof, upon surrender of
Warrants and payment of the Exercise Price as provided above, the Warrant
Issuers shall promptly transfer to the Holder of such Warrant a certificate or
certificates for the appropriate number of Warrant Shares or other securities or
property (including any money) to which the Holder is entitled, registered or
otherwise placed in, or payable to the order of, such name or names as may be
directed in writing by the Holder, and shall deliver such certificate or
certificates representing the Warrant Shares and any other securities or
property (including any money) to the Person or Persons entitled to receive the
same, together with an amount in cash in lieu of any fraction of a share as
provided in Section 14. Any such certificate or certificates representing the
Warrant Shares shall be deemed to have been issued and any Person so designated
to be named therein shall be deemed to have become a Holder of record of such
Warrant Shares as of the later of the date of the surrender of such Warrants and
payment of the Exercise Price.
The Warrants shall be exercisable commencing on the Issue Date, at the
election of the Holders thereof, either in full or from time to time in part
and, in the event that a certificate evidencing Warrants is exercised in respect
of fewer than all of the Warrant Shares issuable on such exercise at any time
prior to the date of expiration of the Warrants, a new certificate evidencing
the remaining Warrant or Warrants will be issued and delivered pursuant to the
provisions of this Section and of Section 4 hereof.
All Warrant Certificates surrendered upon exercise of Warrants shall
be cancelled. Such cancelled Warrant Certificates shall then be disposed of in
accordance with customary procedures.
Section 8. Payment of Taxes. The Warrant Issuers will pay all
----------------
documentary stamp taxes attributable to the initial issuance of Warrant Shares
upon the exercise of Warrants and to any separation of the Warrants from the
12
<PAGE>
Notes; provided, however, that the Warrant Issuers shall not be required to pay
-------- -------
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificates for Warrant Shares in a
name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Warrant Issuers shall not be required to issue or
deliver such Warrant Certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Warrant Issuers the
amount of such tax or shall have established to the satisfaction of the Warrant
Issuers that such tax has been paid.
Section 9. Mutilated or Missing Warrant Certificates. In case any of
-----------------------------------------
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Warrant Issuers may in their discretion issue in exchange and substitution for
and upon cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants, but only upon receipt of evidence reasonably satisfactory to the
Warrant Issuers of such loss, theft or destruction of such Warrant Certificate
and, if requested, indemnity reasonably satisfactory to them. Applicants for
such substitute Warrant Certificates shall also comply with such other
reasonable regulations and pay such other reasonable charges as the Warrant
Issuers may prescribe.
Section 10. Reservation of Warrant Shares. The Warrant Issuers will
-----------------------------
at all times reserve and keep available, free from any preemptive rights, out of
the aggregate of its authorized but unissued Common Stock or its authorized and
issued Common Stock held in its treasury, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the
maximum number of shares of Common Stock which may then be deliverable upon the
exercise of all outstanding Warrants.
The transfer agent for the Common Stock (the "Transfer Agent") and
every subsequent transfer agent for any shares of the Warrant Issuers' capital
stock issuable upon the exercise of any of the rights of purchase aforesaid will
be irrevocably authorized and directed at all times to reserve such number of
authorized shares as shall be required for such purpose. The Warrant Issuers
will keep a
13
<PAGE>
copy of this Agreement on file with the Transfer Agent and with every subsequent
transfer agent for any shares of the Warrant Issuers' capital stock issuable
upon the exercise of the rights of purchase represented by the Warrants. The
Warrant Issuers will supply such Transfer Agent with duly executed certificates
for such purposes and will provide or otherwise make available any cash which
may be payable as provided in Section 14. The Warrant Issuers will furnish such
Transfer Agent a copy of all notices of adjustments and certificates related
thereto, transmitted to each Holder of the Warrants pursuant to Section 15
hereof.
Before taking any action which would cause an adjustment pursuant to
Section 12 hereof that would reduce the Exercise Price below the then par value
(if any) of the Warrant Shares, the Warrant Issuers will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Warrant Issuers may validly and legally issue fully paid and nonassessable
Warrant Shares at the Exercise Price as so adjusted.
The Warrant Issuers covenant that all Warrant Shares which may be
issued upon exercise of Warrants in accordance with the terms of this Agreement
(including the payment of the Exercise Price) will, upon issue, be duly and
validly issued, fully paid, nonassessable, and free of preemptive rights and
Liens.
Section 11. Obtaining Stock Exchange Listings. The Warrant Issuers
---------------------------------
will from time to time take all action which may be necessary so that the
Warrant Shares, immediately upon their issuance upon the exercise of Warrants,
will be listed on the principal securities exchanges and markets (including,
without limitation, the Nasdaq National or SmallCap Markets) within the United
States of America, if any, on which other shares of Common Stock are then
listed. Upon the listing of such Warrant Shares, the Warrant Issuers shall
notify the Holders in writing. The Warrant Issuers will obtain and keep all
required permits and records in connection with such listing.
Section 12. Adjustment of Exercise Price and Number of Warrant Shares
---------------------------------------------------------
Issuable. The number and kind of shares purchasable upon the exercise of
- --------
Warrants and the Exercise Price shall be subject to adjustment from time to
14
<PAGE>
time (as set forth in the notices required by Section 15 hereof) as follows:
(a) Stock Splits, Combinations, etc. In case any of the Warrant
-------------------------------
Issuers shall hereafter (A) pay a dividend or make a distribution on its Common
Stock in shares of its capital stock (whether shares of Common Stock or of
capital stock of any other class), (B) subdivide its outstanding shares of
Common Stock, (C) combine its outstanding shares of Common Stock into a smaller
number of shares, or (D) issue by reclassification of its shares of Common Stock
any shares of capital stock of such Warrant Issuer, the Exercise Price in effect
and the number of Warrant Shares issuable upon exercise of each Warrant
immediately prior to such action shall be adjusted so that the Holder of any
Warrant thereafter exercised shall be entitled to receive the number of shares
of capital stock of such Warrant Issuer which such Holder would have owned
immediately following such action had such Warrant been exercised immediately
prior thereto. Any adjustment made pursuant to this paragraph shall become
effective immediately after the record date in the case of a dividend and shall
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this paragraph, the Holder of any Warrant thereafter exercised
shall become entitled to receive shares of two or more classes of capital stock
of such Warrant Issuer, the Board of Directors of such Warrant Issuer (whose
determination shall be conclusive and evidenced by a Board resolution) shall
determine the allocation of the adjusted Exercise Price between or among shares
of such classes of capital stock.
(b) Reclassification, Combinations, Mergers, etc. In case of any
--------------------------------------------
reclassification or change of outstanding shares of Common Stock issuable upon
exercise of the Warrants (other than as set forth in paragraph (a) above and
other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of any of the Warrant Issuers with or into
another corporation (other than a merger in which such Warrant Issuer is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants) or in case of
15
<PAGE>
any sale or conveyance to another corporation of all or substantially all of the
assets of such Warrant Issuer, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, such Warrant Issuer or such a
successor or purchasing corporation, as the case may be, shall forthwith make
lawful and adequate provision whereby the Holder of each Warrant then
outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a Holder of the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and enter into a supplemental warrant
agreement so providing. Such provisions shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 12. If the issuer of securities deliverable upon
exercise of Warrants under the supplemental warrant agreement is an affiliate of
the formed, surviving or transferee corporation, that issuer shall join in the
supplemental warrant agreement. The above provisions of this paragraph (b) shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.
(c) Issuance of Options or Convertible Securities. In the event any
---------------------------------------------
of the Warrant Issuers shall, at any time or from time to time after the date
hereof, issue, sell, distribute or otherwise grant in any manner (including by
assumption) to all holders of the Common Stock any rights to subscribe for or to
purchase, or any warrants or options for the purchase of, Common Stock or any
stock or securities convertible into or exchangeable for Common Stock (any such
rights, warrants or options being herein called "Options" and any such
convertible or exchangeable stock or securities being herein called "Convertible
Securities") or any Convertible Securities (other than upon exercise of any
Option), whether or not such Options or the rights to convert or exchange such
Convertible Securities are immediately exercisable, and if the price per share
at which Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the aggregate amount, if any, received or receivable by such Warrant Issuer
as
16
<PAGE>
consideration for the issuance, sale, distribution or granting of such Options
or any such Convertible Security, plus the minimum aggregate amount of
additional consideration, if any, payable to such Warrant Issuer upon the
exercise of all such Options or upon conversion or exchange of all such
Convertible Securities, plus, in the case of Options to acquire Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable upon the conversion or exchange of all such Convertible Securities, by
(ii) the total maximum number of shares of Common Stock issuable upon the
exercise of all such Options or upon the conversion or exchange of all such
Convertible Securities or upon the conversion or exchange of all Convertible
Securities issuable upon the exercise of all such Options) shall be less than
the current market price per share of Common Stock on the record date for the
issuance, sale, distribution or granting of such Options or Convertible
Securities (any such event being herein called a "Distribution"), then,
effective upon such Distribution, (I) the Exercise Price shall be reduced to the
price (calculated to the nearest 1/1,000 of one cent) determined by multiplying
the Exercise Price in effect immediately prior to such Distribution by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately prior to
such Distribution multiplied by the current market price per share of Common
Stock on the date of such Distribution plus (ii) the consideration, if any,
received by such Warrant Issuer in respect of such Distribution, and the
denominator of which shall be the product of (A) the total number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately after
such Distribution multiplied by (B) the current market price per share of Common
Stock on the record date for such Distribution and (II) the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be increased to
a number determined by multiplying the number of shares of Common Stock so
purchasable immediately prior to the record date for such Distribution by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (I) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately after
such adjustment. For purposes of the foregoing, the total maximum number of
shares of Common Stock issuable upon exercise of all such Options or upon
conversion or exchange of all such
17
<PAGE>
Convertible Securities or upon the conversion or exchange of the total maximum
amount of the Convertible Securities issuable upon the exercise of all such
Options shall be deemed to have been issued as of the date of such Distribution
and thereafter shall be deemed to be outstanding and such Warrant Issuer shall
be deemed to have received as consideration therefor such price per share,
determined as provided above. Except as provided in paragraphs (i) and (j)
below, no additional adjustment of the Exercise Price shall be made upon the
actual exercise of such Options or upon conversion or exchange of the
Convertible Securities or upon the conversion or exchange of the Convertible
Securities issuable upon the exercise of such Options.
(d) Dividends and Distributions. In the event any of the Warrant
---------------------------
Issuers shall, at any time or from time to time after the date hereof,
distribute to all the holders of Common Stock any dividend or other distribution
of cash, evidences of its indebtedness, other securities or other properties or
assets (in each case other than (i) dividends payable in Common Stock, Options
or Convertible Securities and (ii) any cash dividend that, when added to all
other cash dividends paid in the one year prior to the declaration date of such
dividend (excluding any such other dividend included in a previous adjustment of
the Exercise Price pursuant to this paragraph (d) and excluding any cash
dividends or other cash distributions from current or retained earnings), does
not exceed 5% of the current market price per share of Common Stock on such
declaration date), or any options, warrants or other rights to subscribe for or
purchase any of the foregoing, then (A) the Exercise Price shall be decreased to
a price determined by multiplying the Exercise Price then in effect by a
fraction, the numerator of which shall be the current market price per share of
Common Stock on the record date for such distribution less the sum of (X) the
cash portion, if any, of such distribution per share of Common Stock outstanding
(exclusive of any treasury shares) on the record date for such distribution plus
(Y) the then fair market value (as determined in good faith by the Board of
Directors of such Warrant Issuer) per share of Common Stock outstanding
(exclusive of any treasury shares) on the record date for such distribution of
that portion, if any, of such distribution consisting of evidences of
indebtedness, other securities, properties, assets, options, warrants or
18
<PAGE>
subscription or purchase rights, and the denominator of which shall be such
current market price per share of Common Stock and (B) the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be increased to
a number determined by multiplying the number of shares of Common Stock so
purchasable immediately prior to the record date for such distribution by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to the adjustment required by clause (A) of this sentence and
the denominator of which shall be the Exercise Price in effect immediately after
such adjustment. The adjustments required by this paragraph (d) shall be made
whenever any such distribution occurs retroactive to the record date for the
determination of stockholders entitled to receive such distribution.
(e) Current Market Price. For the purpose of any computation of
--------------------
current market price under this Section 12 and Section 14, the current market
price per share of Common Stock at any date shall be (x) for purposes of Section
14, the closing price on the business day immediately prior to the exercise of
the applicable Warrant pursuant to Section 7 and (y) in all other cases, the
average of the daily closing prices for the shorter of (i) the 20 consecutive
trading days ending on the last full trading day on the exchange or market
specified in the second succeeding sentence prior to the Time of Determination
(as defined below) and (ii) the period commencing on the date next succeeding
the first public announcement of the issuance, sale, distribution or granting in
question through such last full trading day prior to the Time of Determination.
The term "Time of Determination" as used herein shall be the time and date of
the earlier to occur of (A) the date as of which the current market price is to
be computed and (B) the last full trading day on such exchange or market before
the commencement of "ex-dividend" trading in the Common Stock relating to the
event giving rise to the adjustment required by paragraph (a), (b), (c) or (d)
above. The closing price for any day shall be the last reported sale price
regular way or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices regular way for such day, in each
case (1) on the principal national securities exchange on which the shares of
Common Stock are listed or to which such shares are admitted to trading or (2)
if the Common Stock is not listed or admitted to trading on a national
securities exchange, in the over-the-counter
19
<PAGE>
market as reported by Nasdaq National or SmallCap Markets or any comparable
system or (3) if the Common Stock is not listed on Nasdaq National or SmallCap
Markets or a comparable system, as furnished by two members of the NASD selected
from time to time in good faith by the Boards of Directors of the Warrant
Issuers for that purpose. In the absence of all of the foregoing, or if for any
other reason the current market price per share cannot be determined pursuant to
the foregoing provisions of this paragraph (e), the current market price per
share shall be the fair market value thereof as determined in good faith by the
Boards of Directors of the Warrant Issuers and evidenced by a Board resolution.
(f) Certain Distributions. If any of the Warrant Issuers shall pay a
---------------------
dividend or make any other distribution payable in Options or Convertible
Securities, then, for purposes of paragraph (c) above, such Options or
Convertible Securities shall be deemed to have been issued or sold without
consideration.
(g) Consideration Received. If any shares of Common Stock, Options
----------------------
or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Warrant Issuers in respect thereof shall be deemed to be the
then fair market value of such consideration (as determined in good faith by the
Boards of Directors of the Warrant Issuers and evidenced by a Board resolution).
If any Options shall be issued in connection with the issuance and sale of other
securities of the Warrant Issuers, together comprising one integral transaction
in which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued without consideration;
provided, however, that if such Options have an exercise price equal to or
- -------- -------
greater than the current market price of the Common Stock on the date of
issuance of such Options, then such Options shall be deemed to have been issued
for consideration equal to such exercise price.
(h) Deferral of Certain Adjustments. No adjustment to the Exercise
-------------------------------
Price (including the related adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant) shall be required hereunder
unless such adjustment, together with other adjustments carried forward as
provided below, would
20
<PAGE>
result in an increase or decrease of at least one percent of the Exercise Price;
provided that any adjustments which by reason of this paragraph (h) are not
- --------
required to be made shall be carried forward and taken into account in any
subsequent adjustment. No adjustment need be made for a change in the par value
of the Common Stock. All calculations under this Section shall be made to the
nearest 1/1,000 of one cent or to the nearest 1/1000 of a share, as the case may
be.
(i) Changes in Options and Convertible Securities. If the exercise
---------------------------------------------
price provided for in any Options referred to in paragraph (c) above, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in paragraph (c) or (d) above, or the rate at
which any Convertible Securities referred to in paragraph (c) or (d) above are
convertible into or exchangeable for Common Stock shall change at any time
(other than under or by reason of provisions designed to protect against
dilution upon an event which results in a related adjustment pursuant to this
Section 12), the Exercise Price then in effect and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall forthwith be
readjusted (effective only with respect to any exercise of any Warrant after
such readjustment) to the Exercise Price and number of shares of Common Stock so
purchasable that would then be in effect had the adjustment made upon the
issuance, sale, distribution or granting of such Options or Convertible
Securities been made based upon such changed purchase price, additional
consideration or conversion rate, as the case may be, but only with respect to
such Options and Convertible Securities as then remain outstanding.
(j) Expiration of Options and Convertible Securities. If, at any
------------------------------------------------
time after any adjustment to the number of shares of Common Stock purchasable
upon the exercise of each Warrant shall have been made pursuant to paragraph
(c), (d) or (i) above or this paragraph (j), any Options or Convertible
Securities shall have expired unexercised, the number of such shares so
purchasable shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
shares of Common Stock deemed to have been issued in connection with such
21
<PAGE>
Options or Convertible Securities were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such Options or Convertible
Securities and (ii) such shares of Common Stock, if any, were issued or sold for
the consideration actually received by the Warrant Issuers upon such exercise
plus the aggregate consideration, if any, actually received by the Warrant
Issuers for the issuance, sale, distribution or granting of all such Options or
Convertible Securities, whether or not exercised; provided that no such
--------
readjustment shall have the effect of decreasing the number of such shares so
purchasable by an amount (calculated by adjusting such decrease to account for
all other adjustments made pursuant to this Section 12 following the date of the
original adjustment referred to above) in excess of the amount of the adjustment
initially made in respect of the issuance, sale, distribution or granting of
such Options or Convertible Securities.
(k) Other Adjustments. In the event that at any time, as a result of
-----------------
an adjustment made pursuant to this Section 12, the Holders shall become
entitled to receive any securities of the Warrant Issuers other than shares of
Common Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares of
Common Stock contained in this Section 12.
Section 13. Statement on Warrants. Irrespective of any adjustment in
---------------------
the number or kind of shares issuable upon the exercise of the Warrants or the
Exercise Price, Warrants theretofore or thereafter issued may continue to
express the same number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
Section 14. Fractional Interest. The Warrant Issuers shall not be
-------------------
required to issue fractional shares of Common Stock on the exercise of Warrants.
If more than one Warrant shall be presented for exercise in full at the same
time by the same Holder, the number of full shares of Common Stock which shall
be issuable upon such exercise shall be computed on the basis of the aggregate
number of shares of Common Stock acquirable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section, be issuable on
22
<PAGE>
the exercise of any Warrant (or specified portion thereof), the Warrant Issuers
shall direct the Transfer Agent to pay an amount in cash calculated by it equal
to (i) the then current market price per share multiplied by such fraction
computed to the nearest whole cent, less (ii) an amount equal to the Exercise
Price multiplied by such fraction computed to the nearest whole cent. The
Holders, by their acceptance of the Warrant Certificates, expressly waive any
and all rights to receive any fraction of a share of Common Stock or a stock
certificate representing a fraction of a share of Common Stock.
Section 15. Notices to Warrant Holders and the Warrant Agent. Upon
------------------------------------------------
any adjustment of the Exercise Price pursuant to Section 12, the Warrant Issuers
shall promptly thereafter cause to be given to each of the registered Holders by
first-class mail, postage prepaid, and to the Agent a certificate executed by
the Chief Financial Officer of the Warrant Issuers setting forth the Exercise
Price after such adjustment and setting forth in reasonable detail the method of
calculation and the facts upon which such calculations are based and setting
forth the number of Warrant Shares (or portion thereof) issuable after such
adjustment in the Exercise Price, upon exercise of a Warrant and payment of the
adjusted Exercise Price, which certificate shall be conclusive evidence, absent
manifest error, of the correctness of the matters set forth therein. The Agent
shall be entitled to rely on the above-referenced certificate and shall be under
no duty or responsibility with respect to any such certificate, except to
exhibit the same from time to time to any Holder desiring an inspection thereof
during reasonable business hours. The Agent shall not at any time be under any
duty or responsibility to any Holder to determine whether any facts exist that
may require any adjustment of the number of shares of Common Stock or other
stock or property issuable on exercise of the Warrants or the Exercise Price, or
with respect to the nature or extent of any such adjustment when made, or with
respect to the method employed in making such adjustment or the validity or
value (or the kind or amount) of any shares of Common Stock or other stock or
property which may be issuable on exercise of the Warrants. The Warrant Agent
shall not be responsible for any failure of the Warrant Issuers to make any cash
payment or to issue, transfer or deliver any shares of Common Stock or stock
certificates or
23
<PAGE>
other common stock or property upon the exercise of any Warrant.
In case:
(a) the Warrant Issuers shall authorize the issuance to all holders
of shares of Common Stock of rights, options or warrants to subscribe for
or purchase shares of Common Stock or of any other subscription rights or
warrants; or
(b) the Warrant Issuers shall authorize the distribution to all
holders of shares of Common Stock of evidences of its indebtedness or
assets (other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in shares of
Common Stock or distributions referred to in Section 12 hereof); or
(c) of any consolidation or merger to which any of the Warrant
Issuers is a party for which approval of any shareholders of such Warrant
Issuer is required and following which the shareholders of such Warrant
Issuer before such consolidation or merger no longer hold at least 50% of
the outstanding capital stock of such Warrant Issuer following the merger
or consolidation, or of the conveyance or transfer of all or substantially
all of the properties and assets of such Warrant Issuer, or of any
reclassification or change of Common Stock issuable upon exercise of the
Warrants (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision
or combination), or a tender offer or exchange offer for shares of Common
Stock, or other transaction that would result in a change in control; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of any of the Warrant Issuers; or
(e) the Warrant Issuers propose to take any other action that would
require an adjustment of the Exercise Price or the number of Warrant Shares
pursuant to Section 12;
24
<PAGE>
then the Warrant Issuers shall cause to be filed with the Warrant Agent and
shall cause to be given to each of the registered Holders of the Warrants at
such Holder's address appearing on the Warrant register, at least 20 days (or 10
days in any case specified in clauses (a) or (b) above) prior to the applicable
record date hereinafter specified, or promptly in the case of events for which
there is no record date, by first-class mail, postage prepaid, a written notice
stating (i) the date as of which the holders of record of shares of Common Stock
to be entitled to receive any such rights, options, warrants or distribution are
to be determined, or (ii) the initial expiration date set forth in any tender
offer or exchange offer for shares of Common Stock, or (iii) the date on which
any such consolidation, merger, conveyance, transfer, dissolution, liquidation
or winding up or change of control is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up or change of control. The failure to give the notice required by this Section
15 or any defect therein shall not affect the legality or validity of any
distribution, right, option, warrant, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up, or change of control or the
vote upon any action. Nothing contained in this Agreement or in any of the
Warrant Certificates shall be construed as conferring upon the Holders thereof
the right to vote or to consent or to receive notice as shareholders in respect
of the meetings of shareholders or the election of Directors of the Warrant
Issuers or any other matter, or any rights whatsoever as shareholders of the
Warrant Issuers.
Section 16. Agent.
-----
(a) The statements contained herein and in the Warrant Certificates
shall be taken as statements of the Warrant Issuers and the Agent assumes
no responsibility for the correctness of any of the same. The Agent
assumes no responsibility with respect to the distribution of the Warrant
Certificates.
(b) The Agent shall not be responsible for any failure of the Warrant
Issuers to comply with any of
25
<PAGE>
the covenants contained in this Agreement or in the Warrant Certificates.
(c) The Agent shall be under no obligation to institute any action,
suit or legal proceeding.
(d) The Agent, and any stockholder, director, officer or employee of
it, may buy, sell or deal in any of the Warrants or other securities of the
Warrant Issuers or become pecuniarily interested in any transaction in
which the Warrant Issuers may be interested, or contract with or lend money
to the Warrant Issuers or otherwise act as fully and freely as though it
were not an Agent under this Agreement. Nothing herein shall preclude the
Agent from acting in any capacity for the Warrant Issuers or for any other
legal entity.
(e) The Warrant Agent shall not be liable for anything which it may
do or refrain from doing in connection with this Agreement.
(f) The Agent shall not at any time be under any duty or
responsibility to any Holder of any Warrants to make or cause to be made
any adjustment of the Exercise Price or number of the Warrant Shares or
other securities or property deliverable as provided in this Agreement, or
to determine whether any facts exist which may require any of such
adjustments, or with respect to the nature or extent of any such
adjustments, when made, or with respect to the method employed in making
the same. The Agent shall not be accountable with respect to the validity
or value or the kind or amount of any Warrant Shares or of any securities
or property which may at any time be issued or delivered upon the exercise
of any Warrant or with respect to whether any such Warrant Shares or other
securities will when issued be validly issued and fully paid and
nonassessable, and makes no representation with respect thereto.
(g) In no event shall the Agent be liable hereunder for special,
indirect or consequential loss or damage of any kind whatsoever (including
but not limited to lost profits), even if the Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action. No
provision in this
26
<PAGE>
Agreement shall require the Agent to risk or expend its own funds or
otherwise incur any financial liability hereunder.
Section 17. Registration. The Warrant Issuers acknowledge that
------------
Holders of Warrants shall have the registration rights set forth in the Warrant
Registration Rights Agreement.
Section 18. Reports. For the fiscal quarters ending September 30,
-------
1998, March 31, 1999, June 30, 1999 and September 30, 1999 and for the fiscal
years ended December 31, 1998 and December 31, 1999, the Warrant Issuers will
(i) transmit by mail to all Warrant Holders, as their names and addresses appear
in the register, without cost to such Warrant Holders, and (ii) file with the
Agent unaudited quarterly and audited annual financial statements of the Warrant
Issuers prepared in accordance with GAAP. Beginning with the financial
statements of the Warrant Issuers for the quarter ending March 31, 2000 and
thereafter, whether or not the Warrant Issuers are subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Warrant
Issuers shall prepare the annual and quarterly reports and other information,
and documents ("SEC Reports") as the Commission shall prescribe pursuant to such
Section 13(a) or 15(d) and which the Warrant Issuers are or would be (if they
were so subject) required to file with the Commission pursuant to such Section
13(a) or 15(d) or any successor provision thereto (on or prior to the respective
dates (the "Required Filing Dates") by which the Warrant Issuers are or would
(if they were so subject) be required so to file such SEC Reports) and shall,
within 15 days of the Required Filing Date (i) transmit by mail to all Warrant
Holders, as their names and addresses appear in the register, without cost to
such Warrant Holders, and (ii) file with the Agent, copies of such annual and
quarterly reports.
Section 19. Rule 144A. Each of the Warrant Issuers hereby agrees
---------
with each Holder, for so long as any Registrable Securities remain outstanding
and such Warrant Issuer is not subject to Section 13(a) or 15(d) of the Exchange
Act, to make available, upon request of any Holder of Registrable Securities, to
any Holder or beneficial owner of Registrable Securities in connection with any
sale thereof and any prospective purchaser of such Registrable Securities
designated by such Holder or beneficial owner,
27
<PAGE>
the information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Registrable Securities pursuant to Rule 144A.
Section 20. Notices to Warrant Issuers. Any notice or demand
--------------------------
authorized by this Agreement to be given or made by the Holder of any Warrants
to or on the Warrant Issuers shall be sufficiently given or made when and if
deposited in the mail, first-class or registered, postage prepaid, addressed
(until another address is filed in writing by the Warrant Issuers), as follows:
CGX Communications, Inc.
1232 22nd Street, N.W.
Washington, D.C. 20037
Telecopy: (202) 463-8500
Telephone: (202) 463-0770
Attention: Ulysses G. Auger II, President
with a copy to:
Swidler Berlin Shereff Friedman, LLP
3000 K Street N.W., Suite 300
Washington, D.C. 20007
Telecopy: (202) 424-7647
Telephone: (303) 424-7500
Attention: Morris F. DeFeo, Jr.
Any notice pursuant to this Agreement to be given by the Warrant
Issuers to the Holders shall be sufficiently given when and if deposited in the
mail, first-class or registered, postage prepaid, addressed (until another
address is filed in writing with the Warrant Issuers) to the addresses of the
Holders provided to the Warrant Issuers from time to time.
Section 21. Supplements and Amendments. The Warrant Issuers and the
--------------------------
Agent may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Warrant Issuers and
the Agent may deem necessary or desirable and which shall not in any way
adversely affect the interests of the Holders of Warrants. Any amendment or
supplement to this Agreement
28
<PAGE>
that has a material adverse effect on the interests of Holders shall require the
written consent of Holders representing a majority of the then outstanding
Warrants (excluding Warrants held by the Warrant Issuers or any of its
Affiliates); provided, however, that the consent of each Holder of a Warrant
-------- -------
affected shall be required for any amendment pursuant to which the Exercise
Price would be increased or the number of Warrant Shares purchasable upon
exercise of Warrants would be decreased (other than pursuant to adjustments
provided for in Section 12 hereof). The Agent shall be entitled to receive and
shall be fully protected in relying upon an officer's certificate and opinion of
counsel as conclusive evidence that any such amendment or supplement is
authorized or permitted hereunder, that it does or does not, as the case may be,
require the written consent of Holders to be effective hereunder, that it is not
inconsistent herewith, and that it will be valid and binding upon the Warrant
Issuers in accordance with its terms.
Section 22. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Warrant Issuers shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 23. Termination. This Agreement (other than any party's
-----------
obligations with respect to Warrants previously exercised and with respect to
indemnification) shall terminate at 5:00 p.m., New York City time on the
Expiration Date.
Section 24. Governing Law. THIS AGREEMENT AND EACH WARRANT
-------------
CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE
LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 25. Benefits of This Agreement.
--------------------------
(a) The Holders are the third-party beneficiaries of this Agreement.
Nothing in this Agreement shall be construed to give to any Person other than
the Warrant Issuers, the Agent and the Holders of the Warrants any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive
29
<PAGE>
benefit of the Warrant Issuers, the Agent and the Holders of the Warrants from
time to time.
(b) Prior to the exercise of the Warrants, no Holder of a Warrants,
as such, shall be entitled to any rights of a stockholder of a Warrant Issuer,
including, without limitation, the right to receive dividends or subscription
rights, the right to vote, to consent, to exercise any preemptive right, to
receive any notice of or to participate in meetings of stockholders for the
election of directors of such Warrant Issuer or any other matter or to receive
any notice of any proceedings of such Warrant Issuer, except as may be
specifically and expressly provided for herein. The Holders of the Warrants are
not entitled to share in the assets of the Warrant Issuers in the event of the
liquidation, dissolution or winding up of the Warrant Issuers' affairs.
(c) All rights of action in respect of this Agreement are vested in
the Holders of the Warrants, and any Holder of any Warrant, without the consent
of the Holder of any other Warrant, may, on such Holder's own behalf and for
such Holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Warrant Issuers suitable to enforce, or
otherwise in respect of, such Holder's rights hereunder, including the right to
exercise, exchange or surrender for purchase such Holder's Warrants in the
manner provided in this Agreement.
Section 26. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
CGX COMMUNICATIONS, INC.
By: /s/ Ulysses G. Auger, II
___________________________
Name: Ulysses G. Auger, II
Title: President
CLEARTEL COMMUNICATIONS, INC.
By: /s/ Ulysses G. Auger, II
___________________________
Name: Ulysses G. Auger, II
Title: President
CAIS, INC.
By: /s/ Ulysses G. Auger, II
___________________________
Name: Ulysses G. Auger, II
Title: President
ING (U.S.) Capital Corporation, as Agent
By: /s/ Bart Staal
___________________________
Name: Bart Staal
Title: Managing Director
31
<PAGE>
Exhibit B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
REGISTRATION OF TRANSFER OF WARRANTS
Re: ________ Warrants to Purchase Common Stock (the "Warrants") of CGX
Communications, Inc.
This Certificate relates to ________ Warrants held in* _____ book-entry or
_____ definitive form by _______________ (the "Transferor").
The Transferor:
[ ] has requested the Warrant Issuers by written order to exchange or
register the transfer of a Warrant or Warrant(s).
In connection with such request and in respect of each such Warrant, the
Transferor does hereby certify that the Transferor is familiar with the Warrant
Agreement relating to the above captioned Warrants and that the transfer of each
such Warrant does not require registration under the Securities Act of 1933, as
amended (the "Securities Act"), because:
[ ] Each such Warrant is being acquired for the Transferor's own account
without transfer.
[ ] Each such Warrant is being transferred (i) to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act), in
reliance on Rule 144A or (ii) pursuant to an exemption from registration in
accordance with Rule 904 under the Securities Act (and, in the case of clause
(ii), based on an opinion of counsel and written certification if the Warrant
Issuers so request).
[ ] Each such Warrant is being transferred (i) in accordance with Rule
144 under the Securities Act (and based on an opinion of counsel if the Warrant
Issuers so request)
_______________________
* Check applicable box.
B-1
<PAGE>
or (ii) pursuant to an effective registration statement under the Securities
Act.
[ ] Each such Warrant is being transferred in reliance on and in
compliance with another exemption from the registration requirements of the
Securities Act (and based on an opinion of counsel if the Warrant Issuers so
request).
[INSERT NAME OF TRANSFEROR]
By: __________________________
Name: ________________________
Title: _______________________
Date:
B-2
<PAGE>
Exhibit 4.3
The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933. Such
securities may not be sold or transferred in the absence of such registration
unless the company receives an opinion of counsel reasonably acceptable to it
stating that such sale or transfer is exempt from the registration and
prospectus delivery requirements of said Act.
The securities represented by this certificate are subject to a certain
stockholders agreement by and among the company and the stockholders thereof,
which stockholders agreement imposes certain restrictions upon the transfer of
such securities. the company will provide a copy of such stockholders agreement
to the holder of this certificate upon request.
COMMON STOCK WARRANT
OF
CAIS INTERNET, INC.
Warrant Share Percentage: 2.61%/(1)/
THIS CERTIFIES THAT, subject to the terms of this Warrant, Chancery Lane,
L.P., or its permitted successors and assigns (the "Warrantholder"), is entitled
-------------
to subscribe for and purchase from CAIS Internet, Inc., a Delaware corporation
(the "Company"), shares of the fully paid and nonassessable shares of the
-------
Company's common stock, par value $.01 per share (the "Common Stock"), in such
------------
number and at such price determined in accordance with this Warrant.
This Warrant is issued pursuant to a Series A Preferred Stock and Warrant
Purchase Agreement dated as of February 19, 1999 between the Company and the
purchasers named therein (the "Purchase Agreement").
------------------
Upon delivery of this Warrant (with the Notice of Exercise in the form
attached hereto as Exhibit B-A), together with payment of the Warrant Price of
the shares of Common Stock thereby purchased, which payment may be made by
converting this Warrant, or any portion thereof, pursuant to Section 5 below
("Warrant Conversion"), at the principal office of the Company or at such other
------------------
office or agency as the Company may designate by notice in writing to the holder
hereof, the Warrantholder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. All shares of Common
Stock which may be issued upon the exercise of this Warrant will, upon issuance,
be fully paid and nonassessable and free from all taxes, liens and charges with
respect thereto.
This Warrant is subject to the following terms and conditions:
____________________
/(1)/ Warrant Share Percentages of all Warrant holders are collectively to
equal 3%.
<PAGE>
1. Term of Warrant. This Warrant may be exercised in whole or in part,
---------------
at any time on or after the earlier of (a) the closing by the Company of an
initial underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company to the public (the "IPO")
---
and (b) the occurrence of a Corporate Transaction (as defined in the Certificate
of Incorporation of the Company as in effect on the date hereof; provided,
however, that this Warrant shall expire to the extent then unexercised as of
5:00 p.m., Washington, D.C. time, on the earlier of (i) February 19, 2009 or
(ii) the date five years after the Warrants are first exercisable.
2. Number of Warrant Shares. The Warrantholder may exercise the purchase
------------------------
right represented by this Warrant with respect to a particular number of shares
of Common Stock (or other securities of the Company issuable in the event of a
reclassification, change, merger or consolidation as set forth in Section 4(a)
hereof) (the "Shares") determined as follows (which number shall be subject to
------
adjustment pursuant to Section 4 hereof):
(a) Corporate Transaction. If the Company closes a Corporate
---------------------
Transaction prior to closing an IPO, the number of Shares issuable upon
exercise hereof shall be adjusted to equal the product of (i) the Warrant Share
Percentage set forth on the first page of this Warrant (expressed as a decimal
fraction) multiplied by (ii) the total number of Shares then issued and
outstanding on a fully-diluted basis (excluding out of the money options and
warrants in the event of a Corporate Transaction involving the sale of the
Company or its assets as an entirety).
(b) Initial Public Offering. If the Company closes an IPO prior to
-----------------------
closing a Corporate Transaction, the number of Shares issuable upon exercise
hereof shall equal the product of (i) the Warrant Share Percentage set forth on
the first page of this Warrant (expressed as a decimal fraction) multiplied by
(ii) the total number of Shares then issued and outstanding on a fully-diluted
basis.
3. Warrant Price. The exercise price of this Warrant (the "Warrant
------------- -------
Price") shall equal (a) the price per share at which Common Stock is issued and
sold by the Company in the IPO if this Warrant is exercised pursuant to clause
(a) of Section 1 above, and (b) $12.50 per share (subject to appropriate
adjustments for any stock dividends, combinations, subdivisions, splits or the
like) if this Warrant is exercised pursuant to clause (b) of Section 1 above.
4. Adjustment of Number of Shares and Warrant Price. The number and kind
------------------------------------------------
of Shares purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time in accordance with the
following provisions.
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than as a result of a subdivision, split,
combination or stock dividend), or in case of any consolidation or merger of the
Company with or into another corporation, the Company, or such successor
corporation, as the case may be, shall execute a new Warrant, with substantially
the same terms
2
<PAGE>
as this Warrant, and providing that the holder of this Warrant shall have the
right to exercise such new Warrant and procure upon such exercise in lieu of the
Common Stock theretofore issuable upon exercise of this Warrant the kind and
amount of shares of stock, other securities, money and property receivable upon
such reclassification, change, consolidation or merger by the Warrantholder if
this Warrant had been fully exercised as of the date giving rise to the issuance
of the new Warrant. For such purposes, if the number of Shares for which the
Warrantholder may exercise this Warrant has not yet been determined pursuant to
Section 2, then the number of Shares for which this Warrant shall be deemed to
have been exercisable as of such date shall be determined as if a Corporate
Transaction had occurred on such date. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this subsection
(a) shall similarly apply to successive reclassifications, changes,
consolidations and mergers.
(b) Subdivision or Combination of Shares. If at any time while this
------------------------------------
Warrant remains outstanding and unexpired, and subsequent to the determination
of the total number of Shares subject to issuance upon exercise of this Warrant
pursuant to Section 2 hereof, the Company shall subdivide, split or combine its
Common Stock (or declare a dividend payable in shares of Common Stock), the
Warrant Price shall be proportionately decreased in the case of a subdivision or
increased in the case of a combination.
(c) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to this Section 4, the number of Shares purchasable
hereunder shall be adjusted, to the nearest whole share, to the product obtained
by multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
5. Payment by Warrant Conversion. The Warrantholder may exercise the
-----------------------------
purchase right represented by this Warrant with respect to a particular number
of Shares subject to this Warrant ("Converted Warrant Shares") and elect to pay
------------------------
for a number of such Converted Warrant Shares through Warrant Conversion by
specifying such election in the Notice of Exercise attached hereto as Exhibit B-
A. In such event, the Company shall deliver to the Warrantholder (without
payment by the Warrantholder of any Warrant Price or any cash or other
consideration) that number of Shares equal to the quotient obtained by dividing
(x) the value of this Warrant (or the specified portion hereof) on the date of
exercise, which value shall be determined by subtracting (A) the aggregate
Warrant Price of the Converted Warrant Shares immediately prior to the exercise
of the Warrant from (B) the aggregate fair market value of the Converted Warrant
Shares issuable upon exercise of this Warrant (or the specified portion hereof)
on the date of exercise, by (y) the fair market value of one Share on the date
of exercise. For purposes of this Section 5, fair market value of a Share as of
a particular date shall be as determined in accordance with the procedures for
valuing the Series A Preferred set forth in subsection IV.C.4(a) of the
Certificate of Incorporation of the Company as in effect on the date hereof
(with the Representative (as defined therein) to be selected by the Majority
Warrantholders).
6. Notices.
-------
3
<PAGE>
(a) Upon any adjustment of the Warrant Price and any increase or
decrease in the number of Shares purchasable upon the exercise of this Warrant,
then, and in each such case, the Company, within 30 days thereafter, shall give
written notice thereof to the registered holder of this Warrant (the "Notice").
------
The Notice shall be mailed to the address of such holder as shown on the books
of the Company; and shall state the Warrant Price as adjusted and the increased
or decreased number of shares purchasable upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation of each.
(b) In the event that the Company shall propose at any time to effect
a Corporate Transaction or an IPO, the Company shall send to the Warrantholder
at least 20 days' prior written notice of the date when the same shall take
place. Any such written notice shall be given by first class mail, postage
prepaid, addressed to the Warrantholder at the address as shown on the books of
the Company for the Warrantholder.
7. Miscellaneous.
-------------
(a) The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Common Stock issued or issuable upon the exercise
hereof.
(b) No Warrantholder, as such, shall be entitled to vote or receive
dividends or be deemed to be a stockholder of the Company for any purpose, nor
shall anything contained in this Warrant be construed to confer upon the holder
of this Warrant, as such, any rights of a stockholder of the Company, or any
right to vote, give or withhold consent to any corporate action, receive notice
of meetings, receive dividends or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
(d) The Company will not, by amendment of its certificate of
incorporation or bylaws or through any other action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all actions as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against impairment.
(e) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or distribution, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
date and tenor.
(f) Any provision of this Warrant may be amended, waived or modified
upon the written consent of the Company and the holders of at least a majority
of the aggregate outstanding and unexercised Warrants issued pursuant to the
Purchase Agreement.
4
<PAGE>
(g) The Company hereby agrees that at all times there shall be
reserved for issuance and/or deliver upon exercise of this Warrant, free from
preemptive rights, such number of authorized but unissued shares of Common Stock
as from time to time shall be required for issuance or delivery upon exercise of
this Warrant. The Company further agrees that it will promptly to take all
action as may from time to time be required in order to permit the holder hereof
to exercise this Warrant and the Company duly and effectively to issue shares of
Common Stock hereunder.
(h) This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflicts of laws
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: February 19, 1999
CAIS INTERNET, INC.
/s/ Ulysses G. Auger, II,
_____________________________________________
Ulysses G. Auger, II, Chief Executive Officer
5
<PAGE>
NOTICE OF EXERCISE
------------------
TO: CAIS Internet, Inc.
1. The undesigned hereby elects to purchase _______________ shares of the
Common Stock of CAIS Internet, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. The undersigned hereby elects to exercise the purchase right with
respect to ___________ shares of such Common Stock through Warrant Conversion,
as set forth in Section 3 of the attached Warrant.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other names as is
specified below:
_______________________________________
(Name)
_______________________________________
_______________________________________
(Address)
4. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof, and
that the undersigned has no present intention of distributing or reselling such
shares. In support thereof, the undersigned has executed the Investment
Representation Statement attached hereto as Exhibit B-B.
Signature of Warrantholder:
___________________________________
By:________________________________
Title_______________________________
Date:______________________________
<PAGE>
CAIS INTERNET, INC.
WARRANT EXERCISE
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : ______________________________
COMPANY : CAIS Internet, Inc.
SECURITY : Common Stock (the "Securities")
NUMBER OF SHARES : ______________________________
DATE : ____________________, _____
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser hereby represents and warrants to the Company as follows:
(a) The undersigned is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
undersigned is purchasing these Securities for his, her or its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
--------------
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the investment intent of the undersigned as expressed herein. In this
connection, the undersigned understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
---
unavailable if the undersigned's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) The undersigned further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. Moreover, the
undersigned understands that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the purchaser satisfactory to the Company or unless the Company
received a no-action letter from the SEC.
(d) The undersigned further understands that at the time the
undersigned wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market exists, the
Company may not be satisfying the current public
<PAGE>
information requirements of Rule 144 promulgated under the Securities Act, and
that, in such event, the undersigned may be precluded from selling the
Securities under Rule 144.
(e) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A promulgated under the Securities
Act, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
Signature of Purchaser:
___________________________________
Print Name:_________________________
Title:______________________________
Date:_______________________________
<PAGE>
Exhibit 4.4
The securities represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933. Such
securities may not be sold or transferred in the absence of such registration
unless the company receives an opinion of counsel reasonably acceptable to it
stating that such sale or transfer is exempt from the registration and
prospectus delivery requirements of said Act.
The securities represented by this certificate are subject to a certain
stockholders agreement by and among the company and the stockholders thereof,
which stockholders agreement imposes certain restrictions upon the transfer of
such securities. the company will provide a copy of such stockholders agreement
to the holder of this certificate upon request.
COMMON STOCK WARRANT
OF
CAIS INTERNET, INC.
Warrant Share Percentage: .39%/(1)/
THIS CERTIFIES THAT, subject to the terms of this Warrant, CAIS-Sandler
Partners, L.P., or its permitted successors and assigns (the "Warrantholder"),
-------------
is entitled to subscribe for and purchase from CAIS Internet, Inc., a Delaware
corporation (the "Company"), shares of the fully paid and nonassessable shares
-------
of the Company's common stock, par value $.01 per share (the "Common Stock"), in
------------
such number and at such price determined in accordance with this Warrant.
This Warrant is issued pursuant to a Series A Preferred Stock and Warrant
Purchase Agreement dated as of February 19, 1999 between the Company and the
purchasers named therein (the "Purchase Agreement").
------------------
Upon delivery of this Warrant (with the Notice of Exercise in the form
attached hereto as Exhibit B-A), together with payment of the Warrant Price of
the shares of Common Stock thereby purchased, which payment may be made by
converting this Warrant, or any portion thereof, pursuant to Section 5 below
("Warrant Conversion"), at the principal office of the Company or at such other
------------------
office or agency as the Company may designate by notice in writing to the holder
hereof, the Warrantholder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. All shares of Common
Stock which may be issued upon the exercise of this Warrant will, upon issuance,
be fully paid and nonassessable and free from all taxes, liens and charges with
respect thereto.
This Warrant is subject to the following terms and conditions:
__________________________
/(1)/ Warrant Share Percentages of all Warrant holders are collectively to
equal 3%.
<PAGE>
1. Term of Warrant. This Warrant may be exercised in whole or in part,
---------------
at any time on or after the earlier of (a) the closing by the Company of an
initial underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company to the public (the "IPO")
---
and (b) the occurrence of a Corporate Transaction (as defined in the Certificate
of Incorporation of the Company as in effect on the date hereof; provided,
however, that this Warrant shall expire to the extent then unexercised as of
5:00 p.m., Washington, D.C. time, on the earlier of (i) February 19, 2009 or
(ii) the date five years after the Warrants are first exercisable.
2. Number of Warrant Shares. The Warrantholder may exercise the purchase
------------------------
right represented by this Warrant with respect to a particular number of shares
of Common Stock (or other securities of the Company issuable in the event of a
reclassification, change, merger or consolidation as set forth in Section 4(a)
hereof) (the "Shares") determined as follows (which number shall be subject to
------
adjustment pursuant to Section 4 hereof):
(a) Corporate Transaction. If the Company closes a Corporate
---------------------
Transaction prior to closing an IPO, the number of Shares issuable upon
exercise hereof shall be adjusted to equal the product of (i) the Warrant Share
Percentage set forth on the first page of this Warrant (expressed as a decimal
fraction) multiplied by (ii) the total number of Shares then issued and
outstanding on a fully-diluted basis (excluding out of the money options and
warrants in the event of a Corporate Transaction involving the sale of the
Company or its assets as an entirety).
(b) Initial Public Offering. If the Company closes an IPO prior to
-----------------------
closing a Corporate Transaction, the number of Shares issuable upon exercise
hereof shall equal the product of (i) the Warrant Share Percentage set forth on
the first page of this Warrant (expressed as a decimal fraction) multiplied by
(ii) the total number of Shares then issued and outstanding on a fully-diluted
basis.
3. Warrant Price. The exercise price of this Warrant (the "Warrant
------------- -------
Price") shall equal (a) the price per share at which Common Stock is issued and
sold by the Company in the IPO if this Warrant is exercised pursuant to clause
(a) of Section 1 above, and (b) $12.50 per share (subject to appropriate
adjustments for any stock dividends, combinations, subdivisions, splits or the
like) if this Warrant is exercised pursuant to clause (b) of Section 1 above.
4. Adjustment of Number of Shares and Warrant Price. The number and kind
------------------------------------------------
of Shares purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time in accordance with the
following provisions.
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than as a result of a subdivision, split,
combination or stock dividend), or in case of any consolidation or merger of the
Company with or into another corporation, the Company, or such successor
corporation, as the case may be, shall execute a new Warrant, with substantially
the same terms as this Warrant, and providing that the holder of this Warrant
shall have the right to exercise such
2
<PAGE>
new Warrant and procure upon such exercise in lieu of the Common Stock
theretofore issuable upon exercise of this Warrant the kind and amount of shares
of stock, other securities, money and property receivable upon such
reclassification, change, consolidation or merger by the Warrantholder if this
Warrant had been fully exercised as of the date giving rise to the issuance of
the new Warrant. For such purposes, if the number of Shares for which the
Warrantholder may exercise this Warrant has not yet been determined pursuant to
Section 2, then the number of Shares for which this Warrant shall be deemed to
have been exercisable as of such date shall be determined as if a Corporate
Transaction had occurred on such date. Such new Warrant shall provide for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4. The provisions of this subsection
(a) shall similarly apply to successive reclassifications, changes,
consolidations and mergers.
(b) Subdivision or Combination of Shares. If at any time while this
------------------------------------
Warrant remains outstanding and unexpired, and subsequent to the determination
of the total number of Shares subject to issuance upon exercise of this Warrant
pursuant to Section 2 hereof, the Company shall subdivide, split or combine its
Common Stock (or declare a dividend payable in shares of Common Stock), the
Warrant Price shall be proportionately decreased in the case of a subdivision or
increased in the case of a combination.
(c) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to this Section 4, the number of Shares purchasable
hereunder shall be adjusted, to the nearest whole share, to the product obtained
by multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
5. Payment by Warrant Conversion. The Warrantholder may exercise the
-----------------------------
purchase right represented by this Warrant with respect to a particular number
of Shares subject to this Warrant ("Converted Warrant Shares") and elect to pay
------------------------
for a number of such Converted Warrant Shares through Warrant Conversion by
specifying such election in the Notice of Exercise attached hereto as Exhibit B-
A. In such event, the Company shall deliver to the Warrantholder (without
payment by the Warrantholder of any Warrant Price or any cash or other
consideration) that number of Shares equal to the quotient obtained by dividing
(x) the value of this Warrant (or the specified portion hereof) on the date of
exercise, which value shall be determined by subtracting (A) the aggregate
Warrant Price of the Converted Warrant Shares immediately prior to the exercise
of the Warrant from (B) the aggregate fair market value of the Converted Warrant
Shares issuable upon exercise of this Warrant (or the specified portion hereof)
on the date of exercise, by (y) the fair market value of one Share on the date
of exercise. For purposes of this Section 5, fair market value of a Share as of
a particular date shall be as determined in accordance with the procedures for
valuing the Series A Preferred set forth in subsection IV.C.4(a) of the
Certificate of Incorporation of the Company as in effect on the date hereof
(with the Representative (as defined therein) to be selected by the Majority
Warrantholders).
6. Notices.
-------
3
<PAGE>
(a) Upon any adjustment of the Warrant Price and any increase or
decrease in the number of Shares purchasable upon the exercise of this Warrant,
then, and in each such case, the Company, within 30 days thereafter, shall give
written notice thereof to the registered holder of this Warrant (the "Notice").
------
The Notice shall be mailed to the address of such holder as shown on the books
of the Company; and shall state the Warrant Price as adjusted and the increased
or decreased number of shares purchasable upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation of each.
(b) In the event that the Company shall propose at any time to effect
a Corporate Transaction or an IPO, the Company shall send to the Warrantholder
at least 20 days' prior written notice of the date when the same shall take
place. Any such written notice shall be given by first class mail, postage
prepaid, addressed to the Warrantholder at the address as shown on the books of
the Company for the Warrantholder.
7. Miscellaneous.
-------------
(a) The terms of this Warrant shall be binding upon and shall inure
to the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Common Stock issued or issuable upon the exercise
hereof.
(b) No Warrantholder, as such, shall be entitled to vote or receive
dividends or be deemed to be a stockholder of the Company for any purpose, nor
shall anything contained in this Warrant be construed to confer upon the holder
of this Warrant, as such, any rights of a stockholder of the Company, or any
right to vote, give or withhold consent to any corporate action, receive notice
of meetings, receive dividends or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
(d) The Company will not, by amendment of its certificate of
incorporation or bylaws or through any other action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all actions as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against impairment.
(e) Upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of any such loss, theft or distribution, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
date and tenor.
(f) Any provision of this Warrant may be amended, waived or modified
upon the written consent of the Company and the holders of at least a majority
of the aggregate outstanding and unexercised Warrants issued pursuant to the
Purchase Agreement.
4
<PAGE>
(g) The Company hereby agrees that at all times there shall be
reserved for issuance and/or deliver upon exercise of this Warrant, free from
preemptive rights, such number of authorized but unissued shares of Common Stock
as from time to time shall be required for issuance or delivery upon exercise of
this Warrant. The Company further agrees that it will promptly to take all
action as may from time to time be required in order to permit the holder hereof
to exercise this Warrant and the Company duly and effectively to issue shares of
Common Stock hereunder.
(h) This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to the conflicts of laws
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: February 19, 1999
CAIS INTERNET, INC.
/s/ Ulysses G. Auger, II
_____________________________________________
Ulysses G. Auger, II, Chief Executive Officer
5
<PAGE>
NOTICE OF EXERCISE
------------------
TO: CAIS Internet, Inc.
1. The undesigned hereby elects to purchase _______________ shares of the
Common Stock of CAIS Internet, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. The undersigned hereby elects to exercise the purchase right with
respect to ___________ shares of such Common Stock through Warrant Conversion,
as set forth in Section 3 of the attached Warrant.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other names as is
specified below:
_______________________________________
(Name)
_______________________________________
_______________________________________
(Address)
4. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof, and
that the undersigned has no present intention of distributing or reselling such
shares. In support thereof, the undersigned has executed the Investment
Representation Statement attached hereto as Exhibit B-B.
Signature of Warrantholder:
___________________________________
By:________________________________
Title_______________________________
Date:______________________________
<PAGE>
CAIS INTERNET, INC.
WARRANT EXERCISE
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : ______________________________
COMPANY : CAIS Internet, Inc.
SECURITY : Common Stock (the "Securities")
NUMBER OF SHARES : ______________________________
DATE : ____________________, _____
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser hereby represents and warrants to the Company as follows:
(a) The undersigned is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
undersigned is purchasing these Securities for his, her or its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
--------------
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the investment intent of the undersigned as expressed herein. In this
connection, the undersigned understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
---
unavailable if the undersigned's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) The undersigned further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. Moreover, the
undersigned understands that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the purchaser satisfactory to the Company or unless the Company
received a no-action letter from the SEC.
(d) The undersigned further understands that at the time the
undersigned wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market exists, the
Company may not be satisfying the current public
<PAGE>
information requirements of Rule 144 promulgated under the Securities Act, and
that, in such event, the undersigned may be precluded from selling the
Securities under Rule 144.
(e) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A promulgated under the Securities
Act, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
Signature of Purchaser:
___________________________________
Print Name:_________________________
Title:______________________________
Date:_______________________________
<PAGE>
EXHIBIT 4.5
CAIS INTERNET, INC.
1255 22/ND/ STREET, N.W.
WASHINGTON, D.C. 20037
STOCKHOLDERS AGREEMENT
FEBRUARY 19, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 Corporate Governance........................................... 1
1.1 Number of Directors; Charter and By-Laws.................. 1
1.2 Board Representation...................................... 1
1.3 Covenant to Vote.......................................... 2
1.4 Removal of Directors...................................... 2
1.5 Vacancies................................................. 3
1.6 Restrictions on Other Agreements.......................... 3
1.7 Acknowledgment............................................ 3
1.8 Termination of Section 1 Provisions....................... 3
SECTION 2 Access to Information.......................................... 4
2.1 Financial Information..................................... 4
2.2 Inspection................................................ 5
2.3 Termination of Section 2 Provisions....................... 6
SECTION 3 Restrictions on Transferability of Securities.................. 6
3.1 Restrictions on Transferability........................... 6
3.2 Restrictive Legend........................................ 6
3.3 Notice of Proposed Transfers.............................. 7
3.4 Permitted Transfers....................................... 7
3.5 First Offer Rights........................................ 7
3.6 Closing; Deliveries....................................... 9
3.7 Prohibited Transfers...................................... 10
3.8 Termination of Section 3 Provisions....................... 10
SECTION 4 Tag-Along Rights............................................... 10
4.1 Right to Participate in Sale.............................. 10
4.2 Stockholder Allotments.................................... 10
4.3 Terms of Sale............................................. 11
4.4 Sale Notice............................................... 11
4.5 Tag-Along Notice.......................................... 11
4.6 Stop Transfer............................................. 12
4.7 Exempt Transfers.......................................... 12
4.8 Termination of Covenants.................................. 12
SECTION 5 Registration Rights............................................ 13
5.1 Requested Registration.................................... 14
5.2 Company Registration...................................... 16
5.3 Registration on Form S-3.................................. 16
5.4 Relationship to Other Registration Rights................. 16
5.5 Expenses of Registration.................................. 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
5.6 Registration Procedures................................... 17
5.7 Indemnification........................................... 17
5.8 Information by Holder..................................... 19
5.9 Rule 144 Reporting........................................ 19
5.10 Transfer of Registration Rights........................... 19
5.11 Standoff Agreement........................................ 19
5.12 Termination of Registration Rights........................ 20
SECTION 6 Miscellaneous............................................. 20
6.1 Governing Law............................................. 20
6.2 Jurisdiction; Jury Trial Waiver........................... 20
6.3 Survival.................................................. 20
6.4 Successors and Assigns.................................... 20
6.5 Entire Agreement; Amendment............................... 20
6.6 Notices, etc.............................................. 21
6.7 Delays or Omissions....................................... 21
6.8 Counterparts.............................................. 21
6.9 Severability.............................................. 21
6.10 Titles and Subtitles...................................... 21
6.11 Certain Definitions....................................... 22
</TABLE>
<PAGE>
CAIS INTERNET, INC.
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "Agreement"), dated as of February 19,
---------
1999, by and among (i) CAIS Internet, Inc., a Delaware corporation (the
"Company"), (ii) the purchasers of the Company's Series A Shares (as defined
-------
below) listed on the signature pages hereto (collectively the "Purchasers," and
----------
each individually a "Purchaser"), and (iii) those other stockholders of the
---------
Company (the "Existing Stockholders") listed on the signature pages hereto.
---------------------
Certain capitalized terms used herein are as defined in Section 6.11.
RECITALS
--------
WHEREAS, concurrent with the execution hereof, the Company and the
Purchasers are entering into a Series A Preferred Stock and Warrant Purchase
Agreement (the "Purchase Agreement") whereby the Purchasers will acquire an
------------------
aggregate of 2,827,168 shares of the Company's Series A Preferred Stock, par
value $.01 per share (the "Series A Shares"), and warrants (the "Warrants") to
--------------- --------
purchase shares of the Company's Common Stock, par value $.01 per share (the
"Common Stock"); and
------------
WHEREAS, the Existing Stockholders own all of the 9,965,505 issued and
outstanding shares of the Common Stock and all of the issued and outstanding
shares of the Company's Series B Preferred stock, par value $.01 per share (the
"Series B Shares"); and
---------------
WHEREAS, as a further inducement to and a condition of the investment by
the Purchasers in the Company, the Company and the Existing Stockholders have
agreed to enter into this Agreement to grant the Purchasers the rights provided
herein;
NOW, THEREFORE, in consideration of the promises of the parties set forth
herein and in the Purchase Agreement, the parties hereby covenant and agree as
follows:
SECTION 1
CORPORATE GOVERNANCE
--------------------
1.1. NUMBER OF DIRECTORS; CHARTER AND BY-LAWS. The Company shall be
----------------------------------------
governed by a Board of Directors consisting of at least six, but not more than
eight, members.
1.2. BOARD REPRESENTATION. The following procedures shall govern the
--------------------
nomination of directors of the Company:
(a) For so long as the Existing Stockholders or their permitted
successors and assigns shall own not less than 1,108,518 Series B Shares and/or
shares of Common Stock (subject to appropriate adjustments for stock splits,
stock dividends, combinations and other
<PAGE>
recapitalizations), the Existing Stockholders (and their permitted transferees
and assigns) holding a majority of the Series B Shares and Common Stock held by
all of the Existing Stockholders (and their permitted transferees and assigns)
(the "Majority Existing Stockholders") shall be entitled to designate five
------------------------------
persons as nominees to the Company's Board of Directors.
(b) For so long as the Purchasers or their permitted successors and
assigns shall own not less than 282,717 Series A Shares and/or shares of
Conversion Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations and other recapitalizations), the Purchasers (and their
permitted transferees and assigns) holding a majority of the Series A Shares and
Conversion Stock held by all of the Purchasers (and their permitted transferees
and assigns) (the "Majority Purchasers") shall be entitled to designate one
-------------------
person as a nominee to the Company's Board of Directors. The person so
designated shall, upon election as a director, be appointed as a member of the
Audit Committee, the Compensation Committee and any Executive Committee of the
Board of Directors (in each case to the extent consistent with applicable legal
or stock exchange requirements). The Company shall reimburse the nominee of the
Majority Purchasers for all documented costs and expenses incurred thereby in
connection with his services as a director of the Company.
1.3. COVENANT TO VOTE. Each of the Stockholders agrees to vote, in person
----------------
or by proxy, all of the shares of Common Stock and Preferred Stock owned by such
Stockholder, at any annual or special meeting of stockholders of the Company
called for the purpose of voting on the election of directors or by consensual
action of stockholders with respect to the election of directors, in favor of
the election of the directors nominated in accordance with Section 1.2 hereof.
Each Stockholder shall vote the shares of Common Stock and Preferred Stock owned
by such Stockholder and shall take all actions necessary to ensure that the
Certificate of Incorporation and By-Laws of the Company do not at any time
conflict with the provisions of this Agreement.
1.4. REMOVAL OF DIRECTORS.
--------------------
(a) Except as otherwise provided in this Section 1.4 or in Section
1.5 hereof, each Stockholder agrees not to take any action to remove, with or
without cause, any director of the Company. Notwithstanding the foregoing, (i)
the Majority Existing Stockholders shall at all times have the right to
recommend the removal, with or without cause, of the directors nominated by them
pursuant to Section 1.2(a) hereof; and (ii) the Majority Purchasers shall at all
times have the right to recommend the removal, with or without cause, of any
director nominated by them pursuant to Section 1.2(b) hereof.
(b) In the event that either the Majority Existing Stockholders or
the Majority Purchasers shall determine to recommend the removal of any director
as provided in Section 1.4(a) hereof, then each of the Stockholders hereby
agrees to join in causing the Company either to hold a special meeting of
stockholders or to act by consensual written consent of stockholders and to
vote, in person or by proxy, their shares of Preferred Stock and Common Stock at
such meeting or pursuant to such consensual written consent of stockholders, as
the case may be, in favor of such removal.
<PAGE>
1.5. VACANCIES. In the event a vacancy is created on the Board of
---------
Directors by reason of the death, resignation or removal (in accordance with
Section 1.4 above) of any director, the remaining members of the Board of
Directors shall meet within 30 days after the date such vacancy occurs for the
purpose of electing a director to fill such vacancy in accordance with the
nomination procedures set forth in Section 1.2 hereof. In the event the
remaining members of the Board of Directors fail to nominate a director to fill
any such vacancy within such 30-day period or in the event the remaining members
of the Board of Directors fill such vacancy otherwise than in accordance with
the nomination procedures set forth in Section 1.2 above, each of the
Stockholders hereby agrees to cause the Company to hold a special meeting of
stockholders and to vote his, her or its shares of Preferred Stock and Common
Stock at such meeting, in person or by proxy, in favor of removing, if
necessary, any director elected to fill such vacancy otherwise than in
accordance with Section 1.2 above and filling such vacancy in accordance with
the procedures in Section 1.2 above. In the event that the party entitled to
nominate a director to fill any such vacancy at such special meeting of
stockholders shall fail to nominate a director, such vacancy shall be filled by
the vote of a majority of the shares of Preferred Stock and Common Stock then
outstanding.
1.6. RESTRICTIONS ON OTHER AGREEMENTS. No Stockholder shall grant any
--------------------------------
proxy or enter into or agree to be bound by any voting trust with respect to the
Preferred Stock or Common Stock, nor shall the Company or any Stockholder enter
into any agreement or arrangement of any kind with any person with respect to
the Preferred Stock or Common Stock, on terms inconsistent with the provisions
of this Agreement (whether or not such agreements and arrangements are with
other Stockholders or holders of Preferred Stock or Common Stock that are not
parties to this Agreement), including but not limited to, any agreement or
arrangement with respect to the acquisition, disposition or voting of Preferred
Stock or Common Stock. Notwithstanding the foregoing, Ulysses G. Auger, Sr. (or
any trust of which Ulysses G. Auger, Sr. is the trustee to which his Series B
Shares and/or shares of Common Stock are transferred in accordance herewith) and
Ulysses G. Auger, II may enter into an agreement whereby Ulysses G. Auger, II
shall be entitled to vote all Common Stock and Series B Shares held by Ulysses
G. Auger, Sr. (or such trust) in the event of the incapacity or other inability
of Ulysses G. Auger, Sr. to vote such stock (subject to the provisions of this
Section 1). The Existing Stockholders and the Company hereby represent and
warrant that they are not currently parties to any agreement or other
arrangement prohibited by the foregoing provisions of this Section 1.6.
1.7 ACKNOWLEDGMENT. The Purchasers in their capacity as the holders of
--------------
all of the outstanding Series A Shares, hereby acknowledge and agree that they
have approved the annual budget of the Company for 1999 in the form previously
furnished by the Company to the Purchasers.
1.8. TERMINATION OF SECTION 1 PROVISIONS. The agreements contained in this
-----------------------------------
Section 1 shall terminate and be of no further force and effect on the date of
the occurrence of a Series A Mandatory Conversion Event (as defined in the
Certificate of Incorporation).
SECTION 2
ACCESS TO INFORMATION
---------------------
<PAGE>
2.1 FINANCIAL INFORMATION.
---------------------
(a) Within 90 days after the end of each fiscal year, the Company
shall deliver to each Stockholder audited consolidated balance sheets of the
Company and its subsidiaries, as of the end of such fiscal year, and audited
consolidated statements of income and consolidated statements of changes in
financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles, all in
reasonable detail. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants of national standing
selected by the Company's Board of Directors.
(b) Within 45 days after the end of each quarterly accounting period
in each fiscal year of the Company, the Company shall deliver to each
Stockholder a consolidated balance sheet of the Company and its subsidiaries as
of the end of each such quarterly period, and consolidated statements of income
and consolidated statements of changes in financial condition of the Company and
its subsidiaries for such period and for the current fiscal year to date,
including a comparison to plan figures for such period, prepared in accordance
with generally accepted accounting principles (other than for accompanying
notes), subject to changes resulting from year-end audit adjustments, all in
reasonable detail and signed by the principal financial or accounting officer of
the Company.
(c) The Company shall deliver the following materials to each
Stockholder that, at such time as such materials are required to be delivered,
holds at least 122,850 Series A Shares, Series B Shares and/or shares of Common
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalization): (i) at least 30 days prior to the
beginning of each fiscal year an annual budget and operating plan for such
fiscal year (and as soon as available, any subsequent revisions thereto); (ii)
at least 30 days prior to the beginning of each month a monthly budget and
operating plan for such month (but the foregoing requirement shall not apply for
any month regarding which the Company's management reasonably anticipates there
will be no material divergences from the amounts budgeted therefor in the annual
budget); (iii) within 30 days after the end of each month, a consolidated
balance sheet of the Company and its subsidiaries as of the end of each such
month, and consolidated statements of income and consolidated statements of
changes in financial position of the Company and its subsidiaries for such month
and for the current fiscal year to date, including a comparison to plan figures
for such period, prepared in accordance with generally accepted accounting
principles consistently applied (other than for accompanying notes), subject to
changes resulting from year-end audit adjustments; (iv) promptly after the
occurrence thereof and in any event within five business days after each
occurrence, notice of any material adverse change in the business, assets
(including, without limitation, intellectual property rights and other
intangible assets), management, operations or financial condition of the
Company; (v) within 30 days after the end of every second month, a management
report describing the current status of the company and its operations and
prospects; (vi) promptly upon receipt, publication, commencement or occurrence
provide to each Purchaser copies of (A) all material consulting reports relating
to the Company's strategic plans, (B) notices of all material actions, suits or
proceedings, (C) all material accountant's reports to management, and (D) such
other information as the Company shall make available to its directors or
shareholders or the Purchasers shall reasonably request.
<PAGE>
(d) For purposes of determining the minimum holdings pursuant to this
Section 2.1, any Stockholder which is a partnership shall be deemed to hold any
Series A Shares, Series B Shares and/or Common Stock originally purchased by
such Stockholder from the Company, and subsequently distributed to partners of
such Stockholder, but which have not been resold by such partners. If the
partnership is still in existence, the Company may satisfy any obligation to
distribute reports to individual partners of the partnership by delivering a
single copy of each report to the partnership as agent for the constituent
partners.
(e) The rights granted pursuant to this Section 2.1 may not be
assigned or otherwise conveyed by the Stockholders, or by any subsequent
transferee of any such rights, without the prior written consent of the Company
except as authorized in this Section. After giving notice to the Company, a
Stockholder, without the Company's consent, may assign the rights granted
pursuant to this Section 2.1 to any transferee, other than a competitor of the
Company, who acquires at least 122,850 Series A Shares, Series B Shares and/or
shares of Common Stock (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations). If any Stockholder
which is a partnership dissolves, such partnership may assign the rights granted
pursuant to this Section 2.1 to its constituent partners without restriction
hereunder.
2.2 INSPECTION. The Company will also permit each Purchaser and its
----------
authorized representatives, at all reasonable times and as often as reasonably
requested, to visit and inspect, at the cost and expense of such Purchaser, any
of the properties of the Company, to inspect its books and records and to make
extracts therefrom, and to discuss the affairs, finances and accounts of the
Company with its officers and consult with and advise the officers of the
Company as to the management of the Company, provided that the Purchasers shall
conduct all such inspections in a manner that is not unreasonably disruptive to
the employees or operations of the Company. The Purchasers covenant and agree
that they shall maintain the confidentiality of all nonpublic information
related to the business of the Company made available to them and/or any of
their representatives by the Company ("Confidential Company Information"). The
--------------------------------
Purchasers further covenant and agree that they shall not disclose any
Confidential Company Information to any person or entity, other than their
partners, officers, directors, employees, attorneys, accountants and other
agents with a legitimate need for such information (which individuals and
entities the Purchasers shall cause to comply with this Section 2.2), except as
required by law, without the prior written consent of the Company. The
Purchasers agree that violation of this Section 2.2 would cause immediate and
irreparable damage to the business of the Company, and consent to the entry of
immediate and permanent injunctive relief for any violation hereof.
2.3 TERMINATION OF SECTION 2 PROVISIONS. The agreements set forth in this
-----------------------------------
Section 2 shall terminate and be of no further force or effect at such time as
the Company is required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act.
SECTION 3
RESTRICTIONS ON TRANSFERABILITY
-------------------------------
<PAGE>
3.1 RESTRICTIONS ON TRANSFERABILITY. The Restricted Securities held by
-------------------------------
the Stockholders shall not be sold, assigned, pledged or otherwise transferred
except upon the conditions specified in this Section 3. Each Stockholder will
cause any proposed purchaser, assignee, pledgee or transferee of any Restricted
Securities held by such Stockholder to agree to take and hold such securities
subject to the applicable provisions of this Agreement, and any purported sale,
assignment, pledge or other transfer in violation of the provisions of this
Section 3 shall be void and of no force and effect.
3.2 RESTRICTIVE LEGEND. Each certificate representing (i) the Series A
------------------
Shares, (ii) the Warrants, (iii) the Conversion Stock, if any, (iv) the Common
Stock and Series B Shares held by the Existing Stockholders and their
transferees and assigns, and (v) any other securities issued in respect of the
foregoing upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 3.3 below) be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
any other agreement between the Stockholder and the Company or under applicable
state securities laws):
The securities represented by this certificate have been acquired
for investment and have not been registered under the Securities Act
of 1933. Such securities may not be sold or transferred in the
absence of such registration unless the company receives an opinion
of counsel reasonably acceptable to it stating that such sale or
transfer is exempt from the registration and prospectus delivery
requirements of said Act.
The securities represented by this certificate are subject to a
certain stockholders agreement by and among the company and the
stockholders thereof, which stockholders agreement imposes certain
restrictions upon the transfer of such securities. the company will
provide a copy of such stockholders agreement to the holder of this
certificate upon request.
Each Stockholder consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Restricted Securities in order
to implement the restrictions on transfer established in this Section 3. Each
certificate evidencing the Restricted Securities transferred pursuant to this
Section 3 shall bear, except if such transfer is made pursuant to Commission
Rule 144, the appropriate restrictive legend set forth above.
3.3 NOTICE OF PROPOSED TRANSFERS. Prior to any proposed sale, assignment,
----------------------------
transfer or pledge of any Restricted Securities (a "Transfer"), and unless there
--------
is in effect a registration statement under the Securities Act covering the
proposed Transfer, the prospective transferor shall give written notice to the
Company (a "Transfer Notice") of such holder's intention to effect such
---------------
Transfer. Each such Transfer Notice shall describe the manner and circumstances
of the proposed Transfer in sufficient detail, including the identity of the
proposed transferee and the consideration, if any, to be paid in connection
therewith. The Transfer Notice shall be accompanied, at such holder's expense,
by either (i) a written opinion of legal counsel (who shall
<PAGE>
be, and whose legal opinion shall be, reasonably satisfactory to the Company)
addressed to the Company, to the effect that the proposed Transfer may be
effected without registration under the Securities Act, or (ii) a "no action"
letter from the Commission Staff to the effect that the proposed Transfer
without registration will not result in a recommendation by the Commission Staff
that action be taken with respect thereto. The Company will not require opinions
of counsel for transactions made pursuant to Commission Rule 144 except in
unusual circumstances.
3.4 PERMITTED TRANSFERS.
-------------------
(a) Subject to the limitations of Section 3.7, the following Transfers
(the "Permitted Transfers") shall be permitted under this Agreement, and shall
-------------------
not be subject to the provisions of Section 3.5 or Section 4: (i) transfers not
involving a change in beneficial ownership; (ii) transfers in transactions
involving the distribution without consideration of Restricted Securities by the
holder to any of its partners, or retired partners, or to the estate of any of
its partners or retired partners; (iii) any transfer by the holder to (A) any
individual or entity controlled by, controlling or under common control with,
such holder, (B) any individual or entity with respect to which such holder (or
any person controlled by, controlling or under common control with, such holder)
has the power to direct investment decisions or (C) any person who is the spouse
of, or a lineal ancestor or descendent of, such holder, or a trust, partnership
or limited liability company all the beneficiaries of which are one or more such
persons, or (iv) in transactions in compliance with Commission Rule 144;
provided, however, that, if, after such Transfer is made, such securities
continue to be Restricted Securities, then as a condition to the Transfer (1)
the party receiving such Restricted Securities shall agree in writing to be
bound by the terms of this Agreement applicable to the Existing Stockholders or
Purchasers, as the case may be, as if such transferee were an original party
hereto and (2) any such Restricted Securities shall continue to be subject to
this Agreement.
(b) No Transfer pursuant to this Section 3.4 shall be permitted (and
any such Transfer shall be void and of no effect) unless and until (i) the
requirements of Section 3.3 are satisfied and (ii) if such Transfer is to a
Third Party, such Third Party shall agree in writing, in form and substance
satisfactory to the Company, to become bound, and becomes bound, by all the
terms of this Agreement.
3.5 FIRST OFFER RIGHTS.
------------------
(a) Subject to the limitations of Section 3.7, the Purchasers and
their respective permitted successors and assigns (the "First Offerees") shall
--------------
be entitled to a right of first offer with respect to any Restricted Securities
proposed to be transferred by any Stockholder (other than pursuant to a
Permitted Transfer) on the terms and conditions set forth in this Section 3.5;
provided, however, that any Tag-Along Sale (as defined below) shall not be
subject to the provisions of this Section 3.5.
(b) Promptly after the Company receives a Transfer Notice from any
Stockholder (a "Section 3.5 Seller") relating to a proposed Transfer of
------------------
Restricted Securities subject to this Section 3.5, the Company shall transmit a
copy of such Transfer Notice to each
<PAGE>
First Offeree. For purposes of this Section 3.5, such Transfer Notice shall
constitute a "First Offer Notice," and the Restricted Securities subject to such
-------------------
Transfer Notice shall comprise the "Offered Shares."
--------------
(c) Within ten Washington, D.C. business days after the delivery of
the First Offer Notice by the Section 3.5 Seller to each First Offeree, each
First Offeree may, by notice in writing to the Company and the Section 3.5
Seller, elect to purchase all or any portion of the Offered Shares at the price
and on the terms set forth in the First Offer Notice (the "First Offer Price").
-----------------
If the First Offerees in the aggregate elect to purchase more than the total
number of Offered Shares then available for purchase, the right to purchase such
Offered Shares shall be allocated to each such First Offeree first in proportion
to (i) the record ownership of shares of Common Stock (including for purposes of
this Section 3.5(c) all Common Stock issuable pursuant to the Series A Shares
and the Warrants on an as-converted basis) of such First Offeree relative to
(ii) the aggregate number of shares of Common Stock held of record by all First
Offerees (including for purposes of this Section 3.5(c) all Common Stock
issuable pursuant to the Series A Shares and the Warrants on an as-converted
basis) and, in the event any Offered Shares are unallocated following the
foregoing allocation, such unallocated Offered Shares shall be allocated to each
such First Offeree in proportion to (x) the number of Offered Shares such First
Offeree originally elected to purchase relative to (y) the aggregate number of
Offered Shares all such First Offerees originally elected to purchase; provided,
however, that in no event shall such allocation result in any First Offeree
being required to purchase in the aggregate more Offered Shares than such First
Offeree originally elected to purchase.
(d) In the event the First Offerees in the aggregate do not elect to
purchase all Offered Shares then available for purchase by the First Offerees,
the Company may, by notice in writing to each First Offeree and the Section 3.5
Seller, for a period of ten Washington, D.C. business days following the
expiration of the 15-day period referred to in Section 3.5(c) above, elect to
purchase all or any portion of such remaining Offered Shares at the First Offer
Price.
(e) In the event any Offered Shares remain unpurchased following the
termination of the ten business day period referred to in Section 3.5(d) above,
then the Section 3.5 Seller shall have 120 days following the termination of
such ten business day period within which to consummate the sale of all of the
remaining Offered Shares to a Third Party at a price per share in cash equal to
or greater than the First Offer Price and on other terms no more favorable to
the Purchaser than as set forth in the First Offer Notice. In the event the
proposed purchase price of a Third Party for the remaining Offered Shares is
less than the First Offer Price, the Section 3.5 Seller shall not Transfer any
of such remaining Offered Shares at such lower price (the "Reoffer Price")
-------------
unless the Section 3.5 Seller shall have first re-offered such remaining Offered
Shares to each of the First Offerees by giving written notice (the "Reoffer
-------
Notice") to each First Offeree advising such First Offeree of the Section 3.5
- ------
Seller's intention to sell such remaining Offered Shares at the Reoffer Price.
Within ten Washington, D.C. business days after the delivery of the Reoffer
Notice, each First Offeree and the Company may, by notice in writing to the
Company and the Section 3.5 Seller, elect to purchase all or any portion of such
remaining Offered Shares at the Reoffer Price exercisable in the same order of
priority, proportion and manner set forth in Sections 3.5(c) and 3.5(d) above.
If such sale to a Third Party is not consummated within such 120-day period (or,
if later, within 30 days after such Reoffer Notice),
<PAGE>
such Section 3.5 Seller may not Tranfer any Restricted Securities for a period
of 90 days pursuant to this Section 3.5, and thereafter only after complying
with the provisions of this Section 3.5. No Transfer to a Third Party pursuant
to this Section 3.5(e) shall be permitted (and any such Transfer shall be void
and of no effect) unless and until such Third Party shall agree in writing, in
form and substance satisfactory to the Company, to become bound, and becomes
bound, by all the terms of this Agreement.
3.6. CLOSING; DELIVERIES.
-------------------
(a) The closing of the purchase of any Offered Shares pursuant to
Section 3.5 shall take place at the principal office of the Company on the tenth
Washington, D.C. business day after the expiration of the last notice period
applicable to such purchase. At such closing, each purchaser of Offered Shares
shall deliver to the Section 3.5 Seller, against delivery of certificates
representing the Offered Shares being acquired by such purchaser, a certified
check or checks in an amount equal to the product of (i) the number of Offered
Shares being purchased by such purchaser and (ii) the First Offer Price or the
Reoffer Price, as the case may be.
(b) Notwithstanding anything to the contrary contained in this Section
3.6, the Company shall not be obligated to purchase any Offered Shares it has
elected to purchase under Section 3.5 hereof to the extent that the purchase
thereof would violate any law or statute or any order, writ, injunction, decree,
judgment, rule, regulation, policy or guideline promulgated, or judgment
entered, by any federal, state, local or foreign court of governmental authority
applicable to the Company or any of its subsidiaries.
(c) In the event the Company is not obligated to purchase all or any
portion of the Offered Shares it has elected to purchase under Section 3.5 above
by reason of paragraph (b) above, the Company shall promptly deliver written
notice to the Section 3.5 Seller which notice shall specify the number of
Offered Shares that the Company is not obligated to purchase. For a period of
60 days following the receipt of such notice, the Section 3.5 Seller may sell
such unpurchased Offered Shares to any other First Offeree approved by the Board
of Directors upon the same terms and subject to the same conditions which would
apply to a purchase of such Offered Shares by the Company. In the event the
Section 3.5 Seller shall fail to consummate such a sale with respect to all such
unpurchased Offered Shares within such 60-day period, the Company shall purchase
such number of unpurchased Offered Shares that it is permitted to purchase under
paragraph (b) above and the Company shall designate one or more Stockholders or
Third Parties as the purchaser or purchasers of such remaining Offered Shares
and, in the event the Company shall fail to designate such a purchaser or
purchasers, the Section 3.5 Seller may sell any remaining unpurchased Offered
Shares (i) to any Stockholder or (ii) to a Third Party without complying with
the provisions of Section 3.5 above. No such Transfer shall be permitted (and
any such Transfer shall be void and of no effect) unless and until (i) the
requirements of Section 3.3 are satisfied and (ii) if such Transfer is to a
Third Party, such Third Party shall agree in writing, in form and substance
satisfactory to the Company, to become bound, and becomes bound, by all the
terms of the Agreement.
3.7 PROHIBITED TRANSFERS. Notwithstanding any other provision of this
--------------------
Section 3, no Stockholder shall Transfer any Restricted Securities in a Transfer
subject to this Section 3 either
<PAGE>
(a) to any person that is a direct or indirect competitor of the Company without
the prior written consent of the Company, which may be granted or withheld in
the absolute discretion of the Company or (b) for a period of three years from
the date of this Agreement, except pursuant to a Permitted Transfer.
3.8 TERMINATION OF SECTION 3 PROVISIONS. The agreements set forth in this
-----------------------------------
Section 3 shall terminate and be of no further force and effect at such time as
the Company is required to file reports pursuant to Section 13 or 15 of the
Exchange Act.
SECTION 4
TAG-ALONG RIGHTS
----------------
4.1 RIGHT TO PARTICIPATE IN SALE. A Stockholder shall not sell, transfer
----------------------------
or otherwise dispose of any Series A Shares or Common Stock held by such
Stockholder (other than pursuant to a Permitted Transfer) pursuant to any
transaction or series of transactions involving such Stockholder and
substantially the same group of selling Stockholders (the "Sellers") and the
-------
same purchaser or substantially the same group of purchasers (other than
pursuant to a Permitted Transaction), if as a result thereof such purchaser or
group of purchasers would acquire beneficial ownership of a majority of the
outstanding Common Stock (including for such purpose all Common Stock issuable
upon conversion of the Series A Shares on an as-converted basis) (a "Tag-Along
---------
Sale"), unless each other Stockholder is provided with the opportunity to sell
- ----
its Stockholder's Allotment (as defined below) on substantially the same terms
and conditions offered to the Seller and in accordance with the provisions of
this Section 4. The rights of co-sale granted to the Stockholders pursuant to
this Section 4 are herein referred to as the "Tag-Along Rights."
----------------
4.2 STOCKHOLDER ALLOTMENTS. The number of Series A Shares and shares of
----------------------
Common Stock that any Stockholder will be entitled to include in such Tag-Along
Sale (the "Stockholder's Allotment"), shall be determined by multiplying (i) the
-----------------------
total number of Series A Shares and/or shares of Common Stock proposed to be
sold or otherwise disposed of pursuant to the Tag-Along Sale, by (ii) a
fraction, the numerator of which shall equal the aggregate number of Series A
Shares and/or shares of Common Stock owned by such Stockholder as of the close
of business on the day immediately preceding the Notice Date (as defined below)
and any shares of Common Stock issuable upon exercise of Warrants which such
Stockholder advises the Company in its Tag-Along Notice (as defined below) will
be exercised on or prior to closing of the Tag-Along Sale, and the denominator
of which shall equal the sum of the aggregate number of Series A Shares and/or
shares of Common Stock owned by all of the Stockholders on such date and any
shares of Common Stock issuable upon exercise of Warrants which all such
Stockholders advise the Company in their respective Tag-Along Notices will be
exercised on or prior to closing of the Tag-Along Sale.
4.3 TERMS OF SALE. Any Tag-Along Sale of Series A Shares and/or shares
-------------
of Common Stock by a Stockholder as a result of the Tag-Along Rights granted to
Stockholders pursuant to this Section 4 shall be on the same terms and
conditions as the proposed Tag-Along Sale by the Sellers.
<PAGE>
4.4 SALE NOTICE. The Sellers participating in a Tag-Along Sale shall
-----------
promptly provide each Stockholder with written notice (the "Sale Notice") not
-----------
more than 60 nor less than 30 days prior to the proposed date of the Tag-Along
Sale (the "Sale Date"). In order to facilitate the prompt delivery of the Sale
---------
Notice, the Company hereby covenants to provide the Sellers participating in a
Tag-Along Sale access to the stock record books of the Company. Each Sale
Notice shall set forth: (i) the name and address of each proposed transferee or
purchaser of Series A Shares and/or shares of Common Stock in the Tag-Along
Sale; (ii) the name and address of each Seller participating in the Tag-Along
Sale and the number of Series A Shares and/or shares of Common Stock proposed to
be transferred or sold by each such Seller; (iii) the proposed amount and form
of consideration to be paid for such Series A Shares and/or shares of Common
Stock and the terms and conditions offered by each proposed transferee or
purchaser; (iv) the number of Series A Shares and/or shares of Common Stock held
of record as of the close of business on the day immediately preceding the day
the Sale Notice is sent (the "Notice Date") by the Stockholder to whom the
-----------
notice is sent, and the aggregate number of Series A Shares and/or shares of
Common Stock outstanding as of the close of business on the day immediately
preceding the Notice Date; (v) the aggregate number of Series A Shares and/or
shares of Common Stock held of record as of the close of business on the day
immediately preceding the Notice Date by the Sellers; (vi) the Stockholder's
Allotment assuming each Stockholder elected to sell the maximum number of Series
A Shares and/or shares of Common Stock possible; (vii) confirmation that the
proposed purchaser or transferee has been informed of the Tag-Along Rights
provided for herein, and an offer from such purchaser or transferee to purchase
each Stockholder's Allotment on the same terms and conditions set forth in the
Sale Notice in accordance with the terms hereof; and (viii) the Sale Date.
4.5 TAG-ALONG NOTICE. Each Shareholder that wishes to participate in the
----------------
Tag-Along Sale shall provide written notice (or oral notice confirmed in writing
(the "Tag-Along Notice") to the Sellers participating in the Tag-Along Sale no
----------------
less than ten days prior to the Sale Date. The Tag-Along Notice shall set forth
the number of Series A Shares and/or shares of Common Stock that such
Stockholder elects to include in the Tag-Along Sale, which shall not exceed the
Stockholders' Allotment. The Tag-Along Notice shall also specify the aggregate
number of additional Series A Shares and/or shares of Common Stock owned of
record as of the close of business on the day immediately preceding the Notice
Date by such Stockholder, if any, which such Stockholder desires also to include
in the Tag-Along Sale (the "Additional Shares") in the event there is any under-
-----------------
subscription by the Stockholders for the entire amount of the Stockholders'
Allotments. In the event there is an under-subscription by the Stockholders for
the entire amount of the Stockholders' Allotments, the Sellers participating in
the Tag-Along Sale shall apportion the unsubscribed Stockholders' Allotments to
Stockholders whose Tag-Along Notices specified an amount of Additional Shares,
which apportionment shall be on a pro rata basis among such Stockholders in
accordance with the number of Additional Shares specified by all such
Stockholders in their Tag-Along Notices. The Tag-Along Notices given by the
Stockholders shall constitute their binding agreements to sell such Series A
Shares and/or shares of Common Stock on the terms and conditions offered in the
Sale Notice and accepted in the Tag-Along Notice. If the proposed transferee or
purchaser does not consummate the purchase of all of such shares on the same
terms and conditions offered in the Sale Notice and accepted in the Tag-Along
Notice, then neither the Seller (nor any of its Affiliates) shall consummate the
Sale of
<PAGE>
any of their shares to such transferee or purchaser, unless the shares of the
Stockholders and the Sellers are reduced or limited pro rata in proportion to
the respective number of shares actually sold in any such Tag-Along Sale.
If the Tag-Along Notice is not received by the Sellers participating in the
Tag-Along Sale from a Stockholder prior to the ten-day period specified above,
the Sellers shall have the right to sell or otherwise transfer the number of
Series A Shares and/or shares of Common Stock specified in the Sale Notice to
the proposed purchaser or transferee without any participation by such
Stockholder (subject to the right of other Stockholders to sell Additional
Shares in the event of an under-subscription by Stockholders, as described
above), but only on terms and conditions with respect to the consideration (or
other materials terms and conditions which a reasonable investor would consider
significant to the decision to include shares in a Tag-Along Sale) paid by the
purchasers no more favorable in any material respect to Sellers than as stated
in the Sale Notice to the Stockholders and only if such Tag-Along Sale occurs on
a date within 60 business days of the Sale Date.
4.6 STOP TRANSFER. The Company agrees not to effect any transfer of
-------------
Series A Shares and/or shares of Common Stock by any Stockholder until it has
received evidence reasonably satisfactory to it that the Tag-Along Rights
provided to the other Stockholders pursuant to this Section 4, if applicable to
such transfer, have been complied with and satisfied in all respects.
4.7 EXEMPT TRANSFERS. The provisions of this Section 4 shall not apply
----------------
to (i) any bona fide underwritten offering of Common Stock pursuant to an
effective registration statement under the Securities Act, or (ii) any merger,
asset sale or other transaction subject to the vote of stockholders of the
Company and in which all holders of Common Stock are treated in substantially
the same fashion.
4.8 TERMINATION OF COVENANTS. The agreements set forth in this Section 4
------------------------
shall terminate and be of no further force and effect at such time as the
Company is required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act.
SECTION 5
REGISTRATION RIGHTS
-------------------
5.1 REQUESTED REGISTRATION.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to not less than that number of shares
of Registrable Securities which would result in an anticipated aggregate
offering price, net of underwriting discounts and commissions, greater than
$2,000,000, the Company will:
<PAGE>
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its commercially reasonable efforts
to effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within 20 days after receipt of such
written notice from the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 5.1:
(A) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) prior to six months after the effective date of the
Company's first registered public offering of its Common Stock;
(C) during the period starting with the date 60 days prior to
the Company's estimated date of filing of, and ending on the date six months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Commission Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(D) after the Company has effected three such registrations
pursuant to this Section 5.1(a), and such registrations have been declared or
ordered effective; or
(E) if the Company shall furnish to such Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its stockholders for a registration statement to be filed in the near future (in
which case the Company's obligation to use its best efforts to register, qualify
or comply under this Section 5.1 shall be deferred for a period not to exceed
120 days from the date of receipt of written request from the Initiating
Holders; provided, however, that the Company may not exercise this deferral
right more than once per 12-month period).
(b) Underwriting. In the event that a registration pursuant to this
------------
Section 5.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 5.1(a)(i). In such event, the
<PAGE>
right of any Holder to registration pursuant to Section 5.1(b) shall be
conditioned upon such Holder's participation in the underwriting arrangements
required by this Section 5.1, and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent requested shall be limited to the
extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 5.1, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then the Company shall so advise all holders of Registrable
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities held by such Holders at the time of filing the
registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares. Prior
to excluding any Registrable Securities from any underwriting pursuant to this
paragraph, the Company shall exclude from such underwriting all securities that
are not Registrable Securities.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 180 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may require.
5.2 COMPANY REGISTRATION.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register any of its securities, either for its own
account or for the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans or other compensatory
plans or arrangements, or (ii) a registration relating solely to a Commission
Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof, and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 20 days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders
<PAGE>
as a part of the written notice given pursuant to Section 5.2(a)(i). In such
event the right of any Holder to registration pursuant to Section 5.2 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of Registrable Securities in the underwriting to the extent provided
herein. All Piggyback Holders proposing to distribute their securities through
such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 5.2, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter and the Company may reduce the Registrable Securities to be included
in such registration to the extent the underwriters deem necessary; provided,
however, that any Registrable Securities held by the Piggyback Holders proposed
to be included in the registration and underwriting shall be reduced to zero
prior to any reductions with respect to Registrable Securities held by any other
Holders. The Company shall so advise all Holders and other holders distributing
their securities through such underwriting and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all the Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holder at the time of filing the Registration Statement. To facilitate the
allocation of shares in accordance with the above provisions, the Company may
round the number of shares allocated to any Holder or holder to the nearest 100
shares. If any Holder disapproves of the terms of any such underwriting, he may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 180 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 5.2
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
5.3 REGISTRATION ON FORM S-3.
------------------------
(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as such
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than two registrations pursuant to this
Section 5.3 in any 12-month period. The Company shall inform other Holders of
the proposed registration and offer them the opportunity to participate. The
substantive provisions of Section 5.3(b) shall be applicable to each
registration initiated under this Section 5.3.
<PAGE>
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 5.3 (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) prior to the Company's
first registered public offering of its stock; (iii) if the Company, within ten
days of the receipt of the request of the Initiating Holders, gives notice of
its bona fide intention to effect the filing of a registration statement with
the Commission within 90 days of receipt of such request (other than with
respect to a registration statement relating to a Commission Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities); (iv) during the
period starting with the date 60 days prior to the Company's estimated date of
filing of, and ending on the date six months immediately following, the
effective date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Commission Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or (v) if the Company shall furnish
to such Holder a certificate signed by the President of the Company stating that
in the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for registration statements to be
filed in the near future, then the Company's obligation to use its best efforts
to file a registration statement shall be deferred for a period not to exceed
120 days from the receipt of the request to file such registration by such
Holder; provided, however, that the Company may not exercise this deferral right
more than once in any 12-month period.
5.4 RELATIONSHIP TO OTHER REGISTRATION RIGHTS.
-----------------------------------------
(a) From and after the Closing Date, the Company shall not enter into
any agreement granting any holder or prospective holder of any securities of the
Company registration rights with respect to such securities unless (i) such new
registration rights, including standoff obligations, are on a pari passu basis
with those rights of the Holders hereunder (except for the rights granted
pursuant to the last sentence of the penultimate paragraph of Section 5.1, to
which the new registration rights will be subordinate), or (ii) such new
registration rights, including standoff obligations, are subordinate to the
registration rights granted to Holders hereunder.
(b) The registration rights granted pursuant to this Section 5,
including standoff obligations, are subordinate to the registration rights
granted by the Company pursuant to that certain Warrant Registration Rights
Agreement dated as of September 4, 1998 by and among the Company, Cleartel
Communications, Inc., CAIS, Inc. and ING (U.S.) Capital Corporation, a copy of
which the Company has previously made available to each Purchaser.
5.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
------------------------
connection with (i) three registrations pursuant to Section 5.1 and (ii) all
registrations pursuant to Section 5.2 and Section 5.3 shall be borne by the
Company. Unless otherwise stated, all Selling Expenses relating to securities
registered on behalf of the Holders and all other Registration Expenses shall
<PAGE>
be borne by the Holders of such securities pro rata on the basis of the number
of shares so registered.
5.6 REGISTRATION PROCEDURES. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 5,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for at least 180 days or until the
distribution described in the Registration Statement has been completed; and
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
5.7 INDEMNIFICATION.
---------------
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 5, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act, the Exchange Act, state securities law or any rule or regulation
promulgated under such laws applicable to the Company in connection with any
such registration, qualification or compliance, and within a reasonable period
the Company will reimburse each such Holder, each of its officers and directors,
and each person controlling such Holder, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on 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 an
instrument duly executed by such Holder, controlling person or underwriter and
stated to be specifically for use therein.
<PAGE>
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and within a reasonable
period will reimburse the Company, such Holders, such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited in an amount equal to the gross proceeds before
expenses and commissions to each Holder received for the shares sold by such
Holder, unless such liability arises out of or is based on gross negligence or
willful misconduct by such Holder.
(c) Each party entitled to indemnification under this Section 5.7
(the "Indemnified Party") shall give notice to the party required to provide
-----------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 5 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
5.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such
<PAGE>
Holder or Holders as the Company may request in writing and as shall be required
in connection with any registration, qualification or compliance referred to in
this Section 5.
5.9 RULE 144 REPORTING. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Commission Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) furnish to the Stockholder (so long as the Stockholder owns any
Restricted Securities) forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Commission Rule 144 (at
any time after 90 days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as the Stockholder may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Stockholder to
sell any such securities without registration.
5.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
-------------------------------
register securities granted Stockholders under Sections 5.1, 5.2 and 5.3 may be
assigned to any permitted transferee or assignee of Registrable Securities in
connection with any transfer or assignment of Registrable Securities by the
Stockholders.
5.11 STANDOFF AGREEMENT. In connection with any public offering of the
------------------
Company's securities, the Holder agrees, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
underwriters; provided, however, that the officers and directors of the Company
who own stock of the Company also agree to such restrictions.
5.12 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted
----------------------------------
pursuant to Section 3 shall terminate as to each Holder at such time as a public
market for the Company's Common Stock exists and all Registrable Securities held
by such Holder may, in the opinion of
<PAGE>
counsel to the Company (which opinion shall be addressed and rendered to such
Holder), be sold within a given three-month period pursuant to Commission Rule
144.
SECTION 6
MISCELLANEOUS
-------------
6.1 GOVERNING LAW. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of Delaware, excluding the conflicts of law
provisions thereof.
6.2 JURISDICTION; JURY TRIAL WAIVER. The parties hereto hereby
-------------------------------
irrevocably submit to the exclusive jurisdiction of the state and federal courts
located in the State of Delaware with respect to any action or proceeding
arising out of this Agreement or in any way arising herefrom or relating hereto.
THE PARTIES HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
INSTITUTED BY ANY PARTY AGAINST ANY OTHER PARTY ARISING ON, OUT OF OR BY REASON
OF THIS AGREEMENT, ANY ALLEGED TORTIOUS CONDUCT BY ANY PARTY OR IN ANY WAY,
DIRECTLY OR INDIRECTLY, ARISING OUT OF OR RELATED TO THE RELATIONSHIP BETWEEN
THE PARTIES.
6.3 SURVIVAL. The covenants and agreements made herein shall survive any
--------
investigation made by the Stockholders and the closing of the transactions
contemplated hereby.
6.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Purchase Agreement
---------------------------
and the other documents delivered pursuant hereto at the Closing constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any warranties, representations or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought; provided, however, that the holders of a majority of the issued and
outstanding Series A Shares may, with the Company's prior written consent,
waive, modify or amend on behalf of all holders of Series A Shares, any
provisions hereof governing the rights and obligations of such holders
hereunder; and provided further, that the holders of a majority of the issued
and outstanding Registrable Securities may, with the Company's prior written
consent, waive, modify or amend on behalf of all holders of Registrable
Securities any provisions hereof governing the rights and obligations of such
holders hereunder.
6.6 NOTICES, ETC. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Stockholder, at such
<PAGE>
Stockholder's address, as shown on the stock records of the Company, or at such
other address as such Stockholder shall have furnished to the Company in
writing, or (b) if to the Company, at its address set forth on the cover page of
this Agreement, or at such other address as the Company shall have furnished to
the Stockholders in writing, and addressed to the attention of the President.
Each such notice or other communication shall for all purposes of this Agreement
be treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or 72 hours after
the same has been deposited in a regularly maintained receptacle for the deposit
of the United States mail, addressed and mailed as aforesaid.
6.7 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such nondefaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
6.8 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
6.9 SEVERABILITY. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, however, that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
6.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
6.11 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Affiliate" means, with respect to a Person, any other Person that,
---------
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with such Person.
"Board of Directors" means the Board of Directors of the Company in
------------------
office at the applicable time as elected in accordance with the provisions of
Section 1 of this Agreement.
<PAGE>
"By-Laws" means the by-laws of the Company, as amended from time to
-------
time.
"Certificate of Incorporation" means the certificate of incorporation
----------------------------
of the Company, as amended from time to time.
"Closing Date" means the date of the first purchase and sale of Series
------------
A Shares and Warrants pursuant to the Purchase Agreement.
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Conversion Stock" means the Common Stock issued or issuable pursuant
----------------
to conversion of the Series A Shares or upon exercise of the Warrants.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Holder" means (i) any Stockholder holding Registrable Securities
------
(including for purposes of this definition only, Series A Shares) and (ii) any
person holding Registrable Securities to whom the rights under Section 5 have
been transferred in accordance with Section 5.10 hereof.
"Initiating Holders" means Chancery Lane, L.P. and its permitted
------------------
successors and assigns as Holders of Registrable Securities (including for
purposes of this definition only, Series A Shares) requesting that Registrable
Securities owned thereby be included in a registration statement pursuant to
Section 5.1 or 5.3.
"Person" means an individual, corporation, partnership, trust, or
------
unincorporated organization, or a government or any agency or political
subdivision thereof.
"Piggyback Holders" means any Holders requesting that Registrable
-----------------
Securities owned thereby be included in a registration statement pursuant to
Section 5.2.
"Preferred Stock" means the Series A Shares and the Series B Shares,
---------------
collectively.
"Registrable Securities" means the Conversion Stock and any Common
----------------------
Stock of the Company issued or issuable in respect of the Conversion Stock upon
any stock split, stock dividend, recapitalization or similar event, or any
Common Stock otherwise issuable with respect to the Conversion Stock; provided,
however, that shares of Common Stock or other securities shall only be treated
as Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold or are, in the opinion of counsel for the
Company, available for sale in a single transaction exempt from the registration
and prospectus delivery requirements of the
<PAGE>
Securities Act so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" means all expenses, except as otherwise stated
---------------------
below, incurred by the Company in complying with Sections 5.1, 5.2 and 5.3
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders.
"Restricted Securities" means the securities of the Company required
---------------------
to bear the legend set forth in Section 3.2 hereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all reasonable fees and
disbursements of counsel for any Holder.
"Stockholders" means the Purchasers, the Existing Stockholders, the
------------
holders of any Conversion Stock, the holders of any Common Stock issuable upon
conversion of the Series B Shares and any other person that shall hereafter
acquire Restricted Securities pursuant to the provisions of, and subject to the
restrictions and rights set forth in, this Agreement.
"Third Party" means any Person which, at the time of reference
-----------
thereto, is not a party to this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written
"COMPANY"
CAIS INTERNET, INC.,
a Delaware corporation
By: /s/ Ulysses G. Auger, II
-------------------------
Ulysses G. Auger, II,
Chief Executive Officer
"PURCHASERS"
CHANCERY LANE, L.P.
By: RTA Associates, L.L.C., General Partner
By: /s/ R. Theodore Ammon
---------------------
R. Theodore Ammon, Managing Member
CAIS-SANDLER PARTNERS, L.P.
By: /s/ John Kornreich
------------------
John Kornreich, General Partner
[SIGNATURE PAGE OF STOCKHOLDERS AGREEMENT]
[SIGNATURES CONTINUE ON NEXT PAGE]
<PAGE>
"EXISTING STOCKHOLDERS"
/s/ R. Theodore Ammon
-----------------------------------
R. Theodore Ammon
/s/ Ulysses G. Auger, II
----------------------------------------
Ulysses G. Auger, II
/s/ Ulysses G. Auger, Sr.
---------------------------------------
Ulysses G. Auger, Sr.
The James Frederick Auger Trust
The Ulysses George Hawthorne
Auger III Trust
The Annabel-Rose Auger Trust
The Nicholas William Randolph
Auger Trust
The Alexander Robert Auger Trust
The Gregory Ulysses Auger, III Trust
The Bridgette Kathryn Auger Trust
The Vassiliki Illias Auger Economides
Trust
The Constandina Francisca Auger
Economides Trust
The Constandinos Franciscos Auger
Economides Trust
By: /s/ James Pedas
----------------------------------
James Pedas, Trustee
(as to each Trust)
<PAGE>
EXHIBIT 10.1
CGXCOMMUNICATIONS
1232 22nd Street, NW
Washington, DC 20037
Phone: 202.463.8500
Fax: 202.463.7190
http://www.cgxcom.com
- ---------------------
CAIS INTERNET
Access
Web Services
Co Location
Consulting & ISP Services
CLEARTEL COMMUNICATIONS
Operator Services
Long Distance
International Services
TeleFone
OVERVOICE
High-Speed Internet Access
High-Speed Apartment Distribution
April 22, 1998
Theodore Ammon
c/o Big Flower Holdings, Inc.
3 East 54/th/ Street
New York, NY 10022
Re: Investment in CGX Communications, Inc.
-------------------------------------
Dear Mr. Ammon:
This letter confirms the agreement of Theodore Ammon to make cash investments in
each of CGX Communication, Inc., a Delaware corporation ("CGX"), CAIS, Inc., a
Virginia corporation ("CAIS"), Cleartel Communications, Inc., a corporation
incorporated in the District of Columbia ("CCI") and Cleartel Communications
Limited Partnership, a limited partnership formed in the District of Columbia
("CCI LP"). The aggregate amount of such investments will be $1 million. In
exchange for such investments, Mr. Ammon will receive a 2.439% equity interest
in each of CGX, CAIS, CCI and CCI LP. The equity interest in each
corporation/partnership shall be on the same terms and have the same rights as
all other outstanding equity of such corporation/partnership.
The investments are made on the condition that: (i) as soon as practicable after
the investments, the undersigned will cause CGX, CAIS, CCI and CCI LP to be
combined into an operating entity which will own 100% of the assets of CGX,
CAIS, CCI and CCI LP (the "CGX Group"); (ii) following such reorganization, Mr.
Ammon (or CL Investments, L.P., if Mr. Ammon shall direct) will own a 2.439%
equity interest in the CGX Group (on a fully-diluted basis); and (iii) the
proceeds of the investments will be used by CGX, CAIS, CCI and CCI LP solely for
general business purposes which will not include the repayment of existing
indebtedness or the payment of any consideration to the existing shareholders
(including dividends, redemptions or any similar actions). The investments are
based on an agreed upon valuation of CGX, CAIS, CCI and CCI LP immediately prior
to the investments of $40 million.
Following the closing of the investments, the undersigned shall cooperate with
Mr. Ammon, without any consideration, to execute, acknowledge and deliver in
proper form any further instruments, or take such other actions as Mr. Ammon may
reasonably request, to carry out effectively the intent of this Letter. In
addition, the
<PAGE>
parties hereby agree that, immediately following the reorganization, Mr. Ammon
may transfer his equity ownership in the CGX Group to CL Investments, L.P.
If you are in agreement with the foregoing, please indicate by signing and
returning to us a copy of this letter.
Very truly yours,
CGX Communications, Inc.
By: /s/ Ulysses G. Auger, II
---------------------------
Name: Ulysses G. Auger, II
Title: President
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
---------------------------
Name: Ulysses G. Auger, II
Title: President
Cleartel Communications, Inc.
By: /s/ Ulysses G. Auger, II
---------------------------
Name: Ulysses G. Auger, II
Title: President
Cleartel Communications Limited Partnership
By Cleartel Communications, Inc., as general partner
By: /s/ Ulysses G. Auger, II
---------------------------
Name: Ulysses G. Auger, II
Title: President
Accepted and Agreed:
/s/ R. Theodore Ammon
- ----------------------------------
R. Theodore Ammon
<PAGE>
EXHIBIT 10.3
CAIS INTERNET, INC.
1255 22/ND/ Street, N.W.
Washington, DC 20037
SERIES A PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
February 19, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1 Authorization and Sale of Preferred Stock and Warrants.............................................. 1
1.1 Authorization................................................................................ 1
1.2 Sale and Issuance of Shares and Warrants..................................................... 1
Section 2 Closing Dates; Delivery............................................................................. 1
2.1 Closing...................................................................................... 1
2.2 Delivery..................................................................................... 2
Section 3 Representations and Warranties of the Company........................................................ 2
3.1 Organization and Standing; Certificate and By-Laws........................................... 2
3.2 Corporate Power.............................................................................. 2
3.3 Authorization................................................................................ 3
3.4 Subsidiary................................................................................... 3
3.5 No Violation or Default...................................................................... 4
3.6 Consent...................................................................................... 4
3.7 Capitalization............................................................................... 5
3.8 Financial Statements......................................................................... 5
3.9 Changes...................................................................................... 6
3.10 Environmental Matters........................................................................ 7
3.11 Litigation................................................................................... 7
3.12 Title to Properties and Assets; Liens........................................................ 8
3.13 Intellectual Property; Trademarks............................................................ 8
3.14 Tax Matters.................................................................................. 9
3.15 Investment Company........................................................................... 9
3.16 Employee Matters............................................................................. 9
3.17 Condition of System.......................................................................... 9
3.18 Fees; License Compliance..................................................................... 9
3.19 No Conflict of Interest...................................................................... 10
3.20 Agreements; Action........................................................................... 10
3.21 Brokers or Finders........................................................................... 11
3.22 Disclosure................................................................................... 11
Section 4 Representations and Warranties of the Purchasers..................................................... 11
4.1 Experience; Speculative Nature of Investment................................................. 11
4.2 Investment................................................................................... 11
4.3 Restricted Securities........................................................................ 12
4.4 No Public Market............................................................................. 12
4.5 Access to Data............................................................................... 12
4.6 Authorization................................................................................ 12
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
4.7 Brokers or Finders........................................................................... 12
4.8 Tax Liability................................................................................ 13
Section 5 Conditions to Purchasers' Obligations to Close....................................................... 13
5.1 Representations and Warranties Correct....................................................... 13
5.2 Covenants.................................................................................... 13
5.3 Opinion of Company's Counsel................................................................. 13
5.4 Blue Sky..................................................................................... 13
5.5 Stockholders Agreement....................................................................... 13
5.6 Conversion of Affiliate Debt................................................................. 13
5.7 ING Consent.................................................................................. 13
Section 6 Conditions to Company's Obligations to Close......................................................... 14
6.1 Representations and Warranties Correct....................................................... 14
6.2 Covenants.................................................................................... 14
6.3 Blue Sky..................................................................................... 14
6.4 Stockholders Agreement....................................................................... 14
6.5 ING Consent.................................................................................. 14
Section 7 Confidential Information............................................................................. 14
7.1 Confidential Company Information............................................................. 14
7.2 Confidential Purchaser Information........................................................... 15
Section 8 Miscellaneous........................................................................................ 15
8.1 Governing Law................................................................................ 15
8.2 Jurisdiction; Jury Trial Waiver.............................................................. 15
8.3 Survival..................................................................................... 15
8.4 Successors and Assigns....................................................................... 15
8.5 Entire Agreement; Amendment.................................................................. 15
8.6 Notices, etc................................................................................. 16
8.7 Delays or Omissions.......................................................................... 16
8.8 Counterparts................................................................................. 16
8.9 Severability................................................................................. 16
8.10 Titles and Subtitles......................................................................... 17
8.11 Expenses..................................................................................... 17
8.12 Use of Proceeds.............................................................................. 17
</TABLE>
-ii-
<PAGE>
EXHIBITS
A Schedule of Purchasers
B Form of Warrant
C Amended and Restated Certificate of Incorporation
D Bylaws
E Disclosure Schedule
F Stockholders Agreement
G Financial Statements
H Opinion of Counsel for the Company
I Form of Promissory Note
-iii-
<PAGE>
CAIS INTERNET, INC.
SERIES A PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
This Series A Preferred Stock and Warrant Purchase Agreement (this
"Agreement") is made as of February 19, 1999 by and among CAIS Internet, Inc.
---------
(f/k/a CGX Communications, Inc.), a Delaware corporation (the "Company"), and
-------
the persons and entities listed on the Schedule of Purchasers attached hereto as
Exhibit A (collectively the "Purchasers," and each individually a "Purchaser").
- --------- ----------- ---------
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK AND WARRANTS
------------------------------------------------------
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of
-------------
(i) up to an aggregate of 2,827,168 shares of the Company's Series A Preferred
Stock, par value $.01 per share ("Series A Shares"), and (ii) warrants (the
---------------
"Warrants") to purchase shares of the Company's Common Stock, par value $.01 per
--------
share (the "Common Stock"), in such number and at such exercise price as to be
------------
determined in accordance with the form of Warrant attached hereto as Exhibit B.
---------
The Series A Shares and the Warrants are herein sometimes collectively referred
to as the "Securities."
----------
1.2 SALE AND ISSUANCE OF SHARES AND WARRANTS. Subject to the terms and
----------------------------------------
conditions of this Agreement, each Purchaser agrees to purchase from the
Company, and the Company agrees to sell and issue to each Purchaser (i) the
number of Series A Shares set forth in the column designated "Number of Series A
------------------
Shares" opposite such Purchaser's name on the Schedule of Purchasers attached
- ------
hereto as Exhibit A, at a purchase price of $4.07 per share, and (ii) a Warrant
---------
having a "Warrant Share Percentage" set forth in the column designated as such
------------------------
opposite such Purchaser's name on the Schedule of Purchasers attached hereto as
Exhibit A. The Company's agreement with each Purchaser is a separate agreement,
- ---------
and the sale of the Series A Shares to each Purchaser is a separate sale.
SECTION 2
CLOSING DATES; DELIVERY
-----------------------
2.1 CLOSING. The purchase and sale of the Securities hereunder shall take
-------
place at a closing (the "Closing") on February 19, 1999 (the "Closing Date").
------- ------------
The Closing shall be held at the offices of Swidler Berlin Shereff Friedman,
LLP, 3000 K Street, N.W., Washington, D.C. 20007, at 2:00 p.m. local time, on
the Closing Date, or at such other time and place upon which the Company and the
Purchasers shall agree.
2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser,
--------
as set forth opposite such Purchaser's name on the Schedule of Purchasers
attached hereto as Exhibit
-------
<PAGE>
A, (i) a certificate registered in such Purchaser's name representing the number
- -
of Series A Shares to be purchased specified in the column designated "Number of
---------
Series A Shares" against payment of the purchase price therefor, and (ii) a
- ---------------
Warrant having a Warrant Share Percentage specified in the column designated
"Warrant Share Percentage" opposite such Purchaser's name on the Schedule of
------------------------
Purchasers. At the Closing, each Purchaser will pay to the Company by
cancellation of indebtedness and/or wire transfer of immediately available
federal funds per the Company's instructions cash in the amount set forth
opposite such Purchaser's name on the Schedule of Purchasers attached hereto as
Exhibit A in the column designated "Purchase Price." Notwithstanding the
- --------- --------------
foregoing, of such amount payable by Chancery Lane, L.P., $2,000,000 shall be
paid in cash as aforesaid, and $8,000,000 shall be paid by delivery of a
promissory note in the form of Exhibit I hereto.
---------
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to the Purchasers as of the date of
this Agreement that except as set forth in the disclosure schedule (the
"Disclosure Schedule") attached as Exhibit E:
------------------- ---------
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BY-LAWS. The Company is a
--------------------------------------------------
corporation duly organized and existing under, and by virtue of, the laws of the
State of Delaware and is in good standing under such laws. The Company has all
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Company is presently qualified to do business as a foreign
corporation in each jurisdiction where the failure to be so qualified would
reasonably be expected to have a material adverse effect on the financial
condition, results of operations, assets or liabilities of the Company and its
Subsidiary (as defined in Section 3.4 below) taken as a whole (a "Material
--------
Adverse Effect"). A true and correct copy of the Company's Amended and Restated
- --------------
Certificate of Incorporation (the "Restated Certificate") is attached hereto as
--------------------
Exhibit C, and a true and correct copy of the Company's By-Laws (the "By-Laws")
- --------- -------
is attached hereto as Exhibit D, which in each case shall be in full force and
---------
effect as of the Closing Date. Such copies contain all amendments through the
Closing Date.
3.2 CORPORATE POWER. The Company has all requisite legal and corporate
---------------
power and authority to execute and deliver this Agreement, the Warrants and that
certain Stockholders Agreement entered into by and among the Company, the
Purchasers and the Existing Stockholders (as defined therein) dated as of the
date hereof and attached as Exhibit F (the "Stockholders Agreement"), to sell
--------- ----------------------
and issue the Securities hereunder, to issue the shares of the Common Stock
issuable upon conversion of the Series A Shares and upon exercise of the
Warrants, and to carry out and perform its obligations under the terms of this
Agreement, the Warrants and the Stockholders Agreement. The shares of Common
Stock issuable upon conversion of the Series A Shares and upon exercise of the
Warrants are sometimes collectively referred to as the "Conversion Stock." This
----------------
Agreement, the Warrants and the Stockholders Agreement are sometimes
collectively referred to as the "Transaction Documents."
---------------------
-2-
<PAGE>
3.3 AUTHORIZATION. All action on the part of the Company, its directors
-------------
and stockholders necessary for the authorization, execution and delivery of the
Transaction Documents, the performance by the Company of its obligations
thereunder, and the authorization, sale, issuance and delivery of the Securities
has been taken or will be taken prior to each Closing. The Transaction
Documents, when executed and delivered by the Company, shall constitute valid
and binding obligations of the Company, enforceable in accordance with their
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and except as the indemnification
provisions of Section 5.7 of the Stockholders Agreement may be limited by
principles of public policy. The Series A Shares, when issued in compliance
with the provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and will have the rights, preferences and privileges described in
the Restated Certificate; the Conversion Stock has been duly and validly
reserved and, when issued in compliance with the terms of this Agreement, the
Warrants and the Restated Certificate will be validly issued, fully paid and
nonassessable, and will have the rights, preferences and privileges described in
the Restated Certificate; and the Series A Shares and the Conversion Stock will
be delivered to the Purchasers free of any liens or encumbrances, other than any
liens or encumbrances created by or imposed upon or by virtue of the Purchasers;
provided, however, that the Series A Shares and the Conversion Stock are subject
to restrictions on transfer under state and/or federal securities laws as set
forth herein and in the Stockholders Agreement. Except as set forth in the
Certificate of Incorporation and the Stockholders Agreement, the Series A
Shares, the Warrants and the Conversion Stock are not subject to any preemptive
rights or rights of first refusal.
3.4 SUBSIDIARY.
----------
(a) The Disclosure Schedule sets forth a list of (i) the only
corporation, partnership, limited liability company, firm or other entity of
which 50 percent or more of the voting power, equity securities or equity
interest is owned, directly or indirectly, by the Company (the "Subsidiary") and
----------
(ii) any other corporation, partnership, limited liability company or other
entity in which the Company or any Subsidiary currently owns, directly or
indirectly, any equity interest (an "Affiliated Entity"). For purposes of
-----------------
determining whether an entity is an Affiliated Entity, unexercised options or
other future or contingent rights to acquire equity in those entities in which
the Company or the Subsidiary has invested less than U. S. $50,000 individually
or less than U.S. $250,000 in the aggregate shall not be deemed to be equity
interests that are currently owned directly or indirectly. The Disclosure
Schedule sets forth the percentage record and beneficial ownership interest of
the Company in the Subsidiary and each Affiliated Entity. The Subsidiary has
been fully formed and is validly existing under the laws of the jurisdiction of
its formation, is duly licensed or qualified to transact business in each
jurisdiction where the failure to be qualified would have a material adverse
effect on the financial condition, results of operations, assets or liabilities
of such Subsidiary, and has the requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as presently
conducted and as proposed to be conducted. The issued and outstanding shares of
capital stock of the Subsidiary has been duly and validly authorized and issued
and is fully paid and nonassessable. The equity interests held by the Company
or the Subsidiary in each Affiliated
-3-
<PAGE>
Entity are owned beneficially or of record by the Company and/or the Subsidiary
free and clear of any liens, encumbrances or adverse claims, other than rights
set forth in agreements listed in Section 3.4 of the Disclosure Schedule, copies
of which agreements will be provided to the Purchasers upon request, relating to
arrangements between the Company and the Subsidiary or their nominees.
(b) On February 12, 1999, the Company completed a reorganization (the
"Reorganization") whereby the following transactions were effectuated: (i) the
--------------
Company transferred to its then wholly owned subsidiary Cleartel Communications,
Inc., a District of Columbia corporation ("Cleartel, Inc."), all of its limited
--------------
partnership interests in Cleartel Communications Limited Partnership, a District
of Columbia limited partnership ("Cleartel, L.P."), of which Cleartel, Inc. was
--------------
then the sole general partner, and the Company was the sole limited partner;
(ii) Cleartel, Inc. was liquidated; and (iii) the Company spun-off Cleartel,
Inc. by means of a stock dividend paid to stockholders of record of the Company
as of February 12, 1999. Cleartel, Inc. and Cleartel, L.P. were solvent as of
the date of, and after giving effect to, the Reorganization. Neither the
Company nor the Subsidiary has any liabilities or obligations related to the
Cleartel, Inc. or Cleartel, L.P. except for the $3,491,000 of indebtedness of
the Company to Cleartel, Inc., a portion of which is to be repaid as provided
in Section 8.12. Neither the execution of the Transaction Documents by the
Purchasers nor their acquisition and ownership of the Securities will result in
any tax liability for the Purchasers resulting from the Reorganization.
3.5 NO VIOLATION OR DEFAULT. The execution, delivery and performance of
-----------------------
and compliance with the Transaction Documents, and the issuance of the
Securities and the Conversion Stock (i) have not resulted and will not result in
any violation of, or conflict with, or constitute a default under, the Restated
Certificate or the Company's By-Laws or any of its material agreements or
obligations or, in any material respect, any applicable order, statute, rule,
regulation, order or decree, nor (ii) will it result in the creation of, any
mortgage, pledge, lien, encumbrance or charge upon any of the material
properties or assets of the Company. Neither the Company nor the Subsidiary is
in violation of or in default under (i) its certificate of incorporation or By-
Laws or, to the best of the Company's knowledge, any judgment, order, writ,
decree, statute, rule or regulation applicable to it, or (ii) any mortgage or
indenture, or any other material agreement, instrument or contract to which it
is a party or by which it is bound.
3.6 CONSENTS. No consent, approval or authorization of or designation,
--------
declaration or filing with any governmental authority or other third party on
the part of the Company is required in connection with the valid execution and
delivery of the Transaction Documents, or the offer, sale or issuance of the
Securities and the Conversion Stock, or the consummation of any other
transaction contemplated hereby or thereby, except for qualification (or taking
such action as may be necessary to secure an exemption from qualification, if
available) of the offer and sale of the Securities and the Conversion Stock
under applicable blue sky laws, which qualifications, if required, will be
accomplished in a timely manner, and the consent referred to in Sections 5.7 and
6.5.
3.7 CAPITALIZATION. The authorized capital stock of the Company consists
--------------
of 100,000,000 shares of Common Stock, of which 9,965,505 shares are issued and
outstanding as of
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<PAGE>
the date of this Agreement, and 25,000,000 shares of preferred stock, par value
$.01 per share, of which 2,827,168 shares are designated as Series A Shares,
none of which are issued and outstanding prior to the Closing, and 1,119,679
shares are designated as Series B Preferred Stock, par value $.01 per share (the
"Series B Shares"), all of which are issued and outstanding as of the date of
---------------
this Agreement. The outstanding Series B Shares and shares of Common Stock have
been duly authorized and validly issued in compliance with applicable laws, and
are fully paid and nonassessable. The Company has reserved (a) 2,827,168 Series
A Shares for issuance hereunder, (b) 1,500,000 shares of Common Stock for
issuance to employees, consultants or directors pursuant to its Amended and
Restated 1998 Equity Incentive Plan, (c) 2,033,926 shares of Common Stock for
issuance to two executive officers of the Company pursuant to option agreements,
(d) 390,000 shares of Common Stock for issuance upon exercise of warrants held
by ING (U.S.) Capital, Inc., (e) 2,827,168 shares of Common Stock for issuance
upon conversion of the Series A Shares to be issued hereunder, (f) 1,119,679
shares of Common Stock for issuance upon conversion of the Series B Shares, (g)
1,000,000 shares of Common Stock for issuance upon exercise of the Warrants to
be issued hereunder and (h) 25,000 shares of Common Stock for issuance pursuant
to the Settlement Agreement dated January 24, 1999 between CAIS, Inc. and Terk
Technologies Corp. The Common Stock, the Series A Shares and the Series B Shares
have the rights, preferences, privileges and restrictions set forth in the
Restated Certificate. Except as set forth above, there are no options, warrants
or other rights to purchase any of the Company's authorized and unissued capital
stock.
3.8 FINANCIAL STATEMENTS. Exhibit G includes: (i) the audited balance
-------------------- ---------
sheet, statement of operations, statement of changes in stockholders' deficit
and statement of cash flows of the Company and its consolidated Subsidiary as of
and for the fiscal years ending December 31, 1997 and December 31, 1998
(collectively the "Financial Statements"), which have been prepared in
--------------------
accordance with United States generally accepted accounting principles
("USGAAP") consistently applied and are complete and correct in all material
------
respects, and accurately set out and describe and fairly present the financial
condition and operating results of the Company and its consolidated Subsidiary
as of the dates and during the periods indicated therein; and (ii) an accurate
and complete unaudited capitalization table (including all indebtedness other
than accounts payable incurred in the ordinary course of business) for the
Company and its consolidated Subsidiary as of February 12, 1999. Except as set
forth in the Financial Statements, the Company has no material indebtedness or
liabilities, contingent or otherwise, other than (A) indebtedness or liabilities
incurred in the ordinary course of business subsequent to December 31, 1998 and
(B) obligations under contracts and commitments incurred in the ordinary course
of business and not required under USGAAP to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
established and administered in accordance with USGAAP.
-5-
<PAGE>
3.9 CHANGES. Since December 31, 1998, there has not been:
-------
(i) any change in the assets, liabilities, financial condition or
operations of the Company or the Subsidiary except changes in the ordinary
course of business which have not been in any case materially adverse and except
that the Company and the Subsidiary have continued to incur operating losses
consistent with the budgets previously provided to the Purchasers;
(ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company or the Subsidiary;
(iii) any waiver or compromise by the Company or the Subsidiary of
a valuable right or of a material debt owed to it;
(iv) any loans in excess of $10,000 made by the Company or the
Subsidiary to their respective employees, officers or directors other than
travel advances made in the ordinary course of business (other than loans repaid
in connection with the issuance of the Series B Shares);
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or the Subsidiary,
except in the ordinary course of business and that is not material to the
assets, properties, financial condition, operating results or business of the
Company and the Subsidiary (as such business is presently conducted and as it is
proposed to be conducted) (other than the discharge of certain indebtedness in
connection with the issuance of the Series B Shares);
(vi) any material change or amendment to a material contract or
arrangement by which the Company or the Subsidiary or any of their respective
assets or properties is bound or subject;
(vii) any material change in any compensation arrangement or
agreement with any employee of the Company or the Subsidiary;
(viii) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets of the Company or the
Subsidiary;
(ix) any resignation or termination of employment of any key
officer of the Company or the Subsidiary (and the Company, to the best of its
knowledge, does not know of the impending resignation or termination of
employment of any such officer);
(x) receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company or the Subsidiary;
-6-
<PAGE>
(xi) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company or the Subsidiary, with respect to any of their
respective material properties or assets, except liens for taxes not yet due or
payable;
(xii) any declarations, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
(xiii) since February 12, 1999, any incurrence of indebtedness by
the Company or the Subsidiary (other than accounts payable incurred in the
ordinary course of business);
(xiv) to the best of the Company's knowledge, the occurrence of
any other event or condition of any character that materially and adversely
affects the assets, properties, financial condition, operating results or
business of the Company and the Subsidiary (as such business is presently
conducted and as it is proposed to be conducted);
(xv) the making of an agreement or commitment by the Company to do
any of the things described in this Section 3.9, other than as contemplated
hereby.
3.10 ENVIRONMENTAL MATTERS. The properties, assets and operations of the
---------------------
Company and its Subsidiary are in material compliance with all applicable
federal, state, local or foreign laws, rules, regulations, permits, licenses and
decrees relating to environmental matters or the discharge, release, storage,
treatment or clean-up of any materials or substances. No environmental or
similar claim has been asserted (or to the best knowledge of the Company
threatened) against the Company or the Subsidiary.
3.11 LITIGATION. There are no actions, suits, proceedings or
----------
investigations pending against the Company or its Subsidiary or their respective
properties before any court or governmental agency (nor, to the best of the
Company's knowledge, is there any threat thereof). Neither the Company nor the
Subsidiary is a party or subject to the provision of any order, writ,
injunction, judgment or decree of any court or governmental agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or the Subsidiary currently pending or that the Company or the
Subsidiary intends to initiate.
3.12 TITLE TO PROPERTIES AND ASSETS; LIENS. Each of the Company and the
-------------------------------------
Subsidiary has good and marketable title to its properties and assets, and has
good title to all its leasehold interests, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than (i) the lien of current
taxes not yet due and payable, (ii) possible minor liens and encumbrances which
do not in any case materially detract from the value of the property subject
thereto or materially impair the operations of the Company or the Subsidiary,
and which have not arisen otherwise than in the ordinary course of business,
(iii) liens to secure vendor financing or installment purchases, and (iv) liens
in favor of ING (U.S.) Capital Corporation.
3.13 INTELLECTUAL PROPERTY; TRADEMARKS.
---------------------------------
-7-
<PAGE>
(a) Each of the Company and the Subsidiary has the right to use, free
and clear of all liens, charges, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, licenses and other
intellectual property rights necessary to the business of the Company or the
Subsidiary, as the case may be, as presently conducted. To the best of the
Company's knowledge, neither the Company nor the Subsidiary is infringing upon
or otherwise acting adversely to the right or claimed right of any other person
under or with respect to the foregoing.
(b) The Company is at least a 50 percent owner of the entire right,
title and interest in and to the subject U.S. and foreign (excluding Israel)
patents and patent applications included in Attachment A to the Disclosure
Schedule (the "Properties"), and, in particular, is a 100 percent owner of the
----------
entire right, title and interest in and to U.S. Application No. 08/893,403 and
corresponding PCT Application No. PCT/US971/12045.
(c) To the best knowledge of the Company, the Properties encompass all
patents and patent applications relating to communication systems that are
wholly or partially owned by Inline Connection Corporation.
(d) The Company has undertaken a reasonable investigation and has
determined that there are no claims, actions or proceedings, pending or
threatened, or other information that challenges the validity and/or the
enforceability of any of the claims in the patents or of any of the claims of
the patent applications that may issue with respect to the Properties.
(e) The Company will use commercially reasonable efforts to prosecute
(to the extent that the Company has a right to do so) all of the pending patent
applications listed in Attachment A to the Disclosure Schedule, with a view to
obtaining broad patent protection covering technology (known as "Overvoice")
---------
relating to the simultaneous transmission of voice and data over a single
traditional copper telephone line at speeds of up to 300 times those of
conventional 28.8k dial-up modems and to enable a user to have both designated
high-speed Internet access and complete use of his telephone simultaneously over
one traditional telephone line.
(f) There are no encumbrances, third party or otherwise, against any
of the Properties.
3.14 TAX MATTERS. The Company, the Subsidiary, any predecessor of the
-----------
Company or the Subsidiary, and all current and former members for income tax
purposes of any affiliated group of corporations of which the Company, the
Subsidiary or any such predecessor is or has been a member, Cleartel, Inc. and
Cleartel, L.P. (collectively, the "Taxpayers") have duly filed all tax reports
---------
and returns required to be filed by them or have requested and obtained
appropriate extensions, including all federal, state, local and foreign tax
returns and reports. The Taxpayers have paid in full all taxes required to be
paid by such Taxpayers before such payment became delinquent or have otherwise
paid any required interest and penalties relating thereto or have made adequate
provision (as shown on the Disclosure Schedule), in conformity with USGAAP
-8-
<PAGE>
consistently applied, for the payment of such taxes as well as taxes which may
subsequently become due. There are no audits known by the Company to be pending
of the tax returns of the Company or the Subsidiary or any other Taxpayer, and
there are no claims known by the Company or any Taxpayer which have been or may
be asserted relating to any of the tax returns filed for any year which if
determined adversely would result in the assertion by any governmental agency of
any material deficiency.
3.15 INVESTMENT COMPANY. Immediately following each Closing, after
------------------
giving effect to the transactions contemplated hereby, neither the Company nor
any person, firm or entity controlling, controlled by or under common control
with the Company will be an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
3.16 EMPLOYEE MATTERS. Except as set forth in the Disclosure Schedule,
----------------
neither the Company nor the Subsidiary has any employment contracts with any of
its employees not terminable at will or has any collective bargaining agreement
covering any of its employees. The Company is not aware of any labor
organization activity involving its or its Subsidiary's employees. The Company
and the Subsidiary are in compliance in all material respects with the
requirements of (i) the Employee Retirement Income Security Act of 1974, as
amended, and (ii) the Internal Revenue Code of 1986, as amended, in each case
relating to employee benefit plans, programs and agreements.
3.17 CONDITION OF SYSTEM. All material properties, equipment and systems
-------------------
of the Company and the Subsidiary are in good repair, working order and
condition and are in material compliance with all standards and rules imposed
(i) by any governmental agency or authority in which such properties, equipment
and/or systems are located or operated and (ii) under any agreements with
customers.
3.18 FEES; LICENSE COMPLIANCE. Each of the Company and the Subsidiary
------------------------
has paid all material franchise, license, or other fees and charges which have
become due in respect of its business and has made appropriate provisions as is
required by USGAAP for any such fees and charges which have accrued. The
Company and the Subsidiary have duly secured all necessary and material permits,
licenses, consents and authorizations from and have filed all required and
material registrations, applications, reports and other documents with, the
appropriate governmental agencies, authorities and commissions and other
entities exercising jurisdiction over the business of the Company or the
Subsidiary. All of the Company's licenses, including licenses held through or
by its Subsidiary or Affiliated Entities, are valid and in full force and effect
without conditions except such conditions as are generally applicable to holders
of licenses. To the best of the Company's knowledge, no event has occurred and
is continuing which could result in the termination, revocation or adverse
modification of any license. The Company does not have any reason to believe
that its licenses, including licenses held through or by its Subsidiary or
Affiliated Entities, will not be renewed in the ordinary course.
3.19 NO CONFLICT OF INTEREST. Except as set forth in the Disclosure
-----------------------
Schedule, neither the Company nor the Subsidiary is indebted, directly or
indirectly, to any of its officers, directors or stockholders or to their
respective spouses or children, in any amount whatsoever, other than
-9-
<PAGE>
for normal travel advances or reimbursement for normal business expenses; and
none of such officers, directors or stockholders, or any members of their
immediate families is indebted to the Company or the Subsidiary. The Disclosure
Schedule sets forth a description of all transactions since January 1, 1996,
between the Company or the Subsidiary and any of their respective officers,
directors and stockholders, and their respective spouses and children in which
such persons had a direct or indirect material interest.
3.20 AGREEMENTS; ACTION.
------------------
(a) There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound that may involve (i) obligations (contingent
or otherwise) of, or payments to the Company or the Subsidiary in excess of
$50,000, (ii) the license of any patent, copyright, trade secret or other
proprietary rights to or from the Company or the Subsidiary, (iii) provisions
restricting or affecting the development, manufacture or distribution of the
Company's or the Subsidiary's products or services or (iv) indemnification by
the Company or the Subsidiary with respect to infringements of proprietary
rights.
(b) Neither the Company nor the Subsidiary is a party to or is bound
by any contract, agreement or instrument, or subject to any restriction under
its certificate or articles of incorporation or its by-laws, that adversely
affects its business as now conducted or as proposed to be conducted, or its
properties or financial condition.
(c) Neither the Company nor the Subsidiary has engaged in the past
three months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Company or the
Subsidiary with or into any such corporation or corporations, (ii) with any
corporation or corporations, partnership, association or other business entity
or any individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Company or the Subsidiary or a
transaction or series of related transactions in which more than 50 percent of
the voting power of the Company is disposed of, or (iii) regarding any other
form of acquisition, liquidation, dissolution or winding up of the Company or
the Subsidiary.
(d) Except as provided in the Stockholders Agreement, the Company has
not granted or agreed to grant any registration rights, including piggyback
rights, to any person or entity other than ING (U.S.) Capital Corporation.
3.21 BROKERS OR FINDERS. The Company has not engaged any broker, finder or
------------------
agent, and the Purchasers have not, and will not, incur, directly or indirectly,
as a result of any action taken by the Company, any liability for brokerage or
finders' fees or agents' commissions or any similar changes in connection with
the Transaction Documents. In the event that the preceding sentence is in any
way inaccurate, the Company agrees to indemnify and hold harmless each Purchaser
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability)
for which any Purchaser, or any of their officers, directors, employees or
representatives, is responsible.
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<PAGE>
3.22 DISCLOSURE. The Transaction Documents, and all other information
----------
about the Company and the Subsidiary provided by the Company to the Purchasers
in writing in connection herewith, when taken as a whole, do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of Series A Shares by such Purchaser and with respect
only to such Purchaser, as follows:
4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. The Purchaser (or its
--------------------------------------------
principals or advisors) has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
The Purchaser acknowledges that its investment in the Company is highly
speculative and entails a substantial degree of risk and the Purchaser is in a
position to lose the entire amount of such investment.
4.2 INVESTMENT. The Purchaser is acquiring the Securities and the
----------
underlying Conversion Stock for investment for its own account, not as a nominee
or agent, and not with the view to, or for resale in connection with, any
distribution thereof. The Purchaser understands that the Securities to be
purchased hereby and the underlying Conversion Stock have not been, and will not
be, registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act, the availability of which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Purchaser's representations as expressed herein. The
Purchaser is an "accredited investor" within the meaning of Regulation D, Rule
501(a), promulgated by the Securities and Exchange Commission.
4.3 RESTRICTED SECURITIES. The Purchaser acknowledges that the Securities
---------------------
and the underlying Conversion Stock must be held indefinitely unless
subsequently registered under the Securities Act or unless an exemption from the
registration requirements of the Securities Act is available.
4.4 NO PUBLIC MARKET. The Purchaser understands that no public market now
----------------
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.
4.5 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management. The Purchaser had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction. The Purchaser
understands that such discussions, as well as any other written
-11-
<PAGE>
information issued by the Company, were intended to describe certain aspects of
the Company's business and prospects but were not an exhaustive description. The
foregoing, however, shall not limit or modify the representations and warranties
of the Company in Section 3 of this Agreement or the right of the Purchaser to
rely thereon.
4.6 AUTHORIZATION. This Agreement and the Stockholders Agreement, when
-------------
executed and delivered by the Purchaser, will constitute valid and legally
binding obligations of the Purchaser enforceable in accordance with their terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and except as the indemnification
provisions of Section 5.7 of the Stockholders Agreement may be limited by
principles of public policy.
4.7 BROKERS OR FINDERS. The Purchaser has not engaged any broker, finder
------------------
or agent, and the Company has not, and will not, incur, directly or indirectly,
as a result of any action taken by the Purchaser, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
the Transaction Documents. In the event that the preceding sentence is in any
way inaccurate, such Purchaser agrees to indemnify and hold harmless the Company
and each other Purchaser from any liability for any commission or compensation
in the nature of a finder's fee (and the costs and expenses of defending against
such liability) for which the Company, any other Purchaser, or any of their
officers, directors, employees or representatives, is responsible.
4.8 TAX LIABILITY. The Purchaser has reviewed with its own tax advisors
-------------
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by the Transaction Documents. With respect to
such matters, the Purchaser relies solely on such advisors and not on any
statements or representations of the Company or any of its agents other than the
representations and warranties set forth herein. The Purchaser understands that
it (and not the Company) shall be responsible for its own tax liability that may
arise as a result of this investment or the transactions contemplated by the
Transaction Documents. The foregoing representations of the Purchasers shall
not affect their entitlement to rely upon the representations of the Company set
forth in Section 3.4(b).
SECTION 5
CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE
----------------------------------------------
The Purchasers' obligations to purchase the Series A Shares at each Closing
are, unless waived by the Purchasers, subject to the fulfillment of the
following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
--------------------------------------
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the Closing Date.
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<PAGE>
5.2 COVENANTS. All covenants and agreements contained in this Agreement
---------
and the Stockholders Agreement to be performed by the Company on or prior to the
Closing shall have been performed or complied with in all material respects.
5.3 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received from
----------------------------
Swidler Berlin Shereff Friedman, LLP, counsel to the Company, an opinion
addressed to them, dated the Closing Date, in substantially the form of Exhibit
-------
H.
- -
5.4 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Series A Shares and the
Conversion Stock.
5.5 STOCKHOLDERS AGREEMENT. The Purchasers shall have executed and
----------------------
delivered the Stockholders Agreement.
5.6 CONVERSION OF AFFILIATE DEBT. Ulysses G. Auger, Sr. and Ulysses G.
----------------------------
Auger, II shall have exchanged all of the debt owed to them by the Company for
1,119,679 Series B Shares.
5.7 ING CONSENT. The Purchasers shall have received from the Company the
-----------
consent of ING (U.S.) Capital Corporation to the transactions contemplated by,
and to be consummated in connection with, this Agreement, which consent shall be
reasonably satisfactory to the Purchasers.
SECTION 6
CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE
--------------------------------------------
The Company's obligation to sell and issue the Securities at each Closing
is, unless waived by the Company, subject to the fulfillment of the following
conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
--------------------------------------
warranties made by the Purchasers in Section 4 hereof shall be true and correct
in all material respects as of the Closing Date.
6.2 COVENANTS. All covenants and agreements contained in this Agreement
---------
and the Stockholders Agreement to be performed by the Purchasers on or prior to
the Closing shall have been performed or complied with in all material respects.
6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Series A Shares and the
Conversion Stock.
6.4 STOCKHOLDERS AGREEMENT. The Purchasers shall have executed and
----------------------
delivered the Stockholders Agreement.
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<PAGE>
6.5 ING CONSENT. The Company shall have received from ING (U.S.) Capital
-----------
Corporation its consent to the transactions contemplated by, and to be
consummated in connection with, this Agreement, which consent shall be
reasonably satisfactory to the Company.
SECTION 7
CONFIDENTIAL INFORMATION
------------------------
7.1 CONFIDENTIAL COMPANY INFORMATION. The Purchasers covenant and agree
--------------------------------
that they shall maintain the confidentiality of all nonpublic information
related to the business of the Company made available to them and/or any of
their representatives by the Company ("Confidential Company Information"). The
--------------------------------
Purchasers further covenant and agree that they shall not disclose any
Confidential Company Information to any person or entity, other than their
partners, officers, directors, employees, attorneys, accountants and other
agents with a legitimate need for such information (which individuals and
entities the Purchasers shall cause to comply with this Section 7.1), except as
required by law, without the prior written consent of the Company. The
Purchasers agree that violation of this Section 7.1 would cause immediate and
irreparable damage to the business of the Company, and consent to the entry of
immediate and permanent injunctive relief for any violation hereof.
7.2 CONFIDENTIAL PURCHASER INFORMATION. The Company covenants and agrees
----------------------------------
that it shall maintain the confidentiality of all nonpublic information related
to the business of the Purchasers made available to it and/or any of its
representatives by the Purchasers ("Confidential Purchaser Information"). The
----------------------------------
Company further covenants and agrees that it shall not disclose any Confidential
Purchaser Information to any person or entity, other than its partners,
officers, directors, employees, attorneys, accountants and other agents with a
legitimate need for such information (which individuals and entities the Company
shall cause to comply with this Section 7.2), except as required by law, without
the prior written consent of the Purchasers. The Company agrees that violation
of this Section 7.2 would cause immediate and irreparable damage to the business
of the Purchasers, and consents to the entry of immediate and permanent
injunctive relief for any violation hereof.
SECTION 8
MISCELLANEOUS
-------------
8.1 GOVERNING LAW. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of Delaware, without regard to the conflicts of
laws provisions thereof.
8.2 JURISDICTION; JURY TRIAL WAIVER. The parties hereto hereby
-------------------------------
irrevocably submit to the exclusive jurisdiction of the state and federal courts
located in the State of Delaware with respect to any action or proceeding
arising out of this Agreement or in any way arising herefrom or relating hereto.
THE PARTIES HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
INSTITUTED BY ANY PARTY AGAINST ANY OTHER PARTY ARISING ON, OUT OF OR BY REASON
OF THIS AGREEMENT, ANY ALLEGED
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<PAGE>
TORTIOUS CONDUCT BY ANY PARTY OR IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISING OUT
OF OR RELATED TO THE RELATIONSHIP BETWEEN THE PARTIES
8.3 SURVIVAL. The representations, warranties, covenants and agreements
--------
made herein shall survive any investigation made by the Purchasers and the
closing of the transactions contemplated hereby.
8.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
provided, however, that the rights of the Purchasers to purchase the Securities
shall not be assignable without the consent of the Company.
8.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
---------------------------
delivered pursuant hereto at each Closing constitute the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that the holders of a majority of the Series A Shares and
Conversion Stock may, with the Company's prior written consent, waive, modify or
amend on behalf of all Purchasers any provision hereof governing the rights and
obligations of such holders hereunder.
8.6 NOTICES, ETC. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Purchaser, at such Purchaser's address, as shown on the
Schedule of Purchasers attached hereto as Exhibit A, or at such other address as
---------
such Purchaser shall have furnished to the Company in writing, or (b) if to any
other holder of any Securities, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Securities who has so furnished an address to the Company, or (c) if to the
Company, at its address set forth on the cover page of this Agreement, or at
such other address as the Company shall have furnished to the Purchasers, and
addressed to the attention of the President. Each such notice or other
communication shall for all purposes of this Agreement be treated as effective
or having been given when delivered if delivered personally, or, if sent by
mail, at the earlier of its receipt or 72 hours after the same has been
deposited in a regularly maintained receptacle for the deposit of the United
States mail, addressed and mailed as aforesaid.
8.7 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such nondefaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall
-15-
<PAGE>
any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative
8.8 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
8.9 SEVERABILITY. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, however, that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
8.10 TITLES AND SUBTITLES. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
8.11 EXPENSES. The Company shall bear its own expenses, and the
--------
documented out-of-pocket expenses of the Purchasers, incurred thereby with
respect to this Agreement and the transactions contemplated hereby, and any
amendments or waivers hereto; provided, that the total liability of the Company
to the Purchasers pursuant to this Section 8.11 shall not exceed $35,000 in the
aggregate; and provided further, that the Company shall have no obligation to
pay the expenses of any Purchaser which fails to purchase and pay for the
securities purchased thereby in accordance with the terms hereof, which expenses
shall be for the sold account of such Purchaser.
8.12 USE OF PROCEEDS. The Company shall use the net proceeds of the
---------------
issuance and sale of the Series A Shares for the following purposes and in the
following order and priority: (a) $1,500,000 for the payment of a portion of its
outstanding indebtedness to Cleartel Communications, Inc.; and (b) the balance
for capital expenditures and general corporate purposes (but excluding any
further payment of the indebtedness referred to in the preceding clause (a)).
-16-
<PAGE>
[THIS SPACE INTENTIONALLY LEFT BLANK]
-17-
<PAGE>
The foregoing Agreement is hereby executed as of the date first above written.
"COMPANY"
CAIS INTERNET, INC.,
a Delaware corporation
By: /s/ Ulysses G. Auger, II
-------------------------
Ulysses G. Auger, II,
Chief Executive Officer
"PURCHASERS"
CHANCERY LANE, L.P.
By: RTA Associates, Inc., General Partner
By: /s/ R. Theodore Ammon
---------------------
R. Theodore Ammon, Managing Member
CAIS-SANDLER PARTNERS, L.P.
By: /s/ John Kornreich
------------------
John Kornreich, General Partner
[SIGNATURE PAGE TO PURCHASE AGREEMENT]
-18-
<PAGE>
EXHIBIT A
---------
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Number of Warrant Share
Name and Address Series A Shares Percentage Purchase Price
- ---------------- --------------- ---------- --------------
<S> <C> <C> <C>
Chancery Lane, L.P. 2,261,734 2.61% $10,000,000.00
Three East Fifty-Fourth Street
Suite 1700
New York, NY 10022
CAIS-Sandler Partners, L.P. 565,434 0.39% $ 1,500,000.00
------- ---- --------------
New York, NY ____
TOTAL 2,827,168 3.0% $11,500,000.00
</TABLE>
A-1
<PAGE>
EXHIBIT B
---------
FORM OF COMMON STOCK WARRANT
----------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CERTAIN
STOCKHOLDERS AGREEMENT BY AND AMONG THE COMPANY AND THE STOCKHOLDERS THEREOF,
WHICH STOCKHOLDERS AGREEMENT IMPOSES CERTAIN RESTRICTIONS UPON THE TRANSFER OF
SUCH SECURITIES. THE COMPANY WILL PROVIDE A COPY OF SUCH STOCKHOLDERS AGREEMENT
TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST.
COMMON STOCK WARRANT
OF
CAIS INTERNET, INC.
Warrant Share Percentage: _____%/(1)/
THIS CERTIFIES THAT, subject to the terms of this Warrant,
__________________, or its permitted successors and assigns (the
"Warrantholder"), is entitled to subscribe for and purchase from CAIS Internet,
-------------
Inc., a Delaware corporation (the "Company"), shares of the fully paid and
-------
nonassessable shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), in such number and at such price determined in accordance
------------
with this Warrant.
This Warrant is issued pursuant to a Series A Preferred Stock and Warrant
Purchase Agreement dated as of February 19, 1999 between the Company and the
purchasers named therein (the "Purchase Agreement").
------------------
Upon delivery of this Warrant (with the Notice of Exercise in the form
attached hereto as Exhibit B-A), together with payment of the Warrant Price of
the shares of Common Stock thereby purchased, which payment may be made by
converting this Warrant, or any portion thereof, pursuant to Section 5 below
("Warrant Conversion"), at the principal office of the Company or at such other
------------------
office or agency as the Company may designate by notice in writing to the holder
hereof, the Warrantholder shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. All shares of Common
Stock which may be issued upon the exercise of this Warrant will, upon issuance,
be fully paid and nonassessable and free from all taxes, liens and charges with
respect thereto.
__________________
/(1)/ Warrant Share Percentages of all Warrant holders are collectively to
equal 3%.
B-1
<PAGE>
This Warrant is subject to the following terms and conditions:
1. Term of Warrant. This Warrant may be exercised in whole or in part,
---------------
at any time on or after the earlier of (a) the closing by the Company of an
initial underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company to the public (the "IPO")
---
and (b) the occurrence of a Corporate Transaction (as defined in the Certificate
of Incorporation of the Company as in effect on the date hereof; provided,
however, that this Warrant shall expire to the extent then unexercised as of
5:00 p.m., Washington, D.C. time, on the earlier of (i) February 19, 2009 or
(ii) the date five years after the Warrants are first exercisable.
2. Number of Warrant Shares. The Warrantholder may exercise the purchase
------------------------
right represented by this Warrant with respect to a particular number of shares
of Common Stock (or other securities of the Company issuable in the event of a
reclassification, change, merger or consolidation as set forth in Section 4(a)
hereof) (the "Shares") determined as follows (which number shall be subject to
------
adjustment pursuant to Section 4 hereof):
(a) Corporate Transaction. If the Company closes a Corporate
---------------------
Transaction prior to closing an IPO, the number of Shares issuable upon
exercise hereof shall be adjusted to equal the product of (i) the Warrant Share
Percentage set forth on the first page of this Warrant (expressed as a decimal
fraction) multiplied by (ii) the total number of Shares then issued and
outstanding on a fully-diluted basis (excluding out of the money options and
warrants in the event of a Corporate Transaction involving the sale of the
Company or its assets as an entirety).
(b) Initial Public Offering. If the Company closes an IPO prior to
-----------------------
closing a Corporate Transaction, the number of Shares issuable upon exercise
hereof shall equal the product of (i) the Warrant Share Percentage set forth on
the first page of this Warrant (expressed as a decimal fraction) multiplied by
(ii) the total number of Shares then issued and outstanding on a fully-diluted
basis.
3. Warrant Price. The exercise price of this Warrant (the "Warrant
------------- -------
Price") shall equal (a) the price per share at which Common Stock is issued and
- -----
sold by the Company in the IPO if this Warrant is exercised pursuant to clause
(a) of Section 1 above, and (b) $12.50 per share (subject to appropriate
adjustments for any stock dividends, combinations, subdivisions, splits or the
like) if this Warrant is exercised pursuant to clause (b) of Section 1 above.
4. Adjustment of Number of Shares and Warrant Price. The number and kind
------------------------------------------------
of Shares purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time in accordance with the
following provisions.
(a) Reclassification, Consolidation or Merger. In case of any
-----------------------------------------
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than as a result of a subdivision, split,
combination or stock dividend), or in case of any consolidation or merger of the
Company with or into another corporation, the Company, or such successor
corporation, as the case may be, shall execute a new Warrant, with substantially
the same terms as this Warrant, and providing that the holder of this Warrant
shall have the right to exercise such new Warrant and procure upon such exercise
in lieu of the Common Stock theretofore issuable
B-2
<PAGE>
upon exercise of this Warrant the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification, change,
consolidation or merger by the Warrantholder if this Warrant had been fully
exercised as of the date giving rise to the issuance of the new Warrant. For
such purposes, if the number of Shares for which the Warrantholder may exercise
this Warrant has not yet been determined pursuant to Section 2, then the number
of Shares for which this Warrant shall be deemed to have been exercisable as of
such date shall be determined as if a Corporate Transaction had occurred on such
date. Such new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The provisions of this subsection (a) shall similarly apply to successive
reclassifications, changes, consolidations and mergers.
(b) Subdivision or Combination of Shares. If at any time while this
------------------------------------
Warrant remains outstanding and unexpired, and subsequent to the determination
of the total number of Shares subject to issuance upon exercise of this Warrant
pursuant to Section 2 hereof, the Company shall subdivide, split or combine its
Common Stock (or declare a dividend payable in shares of Common Stock), the
Warrant Price shall be proportionately decreased in the case of a subdivision or
increased in the case of a combination.
(c) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Warrant Price pursuant to this Section 4, the number of Shares purchasable
hereunder shall be adjusted, to the nearest whole share, to the product obtained
by multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
5. Payment by Warrant Conversion. The Warrantholder may exercise the
-----------------------------
purchase right represented by this Warrant with respect to a particular number
of Shares subject to this Warrant ("Converted Warrant Shares") and elect to pay
------------------------
for a number of such Converted Warrant Shares through Warrant Conversion by
specifying such election in the Notice of Exercise attached hereto as Exhibit B-
A. In such event, the Company shall deliver to the Warrantholder (without
payment by the Warrantholder of any Warrant Price or any cash or other
consideration) that number of Shares equal to the quotient obtained by dividing
(x) the value of this Warrant (or the specified portion hereof) on the date of
exercise, which value shall be determined by subtracting (A) the aggregate
Warrant Price of the Converted Warrant Shares immediately prior to the exercise
of the Warrant from (B) the aggregate fair market value of the Converted Warrant
Shares issuable upon exercise of this Warrant (or the specified portion hereof)
on the date of exercise, by (y) the fair market value of one Share on the date
of exercise. For purposes of this Section 5, fair market value of a Share as of
a particular date shall be as determined in accordance with the procedures for
valuing the Series A Preferred set forth in subsection IV.C.4(a) of the
Certificate of Incorporation of the Company as in effect on the date hereof
(with the Representative (as defined therein) to be selected by the Majority
Warrantholders).
6. Notices.
-------
(a) Upon any adjustment of the Warrant Price and any increase or
decrease in the number of Shares purchasable upon the exercise of this Warrant,
then, and in each such case, the Company, within 30 days thereafter, shall give
written notice thereof to the registered holder
B-3
<PAGE>
of this Warrant (the "Notice").The Notice shall be mailed to the address of such
------
holder as shown on the books of the Company; and shall state the Warrant Price
as adjusted and the increased or decreased number of shares purchasable upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation of each.
(b) In the event that the Company shall propose at any time to effect
a Corporate Transaction or an IPO, the Company shall send to the Warrantholder
at least 20 days' prior written notice of the date when the same shall take
place. Any such written notice shall be given by first class mail, postage
prepaid, addressed to the Warrantholder at the address as shown on the books of
the Company for the Warrantholder.
7. Miscellaneous.
-------------
(a) The terms of this Warrant shall be binding upon and shall inure to
the benefit of any successors or assigns of the Company and of the holder or
holders hereof and of the Common Stock issued or issuable upon the exercise
hereof.
(b) No Warrantholder, as such, shall be entitled to vote or receive
dividends or be deemed to be a stockholder of the Company for any purpose, nor
shall anything contained in this Warrant be construed to confer upon the holder
of this Warrant, as such, any rights of a stockholder of the Company, or any
right to vote, give or withhold consent to any corporate action, receive notice
of meetings, receive dividends or subscription rights, or otherwise.
(c) Receipt of this Warrant by the holder hereof shall constitute
acceptance of and agreement to the foregoing terms and conditions.
(d) The Company will not, by amendment of its certificate of
incorporation or bylaws or through any other action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all actions as may be necessary or appropriate in order to protect the
rights of the holder of this Warrant against impairment.
(e) Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
any such loss, theft or distribution, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrant, the Company at
its expense will execute and deliver, in lieu thereof, a new Warrant of like
date and tenor.
(f) Any provision of this Warrant may be amended, waived or modified
upon the written consent of the Company and the holders of at least a majority
of the aggregate outstanding and unexercised Warrants issued pursuant to the
Purchase Agreement.
(g) The Company hereby agrees that at all times there shall be
reserved for issuance and/or deliver upon exercise of this Warrant, free from
preemptive rights, such number of authorized but unissued shares of Common Stock
as from time to time shall be required for issuance or delivery upon exercise of
this Warrant. The Company further agrees that it will
B-4
<PAGE>
promptly to take all action as may from time to time be required in order to
permit the holder hereof to exercise this Warrant and the Company duly and
effectively to issue shares of Common Stock hereunder.
(h) This Warrant shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the conflicts of laws
provisions thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: February 19, 1999
CAIS INTERNET, INC.
_____________________________________________
Ulysses G. Auger, II, Chief Executive Officer
B-5
<PAGE>
EXHIBIT B-A
-----------
NOTICE OF EXERCISE
------------------
TO: CAIS Internet, Inc.
1. The undesigned hereby elects to purchase _______________ shares of the
Common Stock of CAIS Internet, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. The undersigned hereby elects to exercise the purchase right with
respect to ___________ shares of such Common Stock through Warrant Conversion,
as set forth in Section 3 of the attached Warrant.
3. Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other names as is
specified below:
_______________________________________
(Name)
_______________________________________
_______________________________________
(Address)
4. The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof, and
that the undersigned has no present intention of distributing or reselling such
shares. In support thereof, the undersigned has executed the Investment
Representation Statement attached hereto as Exhibit B-B.
Signature of Warrantholder:
___________________________________
By:________________________________
Title_______________________________
Date:______________________________
B-A-1
<PAGE>
EXHIBIT B-B
-----------
CAIS INTERNET, INC.
WARRANT EXERCISE
INVESTMENT REPRESENTATION STATEMENT
PURCHASER : ______________________________
COMPANY : CAIS Internet, Inc.
SECURITY : Common Stock (the "Securities")
----------
NUMBER OF SHARES : ______________________________
DATE : ____________________, _____
In connection with the purchase of the above-listed Securities, the
undersigned Purchaser hereby represents and warrants to the Company as follows:
(a) The undersigned is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. The
undersigned is purchasing these Securities for his, her or its own account for
investment purposes only and not with a view to, or for the resale in connection
with, any "distribution" thereof for purposes of the Securities Act of 1933, as
amended (the "Securities Act").
--------------
(b) The undersigned understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the investment intent of the undersigned as expressed herein. In this
connection, the undersigned understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
---
unavailable if the undersigned's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) The undersigned further understands that the Securities must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from registration is otherwise available. Moreover, the
undersigned understands that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities unless
they are registered or such registration is not required in the opinion of
counsel for the purchaser satisfactory to the Company or unless the Company
received a no-action letter from the SEC.
B-B-1
<PAGE>
(d) The undersigned further understands that at the time the
undersigned wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market exists, the
Company may not be satisfying the current public information requirements of
Rule 144 promulgated under the Securities Act, and that, in such event, the
undersigned may be precluded from selling the Securities under Rule 144.
(e) The undersigned further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A promulgated under the Securities
Act, or some other registration exemption will be required; and that,
notwithstanding the fact that Rule 144 is not exclusive, the Staff of the SEC
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
Signature of Purchaser:
___________________________________
Print Name:_________________________
Title:______________________________
Date:_______________________________
B-B-2
<PAGE>
EXHIBIT C
---------
See Exhibit 3.1 to the Registration Statement.
C-1
<PAGE>
EXHIBIT D
---------
See Exhibit 3.2 to the Registration Statement.
D-1
<PAGE>
EXHIBIT E
---------
DISCLOSURE SCHEDULE
This disclosure of exceptions is made and given pursuant to the CAIS
Internet, Inc. Series A Preferred Stock and Warrant Purchase Agreement, dated as
of February 19, 1999 (the "Agreement"). The section numbers below correspond to
the section numbers of the representations and warranties in the Agreement which
are modified by the disclosures; however, any information disclosed herein under
any section number shall be deemed to be disclosed and incorporated into any
other section number under the Agreement where such disclosure would be
appropriate. All capitalized terms shall have the meanings as defined in the
Agreement, unless the context otherwise requires. Dollars references are to
United States dollars, unless otherwise indicated. Descriptions of agreements
herein are summaries only and are qualified in their entirety by the specific
terms of such agreements, copies of which are available upon request to the
Company. Where any representation or warranty contained in the Agreement is
limited or qualified by materiality, inclusion of information in this Schedule
does not constitute a determination by the Company that such matters are
material.
AS EACH PURCHASER'S INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE AND ENTAILS
A SUBSTANTIAL DEGREE OF RISK, EACH PURCHASER IS STRONGLY URGED TO REVIEW
CAREFULLY THIS SCHEDULE.
SECTION 3.4 SUBSIDIARIES. The Company has one Subsidiary, CAIS, Inc.,
-------------
a corporation organized under the laws of the Commonwealth of Virginia, which is
a direct wholly owned subsidiary of the Company, and no Affiliated Entities:
SECTION 3.9 CHANGES. (a) On February 12, 1999, the Company (i)
--------
transferred interests in Cleartel Communications Limited Partnership ("Cleartel
LP") to Cleartel Communications, Inc. ("Cleartel Inc."), (ii) liquidated
Cleartel LP and (iii) effected a spin-off of Cleartel Inc. to the existing
shareholders of the Company (the "Spin-off"). Holders of options to purchase
shares of the Company's Common Stock received, as a result of the Spin-off, pro
rata options to purchase shares of Common Stock in Cleartel Inc.
(b) Reference is made to the schedule entitled "Certain
Relationships and Related Transactions, " attached hereto.
(c) Reference is made to the schedules entitled (i)
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" ("MD&A"), (ii) "Business," (iii) "Management," (iv) "Principal
Stockholders," (v) "Description of Capital Stock" and (vi) "Risk Factors,"
attached hereto.
(d) Reference is made to the Financial Statements.
SECTION 3.11 LITIGATION. Reference is made to the schedules entitled
-----------
(i) "Risk Factors," (ii) "MD&A" and (iii) "Business," attached hereto.
SECTION 3.13 INTELLECTUAL PROPERTY; TRADEMARKS. Reference is made to the
----------------------------------
schedules entitled (i) "Risk Factors" and (ii) "Business," attached hereto.
E-1
<PAGE>
SECTION 3.16 EMPLOYEE MATTERS. Reference is made to the schedules
-----------------
entitled (i) "Management" and (ii) "Certain Relationships and Related
Transactions," attached hereto.
SECTION 3.19 NO CONFLICT OF INTEREST. Reference is made to the schedules
------------------------
entitled (i) "Risk Factors," (ii) "Management" and "Certain Relationships and
Related Transactions," attached hereto.
SECTION 3.20 DISCLOSURE. Reference is made to the schedules entitled (i)
-----------
"Risk Factors," (ii) "MD&A," (iii) "Management," and (ii) "Certain Relationships
and Related Transactions."
E-2
<PAGE>
EXHIBIT F
---------
See Exhibit 4.4 to the Registration Statement.
<PAGE>
EXHIBIT G
---------
See Registration Statement's Financial Statements.
<PAGE>
EXHIBIT H
---------
FORM OF OPINION OF COMPANY COUNSEL
February 19, 1999
To the Purchasers Listed in Exhibit A
to the CAIS Internet, Inc.
Series A Preferred Stock and Warrant
Purchase Agreement Dated
as of February 19, 1999
Ladies and Gentlemen:
Reference is made to the Series A Preferred Stock and Warrant Purchase
Agreement, dated as of February 19, 1999 (the "Purchase Agreement"), complete
------------------
with all listed exhibits thereto, by and between CGX Communications, Inc., a
Delaware corporation (the "Company"), and the persons and entities listed in
-------
Exhibit A to the Purchase Agreement (the "Investors"), which provides for the
---------
issuance by the Company to the Investors of (i) up to an aggregate of 2,827,168
shares of Series A Preferred Stock of the Company (the "Shares") and (ii)
------
warrants to purchase shares of Common Stock (the "Warrants"). This opinion is
--------
rendered to you pursuant to Section 5.3 of the Purchase Agreement, and all terms
used herein have the meanings defined for them in the Purchase Agreement unless
otherwise defined herein.
We have acted as counsel for the Company in connection with the negotiation
of the Purchase Agreement and the Stockholders Agreement dated as of February
19, 1999 (the "Stockholders Agreement") (collectively the "Agreements") and the
---------------------- ----------
issuance of the Shares and the Warrants. As such counsel, we have made such
legal and factual examinations and inquiries as we have deemed advisable or
necessary for the purpose of rendering this opinion. In addition, we have
examined, among other things, originals or copies of such corporate records of
the Company, certificates of public officials and such other documents and
questions of law that we consider necessary or advisable for the purpose of
rendering this opinion, including without limitation the Transaction Certificate
attached hereto (the "Transaction Certificate"). In such examination we have
-----------------------
assumed the genuineness of all signatures on original documents, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all copies submitted to us as copies thereof, the legal
capacity of natural persons and the due execution and delivery of all documents
(except as to due execution and delivery by the Company) where due execution and
delivery are a prerequisite to the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" with reference
to matters of fact means that, after an examination of documents made available
to us by the Company, and after inquiries of officers of the Company, but
without any further independent factual investigation, we find no reason to
believe that the opinions expressed herein are factually incorrect. Further,
the expression "to our knowledge" with reference to matters of fact refers to
the current actual knowledge of the attorneys of this firm who have worked on
matters for the.
H-1
<PAGE>
Company solely in connection with the Agreements and the transactions
contemplated thereby. Except to the extent expressly set forth herein or as we
otherwise believe to be necessary to our opinion, we have not undertaken any
independent investigation to determine the existence or absence of any fact, and
no inference as to our knowledge of the existence or absence of any fact should
be drawn from our representation of the Company or the rendering of the opinions
set forth below.
For purposes of this opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate or
partnership action, to execute and deliver the Agreements and we are assuming
that the representations and warranties made by you in the Purchase Agreement
and pursuant thereto are true and correct. We are also assuming that the
Investors have purchased the Shares for value, in good faith and without notice
of any adverse claims within the meaning of the District of Columbia Uniform
Commercial Code.
Based upon and subject to the foregoing, and except as set forth in the
Purchase Agreement and the exhibits thereto, we are of the opinion that:
1. The Company is a corporation duly organized and (based solely on the
attached Certificate of Good Standing issued by the Secretary of State of the
State of Delaware) validly existing under, and by virtue of, the laws of the
State of Delaware and is in good standing under such laws. The Subsidiary is a
corporation duly formed and (based solely on the attached letter of confirmation
from CT Corporation System) validly existing and in good standing under, and by
virtue of the laws of the Commonwealth of Virginia, and is in good standing
under such laws. Each of the Company and the Subsidiary has requisite corporate
power to own and operate its properties and assets, and to carry on its business
as presently conducted.
2. The Company has all requisite legal and corporate power to execute and
deliver the Agreements, to sell and issue the Shares and the Warrants under the
Purchase Agreement, to issue the Conversion Stock and to carry out and perform
its obligations under the terms of the Agreements.
3. The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, of which 9,966,074 shares are issued and outstanding,
and 25,000,000 shares of Preferred Stock, of which 2,827,168 shares are
designated as Series A Shares, none of which are issued and outstanding prior to
the Initial Closing, and 1,119,679 Series B Shares, all of which are issued and
outstanding. All such issued and outstanding Series B Shares and shares of
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable and free of any preemptive or similar rights contained in the
Restated Certificate or By-Laws of the Company. The Company has reserved (a)
2,827,168 Series A Shares for issuance under the Purchase Agreement, (b)
2,827,168 shares of Common Stock for issuance upon conversion of the Series A
Shares, (c) 1,119,679 shares of Common Stock for issuance upon conversion of the
Series B Shares, (d) 1,000,000 shares of Common Stock for issuance upon
conversion of the Warrants, (e) 1,500,000 shares of Common Stock for issuance
pursuant to the Company's Amended and Restated l998 Equity Incentive Plan, (f)
2,033,926 shares of Common Stock for issuance to two executive officers of the
Company pursuant to two option agreements, (g) 390,000 shares of Common Stock
for issuance of Warrants held by ING (U.S.) Capital, Inc., and (h) 25,000 shares
of Common Stock for issuance pursuant to the Settlement Agreement dated
H-2
<PAGE>
January 24, 1999 between the Subsidiary and Terk Technologies Corp. The Series A
Shares to be issued under the Purchase Agreement will be validly issued, fully
paid and nonassessable and will be free of any liens, encumbrances and
preemptive or similar rights contained in the Restated Certificate or By-Laws of
the Company other than liens created by the Investors. The Conversion Stock has
been duly and validly reserved and, when issued in compliance with the Purchase
Agreement, the Warrants and the Restated Certificate, will be validly issued,
fully paid and nonassessable and free of any liens, encumbrances and preemptive
or similar rights contained in the Restated Certificate or By-Laws of the
Company other than liens created by the Investors; provided, however, that the
Shares and the Conversion Stock may be subject to restrictions on transfer under
state and/or federal securities laws as set forth in the Stockholders Agreement.
To our knowledge, except for rights described in the Purchase Agreement
(including the exhibits thereto) and the Restated Certificate, there are no
other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of capital stock or other securities of the Company, or any other agreements to
issue any such securities or rights.
4. The authorized capital stock of the Subsidiary consists of 1,000
shares of common stock, par value $.01, of which 100 shares are issued and
outstanding and owned by the Company.
5. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution and delivery by the
Company of the Agreements, and the authorization, sale, issuance and delivery of
the Series A Shares and the Warrants (and the Conversion Stock), and the
performance of the Company's obligations under the Agreements has been taken.
The Agreements have been duly and validly executed and delivered by the Company
and each constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
6. The execution, delivery and performance of and compliance with the
terms of the Agreements and the issuance of the Series A Shares and the Warrants
(and the Conversion Stock) do not violate any provision of the Restated
Certificate or the Company's By-Laws or, to our knowledge, any provision of any
applicable federal or state statute, rule or regulation. To our knowledge, the
Company is not in violation of any term of the Restated Certificate or the
Company's By-Laws.
7. Except as identified in the Purchase Agreement and the exhibits
thereto, to our knowledge, there are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to our knowledge, is there any written threat
thereof), which, if adversely determined, questions the validity of the
Agreements or any action taken or to be taken by the Company in connection
therewith or would have a Material Adverse Effect on the Company.
8. The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
9. No consent, approval or authorization of or designation, declaration
or filing with any governmental authority on the part of the Company is required
in connection with the valid execution and delivery of the Agreements or the
offer, sale or issuance of the Series A Shares and
H-3
<PAGE>
the Warrants (and the Conversion Stock), or the consummation of any other
transaction contemplated thereby, except for such as have been obtained and for
qualification (or taking such action as may be necessary to secure an exemption
from qualification, if available) under applicable blue sky laws (but excluding
jurisdictions outside of the United States) of the offer and sale of the Series
A Shares and the Warrants (and the Conversion Stock) under applicable blue sky
laws.
The opinions expressed below are subject to the following qualifications:
(a) We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal or state laws
affecting the rights of creditors;
(b) We express no opinion as to the effect or availability of rules
of law governing specific performance, injunctive relief or other equitable
remedies (regardless of whether any such remedy is considered in a proceeding at
law or in equity);
(c) We express no opinion as to compliance with applicable anti-fraud
provisions of federal or state securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions of Section 5.7 of the Stockholders Agreement executed
by the Investors contemporaneously with the Purchase Agreement to the extent the
provisions thereof may be subject to limitations of public policy and the effect
of applicable statutes and judicial decisions; and
(e) We are members of the Bar of the District of Columbia and we are
not expressing any opinion as to any matter relating to the laws of any
jurisdiction other than the federal laws of the United States of America and the
Delaware General Corporation Law.
This opinion is furnished to the Purchasers as of the date first written
above solely for their benefit in connection with the purchase of the Shares and
the Warrants, and may not be relied upon by any other person or for any other
purpose without our prior written consent.
Very truly yours,
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
EXHIBIT I
---------
FORM OF PROMISSORY NOTE
$8,000,000.00 February 19, 1999
FOR VALUE RECEIVED, the undersigned, Chancery Lane, L.P. ("Maker"), hereby
-----
H-4
<PAGE>
unconditionally promises to pay to CAIS Internet, Inc., a Delaware corporation
("Payee"), on March 12, 1999, at its offices at 1255 22/nd/ Street, N.W.,
-----
Washington, D.C. 20037, or at such other place as Payee may designate, in
immediately available funds, the sum of $8,000,000.00.
1. This Promissory Note (the "Note") is issued in connection with that
----
certain Series A Preferred Stock and Warrant Purchase Agreement (the
"Agreement") dated as of even date herewith among Payee and the persons and
---------
entities listed in Exhibit A thereto. Terms used but not defined herein shall
have the meanings ascribed to such terms in the Agreement.
2. Whenever, under the terms of this Note, any amount outstanding and
unpaid shall become due and payable, Payee may pursue whatever remedies, legal
or equitable, are available to collect the unpaid balance thereof. No delay or
omission on the part of Payee in exercising any right or remedy hereunder shall
operate as a waiver thereof or preclude the exercise thereof at any time during
the continuance of any default and no extension of the maturity of this Note or
the time of any payment shall affect the liability of Maker. Maker hereby
waives presentment, protest and demand, notice of protest, demand and dishonor
and nonpayment of this Note.
3. This Note for all purposes shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflicts of laws provisions thereof.
4. Maker hereby waives all rights to interpose any claims, deductions,
setoffs or counterclaims of any kind, nature or respect to this Note or any
matter arising herefrom or relating hereto, except compulsory counterclaims.
5. The execution and delivery of this Note has been authorized by the
Board of Directors of Maker. If the undersigned are more than one, this Note
shall be binding jointly and severally upon the undersigned and their respective
successors and assigns and the term "Maker" shall mean all the undersigned and
any one or more of them and their successors and assigns. If any term or
provision of this Note shall be held invalid, illegal or unenforceable, the
validity of all other terms and provisions hereof shall in no way be affected
thereby.
MAKER HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN THE STATE OF DELAWARE WITH RESPECT TO ANY ACTION
OR PROCEEDING ARISING OUT OF THIS NOTE OR ANY MATTER ARISING HEREFROM OR
RELATING HERETO.
MAKER HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING INSTITUTED BY EITHER MAKER OR PAYEE AGAINST THE OTHER ARISING ON, OUT
OF OR BY REASON OF THIS NOTE, ANY ALLEGED TORTIOUS CONDUCT BY MAKER OR PAYEE OR
IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISING OUT OF OR RELATED TO THE
RELATIONSHIP BETWEEN MAKER AND PAYEE.
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed and
delivered as of the date first above written.
I-1
<PAGE>
CHANCERY LANE, L.P.
By: RTA Associates, L.L.C., General Partner
By:__________________________________
R. Theodore Ammon, Managing Member
I-2
<PAGE>
EXHIBIT 10.4
EXCHANGE AGREEMENT
BY AND AMONG
THE LIMITED PARTNERS OF CLEARTEL COMMUNICATIONS LIMITED PARTNERSHIP,
CLEARTEL COMMUNICATIONS, INC., AS GENERAL PARTNER,
THE SHAREHOLDERS OF CLEARTEL COMMUNICATIONS, INC.,
AND
CGX COMMUNICATIONS, INC.
THIS EXCHANGE AGREEMENT (this "Agreement"), dated as of October 2, 1998, by
and among (i) the limited partners of Cleartel Communications Limited
Partnership, a District of Columbia limited partnership ("Cleartel LP")
signatory hereto (the "Cleartel Limited Partners"), (ii) Cleartel Inc., in its
capacity as general partner of Cleartel LP, (iii) the shareholders of Cleartel
Communications, Inc., a District of Columbia corporation ("Cleartel Inc."),
signatory hereto (the "Cleartel Shareholders"), and (iv) CGX Communications,
Inc., a Delaware corporation ("CGX").
WITNESSETH:
WHEREAS, the Cleartel Limited Partners collectively own all of the limited
partner interests in Cleartel LP (the "Cleartel LP Interests"); and
WHEREAS, the Cleartel Limited Partners wish to exchange all of the Cleartel
LP Interests held thereby for shares of the common stock, par value $.01 per
share, of CGX (the "CGX Common Stock"), and CGX wishes to issue shares of CGX
Common Stock in exchange for such Cleartel LP Interests, subject to and in
accordance with the terms and conditions set forth herein (the "Cleartel LP
Exchange") ; and
WHEREAS, the Cleartel Shareholders collectively own all of the issued and
outstanding shares of the common stock, no par value, of Cleartel Inc. (the
"Cleartel Common Stock"); and
WHEREAS, the Cleartel Shareholders wish to exchange all of the Cleartel
Common Stock held thereby for shares of CGX Common Stock, and CGX wishes to
issue shares of CGX Common Stock in exchange for such shares of Cleartel Common
Stock, subject to and in accordance with the terms and conditions set forth
herein (the "Cleartel Inc. Exchange") (the Cleartel LP Exchange and the Cleartel
Inc. Exchange herein collectively the "Exchanges").
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements and provisions hereinafter contained, and subject to the terms and
conditions herein, the parties to this Agreement hereby agree as follows.
1
<PAGE>
Section I
---------
Terms
-----
1.1 Upon the effective date of the Cleartel LP Exchange, each then
outstanding one percent (1%) limited partner interest in Cleartel LP held by the
Cleartel Limited Partners shall be exchanged for 5,349.7 shares of CGX Common
Stock. Each Cleartel Limited Partner thereupon shall be entitled to receive a
stock certificate or certificates representing the same number of shares of CGX
Common Stock to which such Cleartel Limited Partner is entitled to receive
pursuant to this Section 1.1.
1.2 Upon the effective date of the Cleartel LP Exchange, all of the
Cleartel Limited Partners shall be deemed to have withdrawn as limited partners
of Cleartel LP, CGX shall automatically be admitted as the sole limited partner
of Cleartel LP, and CGX shall have a ninety-nine percent (99%) limited partner
interest in Cleartel LP. Cleartel Inc., in its capacity as the sole general
partner of Cleartel LP, hereby consents to the withdrawal of the Cleartel
Limited Partners as limited partners of Cleartel LP, and to the admission of CGX
as the sole limited partner of Cleartel LP, when and as provided in the
preceding sentence.
1.3 Upon the effective date of the Cleartel Inc. Exchange, each then
outstanding share of Cleartel Common Stock shall be exchanged for 62.938 shares
of CGX Common Stock. Each Cleartel Shareholder, upon surrender to CGX of the
certificate or certificates representing the shares of Cleartel Common Stock
held thereby on or after the effective date of the Cleartel Inc. Exchange, shall
be entitled to receive a stock certificate or certificates representing the same
number of shares of CGX Common Stock specified in this Section 1.3. Until so
surrendered, each such stock certificate shall, by virtue of the Cleartel Inc.
Exchange, be deemed for all purposes to evidence ownership of the same number of
shares of CGX Common Stock.
1.4 If any certificate representing CGX Common Stock is to be issued in a
name other than that in which the Cleartel LP Interests or Cleartel Common Stock
for which it is being exchanged is registered, it shall be a condition of such
issuance that the Cleartel LP Interests or Cleartel Common Stock for which it is
being exchanged shall be in proper form for transfer and that the person
requesting such issuance shall either pay to CGX or its transfer agents any
transfer or other taxes required by reason of the issuance of certificates
representing CGX Common Stock in a name other than that of the registered holder
of the Cleartel LP Interests or Cleartel Common Stock surrendered, or establish
to the satisfaction of CGX or its transfer agents that such tax has been paid or
is not applicable.
2
<PAGE>
Section 2
---------
Effective Date; Termination
---------------------------
2.1 The Exchanges shall be simultaneously effective as of the date first
set forth above, or upon such later date as may be specified by CGX in its
discretion.
2.2 This Agreement shall terminate without liability to any party hereto
if the Exchanges have not become effective by October 4, 1998.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
have caused this Agreement to be executed by their respective duly authorized
officers, all as of the date first above written.
CLEARTEL SHAREHOLDERS:
/s/ Ulysses G. Auger, Sr. /s/ Ulysses G. Auger, II
- ------------------------- ------------------------
Ulysses G. Auger, Sr. Ulysses G. Auger, II
CLEARTEL LIMITED PARTNERS
/s/ Ulysses G. Auger, Sr. /s/ Ulysses G. Auger, II
- ------------------------- ------------------------
Ulysses G. Auger, Sr. Ulysses G. Auger, II
The Bridgette Kathryn Auger Trust
The Gregory Ulysses Auger III Trust
The Alexander Robert Auger Trust
The Ulysses George Hawthorne Auger III Trust
The Nicholas William Randolph Auger Trust
The James Frederick Auger Trust
The Annabel-Rose Auger Trust
The Constandinos Ulysses Franciscos
Auger Economides Trust
The Vassiliki Illias Auger Economides Trust
The Constandina Francisca Auger Economides Trust
By: /s/ James Pedas
---------------
James Pedas, Trustee
(As to each Trust)
CLEARTEL COMMUNICATIONS, INC.
By: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II
President
CGX COMMUNICATIONS, INC.
4
<PAGE>
By: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II
President
5
<PAGE>
EXHIBIT 10.5
AGREEMENT OF MERGER
BY AND AMONG
CAIS, INC.,
CGX 2 MERGER CORP.
AND CGX COMMUNICATIONS, INC.
THIS AGREEMENT OF MERGER (this "Agreement"), dated as of October 2, 1998,
by and among CAIS, INC., a Virginia corporation ("CAIS" or the "Surviving
Corporation"), CGX 2 MERGER CORP., a Delaware corporation ("CGX 2 Merger") (CAIS
and CGX 2 Merger herein sometimes collectively the "Constituent Corporations"),
and CGX COMMUNICATIONS, INC., a Delaware corporation ("CGX").
WITNESSETH:
WHEREAS, CAIS is a corporation duly organized and validly existing under
the laws of the Commonwealth of Virginia, having been incorporated on April 3,
1996; and
WHEREAS, CGX 2 Merger is a corporation duly organized and validly existing
under the laws of the State of Delaware, having been incorporated on July 14,
1998; and
WHEREAS, CGX is a corporation duly organized and validly existing under the
laws of the State of Delaware, having been incorporated on December 4, 1997; and
WHEREAS, CGX 2 Merger is a wholly-owned subsidiary of CGX; and
WHEREAS, the parties hereto deem it desirable, upon the terms and subject
to the conditions herein stated, to effectuate a merger transaction (the
"Merger") whereby (i) CGX 2 Merger shall be merged with and into CAIS and CAIS
shall be the surviving corporation, (ii) the outstanding shares of CAIS's
common stock, no par value (the "CAIS Common Stock"), shall be converted into
shares of CGX's common stock, par value $.01 per share (the "CGX Common Stock"),
and (iii) the outstanding shares of CGX 2 Merger's common stock, par value $.01
per share (the CGX 2 Merger Common Stock"), shall be converted into shares of
CAIS Common Stock, so that upon the effectiveness of the Merger all of the
outstanding CAIS Common Stock will be owned by CGX.
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
agreements and provisions hereinafter contained, and subject to the terms and
conditions herein, the parties to this Agreement hereby agree as follows.
<PAGE>
Section I
---------
Terms
-----
1.1 On the effective date of the Merger, CGX 2 Merger shall be merged with
and into CAIS, and CAIS shall be the surviving corporation.
1.2 On the effective date of the Merger, each then outstanding share of
CAIS Common Stock shall, by virtue of the Merger and without any action on the
part of any holder thereof, be converted into 500 shares of CGX Common Stock.
1.3 On the effective date of the Merger, all of the then outstanding
shares of CGX 2 Merger Common Stock shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into an aggregate
number of shares of CAIS Common Stock equal to the total number of shares of CGX
2 Merger Common Stock outstanding immediately prior to the effective date of the
Merger.
1.4 Each holder of a stock certificate or certificates representing
outstanding shares of CAIS Common Stock immediately prior to effective date of
the Merger, upon surrender of such certificate or certificates to CGX after the
effective date of the Merger, shall be entitled to receive a stock certificate
or certificates representing the same number of shares of CGX Common Stock
specified in Section 1.2. Until so surrendered, each such stock certificate
shall, by virtue of the Merger, be deemed for all purposes to evidence ownership
of the same number of shares of CGX Common Stock.
1.5 CGX, as holder of the stock certificate or certificates representing
all of the outstanding shares of CGX 2 Merger Common Stock immediately prior to
effective date of the Merger, upon surrender of such certificate or certificates
to CAIS after the effective date of the Merger, shall be entitled to receive a
stock certificate representing the same number of shares of CAIS Common Stock
specified in Section 1.3. Until so surrendered, each such stock certificate
shall, by virtue of the Merger, be deemed for all purposes to evidence ownership
of the same number of shares of CAIS Common Stock.
1.6 If any certificate representing CGX Common Stock is to be issued in a
name other than that in which the certificate theretofore representing CAIS
Common Stock surrendered is registered, it shall be a condition of such issuance
that the certificate so surrendered shall be properly endorsed or otherwise in
proper form for transfer and that the person requesting such issuance shall
either pay to CGX or its transfer agents any transfer or other taxes required by
reason of the issuance of certificates representing CGX Common Stock in a name
other than that of the registered holder of the certificate surrendered, or
establish to the satisfaction of CGX or its transfer agents that such tax has
been paid or is not applicable.
2
<PAGE>
Section 2
---------
Effective Date
--------------
2.1 This Agreement shall be submitted to the stockholders of CAIS and CGX
2 Merger entitled to vote thereon as provided by the applicable laws of the
Commonwealth of Virginia and the State of Delaware. If this Agreement is duly
adopted by the requisite votes of such stockholders and is not terminated as
contemplated by Section 5, a certificate of merger, executed in accordance with
the laws of the State of Delaware, shall be filed with the Secretary of State of
the State of Delaware, and articles of merger, executed in accordance with the
laws of the Commonwealth of Virginia, shall be filed with the State
Corporation Commission of the Commonwealth of Virginia.
2.1 The Merger shall become effective on the time and date specified in
the certificate of merger filed with the Secretary of State of the State of
Delaware and the articles of merger filed with the State Corporation Commission
of the Commonwealth of Virginia, herein sometimes referred to as the "effective
date of the Merger."
Section 3
---------
Covenants and Agreements
------------------------
3.1 CAIS covenants and agrees that it will present this Agreement for
adoption or rejection by vote of the holders of CAIS Common Stock, will furnish
to such holders such documents and information in connection therewith as is
required by law, and will recommend approval of this Agreement by such holders.
3.2 CGX 2 Merger covenants and agrees that it will present this Agreement
for adoption or rejection by vote of the holder of the CGX 2 Merger Common
Stock, will furnish to such holder such documents and information in connection
therewith as is required by law, and will recommend approval of this Agreement
by such holder.
3.3 CGX covenants and agrees that (i) it will, as sole stockholder of CGX
2 Merger, vote all shares of CGX 2 Merger Common Stock owned by it to approve
this Agreement as provided by law, and (ii) prior to the effective date of the
Merger, it will not without obtaining the written consent of CAIS, permit any
change in CGX 2 Merger or its capital stock.
Section 4
---------
Certificate of Incorporation and By-Laws; Capital
-------------------------------------------------
4.1 The Articles of Incorporation of CAIS and all the terms and provisions
thereof are hereby incorporated in this Agreement and made a part hereof with
the same force and effect as if herein set forth in full; and from and after the
effective date of the Merger and, until further
3
<PAGE>
amended as provided by law, said Articles of Incorporation shall be, and may be
separately certified as, the Articles of Incorporation of the Surviving
Corporation.
4.2 The By-Laws of CAIS in effect on the effective date of the Merger
shall be the By-Laws of the Surviving Corporation, to remain unchanged until
amended in accordance with the provisions thereof and of applicable law.
4.3 The Certificate of Incorporation and By-Laws of CGX shall not be
affected by the Merger.
Section 5
---------
Amendment and Termination
-------------------------
5.1 At any time prior to the filing of the articles of merger with the
State Corporation Commission of the Commonwealth of Virginia and of the
certificate of merger with the Secretary of State of the State of Delaware, this
Agreement may be amended by the Boards of Directors of CAIS and CGX to the
extent permitted by Virginia and Delaware law, respectively, notwithstanding
favorable action on the Merger by the stockholders of either or both of the
Constituent Corporations.
5.2 At any time prior to the filing of the articles of merger with the
State Corporation Commission of the Commonwealth of Virginia and of the
certificate of merger with the Secretary of State of the State of Delaware, this
Agreement may be terminated and abandoned by the Board of Directors of either
CAIS or CGX, notwithstanding favorable action on the Merger by the stockholders
of either or both of the Constituent Corporations.
5.3 To the extent permitted by law, this Agreement may be amended by an
agreement in writing, before or after the approval hereof by the stockholders of
CAIS and/or of CGX 2 Merger, at any time prior to the effective date of the
Merger, with respect to any of the terms contained herein except in the terms of
the conversion provided for in Sections 1.2 and 1.3.
5.4 The Surviving Corporation may be served with process in the State of
Delaware in any proceeding for enforcement of any obligations of CGX 2 Merger,
as well as for enforcement of any obligations of the surviving corporation
arising from the merger, including any suit or other proceeding to enforce the
right of any stockholder as determined in an appraisal proceeding pursuant to
the provisions of section 262 of the General Corporation Law of the State of
Delaware, and it does hereby irrevocably appoint the secretary of State of
Delaware as its agent to accept service of process is any such suit or other
proceeding. The address to which a copy of such process shall be mailed by the
Secretary of State is 1232 22/nd/ Street, NW, Washington, D.C. 20037.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers, all as of the date first
above written.
CAIS, Inc.
BY: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II
President
CGX 2 Merger Corp.
BY: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II
President
CGX Communications, Inc.
BY: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II
President
5
<PAGE>
EXHIBIT 10.6
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AGREEMENT made as of the 3rd day of June, 1997, by and between CAIS,
Inc., (hereinafter referred to as the "Employer" or the "Corporation"), and
Evans K. Anderson (hereinafter referred to as the "Employee").
WITNESSETH:
WHEREAS, the Employer is engaged, inter alia, in the business of providing
-----------
Internet services and related activities and operations throughout the United
States of America; and
WHEREAS, the Employee is experienced in the operation and marketing of
communications services; and
WHEREAS, Employer and Employee heretofore entered into a certain Employment
Agreement dated as of February 6, 1997 as amended by that certain First
Amendment to Employment Agreement dated June 3, 1997 (together the "Employment
Agreement"); and
WHEREAS, Employee also understands and hereby accepts that the Performance
Targets described in Exhibit A are based on the Employer's current lines of
business and current investments, and consequently, to the extent other lines of
business, such as OverVoice are offered for sale by CAIS, an adjustment to the
Performance Targets will be necessitated, such adjustment to be made on
reasonable terms mutually acceptable to Employer and Employee.
WHEREAS, pursuant to Section 4(B)(5) of Exhibit "A" to the Employment
Agreement, Employer and Employee agree that they would each respectively
cooperate to structure the conferral, vesting and forfeiture provisions of the
Employment Agreement to minimize the federal income tax consequences to both
such parties; and
WHEREAS, consistent with that intent both Employer and Employee desire
hereby to amend and restate the Employment Agreement in its entirety as herein
set forth.
NOW, THEREFORE, in consideration of the premises, which are incorporated
into and made part of this Agreement, and of the mutual covenants and agreements
herein contained, the parties hereby amend and restate the Employment Agreement
in its entirety as follows:
1. Duties and Term of Employment.
------------------------------
(A) The Employer does hereby employ the Employee in the capacity of
Vice-President and General Manager of CAIS to manage the overall business
interests of CAIS, to manage the Employer's sales, to develop new business
opportunities and to perform such other duties as Employer may from time to time
designate.
(B) The Employee's employment hereunder shall commence on or before
March 3, 1997 and shall continue for a period of four (4) years thereafter,
unless sooner terminated as hereinafter provided.
<PAGE>
2. Compensation of Employee.
-------------------------
As the sole compensation for all of the Employee's services rendered
hereunder to the Employer, the Employer hereby agrees to pay the Employee
compensation and reimbursements as set forth in Exhibit "A" attached hereto and
made a part hereof.
3. Conduct of Employee.
--------------------
Employee does hereby accept said employment under the terms and
conditions herein set forth, and further agrees that during the term hereof
Employee will devote full time, attention and energies to the business of the
Employer, and will not, without the prior written consent of Employer, actively
engage in any other business, employment or undertaking whatsoever, during the
said period of time. Employee further agrees to, at all times during the term
hereof, abide by and comply with the directions, instructions and decisions of
the Employer and, during the term hereof, to dutifully and faithfully carry out
and perform the duties and obligations of Employee's position, as herein set
forth.
Employer acknowledges that Employee has an ownership interest in
another business, which is operated by another member of Employee's family.
Employer agrees that provided that this business does not affect Employee's
performance of his duties, responsibilities and obligations under this
Agreement, and provided also that such business will not represent, sell or
market products or services directly competitive with those currently offered by
Employer or by entities currently affiliated with Employer, then Employee may
continue his ownership interest in such other business. To the extent such
business represents or sells Employer's products or services, or products or
services of Employer's affiliates, Employee will not be directly involved on
behalf of Employer, or on behalf of entities currently affiliated with Employer,
in any business and pricing discussions, negotiations or decisions involving
such other business.
4. Limitations Upon Acts of Employee. Employee agrees: (A) That Employee
---------------------------------
will not draw, accept or make any bill of exchange or promissory note for or on
behalf of the Employer; nor shall Employee otherwise pledge the credit of the
Employer, nor execute or deliver any contracts or documents for or on behalf of
the Employer, except to the extent of the Employer's written policies consented
to by its General Partner.
(B) That Employee will make available when requested such information
and fully advise the Employer, of all matters in which Employee shall become
involved, and acts which Employee shall perform, for or on the account of the
Employer; and that Employee shall also promptly inform the Employer of any
matters coming to Employee's attention or knowledge that may materially affect
the interests of the Employer, or its business operations.
(C) The policies of operation of the business of the Employer shall,
from time to time, be determined by the Employer or by its General Partner; and
the Employee agrees to conform to and execute all reasonable policies of
Employer as so determined.
<PAGE>
5. Termination of Employment.
-------------------------
The Employer shall have the right to cancel and terminate this
Agreement, and to discharge the Employee for "good cause", or, after Employment
Year 1, without cause upon seven (7) days' prior written notice to Employee. For
purposes of this Article 5, "good cause" shall be construed to mean proven
dishonesty in a material matter, habitual intoxication, continued and repeated
failure to devote proper time and attention to the business of the Employer,
repeated failure (after receipt of written notice from Employer and reasonable
opportunity to cure) by Employee to carry out the reasonable directions and
instructions of the Employer or its General Partner, conviction of a crime
involving moral turpitude or requiring imprisonment of Employee, repeated and
unexcused absenteeism after reasonable notice from Employer, death of the
Employee, or the material breach by Employee of any of Employee's obligations or
agreements contained in Sections 7 or 8 below, or the making of any
representation or warranty pursuant to Article 6 hereinbelow which shall prove
to be inaccurate, incorrect or false in any respect. Upon termination of
Employee's employment by Employer without cause, the Employer agrees to pay
Employee as severance pay and in full and final settlement all claims between
the parties (excluding any claim by Employee for wages or other compensation
previously earned and fully vested and not paid) an amount equal to nine (9)
months of the base salary of Employee thereafter.
6. Employee's Representations.
---------------------------
Employee hereby represents and warrants to Employer that there are not
now operative and in force any employment agreements or other instruments of any
nature, to which Employee is a party or under which Employee may be otherwise
bound or subject, which contain any terms or provisions that in any manner
restrict, limit, prevent, prohibit or make unlawful the execution of Employee of
this Agreement, or the performance by Employee of any or all of Employee's
obligations, covenants and duties herein specified, or Employee's employment by
Employer hereunder or otherwise. In the event the representatives and warranties
made by Employee under this Article 6 should prove to be inaccurate, incorrect
or false in any respect, whether through inadvertence or willful
misrepresentation by Employee, Employer may, at its option, upon discovering
such inaccuracy or the falsity of said representations, terminate this Agreement
for good cause and Employee's employment hereunder.
7. Trade Secrets.
--------------
The Employee agrees that during the term of employment with the
Employer and at all times after expiration thereof, Employee will not
communicate or divulge, for the benefit of any competitor, rival or other
person, firm, association, or corporation, whether associated with the Employee
or not, any trade secrets, client lists, employee information or any other
confidential information or material matters of any nature relating to the
business of affairs of the Employer, which may be utilized by Employer in or
about its business and which trade secrets, information or other matters are
communicated or otherwise become known to the Employee by reason of Employee's
employment hereunder, or otherwise. This provision shall expressly survive any
termination or other expiration of this Agreement.
<PAGE>
8. Agreement Not to Compete.
-------------------------
Employee acknowledges that the services to be rendered hereunder are of
a special and unusual character which have a unique value to the Employer, the
loss of which cannot adequately be compensated by damages in an action at law.
Because of the unique value to the Employer of the services of Employee for
which the Employer has contracted hereunder, and because of the confidential
information to be obtained by Employee, as aforesaid, Employee agrees and
covenants as follows:
(A) Employee agrees that after Employee ceases to be employed by the
Employer, Employee will not, directly or indirectly, for a period of twenty-four
(24) months next following such cessation of employment, solicit business from,
divert business from, or attempt to convert to other methods of performing
functions related to the services provided by the Employer, any client, account
or customer of the Employer which for purposes hereof shall be defined as
client, account or customer having done business with the Employer on a sole
supplier basis at any time during the one (1) year period immediately preceding
the date of the cessation of Employee's employment by the Employer.
(B) Employee agrees that for a period of twenty-four (24) months
after Employee ceases to be employed by the Employer, Employee will not,
directly or indirectly, solicit for employment or employ for Employee's own or
for another's benefit any employee of the Employer.
9. Injunction.
-----------
Should the Employee engage in or perform, either directly or
indirectly, any of the acts prohibited in Articles 7 and 8 hereof, it is agreed
that the Employer shall be entitled to recover any damages incurred by it as a
result of such engagement or violation by Employee in an action at law, and to
full injunctive relief, to be issued by any competent court of equity, enjoining
and restraining the Employee and each and every person, firm, organization,
association, or corporation concerned therein, from the continuance of such
violative acts. The provisions of this Article 9 and or Article 8 above shall
expressly survive any termination or other expiration of this Agreement.
10. Non-Assignability.
-----------------
The Employee shall have no right to assign this Agreement, or any of
his or her rights or obligations hereunder, to another party or parties.
Employer shall have the right to assign this Agreement to any successor entity
provided that such entity agrees to assume all of Employer's obligations
hereunder.
11. Law Applicable.
---------------
This Agreement shall be construed in accordance with the laws of the
District of Columbia.
<PAGE>
12. Non-Waiver of Breach.
---------------------
No waiver by the Employer of any breach of any covenant or obligation
hereof on the part of the Employee to be kept and performed shall be considered
to be a waiver of any such covenant or provision, or of any future breach
thereof.
13. Arbitration.
-----------
Except as herein otherwise provided, any claim or controversy arising
out of or relating to this Agreement or any breach hereof shall, upon the
request of either the Employer or Employee, be submitted to and settled by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. Any decision made pursuant to such arbitration shall be binding
and conclusive upon the Employer and the Employee and judgment upon such
decision may be entered in any court having jurisdiction thereof. This Section
13 shall not apply with respect to any breach or threatened breach of Section 7
or 8.
14. Entire Agreement.
-----------------
This instrument contains all of the agreements and understandings
between the parties hereto with respect to the employment of the Employee by the
Employer, and no oral agreements or written correspondence shall be held to
affect the provisions hereof and shall be binding upon Employer's successors and
assigns. All subsequent changes and modifications, to be valid, shall be by
written instrument executed by the Employer and the Employee.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed
on its behalf by its duly authorized officers and the Employee has hereunto set
his hand and seal, all done on the day and in the year first hereinabove
written.
EMPLOYER:
--------
ATTEST: CAIS, INC.
/s/ William M. Caldwell, IV By: /s/ Ulysses G. Auger, II (SEAL)
----------------------------- --------------------------
Name: Ulysses G. Auger, II
Title: Chief Executive Officer
EMPLOYEE:
--------
/s/ Evans K. Anderson (SEAL)
---------------------------
Evans K. Anderson
<PAGE>
EXHIBIT "A"
-----------
COMPENSATION
------------
1. Base Compensation. During the term of the Agreement, Employee shall
-----------------
receive a base salary of $125,000.00 per Employment Year, and beginning November
1, 1997, and thereafter, shall receive a base salary of $150,000.00 per
Employment Year. Base salary shall be paid during an Employment Year in twenty-
six (26) equal installments, less applicable social security and withholding
taxes. Employee's base salary will be subject to such periodic increases as may
be determined by the Employer.
2. Employee Benefits. Employer shall reimburse Employee for all expenses
-----------------
reasonably incurred by him in the performance of his duties hereunder, with such
reimbursement to be made upon submission by Employee of itemized statements and
receipts in form reasonably satisfactory to Employer. Employee shall be
entitled to such amount of vacation as is normal and usual for an executive of
his position with the Employer and shall be eligible to participate in all
hospitalization, 401k Plan, insurance and other employee benefit plans for non-
union executive employees which may be maintained wholly or partially funded by
Employer.
3. Equity Incentive Compensation.
------------------------------
(A) Option to Acquire Equity Interest.
(1) Subject to the vesting and forfeiture provisions set forth
below, as an inducement to entering into this Agreement, Employee is hereby
granted an option to purchase: (1) a limited partnership interest in CAIS
Limited Partnership equal to 3% of the total limited partnership interest in
CAIS Limited Partnership and a limited partnership interest in Cleartel
Communications Limited Partnership equal to 3% of the total limited partnership
interest in Cleartel Communications Limited Partnership, or, in the event that
Cleartel and CAIS are combined into a single successor entity ("CGX"), (2) a
limited partnership/stock interest (as applicable) in CGX equal to 3% of the
total limited partnership/stock interest in CGX. Such 3% interest, subject to
adjustment as provided in sections 3(A)(2), below, shall hereafter be referred
to as the Target Equity Percentage ("TEP"). The purchase price for the TEP
limited partnership/stock interest shall be three hundred sixty thousand Dollars
($360,000). The option is exercisable by Employee (or his Estate) in whole (but
not in part) by written notice to Employer at any time after the date hereof,
provided that at the time of exercise the Employee is an employee of the
Employer (or the Employee was an employee of the Employer at the time of his
death). Such limited partnership/stock interest(s) shall be issued to Employee
subject to the terms and conditions of limited partnership/shareholders (as
applicable) agreement(s) on terms no less favorable than those enjoyed by other
limited partners/stockholders (as applicable) of CAIS Limited Partnership and
Cleartel Communications Limited Partnership or of CGX under such limited
partnership/shareholders (as applicable) agreement(s).
(2) Adjustment of TEP - Acquisition/Merger/Capital Investment.
The parties further agree that in the event and to the extent CAIS/Cleartel or
CGX is acquired by, merges with or is otherwise combined with another entity
that is not controlled by the parties that
<PAGE>
currently control the equity of CAIS and Cleartel, or receives outside capital
investment through a private placement and/or public offering of the stock or
debt instrument of CAIS/Cleartel or CGX, or the stock or debt instrument of any
successor entity, then thereafter Employee's TEP limited partnership/stock
interest (and his option to purchase same, if not previously exercised) will be
reduced on the same basis and in the same proportions as all other
shareholders/limited partners except as otherwise provided elsewhere in this
Agreement.
(B) Vesting and Forfeiture of Equity Interest.
-----------------------------------------
(1) Normal Vesting.
a. The first 1% limited partnership/stock interest shall
become fully vested at the end of Employment Year 3 provided that Employee then
remains employed by the Employer. Except as provided otherwise herein, should
Employee not remain employed by the Employer at the end of Employment Year 3,
the Employer shall have the right and option to reacquire from Employee and
Employee shall be obligated to sell to the Employer all non-vested TEP limited
partnership/stock interest previously acquired by the Employee upon payment to
Employee of an amount equal to the Purchase Price paid by Employee for such
interest.
b. The remaining 2% limited partnership/stock interest
shall become fully vested at the end of Employment Year 4 provided that Employee
then remains employed by the Employer. Except as provided otherwise herein,
should Employee not remain employed by the Employer at the end of Employment
Year 4, the Employer shall have the right and option to reacquire from Employee
and Employee shall be obligated to sell to the Employer all non-vested TEP
limited partnership/stock interest previously acquired by the Employee upon
payment to Employee of an amount equal to the Purchase Price paid by Employee
for such interest.
(2) Accelerated Vesting.
If, prior to the vesting dates set forth in subparagraph
3(B)(1), a merger or a sale of substantially all of CAIS/Cleartel's or CGX's
assets occurs that results in the removal of current management or a change of
ownership control of CAIS from current ownership control, then the vesting of
Employee's TEP limited partnership/stock interest will accelerate and become
effective as of one day prior to the effective day of such merger or sale;
provided, however, that in the event that an Initial Public Offering of the
stock of CAIS, Cleartel or CGX occurs prior to the end of Employment Year 3, and
provided that Employee then remains employed by the Employer, then the first 1%
limited partnership/stock interest shall vest one day prior to the first date of
such Initial Public Offering, and the remaining 2% limited partnership/stock
interest shall vest at the end of Employment Year 4 provided that Employee then
remains employed by the Employer, and otherwise such interest shall be forfeited
and revert back to the Employer.
<PAGE>
(3) Employee's rights with respect to any non-vested portion of
any TEP limited partnership/stock interest previously purchased pursuant to the
option granted herein, shall immediately terminate upon termination of
Employee's employment hereunder for any reason other than the following
circumstance:
If, during Employment Year 1, prior to full vesting,
Employee is terminated by Employer for a reason other than for good cause, then
in such event any non-vested portion of Employee's TEP limited partnership/stock
interest shall thereupon be and be deemed to be fully vested.
If, subsequent to the End of Employment Year 1 but prior
to the end of Employment Year 4, and prior to full vesting of Employee's TEP
limited partnership/stock interest Employee is terminated by Employer for a
reason other than for good cause, or (ii) for performance where Employee's
performance, through the date of Employee's notice of termination to Employer,
has been below 60% of the actual budgeted Performance Target for revenue growth
(pro-rated as appropriate), then in either such event any non-vested portion of
Employee's TEP limited partnership/stock interest shall thereupon be and be
deemed to be fully vested.
(4) Upon request by Employer, Employee shall execute
amendment(s) to Employer's limited partnership agreement or shareholders
agreement(s), as applicable, containing such reasonable terms and conditions as
may be required by the Employer, and on terms no less favorable than those
enjoyed by other limited partners/stockholders under such agreement(s).
(5) Within the above parameters, the parties agree to cooperate
to structure the conferral, vesting and forfeiture provisions with respect to
Employee's limited partnership/stock interest, so as to minimize the federal
income tax consequences to both the Employer and Employee of such provisions.
(C) Purchase of Employee's Vested Partnership/Stock Interest in the
---------------------------------------------------------------
Event of Termination of Employment Where Employer has Remained a Privately Held
- -------------------------------------------------------------------------------
Limited Partnership or Corporation.
- ----------------------------------
(1) Upon Employee's termination of employment with Employer for
any reason (including without limitation, termination upon expiration of the
term hereof), other than death of Employee, and provided that the Employer at
the time of such termination remains a privately held limited partnership or
corporation, the Employer shall have the option, but not the obligation, to
purchase, and Employee shall be obligated upon exercise of such option by the
Employer, to sell, all of the Employee's limited partnership/stock interests in
the Employer, if any, theretofore earned by Employee pursuant to the terms of
this Agreement and fully vested in Employee after consideration of subparagraph
3(B)(5) above. The purchase price of such partnership/stock interest shall equal
Employee's Proportionate Share (defined below) of the Incremental Value (defined
below) of the Employer. For purposes hereof, the term "Employee's Proportionate
Share" shall mean and refer to the percentage of limited partnership/stock
interest which has been earned by Employee and fully vested under the terms of
this Agreement as of the
<PAGE>
date of Employee's termination of employment. The term "Incremental Value" shall
mean the positive difference between (a) the Employer's net worth as of the last
day of the Employer's fiscal year immediately preceding Employee's commencement
of employment hereunder, and (b) the Employer's net worth as of the last day of
the Employer's fiscal year immediately preceding Employee's termination of
employment with Employer. For purposes of this provision, the determination of
Employer's outside accountant as to the Employer's net worth shall be binding on
both parties. The purchase price, as so determined, shall be paid in cash at the
time of transfer and assignment of the limited partnership interests. Closing on
such purchase shall occur on a date designated in writing by Employer to the
Employee which date must be within twelve (12) months after the termination of
Employee's employment hereunder.
(2) Upon Employee's termination of employment with Employer due
to the death of Employee, and provided that Employer at the time of such
termination remains a privately held limited partnership or corporation,
Employer shall have the option, but not the obligation, to purchase, and the
executor, administrator or personal representative of the deceased Employee
shall be obligated upon exercise of such option by the Employer, to sell, all of
the Employee's limited partnership/stock interests in the Employer, if any,
theretofore earned by Employee pursuant to the terms of this Agreement and fully
vested in Employee. The purchase price of such partnership/stock interests shall
equal Employee's Proportionate Share of the Incremental Value of the Employer
(as such terms are defined above). The purchase price, as so determined, shall
be paid in cash at the time of transfer and assignment of the limited
partnership/stock interests. Closing on such purchase shall occur on a date
designated in writing by Employer to the executor, administrator or personal
representative of the deceased Employee, which date must be within twelve (12)
months after the date of Employee's death.
<PAGE>
EXHIBIT 10.7
ASSIGNMENT AND ASSUMPTION AGREEMENT
AND RELEASE
This Assignment and Assumption Agreement and Release (this "Agreement") is
made as of October 2, 1998 by and among CAIS, Inc., a Virginia corporation, (the
"Assignor"), CGX Communications, Inc., a Delaware corporation ("Assignee"), and
Evans K. Anderson ("Employee").
RECITALS:
--------
1. Assignor is party to a certain employment agreement (the "Employment
Agreement") dated as of June 3, 1997 between Assignor and Employee.
2. Pursuant to the Employment Agreement, Assignor granted to Employee
certain options to purchase limited partnership interests in CAIS
Limited Partnership and Cleartel Communications Limited Partnership
(the "Partnerships"), or, in the event that the Partnerships are
merged into Assignee, options to purchase shares of Assignee (the
"Options"). In addition, Assignor separately agreed to grant Employee
a limited partnership interest in CAIS Limited Partnership.
3. Simultaneously herewith, Assignor and Assignee are consummating
certain transactions whereby Assignor will become a wholly owned
subsidiary of Assignee (the "Restructuring").
4. In connection with the Restructuring, Assignor desires to assign all
of their rights and obligations under the Employment Agreement to
Assignee, and Assignee desires to assume all of Assignor's rights and
obligations under the Employment Agreement, subject to and in
accordance with the terms and conditions set forth in this Agreement.
6. Employee desires to release Assignor from its performance under the
Options, and to release Assignor and CAIS Limited Partnership from any
obligation to grant Employee a limited partnership interest in CAIS
Limited Partnership, subject to his receipt of new options from
Assignee and further subject to and in accordance with the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. Assignor hereby assigns all of their rights and obligations under the
Employment Agreement to Assignee, and Assignee hereby accepts such assignment
and agrees to perform each and every obligation and covenant of Assignor related
to the Employment Agreement.
<PAGE>
2. Assignee hereby grants to Employee new options to purchase 301,420
shares of the common stock, par value $.01 per share, of Assignee for
a purchase price of $1.1942 per share, which options shall be subject
to all of the terms and conditions applicable to the Options set forth
in Exhibit A to the Employment Agreement.
3. Employee hereby releases and discharges Assignor and the Partnerships
from any and all duties, liabilities, claims and performance under the
Options, and relinquishes any further claim or entitlement to any
additional equity interest in Assignor, Assignee and the Partnerships
arising by virtue of the Employment Agreement or any other agreement,
whether verbal or in writing, existing as of the date hereof between
Employee and any of Assignor, Assignee or the Partnerships, except for
the entitlement of the Employee to receive new options as provided in
paragraphs 2 and 3 above.
4. Employee hereby consents to the assignment of the Employment Contract
from Assignor to Assignee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
ASSIGNORS:
CAIS, INC.
By: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II, President
ASSIGNEE:
CGX COMMUNICATIONS, INC.
By: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II, President
EMPLOYEE:
/s/ Evans K. Anderson
---------------------
Evans K. Anderson
<PAGE>
EXHIBIT 10.9
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AGREEMENT made effective for all purposes as of the 8th day of September,
1997, by and between CAIS, Inc. and Cleartel Communications, Inc., (hereinafter
jointly referred to as the "Employer"), and William M. Caldwell, IV (hereinafter
referred to as the "Employee").
WITNESSETH:
WHEREAS, the Employer is engaged, inter alia, in the business of providing
-----------
Internet services, communications services and related activities and operations
throughout the World including the United States of America; and
WHEREAS, the Employee is experienced in the marketing, finance, and management
of communications services; and
WHEREAS, Employer and Employee heretofore entered into a certain Employment
Agreement (the "Employment Agreement") dated as of September 8, 1997; and
WHEREAS, pursuant to Section 3(B)(5) of Exhibit "A" to the Employment
Agreement, Employer and Employee agreed that they would each respectively
cooperate to structure the conferral, vesting and forfeiture provisions of the
Employment Agreement to minimize the federal income tax consequences to both
such parties; and
WHEREAS, consistent with that intent both Employer and Employee desire hereby
to amend and restate the Employment Agreement in its entirety as hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises, which are incorporated into
and made part of this Agreement, and of the mutual covenants and agreements
herein contained, the parties hereby amend and restate the Employment Agreement
in its entirety as follows:
1. Duties and Term of Employment.
------------------------------
(A) The Employer does hereby employ the Employee in the capacity of Vice-
Chairman of Cleartel and CAIS to assist in management of Employer's businesses,
to develop new business opportunities and to perform such other duties as
Employer may from time to time designate. Employer reserves the right during the
term of this Agreement to change the capacity in which Employee is employed as
well as the duties which the Employee is required to perform for the Employer,
provided that the duties to be performed by Employee are substantially similar
to the duties and responsibilities contemplated by this agreement. The parties
agree that in the event that Cleartel and CAIS are combined into a single
successor entity ("CGX"), that the rights and obligations of this Agreement
shall be assigned to CGX, which shall become the Employer for all purposes
hereunder, and Employee shall be employed in the capacity of Vice-Chairman of
CGX.
<PAGE>
(B) The Employee's employment hereunder commences as of September 8, 1997
and shall continue for a period of four (4) years thereafter, unless sooner
terminated as hereinafter provided.
2. Compensation of Employee.
-------------------------
As the sole compensation for all of the Employee's services rendered
hereunder to the Employer, the Employer hereby agrees to pay the Employee
compensation and reimbursements as set forth in Exhibit "A" attached hereto and
made a part hereof.
3. Conduct of Employee.
--------------------
Employee does hereby accept said employment under the terms and conditions
herein set forth, and further agrees that during the term hereof Employee will
devote full time, attention and energies to the business of the Employer, and
will not, without the prior written consent of Employer, actively engage in any
other business, employment or undertaking whatsoever, during the said period of
time. Employee is not restricted from ownership in passive investments and from
other passive activities that do not interfere with duties to be performed by
Employee under this Agreement. Employee further agrees to, at all times during
the term hereof, abide by and comply with the directions, instructions and
decisions of the Employer and, during the term hereof, to dutifully and
faithfully carry out and perform the duties and obligations of Employee's
position, as herein set forth.
4. Limitations Upon Acts of Employee. Employee agrees:
----------------------------------
(A) That Employee will not draw, accept or make any bill of exchange or
promissory note for or on behalf of the Employer; nor shall Employee otherwise
pledge the credit of the Employer, nor execute or deliver any contracts or
documents for or on behalf of the Employer, except to the extent of the
Employer's written policies consented to by its General Partner.
(B) That Employee will make available such information and fully advise
the Employer when requested, of all matters in which Employee shall become
involved, and acts which Employee shall perform, for or on the account of the
Employer; and that Employee shall also promptly inform the Employer of any
matters coming to Employee's attention or knowledge that in Employee's business
judgment may materially affect the interests of the Employer, or its business
operations.
(C) The policies of operation of the business of the Employer shall, from
time to time, be determined by the Employer; and the Employee agrees to conform
to and execute all reasonable and lawful policies of Employer as so determined.
<PAGE>
Termination of Employment.
-------------------------
(A) The Employer shall have the right to cancel and terminate this
Agreement, and to discharge the Employee for "good cause", or, after Employment
Year 1, without cause upon thirty (30) days' prior written notice to Employee.
For purposes of this Article 5, "good cause" shall be construed to mean proven
dishonesty in a material matter, habitual intoxication, continued and repeated
failure to devote proper time and attention to the business of the Employer,
repeated failure (after receipt of written notice from Employer and reasonable
opportunity to cure) by Employee to carry out the reasonable directions and
instructions of the Employer or its General Partner, conviction of a crime
involving moral turpitude or requiring imprisonment of Employee, repeated and
unexcused absenteeism after reasonable notice from Employer and reasonable
opportunity to cure, death of the Employee, or the material breach by Employee
of any of Employee's obligations or agreements contained in Sections 7 or 8
below, or the making of any representation or warranty pursuant to Article 6
hereinbelow which shall prove to be materially inaccurate, incorrect or false in
any respect. Upon termination of Employee's employment by Employer without
cause, the Employer agrees to pay Employee as severance pay and in full and
final settlement all claims between the parties (excluding any claim by Employee
for wages or other compensation previously earned and fully vested and not paid)
an amount equal to (i) six (6) months of the base salary of Employee if
termination occurs during the first twelve months of the term hereof, or (ii)
nine (9) months of the base salary of Employee thereafter.
(B) If Ulysses G. Auger, II, for reasons other than his illness,
incapacity or death, no longer is involved in the management of Employer, then
Employee shall have the option to resign from his employment with Employer, and
in such event no severance pay shall be due from Employer to Employee.
6. Employee's Representations.
---------------------------
Employee hereby represents and warrants to Employer that there are not
now operative and in force any employment agreements or other instruments of any
nature, to which Employee is a party or under which Employee may be otherwise
bound or subject, which contain any terms or provisions that in any manner
restrict, limit, prevent, prohibit or make unlawful the execution of Employee of
this Agreement, or the performance by Employee of any or all of Employee's
obligations, covenants and duties herein specified, or Employee's employment by
Employer hereunder or otherwise. In the event the representatives and warranties
made by Employee under this Article 6 should prove to be inaccurate, incorrect
or false in any material respect, whether through inadvertence or willful
misrepresentation by Employee, Employer may, at its option, upon discovering
such inaccuracy or the falsity of said representations, terminate this Agreement
for good cause and Employee's employment hereunder.
<PAGE>
7. Trade Secrets.
--------------
The Employee agrees that during the term of employment with the
Employer and at all times after expiration thereof, Employee will not
communicate or divulge, for the benefit of any competitor, rival or other
person, firm, association, or corporation, whether associated with the Employee
or not, any trade secrets, client lists, employee information or any other
confidential information or material matters of any nature relating to the
business of affairs of the Employer, which may be utilized by Employer in or
about its business and which trade secrets, information or other matters are
communicated or otherwise become known to the Employee by reason of Employee's
employment hereunder, or otherwise, unless such information is generally known
to the public or unless employee is required to disclose same pursuant to a
valid court order. This provision shall expressly survive any termination or
other expiration of this Agreement.
8. Agreement Not to Compete.
-------------------------
Employee acknowledges that the services to be rendered hereunder are
of a special and unusual character which have a unique value to the Employer,
the loss of which cannot adequately be compensated by damages in an action at
law. Because of the unique value to the Employer of the services of Employee for
which the Employer has contracted hereunder, and because of the confidential
information to be obtained by Employee, as aforesaid, Employee agrees and
covenants as follows:
(A) Employee agrees that after Employee ceases to be employed
by the Employer, Employee will not, directly or indirectly, for a period of
twenty-four (24) months next following such cessation of employment, solicit
business from, divert business from, or attempt to convert to other methods of
performing functions related to the services provided by the Employer, any
client, account or customer of the Employer which for purposes hereof shall be
defined as client, account or customer having done business with the Employer on
a sole supplier basis at any time during the one (l) year period immediately
preceding the date of the cessation of Employee's employment by the Employer.
(B) Employee agrees that for the same period after Employee
ceases to be employed by Employer as specified in Article 8(A) above, Employee
will not, in any part of the United States of America, directly or indirectly
undertake employment with, or to be associated with, as owner, partner, joint
venturer, stockholder, employer, employee, agent or contractor, or in any other
manner be connected or identified either directly or indirectly with, any
person, business, organization, firm, association or corporation which shall
actively solicit or attempt to solicit or do business with any of the Employer's
clients, accounts or customers as defined in Article 8(A) above.
(C) Employee agrees that for a period of twenty-four (24)
months after Employee ceases to be employed by the Employer, Employee will not,
directly or indirectly, solicit for employment or employ for Employee's own or
for another's benefit any employee of the Employer.
<PAGE>
(D) If Employer exercises its rights under Article 5(A) to
terminate the Employee without cause after Employment Year 1, the Employee will
be bound by the restrictions contained in Articles 8(A), (B) and (C) only for
the duration of his severance pay period provided for in Article 5(A).
9. Injunction.
-----------
Should the Employee engage in or perform, either directly or
indirectly, any of the acts prohibited in Articles 7 and 8 hereof, it is agreed
that the Employer shall be entitled to recover any damages incurred by it as a
result of such engagement or violation by Employee in an action at law, and to
full injunctive relief, to be issued by any competent court of equity, enjoining
and restraining the Employee and each and every person, firm, organization,
association, or corporation concerned therein, from the continuance of such
violative acts. The provisions of this Article 9 and or Article 8 above shall
expressly survive any termination or other expiration of this Agreement.
10. Non-Assignability.
-----------------
The Employee shall have no right to assign this Agreement, or any of
his or her rights or obligations hereunder, to another party or parties;
provided, however, that with the prior written consent of Employer, which
consent shall not be unreasonably withheld, and if not inconsistent with any
applicable statute, regulation, or contractual or other obligation of Employer
or Employee (e.g., any restrictions contained in a partnership or shareholders
agreement), Employee shall have the right to assign or otherwise transfer any
vested equity ownership interest in Employer to a trust or similar legal entity
of Employee's designation. Employer shall have the right to assign this
Agreement to any successor entity provided that such entity agrees to assume all
of Employer's obligations hereunder.
11. Law Applicable.
---------------
This Agreement shall be construed in accordance with the laws of the
District of Columbia.
12. Non-Waiver of Breach.
---------------------
No waiver by the Employer of any breach of any covenant or obligation
hereof on the part of the Employee to be kept and performed shall be considered
to be a waiver of any such covenant or provision, or of any future breach
thereof.
<PAGE>
13. Arbitration.
-----------
Except as herein otherwise provided, any claim or controversy arising
out of or relating to this Agreement or any breach hereof shall, upon the
request of either the Employer or Employee, be submitted to and settled by
arbitration in accordance with the rules of the American Arbitration Association
then in effect. Any decision made pursuant to such arbitration shall be binding
and conclusive upon the Employer and the Employee and judgment upon such
decision may be entered in any court having jurisdiction thereof. The arbitrator
shall be entitled to make any award, including an award for punitive damages,
that the arbitrator shall determine is appropriate. This Section 13 shall not
apply with respect to any breach or threatened breach of Section 7 or 8.
14. Entire Agreement.
-----------------
This instrument contains all of the agreements and understandings
between the parties hereto with respect to the employment of the Employee by the
Employer, and no oral agreements or written correspondence shall be held to
affect the provisions hereof and shall be binding upon Employer's successors and
assigns. All subsequent changes and modifications, to be valid, shall be by
written instrument executed by the Employer and the Employee.
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed
on its behalf by its duly authorized officers and the Employee has hereunto set
his hand and seal, all done on the day and in the year first hereinabove
written.
EMPLOYER:
--------
ATTEST: CLEARTEL COMMUNICATIONS, INC.
/s/ Evans K. Anderson By: /s/ Ulysses G. Auger, II (SEAL)
- ----------------------- ------------------------------
Name: Ulysses G. Auger, II
Title: Chief Executive Officer
EMPLOYER:
--------
ATTEST: CAIS, INC.
/s/ Evans K. Anderson By: /s/ Ulysses G. Auger, II (SEAL)
- ----------------------- ---------------------------
Name: Ulysses G. Auger, II
Title: Chief Executive Officer
EMPLOYEE:
--------
/s/ Evans K. Anderson /s/ William M. Caldwell, IV (SEAL)
- ----------------------- ----------------------------
William M. Caldwell, IV
<PAGE>
EXHIBIT "A"
-----------
COMPENSATION
------------
1. Base Compensation. During the term of the Agreement, Employee shall
-----------------
receive a base salary of $175,000.00 per Employment Year. Base salary shall be
paid during an Employment Year in twenty-six (26) equal installments, less
applicable social security and withholding taxes. Employee's base salary will
be subject to such periodic increases as may be determined by the Employer.
2. Employee Benefits. Employer shall reimburse Employee for all expenses
-----------------
reasonably incurred by him in the performance of his duties hereunder, with such
reimbursement to be made upon submission by Employee of itemized statements and
receipts in form reasonably satisfactory to Employer. Employee shall be
entitled to such amount of vacation as is normal and usual for an executive of
his position with the Employer and shall be eligible to participate in all
hospitalization, 401k Plan, insurance and other employee benefit plans for non-
union executive employees which may be maintained wholly or partially funded by
Employer.
3. Equity Incentive Compensation.
------------------------------
(A) Option to Acquire Equity Interest.
(1) Subject to the vesting and forfeiture provisions set forth
below, as an inducement to entering into this Agreement, Employee is hereby
granted an option to purchase: (1) a limited partnership interest in CAIS
Limited Partnership equal to 14% of the total limited partnership interest in
CAIS Limited Partnership and a limited partnership interest in Cleartel
Communications Limited Partnership equal to 14% of the total limited partnership
interest in Cleartel Communications Limited Partnership, or, in the event that
Cleartel and CAIS are combined into a single successor entity ("CGX"), (2) a
limited partnership/stock interest (as applicable) in CGX equal to 14% of the
total limited partnership/stock interest in CGX. Such 14% interest, subject to
adjustment as provided in sections 3(A)(2), below, shall hereafter be referred
to as the Target Equity Percentage ("TEP"). The purchase price for the TEP
limited partnership/stock interest shall be one million six hundred eighty
thousand Dollars ($1,680,000). The option is exercisable by Employee (or his
estate) in whole (but not in part) by written notice to Employer at any time
after the date hereof, provided that at the time of exercise the Employee is an
employee of the Employer (or the Employee was an employee of the Employer at the
time of his death). Such limited partnership/stock interest(s) shall be issued
to Employee subject to the terms and conditions of limited
partnership/shareholders (as applicable) agreement(s) on terms no less favorable
than those enjoyed by other limited partners/stockholders (as applicable) of
CAIS Limited Partnership and Cleartel Communications Limited Partnership or of
CGX under such limited partnership/shareholders (as applicable) agreement(s).
Employee's existing one percent (1%) interest in CAIS Limited Partnership shall
be disregarded for purposes of this Agreement and shall not be affected by or
governed by the terms of this Agreement.
Employee acknowledges that in the event that all or any
portion of the limited partnership/stock interest of any other CAIS/Cleartel or
CGX equity holder is forfeited
<PAGE>
for any reason, such interest shall not be allocated pro-rata to all remaining
CAIS/Cleartel or CAIS equity holders, but rather shall be allocated exclusively
to Ulysses G. Auger Sr. and Ulysses G. Auger, II.
(2) Adjustment of TEP - Acquisition/Merger/Capital Investment.
The parties further agree that in the event and to the extent CAIS/Cleartel or
CGX is acquired by, merges with or is otherwise combined with another entity
that is not controlled by the parties that currently control the equity of CAIS
and Cleartel, or receives outside capital investment through a private placement
and/or public offering of the stock or debt instrument of CAIS/Cleartel or CGX,
or the stock or debt instrument of any successor entity, then thereafter
Employee's TEP limited partnership/stock interest (and his option to purchase
same, if not previously exercised) will be reduced on the same basis and in the
same proportions as all other shareholders/limited partners except as otherwise
provided elsewhere in this Agreement.
(B) Vesting and Forfeiture of Equity Interest.
-----------------------------------------
(1) Normal Vesting.
a. The first 50% of Employee's TEP limited
partnership/stock interest shall become fully vested at the end of Employment
Year 3 provided that Employee then remains employed by the Employer. Except as
provided otherwise herein, should Employee not remain employed by the Employer
at the end of Employment Year 3, the Employer shall have the right and option to
reacquire from Employee and Employee shall be obligated to sell to the Employer
all non-vested TEP limited partnership/stock interest previously acquired by the
Employee upon payment to Employee of an amount equal to the Purchase Price paid
by Employee for such interest.
b. The second 50% of Employee's TEP limited
partnership/stock interest shall become fully vested at the end of Employment
Year 4 provided that Employee then remains employed by the Employer. Except as
provided otherwise herein, should Employee not remain employed by the Employer
at the end of Employment Year 4, the Employer shall have the right and option to
reacquire from Employee and Employee shall be obligated to sell to the Employer
all non-vested TEP limited partnership/stock interest previously acquired by the
Employee upon payment to Employee of an amount equal to the Purchase Price paid
by Employee for such interest.
(2) Accelerated Vesting.
a. In the event and to the extent the Employee, prior
to the end of Employment Year 3, achieves or exceeds Employer's goal of raising
debt and/or equity of $150 million, and provided that the fees and expenses
directly attributable to raising such funds are (i) less than or equal to 8% of
the funds so raised or (ii) less than or equal to 10% of the funds so raised in
the case of funds raised through an initial public offering of Employer's stock,
then the first 50% of Employee's TEP limited partnership/stock interest shall
become fully vested upon receipt of such funds by the Employer, and the second
50% of Employee's TEP limited partnership/stock interest shall become fully
vested at the end of Employment Year 4 provided
<PAGE>
that the Employee then remains employed by the Employer.
If, prior to the vesting dates set forth in
subparagraph 3(B)(1), a merger or a sale of substantially all of CAIS/Cleartel's
or CGX's assets occurs that results in the removal of current management or a
change of ownership control of CAIS from current ownership control, then the
vesting of Employee's TEP limited partnership/stock interest will accelerate and
become effective as of one day prior to the effective day of such merger or
sale; provided, however, that in the event that an Initial Public Offering of
the stock of CAIS, Cleartel or CGX occurs prior to the end of Employment Year 2,
and provided that Employee then remains employed by the Employer, then the first
75% of Employee's TEP limited partnership/stock interest shall vest one day
prior to the first date of such Initial Public Offering, and the remaining 25%
of Employee's limited partnership/stock interest shall vest at the end of
Employment Year 4 provided that Employee then remains employed by the Employer,
and otherwise such interest shall be forfeited and revert back to the Employer.
Employer and Employee agree that in the event that
Cleartel's Operator Services business is spun off into a separate entity,
Employee's pro-rata equity interest in such spun off entity shall be reduced in
conjunction with the formation of such entity on the same basis and in the same
proportions as are the equity interests of all other CAIS/Cleartel
shareholders/limited partners. Employer and Employee agree that the formation of
such spun off entity, even if undertaken in conjunction with unrelated entities,
shall not trigger the accelerated vesting provisions of subparagraph 3(B)(2)(b).
Any event as described in subparagraph 3(B)(2)(b) occurring subsequent to the
formation of the spun off entity and affecting only such spun off entity shall
trigger the accelerated vesting provisions of subparagraph 3(B)(2)(b) only with
respect to Employee's interest in the spun off entity, and shall not trigger the
accelerated vesting provisions of subparagraph 3(B)(2)(b) with respect to
Employee's interest in the CAIS/Cleartel or CGX entity.
(3) Employee's rights with respect to any non-vested portion
of any TEP limited partnership/stock interest previously purchased pursuant to
the option granted herein, shall immediately terminate upon termination of
Employee's employment hereunder for any reason other than the following
circumstance:
If, prior to the end of Employment Year 2, and prior to
full vesting of Employee's TEP limited partnership/stock interest, (i) Employee
is terminated by Employer for a reason other than for good cause, or (ii)
Employee elects to resign from and terminate his employment with Employer
pursuant to and consistent with the terms of Article 5(B) of this Employment
Agreement, then in either such event 50% of any non-vested portion of Employee's
TEP limited partnership/stock interest shall thereupon be and be deemed to be
fully vested.
If, subsequent to the End of Employment Year 2 but
prior to the end of Employment Year 4, and prior to full vesting of Employee's
TEP limited partnership/stock interest, (i) Employee is terminated by Employer
for a reason other than for good cause, or (ii) Employee elects to resign from
and terminate his employment with Employer pursuant to and consistent with the
terms of Article 5(B) of this Employment Agreement, then in either such event
any non-vested portion of Employee's TEP limited partnership/stock interest
<PAGE>
shall thereupon be and be deemed to be fully vested.
(4) Upon request by Employer, Employee shall execute
amendment(s) to Employer's limited partnership agreement or shareholders
agreement(s), as applicable, containing such reasonable terms and conditions as
may be required by the Employer, and on terms no less favorable than those
enjoyed by other limited partners/stockholders under such agreement(s).
(5) Within the above parameters, the parties agree to
cooperate to structure the conferral, vesting and forfeiture provisions with
respect to Employee's limited partnership/stock interest, so as to minimize the
federal income tax consequences to both the Employer and Employee of such
provisions.
(C) Purchase of Employee's Vested Partnership/Stock Interest in the
---------------------------------------------------------------
Event of Termination of Employment Where Employer has Remained a Privately
- ---------------------------------------------------------------------------
Held Limited Partnership or Corporation.
- ----------------------------------------
(1) Upon Employee's termination of employment with Employer
for any reason (including without limitation, termination upon expiration of the
term hereof), other than death of Employee, and provided that the Employer at
the time of such termination remains a privately held limited partnership or
corporation, the Employer shall have the option, but not the obligation, to
purchase, and Employee shall be obligated upon exercise of such option by the
Employer, to sell, all of the Employee's limited partnership/stock interests in
the Employer, if any, theretofore acquired by Employee pursuant to the option
granted under this Agreement and fully vested in Employee. The purchase price of
such partnership/stock interest shall equal Employee's Proportionate Share
(defined below) of the Incremental Value (defined below) of the Employer. For
purposes of this subsection 3(C)(1), the term "Employee's Proportionate Share"
shall mean and refer to the percentage of limited partnership/stock interest
which has been earned by Employee and fully vested under the terms of this
Agreement as of the date of Employee's termination of employment. For purposes
of this subsection 3(C)(1), the term "Incremental Value" shall mean the positive
difference between (a) the Employer's net worth as of the last day of the
Employer's fiscal year immediately preceding Employee's commencement of
employment hereunder, and (b) the Employer's net worth as of the last day of the
Employer's fiscal year for the fiscal year that includes the date that is 180
days after the date of Employee's termination of employment with Employer. For
purposes of this provision, the determination of Employer's outside accountant
as to the Employer's net worth shall be binding on both parties. The purchase
price, as so determined, shall be paid in cash at the time of transfer and
assignment of the limited partnership/stock interests. Closing on such purchase
shall occur on a date designated in writing by Employer to the Employee which
date must be within twelve (12) months after the last day of the Employer's
fiscal year for the fiscal year that includes the date that is 180 days after
the date of Employee's termination of employment with Employer.
(2) Upon Employee's termination of employment with Employer
due to the death of Employee, and provided that Employer at the time of such
termination remains a privately held limited partnership or corporation,
Employer shall have the option, but not the obligation, to purchase, and the
executor, administrator or personal representative of the deceased
<PAGE>
Employee shall be obligated upon exercise of such option by the Employer, to
sell, all of the Employee's limited partnership/stock interests in the Employer,
if any, theretofore acquired by Employee pursuant to the option granted under
this Agreement and fully vested in Employee. The purchase price of such limited
partnership/stock interests shall equal Employee's Proportionate Share (defined
below) of the Incremental Value (defined below) of the Employer. For purposes of
this subsection 3(C)(2), the term "Employee's Proportionate Share" shall mean
and refer to the percentage of limited partnership/stock interest which has been
earned by Employee and fully vested under the terms of this Agreement as of the
date of Employee's death. For purposes of this subsection 3(C)(2), the term
"Incremental Value" shall mean the positive difference between (a) the
Employer's net worth as of the last day of the Employer's fiscal year
immediately preceding Employee's commencement of employment hereunder, and (b)
the Employer's net worth as of the last day of the Employer's fiscal year
immediately preceding the date of Employee's death. For purposes of this
provision, the determination of Employer's outside accountant as to the
Employer's net worth shall be binding on both parties. The purchase price, as so
determined, shall be paid in cash at the time of transfer and assignment of the
limited partnership/stock interests. Closing on such purchase shall occur on a
date designated in writing by Employer to the executor, administrator or
personal representative of the deceased Employee, which date must be within
twelve (12) months after the date of Employee's death.
<PAGE>
EXHIBIT 10.10
ASSIGNMENT AND ASSUMPTION AGREEMENT
AND RELEASE
This Assignment and Assumption Agreement and Release (this "Agreement") is
made as of October 2, 1998 by and among CAIS, Inc., a Virginia corporation,
Cleartel Communications, Inc., a District of Columbia corporation (together
referred to as "Assignors"), CGX Communications, Inc., a Delaware corporation
("Assignee"), and William M. Caldwell, IV ("Employee").
RECITALS:
--------
1. Assignors are party to a certain employment agreement (the "Employment
Agreement") dated as of September 8, 1997 between Assignors and
Employee.
2. Pursuant to the Employment Agreement, Assignors granted to Employee
certain options to purchase limited partnership interests in CAIS
Limited Partnership and Cleartel Communications Limited Partnership
(the "Partnerships"), or, in the event that the Partnerships are
merged into Assignee, options to purchase shares of Assignee (the
"Options"). In addition, Assignors separately agreed to grant Employee
a limited partnership interest in CAIS Limited Partnership.
3. Simultaneously herewith, Assignors and Assignee are consummating
certain transactions whereby Assignors will become wholly owned
subsidiaries of Assignee (the "Restructuring").
4. In connection with the Restructuring, Assignors desire to assign all
of their rights and obligations under the Employment Agreement to
Assignee, and Assignee desires to assume all of Assignors' rights and
obligations under the Employment Agreement, subject to and in
accordance with the terms and conditions set forth in this Agreement.
6. Employee desires to release Assignors from their performance under the
Options, and to release Assignors and CAIS Limited Partnership from
any obligation to grant Employee a limited partnership interest in
CAIS Limited Partnership, subject to his receipt of new options from
Assignee and further subject to and in accordance with the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. Assignors hereby assign all of their rights and obligations under the
Employment Agreement to Assignee, and Assignee hereby accepts such assignment
and agrees to perform each and every obligation and covenant of Assignors
related to the Employment Agreement.
<PAGE>
2. Assignee hereby grants to Employee new options to purchase 1,634,610
shares of the common stock, par value $.01 per share, of Assignee for
a purchase price of $0.9732 per share, which options shall be subject
to all of the terms and conditions applicable to the Options set forth
in Exhibit A to the Employment Agreement.
3. Assignee hereby grants to Employee new options to purchase 97,465
shares of the common stock, par value $.01 per share, of Assignee for
a purchase price of $0.9732 per share.
4. Employee hereby releases and discharges Assignors and the Partnerships
from any and all duties, liabilities, claims and performance under the
Options, and relinquishes any further claim or entitlement to any
additional equity interest in Assignors, Assignee and the Partnerships
arising by virtue of the Employment Agreement or any other agreement,
whether verbal or in writing, existing as of the date hereof between
Employee and any of Assignors, Assignee or the Partnerships, except
for the entitlement of the Employee to receive new options as provided
in paragraphs 2 and 3 above.
5. Employee hereby consents to the assignment of the Employment Contract
from Assignors to Assignee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
ASSIGNORS:
CAIS, INC.
By: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II, President
CLEARTEL COMMUNICATIONS, INC.
By: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II, President
ASSIGNEE:
CGX COMMUNICATIONS, INC.
By: /s/ Ulysses G. Auger, II
------------------------
Ulysses G. Auger, II, President
EMPLOYEE:
/s/ William M. Caldwell, IV
---------------------------
William M. Caldwell, IV
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT made as of the 29th day of June, 1998, by and
between CGX Communications, Inc.(hereinafter referred to as the
"Employer" or the "Corporation"), and Laura Neuman (hereinafter
referred to as the "Employee").
WITNESSETH:
WHEREAS, the Employer is engaged, inter alia, through CAIS
-----------
Internet, in the business of providing Internet services and related
activities and operations throughout the United States of America;
and
WHEREAS, the Employee is experienced in the operation and
marketing of communications services; and
WHEREAS, the Employer desires to obtain the services of the
Employee in connection with the Employer's activities and the
Employee is willing to render same to the Employer, all upon the
terms and conditions hereinafter set forth.
WHEREAS, Employee also understands and hereby accepts that
the Performance Targets described in Exhibit A are based on the
Employer's current lines of business and current investments, and
consequently, to the extent other lines of business are offered for
sale by CAIS, an adjustment to the Performance Targets will be
necessitated, such adjustment to be made on reasonable terms
mutually acceptable to Employer and Employee.
NOW, THEREFORE, in consideration of the premises, which are
incorporated into and made part of this Agreement, and of the mutual
covenants and agreements herein contained, the parties hereby agree
as follows:
1. Duties and Term of Employment.
------------------------------
(A) The Employer does hereby employ the Employee in the
capacity of Vice-President of Sales, CAIS Internet and OverVoice, to
manage the Employer's Internet and OverVoice sales, to develop new
business opportunities and to perform
1
<PAGE>
such other duties as Employer may from time to time designate.
Employee shall report to the Vice President and General Manager of
CAIS Internet.
(B) The Employee's employment hereunder shall commence on
or before June 29, 1998 and shall continue for a period of one (1)
year thereafter, unless sooner terminated as hereinafter provided.
The parties may extend the term of this Agreement by mutual consent,
and agree to discuss extension a minimum of thirty days prior to the
end of the initial one year period.
2. Compensation of Employee.
-------------------------
As the sole compensation for all of the Employee's
services rendered hereunder to the Employer, the Employer hereby
agrees to pay the Employee compensation and reimbursements as set
forth in Exhibit "A" attached hereto and made a part hereof.
3. Conduct of Employee.
--------------------
Employee does hereby accept said employment under the
terms and conditions herein set forth, and further agrees that
during the term hereof Employee will devote full time, attention and
energies to the business of the Employer, and will not, without the
prior written consent of Employer, actively engage in any other
business, employment or undertaking whatsoever, during the said
period of time. Employee further agrees to, at all times during the
term hereof, abide by and comply with the directions, instructions
and decisions of the Employer and, during the term hereof, to
dutifully and faithfully carry out and perform the duties and
obligations of Employee's position, as herein set forth.
4. Limitations Upon Acts of Employee. Employee agrees:
----------------------------------
(A) That Employee will not draw, accept or make any bill
of exchange or promissory note for or on behalf of the Employer; nor
shall Employee otherwise pledge the credit of the Employer, nor
execute or deliver any contracts or documents for or on behalf of
the Employer, except to the extent of the
2
<PAGE>
Employer's written policies consented to by its General Partner.
(B) That Employee will make available when requested such
information and fully advise the Employer, of all matters in which
Employee shall become involved, and acts which Employee shall
perform, for or on the account of the Employer; and that Employee
shall also promptly inform the Employer of any matters coming to
Employee's attention or knowledge that may materially affect the
interests of the Employer, or its business operations.
(C) The policies of operation of the business of the
Employer shall, from time to time, be determined by the Employer;
and the Employee agrees to conform to and execute all reasonable
policies of Employer as so determined.
5. Termination of Employment.
-------------------------
The Employer shall have the right to cancel and terminate
this Agreement, and to discharge the Employee for "good cause", or,
without cause upon seven (7) days' prior written notice to Employee.
For purposes of this Article 5, "good cause" shall be construed to
mean proven dishonesty in a material matter, habitual intoxication,
continued and repeated failure (after receipt of written notice from
Employer and reasonable opportunity to cure) to devote proper time
and attention to the business of the Employer, repeated failure
(after receipt of written notice from Employer and reasonable
opportunity to cure) by Employee to carry out the reasonable
directions and instructions of the Employer, conviction of a crime
involving moral turpitude or requiring imprisonment of Employee,
repeated and unexcused absenteeism (after receipt of written notice
from Employer and reasonable opportunity to cure), death of the
Employee, or the material breach by Employee of any of Employee's
obligations or agreements contained in Articles 7 or 8 below, or the
making of any representation or warranty pursuant to Article 6
hereinbelow which shall prove to be inaccurate, incorrect or false
in any respect. Upon termination of Employee's employment by
Employer without cause, the Employer agrees to pay Employee as
severance pay and in full and final settlement all claims between
the parties (excluding any claim by Employee for stock options or
3
<PAGE>
for wages or other compensation previously earned and fully vested
and not paid) an amount equal to six (6) months of the base salary
of Employee thereafter, plus a pro-rated amount equal to six (6)
months of Cash Incentive Compensation calculated as set forth in
Paragraph 3 of Exhibit A hereto and based on an assumed achievement
of 100% of the Performance Target applicable as of the termination
date. Severance pay shall be paid to Employee immediately upon
termination of her employment by Employer.
6. Employee's Representations.
---------------------------
Employee hereby represents and warrants to
Employer that there are not now operative and in force any
employment agreements or other instruments of any nature, to which
Employee is a party or under which Employee may be otherwise bound
or subject, which contain any terms or provisions that in any manner
restrict, limit, prevent, prohibit or make unlawful the execution of
Employee of this Agreement, or the performance by Employee of any or
all of Employee's obligations, covenants and duties herein
specified, or Employee's employment by Employer hereunder or
otherwise. In the event the representatives and warranties made by
Employee under this Article 6 should prove to be inaccurate,
incorrect or false in any respect, whether through inadvertence or
willful misrepresentation by Employee, Employer may, at its option,
upon discovering such inaccuracy or the falsity of said
representations, terminate this Agreement for good cause and
Employee's employment hereunder.
7. Trade Secrets.
--------------
The Employee agrees that during the term of employment
with the Employer and at all times after expiration thereof,
Employee will not communicate or divulge, for the benefit of any
competitor, rival or other person, firm, association, or
corporation, whether associated with the Employee or not, any trade
secrets, client lists, confidential employee information or any
other confidential information or confidential material matters of
any nature relating to the business of affairs of the Employer,
which may be utilized by Employer in or about its business and which
trade secrets, information or other matters are communicated or
otherwise become known to the Employee by reason of Employee's
employment
4
<PAGE>
hereunder, or otherwise. This provision shall expressly
survive any termination or other expiration of this Agreement.
8. Agreement Not to Compete.
-------------------------
Employee acknowledges that the services to be rendered
hereunder are of a special and unusual character which have a unique
value to the Employer, the loss of which cannot adequately be
compensated by damages in an action at law. Because of the unique
value to the Employer of the services of Employee for which the
Employer has contracted hereunder, and because of the confidential
information to be obtained by Employee, as aforesaid, Employee
agrees and covenants as follows:
(A) Employee agrees that after Employee ceases to be
employed by the Employer, Employee will not, directly or indirectly,
for a period of twenty-four (24) months next following such
cessation of employment, solicit business from, divert business
from, or attempt to convert to other methods of performing functions
related to the services provided by the Employer, any client,
account or customer of the Employer which for purposes hereof shall
be defined as client, account or customer having done business with
the Employer on a sole supplier basis at any time during the one (1)
year period immediately preceding the date of the cessation of
Employee's employment by the Employer.
(B) Employee agrees that for a period of twenty-four (24)
months after Employee ceases to be employed by the Employer,
Employee will not, directly or indirectly, solicit for employment or
employ for Employee's own or for another's benefit any employee of
the Employer.
9. Injunction.
-----------
Should the Employee engage in or perform, either directly
or indirectly, any of the acts prohibited in Articles 7 and 8
hereof, it is agreed that the Employer shall be entitled to recover
any damages incurred by it as a result of such engagement or
violation by Employee in an action at law, and to full injunctive
relief, to be issued by any competent court of equity, enjoining and
restraining the Employee and
5
<PAGE>
each and every person, firm, organization, association, or
corporation concerned therein, from the continuance of such
violative acts. The provisions of this Article 9 and or Article 8
above shall expressly survive any termination or other expiration of
this Agreement.
10. Non-Assignability.
-----------------
The Employee shall have no right to assign this Agreement, or any of
his or her rights or obligations hereunder, to another party or
parties. Employer shall have the right to assign this Agreement to
any successor entity provided that such entity agrees to assume all
of Employer's obligations hereunder.
11. Law Applicable.
---------------
This Agreement shall be construed in accordance with the
laws of the District of Columbia.
6
<PAGE>
12. Non-Waiver of Breach.
---------------------
No waiver by the Employer of any breach of any covenant or
obligation hereof on the part of the Employee to be kept and
performed shall be considered to be a waiver of any such covenant or
provision, or of any future breach thereof.
13. Arbitration.
-----------
Except as herein otherwise provided, any claim or
controversy arising out of or relating to this Agreement or any
breach hereof shall, upon the request of either the Employer or
Employee, be submitted to and settled by arbitration in accordance
with the rules of the American Arbitration Association then in
effect. Any decision made pursuant to such arbitration shall be
binding and conclusive upon the Employer and the Employee and
judgment upon such decision may be entered in any court having
jurisdiction thereof. This Section 13 shall not apply with respect
to any breach or threatened breach of Section 7 or 8.
14. Entire Agreement.
-----------------
This instrument contains all of the agreements and
understandings between the parties hereto with respect to the
employment of the Employee by the Employer, and no oral agreements
or written correspondence shall be held to affect the provisions
hereof and shall be binding upon Employer's successors and assigns.
All subsequent changes and modifications, to be valid, shall be by
written instrument executed by the Employer and the Employee.
7
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this Agreement
to be executed on its behalf by its duly authorized officers and the
Employee has hereunto set his hand and seal, all done on the day and
in the year first hereinabove written.
EMPLOYER:
--------
ATTEST: CGX Communications, Inc.
/s/ Pat Steckler By: /s/ Evans K. Anderson
--------------------- -------------------------
Name: Evans K. Anderson
-----------------------
Title:Vice President
--------------------
EMPLOYEE:
--------
/s/ Pat Steckler /s/ Laura Neuman
--------------------- ----------------------
Laura Neuman
8
<PAGE>
EXHIBIT "A"
-----------
COMPENSATION
------------
1. Base Compensation. During the term of the Agreement,
-----------------
Employee shall receive a base salary of $xxx,000.00 per Employment
Year. Base salary shall be paid during an Employment Year in twenty-
six (26) equal installments, less applicable social security and
withholding taxes. Employee's base salary will be subject to such
periodic increases as may be determined by the Employer.
2. Employee Benefits. Employer shall reimburse Employee
-----------------
for all expenses reasonably incurred by her in the performance of
her duties hereunder, with such reimbursement to be made upon
submission by Employee of itemized statements and receipts in form
reasonably satisfactory to Employer. Employee shall be entitled to
such amount of vacation as is normal and usual for an executive of
his position with the Employer and shall be eligible to participate
in all hospitalization, 401k Plan, insurance and other employee
benefit plans for non-union executive employees which may be
maintained wholly or partially funded by Employer.
3. Incentive Compensation.
----------------------
(A) Cash Incentive Compensation.
---------------------------
During the term of the Agreement, Employee shall be
entitled to Cash Incentive Compensation (to be paid within thirty
(30) days after the end of each quarter) to the extent the
Employer's actual performance for the quarter meets or exceeds the
budgeted quarter performance target (the "Performance Target") for
CAIS total Billings as described below.
It is agreed that the Performance Target for Employment
Year 1, which covers the period of July 1, 1998 through June 30,
1999, shall be $9,500,000 of CAIS total Billings ("Billings" defined
as CAIS billings generated by Employee and/or her sales staff
excluding pass throughs and reduced by any billing credits), with
the break down of such Billings as follows:
<TABLE>
<CAPTION>
7/1/98-12/31/98 1/1/99-6/30/99 7/1/98-6/30/99
---------------- --------------- ---------------
<S> <C> <C> <C>
CAIS Internet Billlings (Non-OverVoice) $ 3,200,000 $ 3,950,000 $ 7,150,000
OverVoice Hotels $ 200,000 $ 1,000,000 $ 1,200,000
OverVoice MDUs $ 100,000 $ 1,050,000 $ 1,150,000
--------------- --------------- ---------------
CAIS total Billings $ 3,500,000 $ 6,000,000 $ 9,500,000
</TABLE>
1
<PAGE>
Employer and Employee shall in good faith mutually agree
upon the Performance Target for the any subsequent employment years
prior to the commencement of each such respective employment year.
The parties further agree that the Performance Targets for any
subsequent employment years following Employment Year 1 shall be
premised on the anticipated continuation of rapidly increasing sales
growth for CAIS.
Cash Incentive Compensation shall be determined based upon the
following formula:
(1) To be eligible to receive any cash incentive compensation,
the Employee must achieve a minimum of 70% of the of the
Performance Target for that Employment Quarter which will be
trued up semi annually. The parties agree that 50% of the semi
annual numbers above will be the quarterly target.
(2) In the event that a minimum of 70% of the Performance
Target for a particular Employment Quarter is achieved as stated
above, the Employee shall be entitled to receive Cash Incentive
Compensation of $xx,000 for such Employment Quarter.
4. Granting of Stock Options. (a) Subject to the terms and
--------------------------
conditions of the CGX 1998 Employee Equity Plan (the "Plan") (a copy
of which Plan shall be provided to Employee) and to the vesting
requirements, forfeiture provisions and other terms and conditions
set forth on the form of Incentive Stock Option Certificate, the
form of which is attached hereto, and as an inducement to entering
into this Agreement, Employer hereby grants to Employee stock
options equal to 40,000 shares at the option price and on the
vesting schedule specified on the attached form of Incentive Stock
Option Certificate ("Incentive Stock Options"). Such Incentive Stock
Options shall be in addition to and separate from all other stock
options previously granted to Employee under the Plan.
(b) Notwithstanding the vesting schedule set forth on the
Incentive Stock Option Certificate for options granted pursuant to
subparagraph 4(a) above, but otherwise subject to the terms and
conditions of the CGX 1998 Employee Equity Plan and to the
forfeiture provisions and other terms and conditions set forth on
the such Incentive Stock Option Certificate, if, prior to any of the
vesting dates set forth in such Incentive Stock Option Certificate,
a merger, acquisition, or a sale of substantially all of Employer's
assets occurs that results in a change of ownership control of
Employer from current majority ownership control and the removal of
any two of the following three members of current management,
Ulysses G. Auger, II, William M. Caldwell IV, and Evans Anderson,
then the vesting of all of Employee's Incentive Stock
2
<PAGE>
Options and all other stock options granted to Employee under the
Plan shall immediately accelerate and become exerciseable as of one
day prior to the effective date of such merger, acquisition, or
sale.
(c) Notwithstanding the vesting schedule set forth on the
Incentive Stock Option Certificate for options granted pursuant to
subparagraph 4(a) above, but otherwise subject to the terms and
conditions of the CGX 1998 Employee Equity Plan and to the
forfeiture provisions and other terms and conditions set forth on
the such Incentive Stock Option Certificate, if Employee's
employment ceases, except for a termination for "good cause" as
provided in Article 5, on a date two years or later after the date
of this Agreement but prior to the final vesting date provided for
in such Incentive Stock Option Certificate, then either (i) if such
cessation of employment occurs on a date at least two years but less
than three years after the date of this Agreement, then 10,000 of
the 25,000 Incentive Stock Option shares scheduled to become
exerciseable on such final vesting date but otherwise forfeited as a
result of such cessation of employment and any other stock options
granted to Employee under the Plan shall immediately accelerate and
become exerciseable as of such cessation of employment date, (ii) if
such cessation of employment occurs on a date at least three years
but less than four years after the date of this Agreement then
15,000 of the 25,000 Incentive Stock Option shares scheduled to
become exerciseable on such final vesting date but otherwise
forfeited as a result of such cessation of employment and any other
stock options granted to Employee under the Plan shall immediately
accelerate and become exerciseable as of such cessation of
employment date, or (iii) if such cessation of employment occurs on
a date at least four years after the date of this Agreement then
20,000 of the 25,000 Incentive Stock Option shares scheduled to
become exerciseable on such final vesting date but otherwise
forfeited as a result of such cessation of employment shall
immediately accelerate and become exerciseable as of such cessation
of employment date.
3
<PAGE>
1998 ISO 40,000 Shares
CGX COMMUNICATIONS, INC. -- 1998 EQUITY INCENTIVE PLAN
Incentive Stock Option Certificate
CGX Communications, Inc. (the "Company"), a Delaware corporation, hereby
grants to the person named below an option to purchase shares of Common Stock,
$0.01 par value (the "Common Stock"), of the Company (the "Option") under and
subject to the Company's 1998 Equity Incentive Plan (the "Plan") exercisable on
the following terms and conditions and those set forth on the reverse side of
this certificate:
Name of Optionholder: Laura Neuman
Address: ________________________________________________________________
Social Security No. ___________________
Total Number of Option Shares: 40,000
Option Price: $3.07
Date of Grant: June XX, 1998
Exercisability Schedule: Options granted hereunder may be exercised only in
accordance with the following schedule:
Date Options First Exercisable total option shares exercisable
------------------------------ -------------------------------
Earlier of October 15, 1999 5,000 option share
or date of initial public offering
12 months after date options 5,000 option shares
first become exercisable
24 months after date options 5,000 option shares
first become exercisable
36 months after date options 25,000 option shares
first become exercisable
Expiration Date: June XX, 2008
This Option shall be treated as an Incentive Stock Option under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code").
If Employee ceases to be employed by Employer before the earlier of October
15, 1999, or the date of initial public offering, then Employee forfeits her
Incentive Stock Options;
4
<PAGE>
provided however, that if before the earlier of October 15, 1999, or the date of
initial public offering, there is a merger, aquisition or sale of substantially
all of Employer's assets that results in a change of ownership control of
Employer from current majority ownership control and the removal of any two of
the following three members of current management, Ulysses G. Auger, II, William
M. Caldwell IV, and Evans Anderson, as contemplated in article 4(b) of Exhibit A
attached to Employee's Employment Agreement, in which case, Employee's Incentive
Stock Options and any other stock options granted to Employee under the Plan
shall be exerciseable in accordance with the aforesaid article 4(b) of Exhibit
A.
By acceptance of this Option, the Optionholder agrees to the terms and
conditions hereof.
CGX Communications, Inc.
By:_______________________
5
<PAGE>
CGX COMMUNICATIONS, INC. -- 1998 EQUITY INCENTIVE PLAN
Incentive Stock Option Terms And Conditions
(Reverse Side of Option Certificate)
1. Plan Incorporated by Reference. This Option is issued pursuant to the
------------------------------
terms of the Plan and may be amended as provided in the Plan. Capitalized terms
used and not otherwise defined in this certificate have the meanings given to
them in the Plan. This certificate does not set forth all of the terms and
conditions of the Plan, which are incorporated herein by reference. The
Committee administers the Plan and its determinations regarding the operation of
the Plan are final and binding. Copies of the Plan may be obtained upon written
request without charge from the Company.
2. Option Price. The price to be paid for each share of Common Stock
------------
issued upon exercise of the whole or any part of this Option is the Option Price
set forth on the face of this certificate.
3. Exercisability Schedule. This Option may be exercised at any time and
-----------------------
from time to time for the number of shares and in accordance with the
exercisability schedule set forth on the face of this certificate, but only for
the purchase of whole shares. This Option may not be exercised as to any shares
after the Expiration Date.
4. Method of Exercise. To exercise this Option, the Optionholder shall
------------------
deliver written notice of exercise to the Company specifying the number of
shares with respect to which the Option is being exercised accompanied by
payment of the Option Price for such shares in cash, by certified check or in
such other form, including shares of Common Stock of the Company valued at their
Fair Market Value on the date of delivery, as the Committee may approve in
writing. Promptly following such notice, the Company will deliver to the
Optionholder a certificate representing the number of shares with respect to
which the Option is being exercised.
5. Rights as a Stockholder or Employee. The Optionholder shall not have
-----------------------------------
any rights in respect of shares as to which the Option shall not have been
exercised and payment made as provided above. The Optionholder shall not have
any rights to continued employment by the Company or its Affiliates by virtue of
the grant of this Option.
6. Recapitalization, Mergers, Etc. As provided in the Plan, in the event
-------------------------------
of corporate transactions affecting the Company's outstanding Common Stock, the
Committee may, in its sole discretion, equitably adjust the number and kind of
shares subject to this Option and the exercise price hereunder or make provision
for a cash payment. If such transaction involves a consolidation or merger of
the Company with another entity, the sale or exchange of all or substantially
all of the assets of the Company or a reorganization or liquidation of the
Company, then in lieu of the foregoing, the Committee may upon written notice to
the Optionholder provide that this Option shall terminate on a date not less
than 20 days after the date of such notice unless theretofore exercised. In
connection with such notice, the Committee may in its discretion accelerate or
waive any deferred exercise period.
7. Option Not Transferable. This Option is not transferable by the
-----------------------
Optionholder otherwise than by will or the laws of descent and distribution, and
is exercisable, during the Optionholder's lifetime, only by the Optionholder.
No transfer of an option by a participant by will or by laws of descent and
distribution shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and a copy of the will and such
other evidence as the Company may deem necessary to establish the validity of
the transfer and the acceptance by the transferee or transferees of the terms
and conditions of such option. The naming of a Designated Beneficiary does not
constitute a transfer.
8. Exercise of Option After Termination of Employment. If the
--------------------------------------------------
Optionholder's employment with (a) the Company, (b) an Affiliate, or (c) a
corporation (or parent or subsidiary corporation of such corporation) issuing or
assuming a stock option in a transaction to which Section 424(a) of the Code
applies, is terminated for any reason other than by disability (within the
meaning of Section 22(e)(3) of the Code) or death, the Optionholder may exercise
the rights which were available to the Optionholder at the time of such
termination only within thirty days from the date of termination. If
Optionholder's employment is terminated as a result of disability, such rights
may be exercised within twelve months from the date of termination. Upon the
death of the Optionholder, his or her Designated Beneficiary shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights that were available to the Optionholder at the time
of death. Notwithstanding the foregoing, no rights under this Option may be
exercised after the Expiration Date.
9. Compliance with Securities Laws. It shall be a condition to the
-------------------------------
Optionholder's right to purchase shares of Common Stock hereunder that the
Company may, in its discretion, require (a) that the shares of Common Stock
reserved for issue upon the exercise of this Option shall have been duly listed,
upon official notice of issuance, upon any national securities exchange or
automated quotation system on which the Company's Common Stock may then be
listed or quoted, (b) that either (i) a registration statement under the
Securities Act of 1933 with respect to the shares shall be in effect, or (ii) in
the opinion of counsel for the Company, the proposed purchase shall be exempt
from registration under that Act and the Optionholder shall have made such
undertakings and agreements with the Company as the Company may reasonably
require, and (c) that such other steps, if any, as counsel for the Company shall
consider necessary to comply with any law applicable to the issue of such shares
by the Company shall have been taken by the Company or the Optionholder, or
both. The certificates representing the shares purchased under this Option may
contain such legends as counsel for the Company shall consider necessary to
comply with any applicable law.
10. Restricted Stock; Restrictions Prior to Public Offering. All shares
-------------------------------------------------------
of Common Stock purchased hereunder shall be subject to the provisions of
Section 7 of the Plan, including but not limited to the option granted to the
Company under such Section.
11. Payment of Taxes. The Optionholder shall pay to the Company, or make
----------------
provision satisfactory to the Company for payment of, any taxes required by law
to be withheld with respect to the exercise of this Option. The Committee may,
in its discretion, require any other Federal or state taxes imposed on the sale
of the shares to be paid by the Optionholder. In the Committee's discretion,
such tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the exercise of this Option, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the Optionholder.
i
<PAGE>
12. Notice of Sale of Shares Required. The Optionholder agrees to notify
---------------------------------
the Company in writing within 30 days of the disposition of any shares purchased
upon exercise of this Option if such disposition occurs within two years of the
date of the grant of this Option or within one year after such purchase.
ii
<PAGE>
EXHIBIT 10.13
AGREEMENT FOR COOPERATIVE USE OF COMMUNICATION PATENTS
November 5, 1996
PURCHASE OF AN OPTION TO OBTAIN INTELLECTUAL PROPERTY RIGHTS
- ------------------------------------------------------------
WHEREAS, Inline Connection Corporation (hereinafter "Inline")
owns patents in the United States and Canada and has filed patent
applications in various countries describing new techniques for, among
other things, communicating video and high data rate digital signals over
twisted pair wires, including wires actively conducting voiceband
communication (these patents and patent applications are listed in Appendix
I) which patents and applications, together with all presently existing and
hereafter created inventions, improvements or ideas related thereto and all
subsequent modifications, divisions, continuations, re-issues, extensions,
supplements and additions pertaining to or otherwise arising from such
patents or applications being collectively referred to herein as the
"twisted pair patents" or "TWP patents,"; and
WHEREAS, CAIS, Inc., a Virginia corporation and/or CAIS Limited
Partnership, a Virginia limited partnership (hereinafter "CAIS",) is in the
business of providing Internet and telephone services and conducting other
telecommunications business worldwide; and
WHEREAS, CAIS or entities affiliated with either CAIS or certain
of its principals (such entities being herein referred to as "CAIS
Affiliates") desire to associate with Inline by reason of the ownership by
Inline of the TWP patents; and
WHEREAS, Inline and CAIS have an interest in exploiting the TWP
patents for the mutual benefit of both parties.
NOW, THEREFORE, in consideration of above premises and such other
good and valuable consideration, the receipt and sufficiency of which being
hereby acknowledged, the parties do hereby agree as follows:
1
<PAGE>
1. GRANT OF OPTION
---------------
Inline hereby sells CAIS and CAIS hereby purchases from Inline an option
(herein the "Option") under the terms defined below, to purchase rights to
the TWP patents, under the terms that are set forth more fully below, for a
total payment of FIFTY THOUSAND DOLLARS $50,000, which sum shall be payable
to Inline concurrent upon execution hereof. Inline agrees promptly upon
execution hereof to provide to CAIS without additional charge, both (i)
complete copies of the patent applications, file histories and patents for
each of the TWP patents, and (ii) reasonable assistance from Inline and its
patent counsel in order to enable and facilitate the analysis by CAIS of
the TWP patents.
The Terms of the Option:
- -----------------------
1.1) The period of the Option (the "Option Period") shall be four (4)
months, beginning as of the date that this agreement is fully executed,
unless the Option is sooner exercised or terminated in accordance with the
provisions of this section.
1.2) Inline agrees to retain ownership and usage rights of the TWP
patents during the Option Period, and not to compromise such ownership and
usage rights in any way during this period, except that Inline shall
provide CAIS, for consideration of the sum of $10, the rights to use by
itself or any CAIS Affiliate the TWP patents in up to three (3) different
buildings during the Option Period.
1.3) It is further agreed that CAIS shall be afforded sole rights to
build, market and develop the TWP patents during the Option Period, and, if
the Option shall be exercised, at all times thereafter except to the extent
expressly provided below to the contrary.
1.4) David D. Goodman, president of Inline, agrees to work under the
direction of CAIS during the first three months of the Option Period. Mr.
Goodman agrees, in good faith, to assist CAIS in determining the general
value of the TWP patents, the specific value of the TWP patents to the
business operations of CAIS, and assist CAIS in any other manner that is
related to the TWP patents.
CAIS agrees to pay Inline $7500 per month (the "$7,500 Monthly Fee") during
the first three months of the Option
2
<PAGE>
Period, in return for Mr. Goodman's services. The three $7500 payments are
due 15, 45, and 75 days after the date of purchase of the Option by CAIS,
i.e., after execution of this Agreement.) There shall be no payment to
Inline or other payment to Mr. Goodman during the fourth month of the
Option Period.
In consideration of such payments, Mr. Goodman agrees to devote full time
efforts during the first three months of the Option Period for the services
described above on behalf of CAIS, on an exclusive basis, with the
understanding, however, that during this three month period, Mr. Goodman
shall be entitled to complete before 8:00 a.m. and after 5:30 p.m. on
Mondays-Fridays and during all hours on Saturdays and Sundays a maximum of
two weeks of programming for America Online. No services shall be required
of Inline or Goodman during the fourth month; however, neither party shall
provide services to any other person, firm or corporation during any
portion of such four month period involving the TWP patents or any
applications thereof described in this Agreement.
1.5) CAIS can elect to forfeit the Option at any time. Should it elect to
forfeit, such forfeiture shall be done by written notice from CAIS sent to
Inline, referring specifically to this section. In the event of forfeiture by
CAIS as aforesaid, CAIS shall be relieved of obligations to pay any amounts that
have not come due, whereupon the license, defined above, entitling CAIS to use
the TWP patents in up to three (3) different buildings, shall expire upon
expiration of five (5) days thereafter. Should CAIS elect to forfeit the Option
hereunder, neither party shall thereafter be bound to one another under this
Agreement, with the exception that both Inline and Goodman shall indemnify and
hold harmless CAIS and the CAIS Affiliates from any infringement or similar
claims arising by reason of their use of the TWP patents during the Option
Period, and such obligation shall expressly survive termination hereof;
provided, however that as a condition to the agreement of Inline and Goodman to
provide such indemnity, CAIS agrees during the Option Period to:
(i) comply with any written specifications provided to CAIS by
Inline with respect to implementation of the technology licensed
hereunder;
3
<PAGE>
(ii) notify Inline promptly following receipt by CAIS of any such
notice of infringement or similar claim; and
(iii) following receipt by CAIS of such notice, reduce, alter or cease
exercise of the rights provided by the TWP Patents, in accordance
with Inline's written instructions.
Exercise of the Option (i.e. Purchase of Patent Rights):
- -------------------------------------------------------
1.6) CAIS shall be entitled to exercise its Option at any time during the
Option Period, by payment of $50,000 (Fifty Thousand Dollars) to Inline.
(The amount paid for the Option at the time of execution hereunder does not
count towards this payment.) In addition, CAIS shall also concurrently pay
the pro-rated then unpaid portion of the $7,500 Monthly Fee required above,
if any such fee has not been theretofore paid, for work performed during
the Option Period.
1.7) Upon exercise of the Option, all intellectual property rights
pertaining to or otherwise arising from the TWP patents shall be deemed
exclusively licensed to CAIS, under the terms defined in the sections
below. This Agreement shall terminate only under the provisions that are
also defined below.
2. INTELLECTUAL PROPERTY RIGHTS GRANTED TO CAIS
--------------------------------------------
Should the Option be exercised as aforesaid, CAIS shall be deemed granted
by Inline an exclusive license to use, make, sub-license, or sell, on a
world-wide basis, in such manner or manners as CAIS shall in its sole and
exclusive discretion determine necessary, desirable or appropriate, any
technology covered by the TWP patents, subject only to those express
geographic and pre-existing contract limitations described below in this
section 2; recognizing, however, that as a material inducement to CAIS
hereunder, Inline and Goodman represent and warrant that to the best of
their knowledge, none of the pre-existing contract limitations to which
this exclusive license shall be subject shall either
(A) adversely affect in any material manner, the right of CAIS to use, make,
sub-license or sell any such technology other than within:
4
<PAGE>
(i) single family residential units [as opposed to multi family
properties such as (by way of example and not in limitation)
condominiums, apartments, hospitals, nursing homes, prisons, and
hotels],
(ii) bars, restaurants, coffee shops and other business
establishments earning at least ninety percent (90%) of their revenues
from the sale of food and beverages consumed on their premises;
or (B) impose upon CAIS or its sub-licensees any obligations, duties or
limitations other than as described in (A) above.
The restrictions set forth above in 2(A) and 2(B) are collectively referred
to as the "Pre-Existing Contract Restrictions".
In the event Inline or Goodman are found to have breached their
representations under either this Section or in Section 15 below, (i.e. it
shall be determined that either Inline or Goodman had knowledge of a pre-
existing contract limitation or other patent holder which infringes on the
ability of CAIS to use the technology to be licensed hereunder), then and
in such event CAIS shall be entitled to recover all damages suffered or
incurred by reason of such breach, including without limitation recovery of
all sums paid to Inline and/or Goodman hereunder.
The express limitations to which this exclusive license shall remain
subject are as follows:
Geographic Limitations:
- ----------------------
Rights to use, make, sub-license or sell the technology covered by the TWP
patents (the "TWP Technology"), in the country of Israel shall be retained
by Inline.
CAIS further agrees that it shall not use, sub-license, make or sell the
TWP Technology in either * or * without the express prior
written consent of Inline, which consent shall be granted or withheld by
Inline in its sole and exclusive discretion, recognizing that at this time
Inline prefers not to use or permit any other party to use the TWP
Technology in such countries.
In no event shall the foregoing reservations pertaining to * or
* be interpreted as granting any party
- ----------------------
*Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
5
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other than CAIS the right to use, make or sell the TWP Technology in
* and/or * .
Limitations Imposed by Pre-Existing Contracts:
- ---------------------------------------------
Subject to the rights of CAIS to recover for the benefit of both CAIS and
Inline all or such portion of the "Terk Rights" (as described in section 3
below) determined by CAIS necessary, desirable or appropriate, the
intellectual property rights transferred under this Agreement do not
include the following rights transferred by Inline Connection Corporation
to Terk Technologies, of Plainview, NY, (hereinafter Terk) as part of a
contract between Terk and Inline executed in 1995, namely:
the right to build, use or sell products that transmit one or more signals
onto twisted pair wires at frequencies above 3 Khz, and products that
receive one or more signals at frequencies above 3 Khz, by connection to
twisted pair wires within the specific field of use strictly confined to
residential settings (but not multi-family residential settings as
described above) and bars, restaurants, coffee shops and other business
establishments earning at least ninety percent of their revenues from the
sale of food and beverages consumed on premises.
A true and complete copy of that contract (the "Terk-Inline Agreement") is
hereby represented by Inline as being attached hereto.
The parties hereby recognize and agree that the limitations set forth above
shall not be deemed to subject CAIS or its
sub-licensees to any liability, claim or damage by reason of the failure of
their particular purchaser, or any subsequent user of any product sold by
CAIS or its sub-licensees hereunder to limit the use of such product in
accordance with the geographical or pre-existing contract limitations set
forth above. CAIS and its sublicensees must print the following language
on the exterior packaging of any such product:
"Purchaser (or licensee) agrees not to use this product in detached single-
family residential structures, and also agrees not to use this product in
business establishments earning at least 90% of their revenues from the
sale of food and beverages consumed on premises."
- ----------------------
*Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
6
<PAGE>
This paragraph shall be placed in all agreements to resell or sub-license
this product. This paragraph is the only agreement on its subject and
shall supersede all contradictory agreements. It may be enforced by Inline
Connection Corporation. CAIS agrees to adhere to the above paragraph and
to place the label language and the resale agreement restriction language
in all sales contracts or other agreements relating to the products. CAIS
shall be released from any claims for any violation of the terms of this
section if this paragraph was included in the contract to license or sell
the violating products and the appropriate markings were made on any
products sold by CAIS. The limitations described in the immediately
preceding sentence are referred to below as the "Limitation Exceptions".
The Limitation Exceptions shall in no manner affect the rights of CAIS to
share commissions, fees or royalties as set forth below in Section 3.
3. RIGHTS TO PURSUE RECOVERY OF TERK RIGHTS
----------------------------------------
Upon exercise of the Option granted herein, Inline agrees that CAIS shall
be entitled to take good faith action to negotiate with Terk and take other
such appropriate action to recover all or any of the rights transferred to
Terk under the Terk-Inline Agreement (herein the "Terk Rights"). CAIS
agrees that any agreement to be entered into with Terk related to the
transfer of the Terk Rights shall require the transfer of such rights so
that they become part of the TWP patent rights subject to this Agreement.
Further, CAIS shall consult with Inline prior to initiating any lawsuits or
other court or arbitration proceedings against Terk in connection with
recovery of the Terk Rights, and CAIS shall consult with Inline throughout
such proceedings; provided, however that if CAIS does not receive any
written objections within three business days following written notice to
Inline hereunder, Inline shall be deemed to have waived its rights to
discuss with CAIS the initiation of such claim or proceeding. CAIS shall be
entitled in its sole and exclusive discretion to either abandon such
actions, or to fund in whole or in part with Inline sums in connection with
such negotiations or arbitration proceedings. Inline agrees to fully
cooperate with CAIS, at no additional charge to CAIS, at anytime subsequent
to the exercise by CAIS of its option rights hereunder, in all such
negotiations and/or arbitration proceedings. In no event shall Inline
modify,
7
<PAGE>
alter or change in any manner any of the terms, provisions or conditions
set forth in the Terk Agreement during the term of this Agreement, nor
waive or exercise any of its rights thereunder, absent the express written
consent of CAIS. All rights recovered from Terk hereunder shall be governed
by this Agreement, recognizing, however that (i) CAIS shall be entitled to
recover all "Reimbursable Costs" (below defined) incurred in connection
with any such negotiation or arbitration from the first royalties arising
from recovery of any such rights prior to Inline receiving its share of
such royalties; (ii) Inline shall thereafter be entitled to recover those
funds, if any, elected by Inline in its sole discretion to be advanced to
third parties in connection with such arbitration or negotiations from the
royalties received subsequent to the reimbursement to CAIS under (i) above;
and (iii) any royalties earned after the CAIS option has been exercised
under the Terk-Inline Agreement, subsequent to the allocation of such
royalties to the recoveries provided for in (I) and (ii), shall be
allocated either 50% to Inline and 50% to CAIS, or 75% to CAIS and 25% to
Inline, as more fully set forth below, provided, however, that the first
$50,000 of such royalties, subsequent to the allocations to the recoveries
provided for in (I) and (ii), shall be allocated to Inline. For purposes
hereof, Reimbursable Costs shall be defined as legal costs and expenses,
any direct travel, food or lodging costs, expert witness charges and
expenses, and other costs paid to unrelated third parties. In addition,
following the written consent of Inline, which consent shall not be
unreasonably withheld, delayed or conditioned, Reimbursable Costs may also
include reimbursement of sums or benefits paid or provided to CAIS
employees providing services related to the pursuit of the Terk Rights. In
the event Inline fails to respond within five (5) business days following
written request, Inline shall be deemed to have consented to the
expenditure of the particular cost or expense requested by CAIS to be
reimbursed.
The parties expressly agree that CAIS shall participate on a "fifty-fifty"
basis with Inline to the extent Inline receives any commissions, fees or
royalties of any nature subsequent to the exercise by CAIS of the Option,
and Inline hereby agrees to remit to CAIS (or credit against the
obligations of CAIS hereunder) one-half of all such amounts received by
Inline under the Terk Agreement. Notwithstanding the foregoing, to the
extent any provision of the Terk Agreement shall be determined by a court
of
8
<PAGE>
competent jurisdiction to restrict CAIS or any CAIS Affiliate from
exploiting the technology hereunder in a manner more restrictive than as
defined within the Pre-Existing Contract Restrictions, and as a result
thereof Terk or its designee exploits such technology in the restricted
manner, then to the extent Inline receives any commissions, fees or
royalties of any nature subsequent to the exercise by CAIS of the Option
attributable to such restricted exploitation, CAIS shall participate as to
a three-fourths share thereof (as opposed to the one-half share provided in
the preceding sentence) with Inline receiving the remaining one-fourth
share.
4. CAIS OBLIGATIONS TO FUND R&D
----------------------------
CAIS agrees to expend up to $200,000 for R&D efforts for the design of a
reliable, seamless and affordable TWP System, incorporating the technology
of the TWP patents, to deliver high speed video and data to end users
utilizing existing twisted pair phone wire. The TWP System shall consist
of several basic components including, but not limited to, the base
station, the source server, FM transmitters, the switching hub, and
enhanced wire jacks. Development of the TWP System is to include the
design and prototyping of inline production models of all commercially
unavailable equipment required to implement the TWP System. It is
recognized that it will not be necessary for all of the components required
for operation of the TWP System to be designed and custom prototyped, to
the extent that there already exists commercially available equipment that
will meet the needs of the TWP System and that can be integrated into the
TWP System.
The TWP System to be developed must have the following attributes:
commercial reliability, ease of installation, ease of upgrade and ease of
maintenance. Because the system will attach to the telephone network, it
must be designed to meet any FCC certification and other requirements. The
TWP System and its components should be built to meet all applicable legal,
regulatory and industry requirements and standards. All components must be
designed such that the mean time between failures (MTBF) is on the order of
30 minutes every 20 years. The TWP System must be designed for flexibility
and able to accommodate the moves, adds, and changes that will be required
due to the inherent dynamic nature of buildings where the TWP System will
be installed.
9
<PAGE>
It is recognized that Inline and CAIS shall work together with the intent
that the TWP System be produced in accordance with the above specifications
at the lowest cost reasonably possible.
Within 14 days following CAIS's exercise of the option pursuant to section
1.6, Inline shall submit to CAIS a proposed R&D plan and budget, which
shall be subject to CAIS's approval, which shall not be unreasonably
withheld. Inline agrees that all material contracts, purchase orders, and
similar agreements to be entered into pursuant to and in implementation of
the R&D plan and budget shall be submitted to CAIS for CAIS's prior
approval, which shall not be unreasonably withheld or delayed.
CAIS shall be entitled to control the disbursement of payments made in
furtherance of the R&D plan and budget, but shall nevertheless report to
Inline on a monthly basis the amounts and recipients of all disbursements
therefrom. CAIS agrees to disburse payments consistent with timely
implementation of the R&D plan and budget.
It is specifically recognized and agreed by the parties that the $200,000
shall be used by CAIS solely in connection with research and development,
as aforesaid. CAIS hereby agrees to commit to spend up to $200,000 during
the nine (9) months period following the date of the exercise of the
Option. CAIS shall be entitled to consider for purposes of such
expenditures twenty percent (20%) of the monthly fees payable to Goodman
(or Inline) for Mr. Goodman's services, pursuant to section 5 below, until
completion of the TWP System. Inline shall use its best efforts to complete
within such nine (9) months period the development of the TWP System. In
the event the TWP System is developed before the expenditure of the
$200,000, then and in such event CAIS shall be entitled to a preferential
reimbursement right to recover from the royalties otherwise first
receivable by Inline hereunder all sums spent for research and development
not in excess of $200,000. In the event CAIS shall expend the full $200,000
hereunder, and CAIS shall elect in its sole discretion to advance
additional funds, CAIS shall be afforded a preferential reimbursement right
from the royalties otherwise first receivable by Inline to recover both
(i)all such excess funds that CAIS chooses to advance not in excess of One
Hundred Thousand Dollars ($100,000), together with interest thereon from
the date advanced at eight percent (8%) per annum until recovered, together
with
10
<PAGE>
(ii) the initial $200,000 expended by CAIS hereunder. For purposes of
this Agreement, "preferential reimbursement right", unless otherwise
specified, shall mean that CAIS shall be entitled to receive and apply to
such recovery seventy-five percent (75%) of the royalties otherwise first
receivable by Inline.
If after $200,000 has been expended on R&D efforts the TWP System has not
been completed, CAIS shall also be entitled to terminate its rights
hereunder at any time thereafter prior to completion of the TWP System by
written notice to Inline, with the understanding nevertheless that during
the ten (10) year period subsequent to such termination CAIS shall be
entitled to a non-exclusive license to use any of the patent rights itself,
or it can trade rights to use the TWP Technology for distribution of
signals to end users. The consideration CAIS receives in return for such a
trade must include the right and obligation to provide substantial
information services to these end-users, either directly or through a third
party. CAIS shall compensate Inline, for all fees collected for such
services, according to the schedules that apply prior to termination,
provided that CAIS shall be entitled to a Most Favored Nation adjustment of
such fees to the extent Inline agrees to more favorable terms with any
third party. Inline shall inform CAIS of any such third party agreement
within 30 days of the date Inline enters into any such agreement.
In addition, notwithstanding any such termination by CAIS hereunder, should
Inline subsequently receive any royalties related to the TWP Patents, CAIS
shall remain entitled to a preferential reimbursement right from the
royalties otherwise receivable by Inline to recover therefrom all
expenditures for research and development made by CAIS not in excess of
$300,000, to the extent that CAIS shall be entitled to receive and apply to
such recovery fifty percent (50%) of the royalties otherwise first
receivable by Inline. The parties expressly recognize that the provisions
contained in this paragraph shall survive any termination of this Agreement
and shall be fully enforceable by CAIS.
5. INLINE OBLIGATIONS TO PROVIDE CONSULTING SERVICES
-------------------------------------------------
David D. Goodman, president of Inline, agrees to work full time and
exclusively under the direction of CAIS, for the first two years (the
"Consulting Period") following exercise
11
<PAGE>
by CAIS of the Option, subject to extension in the event the TWP System is
not developed within the initial nine month period following the exercise
of the Option. Inline shall be paid $8,500 per month for the services of
Mr. Goodman during the first nine months of the Consulting Period, and
provided the TWP System has been theretofore completed, a similar amount
for each of the three months elapsing thereafter. Inline shall be entitled
to receive during the last twelve months of the Consulting Period the sum
of $10,000 per month. In the event the TWP System has not been completed
within such nine month period, the aforesaid monthly fee shall be abated in
its entirety until such time as the TWP System has been developed.
Following development of the TWP System, the Consulting Period shall be
deemed extended by the number of months delay between the expiration of the
ninth month of the Consulting Period and the month in which such TWP System
is developed. Further, in the event the Consulting Period is extended as
aforesaid, Mr. Goodman shall receive during each of the three months
following the month in which the TWP System is developed a monthly fee of
$8,500, together with the $10,000 per month fees payable for each of the
twelve months elapsing beyond such three month period. Mr. Goodman shall
not be required to work under the direction of CAIS subsequent to
expiration of the Consulting Period; however, neither Mr. Goodman nor
Inline shall offer or provide, either directly or indirectly, to any other
person, firm or corporation at anytime during the term of the exclusive
license acquired by CAIS hereunder, any rights or services pertaining to or
in competition with the TWP patents (except to the extent required by Terk
in accordance with the presently existing terms under the Terk Agreement).
The parties expressly agree that CAIS or its assigns shall be entitled to
injunctive relief, in addition to and not in limitation of any other rights
or remedies available at law or in equity as a result of the breach or
planned breach by Mr. Goodman or Inline of its obligations hereunder.
Following development of the TWP System, Mr. Goodman shall be entitled to
reside in Israel up to two (2) months per calendar year provided that he
continues to fulfill his obligations and duties hereunder. Further, Mr.
Goodman agrees to cooperate with CAIS at its request as a consultant at all
times subsequent to the expiration of the Consulting Period, with the
understanding that Mr. Goodman would be entitled to receive fair
compensation for any such services in the event the services were to become
substantial in duration. In the event that, prior to the expiration of the
Consulting Period, CAIS pays
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<PAGE>
Inline sufficient royalties so that CAIS, pursuant to section 11 below, has
secured a 50% ownership interest in the TWP patents, Mr. Goodman may elect
to work only half-time during the remainder of the Consulting Period, with
the monthly consulting fees payable to Inline proportionately reduced
during such remaining period.
6. CAIS OBLIGATIONS TO FULLY EXPLOIT THE PATENTS
---------------------------------------------
CAIS agrees to use all reasonable efforts to exploit the technology being
licensed hereby in the United States and in those countries where patent
protection has been granted. CAIS agrees to confer with any potential
licensees introduced to CAIS by either Goodman or Inline, recognizing,
however that CAIS shall reserve the sole and exclusive discretion to
reject, modify or accept the offered terms. CAIS agrees not to suppress the
sale or trade of the product. Such action shall constitute a breach of
this agreement after proper notice and failure to cure such breach within a
reasonable period thereafter.
7. COMPENSATION OF INLINE
----------------------
Subject to the provisions of subsection 7.6 below, Inline shall be
compensated for use of the TWP rights in accordance with the royalty
payment chart (the "Royalty Chart") contained in Appendix II attached
hereto and made a part hereof, in the following manner:
7.1) Inline shall receive a royalty based upon the sales price of any
hardware, sold by CAIS or a CAIS Affiliate, that is covered by the TWP
patents and communicates video or high speed (> 64Kbps) data over twisted
pair wires that are actively being used for voiceband communication, such
royalty to be determined in accordance with column D of the Royalty Chart.
The sales prices shall be the wholesale price received by CAIS for goods
utilizing the technology licensed to CAIS hereunder, but excluding amounts
either received or provided for freight, or insurance incurred to ship the
product to the customer, sales, value-added or use taxes, returns,
discounts, allowances, bad debts, items sold at or near cost as an
incentive to provide future services commissionable hereunder, and other
similar items. In the case of integral products manufactured by parties
other than CAIS or CAIS Affiliates, the sales price shall be based upon the
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<PAGE>
wholesale price received by CAIS for the particular individual component,
utilizing the technology licensed to CAIS and making up a part of the
integral product. In the case of integral products manufactured by CAIS or
CAIS Affiliates, the sales price shall be computed based upon
the value added by inclusion of the particular individual component
utilizing the technology licensed to CAIS and making up a part of the
integral product.
For example, Bell Atlantic licenses the rights to use the internal
distribution technology in Montgomery County and, as part of the
transaction, is allowed to purchase up to 10,000 FM Video transmitters from
CAIS.
7.2) Inline shall receive a royalty determined under column E of the
Royalty Chart based upon a percentage of the fees collected by CAIS or a
CAIS Affiliate to the extent such fees are for Internet or other
information services, video services, or digital audio radio services,
provided under any contract, agreement, or similar arrangement that
involves transfer of TWP patent rights as provided in section 2 of this
Agreement. Further, amounts either received or provided for items such as
discounts, allowances, bad debts, refunds, credits, sales, use or value
added taxes, shall be deducted from fees received for purposes of
determining the royalty obligations hereunder.
For example,
* in return for an agreement to use CAIS as its ISP, an
apartment management company in Washington, DC receives the rights to buy
and use hardware that distributes Ethernet signals over the internal
telephone wires of its apartment buildings,
* CAIS contracts with company ABC to provide Internet services to the
20,000 tenants in the apartment buildings that ABC owns in Chicago, and
CAIS takes on the obligation to manage the distribution hardware as part
of the deal. Later, CAIS buys video signals from DirecTV and contracts
with ABC to resell these video signals to the tenants using the hardware
it manages.
7.3) In specific cases, Inline shall receive as a royalty a percentage of
the fees according to Column F of the
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Royalty Chart, collected by CAIS or CAIS Affiliates for provision of
information services, when such services that are *NOT* covered under
section 7.2 above, only to the extent that the fees collected by CAIS would
not otherwise have been received by CAIS or a CAIS Affiliate in the absence
of the licensing to CAIS or such CAIS Affiliate of the TWP patents.
Specifically, Inline will receive a percentage of fees when CAIS provides
information services, directly or indirectly, to end-users in structures
that have secured the rights to use hardware, covered by the TWP patents,
to receive a DIFFERENT type of service. For example,
A hotel company contracts with CAIS by reason of the grant to CAIS of the
exclusive license hereunder for the rights to purchase, install, and use,
in their hotel structures, Ethernet distribution hardware that is covered
by the TWP patents. In addition, as a byproduct of the aforesaid
relationship, the hotel company agrees to purchase Internet services from
an ISP supplied by CAIS. Should the same hotel company subsequently elect
to contract with CAIS for provision of long-distance telephone services,
Inline shall receive a percentage of the fees for such services according
column F, even though the second contract does not involve Inline patent
rights. However, if such hotel company was attracted to CAIS or a CAIS
Affiliate initially because of services other than those relating to the
TWP patents, Inline shall not be entitled to receive any portion of the
fees derived from such other services.
For another example, CAIS contracts with company ABC to provide Internet
services to the 20,000 tenants in the apartment buildings that ABC owns in
Chicago, and CAIS does not, at the time the contract was signed, provide
telephone services on a building-wide basis to any of these apartment
buildings. CAIS later contracts to provide telephone services to five of
the buildings that house these tenants.
7.4) Inline shall receive royalties determined under column G of the
Royalty Chart, based upon the sums collected by CAIS or a CAIS Affiliate
from third parties, for the rights to use, make, or sell all hardware,
covered by the TWP patents, that communicate signals INTERNAL to a
structure in circumstances where both (1) a third party, and not CAIS or a
CAIS Affiliate, is the underlying provider of the hardware system utilizing
the TWP Technology that is installed in such structure, but CAIS or a CAIS
affiliate is
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<PAGE>
paid for the right to use such hardware on an on-going basis (as opposed to
the initial acquisition costs of such hardware), and (2) a third party, and
not CAIS or a CAIS Affiliate, is the underlying provider of the Internet or
other information service, video service, or digital audio radio service
that is delivered to end users in the structure by use of the TWP
Technology that is installed in such structure. There shall be deducted in
determining the sums received by CAIS or a CAIS Affiliate for purposes of
both this subsection 7.4 and subsection 7.5 below, all items such as
discounts, allowances, bad debts, refunds, credits, sales, use or value
added taxes. For example, Bell Atlantic licenses from CAIS the rights to
use the TWP technology in Montgomery County, and pays CAIS $100,000 for
such rights, where Bell Atlantic, and not CAIS or a CAIS affiliate, is the
underlying provider of the hardware system to be installed in the buildings
in Montgomery County, and where Bell Atlantic or other third parties, and
not CAIS or a CAIS affiliate, is the underlying provider of the Internet
and other information services to the end users in such buildings.
In addition, Inline shall receive royalties determined under column G of
the Royalty Chart, based upon the sums collected by CAIS or a CAIS
Affiliate from third parties, where CAIS licenses a third party to make and
sell hardware covered by the TWP patents, and such party can, as part of
the license, grant purchasers of such hardware an unlimited license to use
such hardware.
7.5) After reimbursement to CAIS or the CAIS Affiliate of all costs
incurred for legal fees, and any other non-recurring cost in connection
with procuring or retaining agreements with third parties for same, Inline
shall receive as a royalty hereunder a portion of the royalties (or other
payments) collected from such third parties by CAIS or a CAIS Affiliate
determined in accordance with column H of the Royalty Chart for the rights
to use, make, or sell all hardware, covered by the TWP patents, that
communicates signals between two points external to structures, between two
separate structures, or between a point outside (and substantially removed
from) a structure and a point internal to the structure. This shall
include, specifically but not exclusively, rights to use, make, or sell
ADSL hardware. In the event either CAIS or Inline become aware of
another party providing video services to no less than 10,000
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<PAGE>
subscribers using ADSL hardware, CAIS, at its option, shall attempt to
enforce the TWP Patent rights licensed hereunder within a reasonable time
period thereafter or in lieu thereof, Inline shall be free to do so. Should
Inline successfully maintain the enforcement action, it shall be entitled
to recover from the next royalties payable hereunder its legal fees and
other non-recurring costs in connection with such pursuit. CAIS and Inline
agree to confer with one another from time to time in order to evaluate the
appropriate course of conduct.
7.6) Notwithstanding any provision contained to the contrary hereinabove,
CAIS or CAIS Affiliates shall be entitled to enter into licenses and/or
sub-licenses with educational or other non-profit institutions (herein
collectively the "Qualifying Institutions") on a cost-only basis (i.e. at a
price calculated with the intent to provide the goods or services to the
Qualifying Institution without any profit or markup to CAIS or the CAIS
Affiliate) to receive products or information services using the technology
licensed hereunder. In such event, all payments received by CAIS or the
CAIS Affiliate shall be disregarded in determining royalty payments to
Inline hereunder and in lieu thereof, Inline shall be entitled to 50% of
the royalty which would have resulted had the Qualifying Institution not
been provided pricing on a cost-only basis.
7.7) To the extent CAIS or a CAIS Affiliate receives consideration
provided in kind as opposed to in cash, such consideration shall be valued
at fair market value when received for purposes of computing the royalties
to which Inline shall be entitled hereunder.
7.8) In any country not protected by a patent or patent application, the
royalty rate reflected on the Royalty Chart shall be reduced in respect of
goods manufactured or sold for use in such country should it become clear
that competitors have entered the market in such country. The reduction
shall be negotiated by the parties upon a determination that a competitor
has entered the market and a determination of the anticipated effect that
the competitor has in that market. The royalty rate may be reduced further
based on the impact that the competitor has on the ability of CAIS or a
sub-licensee to compete in that market.
8. MINIMUM ANNUAL ROYALTIES
-------------------------
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CAIS shall be obligated to pay Inline a minimum annual royalty according to
the following schedule:
$100,000 on the first anniversary of delivery of the TWP System as defined
in section "CAIS Obligation to Fund R&D"
$150,000 on the 2nd anniversary,
$200,000 on the 3rd anniversary,
$250,000 on each anniversary thereafter.
Failure to pay the minimum royalty shall result in the breach by CAIS
hereunder, if not cured within fifteen (15) days following written notice
to CAIS.
9. TERMINATION OF THE AGREEMENT
----------------------------
CAIS shall be entitled to terminate the license at anytime upon no less
than thirty (30) days written notice. However, no such termination shall
adversely affect any existing sub-licenses nor the obligation of the
licensee to pay Inline (or CAIS) any unpaid accrued fees hereunder. This
agreement will self-terminate upon the lapse of the last Inline patent in
Appendix I.
10. NEW INTELLECTUAL PROPERTY
-------------------------
Subject to the provisions of the following sentence, new intellectual
property conceived by David D. Goodman (or other Inline personnel including
without limitation Messrs. Woodward and Domnitz) during the period of this
agreement shall become, upon conception, property of Inline Connection
Corporation, whether or not such property was conceived during the course
of Mr. Goodman's work under this Agreement. It is expressly recognized
that Inline personnel shall not be considered as employees of CAIS by
reason of this Agreement.
If intellectual property, trade secrets and proprietary know-how is
conceived or acquired by David D. Goodman or other Inline personnel during
the term of this Agreement relating to communication over twisted pair
wires at frequencies above the common voiceband, or if new patent
applications are filed by any of these people on such subject matters,
these new rights shall be deemed to be a part of the TWP patents, listed in
Appendix I, and shall be governed by the terms of this Agreement from and
after the
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<PAGE>
date conceived or acquired. As such, they shall be subject to the "Joint
Ownership of Patent rights" clause of this Agreement, which is defined
below.
New intellectual property obtained or created by CAIS or any CAIS Affiliate
during the period of this Agreement that relates to communication internal
to a structure over twisted pair wires at frequencies above the common
voiceband shall remain property of CAIS or such CAIS Affiliate and will be
scheduled in Appendix I. Rights provided by such property, however, shall
be governed in the same manner as rights provided by the TWP patents,
listed in Appendix I. In the event that this Agreement is terminated prior
to the completion of the TWP System and before CAIS has spent $200,000 for
R&D pursuant to section 4 above, Inline shall be entitled to a non-
exclusive license to any new intellectual property obtained or created by
CAIS or any CAIS Affiliate during the period of this Agreement occurring
prior to such termination that relates to communication internal to a
structure over twisted pair wires at frequencies above the common
voiceband.
New intellectual property created or obtained by David D. Goodman or his
Inline personnel during the Consulting Period and not relating to
communication over twisted pair wires shall be made known to CAIS. If CAIS
is interested in exploiting such new rights, CAIS may either incorporate
such rights into this Agreement by scheduling them in into Appendix I or
CAIS shall be entitled with a paid-up four (4) month option following
written notice to CAIS of the existence of such new intellectual property
to either negotiate a new and more favorable (to CAIS) agreement with
respect to such new rights or in the absence thereof, to incorporate same
into this Agreement as aforesaid.
11. JOINT OWNERSHIP OF PATENT RIGHTS
--------------------------------
After CAIS has paid Inline SEVEN HUNDRED FIFTY THOUSAND DOLLARS $750,000 in
compensation (and for such purposes all sums paid to Inline hereunder by
CAIS or a CAIS Affiliate shall be aggregated, including without limitation
the initial option payment, the purchase price for the option, the monthly
fees of $7,500, $8,500 and $10,000, respectively and all royalties payable
to Inline hereunder) under this agreement, fifty percent (50%) of the
ownership of Inline's interest in all of the properties set forth on
Appendix I, as same may be supplemented from time to time in accordance
19
<PAGE>
with the provisions of this Agreement, shall be assigned to CAIS. All
other considerations under this Agreement shall remain the same.
In the event this Agreement is terminated subsequent to CAIS's acquisition
of the right to fifty percent (50%) of the ownership of Inline's interest
in all of the properties set forth on Appendix I:
a) CAIS or a CAIS affiliate can use any of the TWP patent rights
itself, or it can trade rights to use the patented internal
distribution technology for distribution of signals to end users. The
consideration CAIS receives in return for such a trade must include
the right and obligation to provide substantial information services
to these end-users, either directly or through a third party. CAIS
shall compensate Inline, for the resulting subscription fees,
according to the schedules that applied prior to termination, subject
to the Most Favored Nation protection as provided in section 4 above.
b) Inline can license other companies to use the technology. It must
pay CAIS 50% of all royalties collected in this manner. If Inline
uses the technology itself, it shall pay CAIS royalties according to
the rates set forth in the Royalty Chart schedules set forth in
Appendix II.
12. ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
-------------------------------------------
CAIS shall have the right, but not the obligation, to undertake any demand,
suit or action against infringers of the intellectual property, licensed
hereunder. In the event that CAIS proceeds with an enforcement suit or
action, Inline shall cooperate with CAIS in prosecuting the suit or action
and shall make its personnel available for testifying as witnesses at trial
or depositions, for assisting in the drafting of litigation documents
including interrogatories and answers to interrogatories and document
requests, and for such other assistance as may be required to reasonably
prosecute the litigation. In the event that CAIS obtains any judgment as a
result of litigation conducted by CAIS against third parties, Inline shall
be entitled to partake of any award after CAIS has been reimbursed for
expenses. In addition, Inline shall be able to receive from such award
reimbursement of the reasonable costs incurred by Inline in
20
<PAGE>
providing expert witnesses and assistance in the litigation required of
Inline hereinabove. In the event that the award is calculated on the basis
of a reasonable royalty, Inline shall receive fifty percent (50%) of an
established or reasonable royalty. If the award is calculated on the basis
of lost profits, Inline shall receive a percentage comparable to the
percentage which Inline would have received based upon whether the claim
was for services or products and assuming that if the claim were for
products that such products were manufactured by CAIS. In the event CAIS
declines to proceed with an enforcement suit or action by reason of the
determination that pursuit thereof is not economically feasible, Inline
shall be free to pursue on its own behalf with the enforcement action. In
such event, Inline shall be entitled to recover first from any damages
awarded its costs and expenses relating to such enforcement action,
together with interest thereon at the rate of eight percent (8%) per annum
from the date advanced until collected. Thereafter, CAIS shall be entitled
to partake of the award.
Should CAIS find patent protection desirable on new developments by David
D. Goodman or other Inline personnel covered by this Agreement, Inline
shall file appropriate patent application and will prosecute such
application at Inline's expense. During prosecution, Inline shall consult
with attorneys for CAIS regarding the scope and sufficiency of protection.
Inline shall keep all patents in force, for example, by the timely payment
of maintenance or renewal fees. Should Inline decide not to keep a patent
or application in force, they must inform CAIS at least thirty (30) days in
advance of the date. If CAIS decides to assume responsibility, Inline will
assign the property to CAIS which will be responsible for the costs of
assignment and future costs of the property. Should Inline decide not to
file a patent application, they shall inform CAIS. If CAIS wishes to
assume the responsibility and costs of such application, Inline will have
the inventor(s) assign the rights to CAIS.
13. CONFIDENTIALITY
---------------
Each party shall treat as confidential all new developments by either party
in intellectual property that fall within the bounds of the technology
being licensed hereunder. This obligation as to confidentiality shall not
apply to any information which:
21
<PAGE>
(a) was in the public domain at the time of its disclosure hereunder, or
(b) subsequently becomes part of the public domain through no fault of
either party, as of the date of its becoming part of the public
domain, or
(c) was received from a third party, provided that the information was not
obtained by the third party directly or indirectly from CAIS or Inline
under an obligation of confidentiality.
14. INSURANCE
---------
CAIS shall purchase $5,000,000 of liability insurance for Inline for each
of the first two years following production of the TWP System. Such
payments shall be deducted from royalties. Any premiums paid by CAIS shall
be credited against the minimum royalties CAIS is obligated to pay under
this Agreement.
15. WARRANTIES
----------
Inline hereby warrants that it is the rightful owner of the intellectual
property under which this license is granted. Inline also warrants that to
its knowledge all of the patents presently set forth in Appendix I are
valid. Inline further warrants that to the best of its knowledge, after
due inquiry, exercise by CAIS of its rights granted under this Agreement
will not result in the infringement by CAIS or its affiliates on the rights
of any other patent holders. CAIS acknowledges that Inline has disclosed to
CAIS the existence of a patent held by Xantech Corporation related to
infrared communications, and that a limited number of alternative
implementations of the TWP Technology could result in an infringement on
such Xantech patent, but that there exist many other alternative
implementations of the TWP Technology that Inline, to the best of its
knowledge, believes would not result in an infringement on such Xantech
patent.
16. INDEMNIFICATION
---------------
Inline agrees to indemnify and hold CAIS harmless against any and all
claims, demands, suits, actions, proceedings, costs, damages, expenses or
other disputes, including
22
<PAGE>
damages under any antitrust claim or action, which relate, directly or
indirectly to, the failure of Inline to perform any of its obligations
hereunder, or the breach of any representation or warranty made herein.
CAIS agrees to indemnify and hold Inline harmless against any and all
claims, demands, suits, actions, proceedings, costs, damages, expenses, or
other disputes, including damages under any antitrust claim or action,
which relate, directly or indirectly, to the failure of CAIS to perform any
of its obligations hereunder, the breach of any representation or warranty
made by CAIS herein, or in connection with the manufacture, use and sale of
products, subject to the Limitation Exceptions set forth above.
Notwithstanding the foregoing, the parties expressly recognize and agree
that neither CAIS nor Inline shall be deemed to have indemnified the other
against any anti-trust action or claim arising by reason of the grant of
exclusive rights by Inline to CAIS hereunder, or exercise by CAIS of such
exclusive rights.
17. HEADINGS
--------
The headings or titles of this Agreement are inserted merely for
convenience and identification and shall not be used or relied upon in
connection with the construction or interpretation of this Agreement.
18. SURVIVAL AND SEPARABILITY
-------------------------
The parties agree that it is the intention of neither party to violate any
public policy, statutory or common laws, or governmental or supranational
regulations; that if any sentence, paragraph, clause or combination of the
same is or becomes in violation of any applicable law or regulation, or is
enforceable or void for any reason, such sentence, paragraph, clause or
combination shall be inoperative and the remainder of the Agreement shall
remain binding upon the parties.
19. ASSIGNMENT
----------
CAIS shall have the right to assign its rights and/or obligations under
this Agreement upon receiving the written consent of Inline, which consent
shall not be unreasonably
23
<PAGE>
withheld. In the event that CAIS determines to assign a selected number of
its obligations under this Agreement, the Assignment shall be effective
only if the successor-in-interest shall agree in writing with Inline to
assume the selected obligations.
It is understood that Inline's performance under this Agreement is
considered to be in the nature of a personal service contract and is
therefor not assignable. For example, assistance by Inline personnel and
specifically David D. Goodman in developing the technology is considered
essential to commercialization. Inline and David D. Goodman warrant and
represent that David D. Goodman currently controls Inline Connection
Corporation and that David D. Goodman shall continue to remain in control
of Inline Connection Corporation. Notwithstanding the foregoing, Inline
shall be entitled to convert from a corporation to a limited liability
company or other similar entity, which conversion shall be expressly
permitted hereunder, or to transfer its assets to a limited liability
company or other similar entity, so long as any such converted entity shall
remain in the control of David D. Goodman.
20. CONSTRUCTION AND JURISDICTION
-----------------------------
This Agreement shall be construed, interpreted and applied in accordance
with the laws of the District of Columbia applying to contracts fully
executed and performed in the City of Washington, District of Columbia. In
the event of any dispute in connection with this Agreement or the
provisions thereof, the parties shall submit to arbitration before the
American Arbitration Association at their offices in Washington, D.C. The
decision of the Association shall be a final decision binding on the
parties without the right of appeal.
21. WAIVER
------
The waiver of any breach of this Agreement by any party thereto shall in no
event constitute a waiver as to any future breach, whether similar thereto
or dissimilar in nature.
22. MERGER
------
This instrument constitutes the complete Licensing Agreement between the
parties and there are no understandings,
24
<PAGE>
representations, or warranties of any kind except as expressly provided
herein and as may be provided in subsequent agreements.
23. AUDIT RIGHTS
------------
Inline and Goodman, and CAIS and any CAIS Affiliate shall be entitled to
audit (either itself or through the services of an accredited third party
auditing firm that has agreed to be bound by appropriate confidentiality
restrictions) the financial records of the other party periodically during
the term (but no more frequently than twice a year) in order to confirm
compliance by such other party of its obligations under this Agreement.
The parties shall respectively reasonably cooperate with any such audit.
Any such audit shall be conducted during normal business hours within the
Washington, D.C., metropolitan area. The parties agree to promptly correct
any deficiencies or overages paid hereunder disclosed by such audit. The
parties further agree that should any such audit disclose deficiencies in
amounts paid by the audited party to the auditing party that are greater
than 50% of the amount that should have been paid, then in such case the
audited party shall reimburse the auditing party for the reasonable costs
of such audit.
24. CONFIDENTIALITY
---------------
Inline and CAIS both agree to use commercially reasonable efforts to
maintain information or materials received from the other party on a
confidential basis which is requested by the providing party to be so
maintained. Nothing contained herein shall be deemed to require a
receiving party from disclosing by reason of court or other judicial order
any information or materials received from the other party; however, both
parties shall at the sole cost and expense of the requesting party
reasonably cooperate with
25
<PAGE>
any lawful protests instituted by the requesting party to contest the
requirement that any such confidential information be disclosed.
Inline Connection Corporation
By: /s/ David D. Goodman
----------------------
David D. Goodman
Title: President
David D. Goodman
--------------------------
David D. Goodman, in his individual capacity
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
--------------------------
Title: President
--------------
26
<PAGE>
APPENDIX I
Inline's Twisted Pair Patents
and
Patent Applications
1) US Patent No 5,010,399, "Video Transmission and Control System Utilizing
Internal Telephone Lines," David D Goodman and Robert H Domnitz, filed
7/14/89, 30 claims issued 4/23/91 and assigned to Inline Connection
Corporation. Other patents and applications based on the identical
disclosure:
A continuation application, filed with the US PTO, currently active.
Eighty-two claims, filed in June, 1996, currently under
consideration.
Canadian patent No 2020841, granted July, 1994. Fourteen claims.
A South Korean application, submitted in December, 1990.
A European application, submitted in June, 1990. Fourteen claims
recently approved by the European PTO. Includes Rights to obtain
claims in Great Britain, France, and Germany.
2) Three applications submitted to the US PTO on December 5, 1991:
"RF Broadcast System Utilizing Internal Telephone Lines"
"Cable Television Distribution and Communication System Utilizing
Internal Telephone Lines"
"Two-way RF Communication at Points of Convergence of Wire Pairs from
Separate Internal Telephone Networks"
3) An application submitted to the US PTO July 12, 1996, entitled, "A Digital
Communication System for Apartment
27
<PAGE>
Buildings and Similar Structures Using Existing Telephone Wires."
28
<PAGE>
Appendix II
<TABLE>
<CAPTION>
Column D E F G H
Section Section Section Section Section
Royalty Percentages of Annual Commissionable Revenue 7.1 7.2 7.3 7.4 3rd 7.5
Years One and Two Equipment Information Telephone Party ADSL
Sales Services Services Royalties Royalties
% % % % %
<S> <C> <C> <C> <C> <C>
From $1 To * 0.00% 5.50% 3.00% 50.00% 70.00%
From * and up 3.00% 5.50% 3.00% 50.00% 70.00%
Year Three and Each Year Thereafter
From $1 To * 4.50% 5.50% 2.75% 50.00% 70.00%
From * To * 4.50% 5.00% 2.50% 50.00% 70.00%
From * To * 4.00% 4.75% 2.38% 45.00% 70.00%
From * To * 4.00% 4.50% 2.25% 40.00% 70.00%
From * To * 4.00% 4.00% 2.00% 40.00% 70.00%
* To * 4.00% 3.50% 1.75% 40.00% 60.00%
* And up 3.00% 3.00% 1.50% 40.00% 60.00%
</TABLE>
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
<PAGE>
LICENSING AGREEMENT
TERK TECHNOLOGIES - INLINE CONNECTION
-------------------------------------
Agreement dated as of December 17, 1994 between Inline Connection Corporation
(Inline) and Terk Technologies, Inc. (Terk). For purposes of interpretation and
for all other legal purposes, Inline and Terk shall be considered to be joint
and equal authors of this document.
As part of this agreement, Inline agrees to grant Terk an exclusive license,
under the intellectual property defined below, to build, use, and sell
technology, as defined below, in the field of use, as defined below.
Terk shall pay Inline a $5,000 option fee upon execution of this document. The
contract shall then become effective if, at any time within the succeeding two
months:
1) Terk indicates to Inline in writing that Terk elects to enter into
this agreement, and
2) Terk pays Inline a signing fee of $20,000. The $20,000 and $5,000
payments shall be credited towards royalties.
Terk may extend the period which it may elect to satisfy the above paragraphs
(1) and (2) and have this Agreement become effective, if within 60 days from the
date hereof it pays Inline $5,000.00, which amount shall be credited against the
$20,000 to be paid pursuant to sub paragraph (2).
TECHNOLOGY DEFINITION:
Products that transmit one or more signals onto twisted pair wires at
frequencies above 3Khz, and products that receive one or more signals at
frequencies above 3Khz, by connection to twisted pair wires.
APPLICABLE PATENTS:
The license includes all rights to the technology, in the field of use, given in
the following patents:
US Patent Number 5,010,399, filed July 16, 1989, granted April 23, 1991 and
assigned to Inline Connection Corp.
US Patent Application # (serial number provided in confidence) a
continuation to US Patent No. 5,010,399, pending.
European Patent Application # (serial number provided in confidence),
identical to the application that generated US 5,010,399 and having the
same priority date, pending.
Canadian Patent Number 2,020,841, granted on June 15, 1994 and assigned to
Inline Connection Corp.
<PAGE>
South Korean Patent application (serial number provided in confidence),
identical to the application that generated US 5,010,399, pending.
Three pending US patent applications filed December 5, 1991 by David D.
Goodman, et al, and assigned to Inline Connection, (serial numbers provided
in confidence.)
Any other patent application filed by Inline Connection Corporation or
David D. Goodman that teaches new elements and concepts within the bounds
of the above technology definition.
The license also includes the right to sub-license any and all rights to the
technology, subject to limitations set forth herein.
FIELD OF USE:
The field of use is strictly confined to residential settings and bars,
restaurants, coffee shops, and other business establishments earning at least
----------------------------------------------
90% of their revenues from the sale of food and beverages consumed on premises.
- ------------------------------------------------------------------------------
"Purchaser (or licensor) agrees not to use this product in non-residential
sites including, specifically but not exclusively, hotels, hospitals,
schools, all commercial sites (other than those listed in the first
-------------------------------------
paragraph of this "Field of Use" section), and office buildings. Also, use
-----------------------------------------
of the technology to transmit signals from the "telephone wiring closet"
commonly found on the ground floor of apartment buildings, or a similar
point of convergence of wires leading to terminations in different
apartment units, is specifically prohibited. The only use permitted in
apartment buildings is the transmission of signals internal to a
residential unit. The purchaser (or licensor) agrees to affix the
following label on all products: "For Residential Use Only". This
paragraph shall be placed in all agreements to resell or sub-license this
product. This paragraph is the only agreement on its subject and shall
supersede all contradictory agreements. It may be enforced by Inline
Connection Corporation."
Terk agrees to adhere to the above paragraph and to place this language in all
sales contracts or other agreements relating to the products. (Terk shall be
released from any claims for any violation of the terms of this section if this
paragraph was included in the contract to license or sell the violating
products.)
Inline shall have the right to manufacture products for its own uses in
transmitting from point to point within an apartment unit in connection with the
sale or installation of equipment for servicing multiple dwelling units in the
same building.
The field of use is clarified further in the following section.
2
<PAGE>
OUTSIDE/INSIDE TELEPHONE WIRING:
Telephone companies (telcos) are currently transmitting video and other high
data rage signals over the twisted pair wires that define the "subscriber loop"
reaching from the telcos' central switching office to their subscribers.
Devices that fall within the bounds of the "technology definition" can also be
used to transmit signals to the subscribers from some point on the subscriber
loop located between the central switching office and the residence. One
version of this technology is known as ADSL (Asymmetrical Digital Subscriber
Line).
At the subscriber's residence, these types of signals can flow from the outside
wiring to the inside wiring, and in the opposite direction. Inline retains the
specific and exclusive right, under its patents, to build, sell, and use,
electronic receivers that connect to internal wiring to receive signals that
were last transmitted (i.e. processed electronically) at a pont outside the
residence and removed from the subscriber's property. Inline retains the same
rights for signals that are transmitted inside the residence and received at an
outside point that is removed from the subscriber's property.
Communication of any signal between two devices that are located at points
inside or immediately adjacent to the residence and embody principles that fall
within the "technology definition" shall be within the scope of the License
granted and subject to the terms of this agreement.
ROYALTY RATE:
For the purposes of determining royalties, a video service provider shall be
defined as a company which directly or through an affiliate provides video
signals or telephone service to more that 50,000 subscribers.
------
The following rates shall apply for all products that fit the technology
definition except "Integral Products," as it is defined in the next section:
4% for products manufactured by Terk, including OEM and private label
sales, and sold to companies other than a video service provider,
6.5% for products manufactured by Terk, including OEM and private label
sales, and sold to a video service provider,
50% of sub-licensing fees obtained from video service providers or from
products that are sold directly from factories to a video service provider,
50% of sub-licensing fees obtained from all other sources.
In any country not protected by a patent or patent application, the royalty rate
shall be reduced in respect of goods manufactured or sold for use in such
country should it become clear that competitors have entered the market in such
country. The reduction shall be negotiated by the parties in good faith upon a
determination that a competitor has entered the market and a determination of
the anticipated effect that the competitor has in that market. The royalty rate
3
<PAGE>
may be reduced further based on the impact that the competitor has on the
ability of Terk or a sub-licensee to compete in that market.
INTEGRAL PRODUCTS:
The following products are likely candidates to have the subject technology
included as part of their circuitry and inside their enclosures:
TV devices
VCRs
Laser Disk Players
Video Games
Video Cameras
Cable Convertors and other Video Set-Top Boxes
Satellite Convertors
Cassette Decks
CD Players
FM Tuners
Audio Amplifiers
Lap-Top Computers
Personal Computers
The royalty rates for the integral products listed above are:
4% for products manufactured by Terk including OEM and private label sales,
and sold to companies other than a video service provider,
6.5% for products manufactured by Terk including OEM and private label
sales, and sold to video service providers,
60% of the royalties from the sale of televisions and 55% of the royalties
from any other source.
In any country not protected by a patent or patent application, the royalty rate
shall be reduced in respect of goods manufactured or sold for use in such
country should it become clear that competitors have entered the market in such
country. The reduction shall be negotiated by the parties upon a determination
that a competitor has entered the market and a determination of the anticipated
effect that the competitor has in that market. The royalty rate may be reduced
further based on the impact that the competitor has on the ability of Terk or a
sub-licensee to compete in that market.
MINIMUM ANNUAL ROYALTIES:
Terk is required to pay Inline the following minimum royalties:
- $25,000 payable no later than December 31, 1995
- $25,000 payable no later than December 31, 1996
4
<PAGE>
- $50,000 in the succeeding 12 month period,
- $100,000 within each of the next 3 succeeding 12 month periods,
- $150,000 within each of the succeeding 12 month periods.
Royalties shall be computed on the wholesale prices of the devices sold by Terk
utilizing the technology licensed under this Agreement but excluding freight,
insurance, returns, discounts, allowances and similar items. In the case of
Integral Products, royalties shall be based on the wholesale price of the
individual component utilizing the technology licensed under this Agreement and
making up a part of the Integral Product, except in the case of Integral
Products manufactured by Terk royalties will be based on value added.
BEST EFFORTS:
- ------------
Terk agrees to use its best efforts to market and sell Terk's products
- ----------------------------------------------------------------------
incorporating the technology licensed to Terk pursuant to this agreement.
- ------------------------------------------------------------------------
ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS:
Terk shall have the right, but not the obligation, to undertake any demand, suit
or action against infringers of the intellectual property, as defined herein.
In the event that Terk proceeds with an enforcement suit or action, Inline shall
cooperate with Terk in prosecuting the litigation and shall make its personnel
available for testifying as witnesses at trial or depositions, for assisting in
the drafting of litigation documents including interrogatories and answers to
interrogatories and document requests, and for such other assistance as may be
required to reasonably prosecute the litigation. In the event that Terk obtains
any judgment as a result of litigation conducted by Terk against third parties,
Inline shall be entitled to partake of any award after Terk has been reimbursed
for expenses. In the event that the award is calculated on the basis of a
reasonable royalty, Inline shall receive 50% of an established or reasonable
royalty. If the award is calculated on the basis of lost profits, Inline shall
receive a percentage (4%, 6.5%) as set forth above for products manufactured by
Terk.
EXCHANGE OF INTELLECTUAL PROPERTY RIGHTS:
Any intellectual property rights, including trade secret and proprietary know-
how, that may be developed by Inline that fall within the bounds of the
"Technology Definition," shall be licensed under this Agreement and covered by
all the terms of this agreement, including specifically, but not exclusively,
the "Field of Use" clause. These intellectual property rights shall revert to
Inline upon expiration of the term of this agreement.
Should Terk develop intellectual property rights that fall within the
"Technology Definition," Terk will grant a non-exclusive license to such rights,
free of charge, to Inline.
Each given party shall keep the other party informed as to all new developments
by the given party in intellectual property that fall within the bounds of the
"Technology Definition". In addition, the parties shall consult with one
another about the advisability of filing for patent protection for any new
intellectual property that may be developed by one or both of the parties within
the bounds of the "Technology Definition." Should Terk find patent protection
desirable, Inline shall file appropriate patent application and will prosecute
such applications at Inline's
5
<PAGE>
expense. During prosecution, Inline shall consult with Terk attorneys regarding
the scope and sufficiency of protection. Inline shall keep all patents in force,
for example, by the timely payment of maintenance or renewal fees.
CONFIDENTIALITY:
Subject to mutual disclosure as discussed above, each party shall treat as
confidential all new developments by either party in intellectual property that
fall within the bounds of the "Technology Definition". This obligation as to
confidentiality shall not apply to any information which:
(a) was in the public domain at the time of its disclosure hereunder, or
(b) subsequently becomes part of the public domain through no fault of
either party, as of the date of its becoming part of the public domain, or
(c) was received from a third party, provided that the information was not
obtained by the third party directly or indirectly from Terk or Inline under an
obligation of confidentiality.
CONSULTATION AND COMMERCIAL DEVELOPMENT:
Inline shall provide to Terk whatever assistance is reasonably deemed necessary
----------
by Terk to enable Terk to manufacture and market technology, as defined above.
SPECIAL FOREIGN LIMITATIONS:
Terks licensing rights are worldwide, except that there shall be no sales by
Terk in Germany or Austria, and no sales or sub-license to German-owned or
Austrian-owned companies.
MARKING OF PRODUCTS:
All products shall be marked: "Manufactured and sold under license from Inline
Connection Corporation."
TERM:
The term of the agreement shall extend for the life of all patents that cover
technology that meet the specifications of "technology definition." Terk may
not suppress sale of the product in return for compensation from a third party.
Such action would terminate the agreement. Terk may terminate this Agreement at
any time by giving Inline 30 days' prior written notice of such termination.
INSURANCE:
Terk shall purchase $5,000,000 amount liability insurance for Inline for each of
the first two years. Such payments shall be deducted from royalties. Inline
may elect to decline this insurance, and keep the royalties. Any premiums paid
by Terk shall be credited against the minimum royalties Terk is obligated to pay
under this Agreement.
WARRANTIES:
Inline hereby warrants that it is the rightful owner of the intellectual
property under which this license is granted. Inline also warrants that to its
knowledge all patents set forth above under "applicable patents" are valid.
Inline further warrants that it knows of no patents owned by third
6
<PAGE>
parties which would be infringed by Terk in exercising the rights granted under
the intellectual property as defined herein.
INDEMNIFICATION:
Inline agrees to indemnify or hold Terk harmless against any and all claims,
---
demands, suits, actions, proceeding, costs, damages, expenses, or other
disputes, including damages under any antitrust claim or action, with relate,
directly or indirectly, from the rights and licenses granted hereunder
including, but not limited, to, the failure of Inline to perform any of its
obligations hereunder, or the breach of any representation or warranty made
herein.
Terk agrees to indemnify or hold Inline harmless against any and all claims,
---
demands, suits, actions, proceeding, costs, damages, expenses, or other
disputes, including damages under any antitrust claim or action, which relate,
directly or indirectly, to the failure of Terk to perform any of its obligations
hereunder, the breach of any representation or warranty made herein, or in
connection with the manufacture, use and sale of products.
HEADINGS:
The headings or titles of this Agreement are inserted merely for convenience and
identification and shall not be used or relied upon in connection with the
construction or interpretation of this Agreement.
SURVIVAL AND SEPARABILITY:
The parties agree that it is the intention of neither party to violate any
public policy, statutory or common laws, or governmental or supranational
regulations; that if any sentence, paragraph, clause or combination of the same
is or becomes in violation of any applicable law or regulation, or is
enforceable or void for any reason, such sentence, paragraph, clause or
combination shall be inoperative and the remainder of the Agreement shall remain
binding upon the parties.
ASSIGNMENT:
Terk shall have the right to assign its rights and/or obligations under this
Agreement upon receiving the written consent of Inline, which consent shall not
be unreasonably withheld. In the event that Terk determines to assign a
selected number of its obligations under this Agreement, the Assignment shall be
effective only if the successor in interest shall agree in writing with Inline
to assume the selected obligations.
It is understood that Inline's performance under this contract is considered to
be in the nature of a personal service contract. For example, assistance by
Inline personnel in developing the technology is considered essential to
commercialization.
CONSTRUCTION AND JURISDICTION:
This Agreement shall be construed, interpreted and applied in accordance with
the laws of the state of New York applying to contracts fully executed and
performed in New York. In the event of any dispute in connection with this
Agreement or the provisions thereof, the parties shall submit to arbitration
before the American Arbitration Association at their offices in New York,
7
<PAGE>
New York. The decision of the Association shall be a final decision binding on
the parties without the right of appeal.
WAIVER:
The waiver of any breach of this Agreement by any party hereto shall in no event
constitute a waiver as to any future breach, whether similar thereto or
dissimilar in nature.
MERGER:
This instrument constitutes the complete Licensing Agreement between the parties
and there are no understandings, representations, or warranties of any kind
except as expressly provided herein and as may be provided in subsequent
agreements.
TERK TECHNOLOGIES CORP. INLINE CONNECTION CORPORATION
By: /s/ Neil Terk By: /s/ David Goodman
---------------------- --------------------------
Neil Terk, President David Goodman, President
Dated: 4/18/95 Dated:__________________________
----------------------
8
<PAGE>
EXHIBIT 10.14
CAIS, INC.
1232 22nd Street, N.W.
Washington, D.C. 20037
Tel. (202) 463-8500
Fax (202) 463-7190
February 28, 1997
Mr. David D. Goodman
Inline Connection Corporation
730 N. Danville Street
Arlington, VA 22201
Dear David:
This will confirm our agreement regarding an extension of the Option Period as
provided for in the November 5, 1996 Agreement for Cooperative Use of
Communication Patents among Inline Connection Corporation, you in your
individual capacity, and CAIS, Inc. (the "Agreement").
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Agreement is hereby amended and modified as follows:
1. The Option Period as provided in Section 1.1 of the Agreement shall be
extended to five (5) months from the date the Agreement was executed (i.e., the
Option Period shall expire on April 5, 1997) unless the Option is sooner
exercised or terminated in accordance with the provisions of the Agreement.
2. Section 1.4 of the Agreement shall be modified to provide that in addition
to payment to Inline of $7500 per month during the first three months of the
Option Period, in return for your services, due 15, 45, and 75 days after
execution of the Agreement, Inline shall be paid $7500 during the fifth month
of the Option Period in return for your continued services, such payment to be
due 135 days after execution of the Agreement. This also will confirm that CAIS
has paid to Inline during the fourth month of the Option Period a $7500 advance
against the $50,000 payment to be made to Inline upon CAIS's exercise of its
Option, as provided in Section 1.6 of the Agreement, such advance to be refunded
by Inline to CAIS in the event CAIS does not exercise its Option.
All other terms and conditions of the Agreement remain in full force and effect.
If the above reflects your understanding and meets with your approval, please so
<PAGE>
indicate by countersigning below on behalf, respectively, of Inline and in your
individual capacity.
Sincerely,
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
-------------------------------------
Ulysses G. Auger, II, President
Agreed to:
Inline Connection Corporation
By: /s/ David D. Goodman
----------------------------------
David D. Goodman, President
2/28/97
-------
Date
Agreed to:
/s/ David D. Goodman
---------------------------------
David G. Goodman, in his individual capacity
2/28/97
-------
Date
2
<PAGE>
EXHIBIT 10.15
CAIS, INC.
1232 22nd Street, N.W.
Washington, D.C. 20037
Tel. (202) 463-8500
Fax (202) 463-7190
April 4, 1997
Mr. David D. Goodman
Inline Connection Corporation
730 N. Danville Street
Arlington, VA 22201
Dear David:
CAIS, Inc. hereby exercises its Option Pursuant to Section 1.6 of the November
5, 1996 Agreement for Cooperative Use of Communication Patents among Inline
Connection Corporation, you in your individual capacity, and CAIS, Inc. , as
amended by letter agreement dated February 28, 1997 (the "Agreement").
Enclosed is a check for $22,500 payable to Inline Connection Corporation. As we
agreed today, an additional $20,000, which represents the balance of the $50,000
Option exercise payment as provided in Section 1.6 of the Agreement (after
credit for the $7,500 advance previously paid to Inline, as set forth in
paragraph 2 of the February 28 amendment) will be paid to Inline by no later
than May 4, 1997. Please indicate your consent to this payment arrangement by
signing below individually and on behalf of Inline.
We appreciate your cooperation, and look forward to a continued mutually
successful relationship with you and Inline.
Sincerely,
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
---------------------------
Ulysses G. Auger, II, President
encl.
Agreed to: Agreed to:
Inline Connection Corporation
By: /s/ David D. Goodman David D. Goodman
---------------------- -----------------
David D. Goodman, President David D. Goodman, in his
individual capacity
4/4/97 4/4/97
------------------- ------------------
Date Date
<PAGE>
Exhibit 10.16
CAIS, INC.
1232 22nd Street, N.W.
Washington, D.C. 20037
Tel. (202) 463-8500
Fax (202) 463-7190
August 1, 1997
Mr. David D. Goodman
Inline Connection Corporation
730 N. Danville Street
Arlington, VA 22201
Dear David:
This will confirm our agreement regarding certain modifications to the November
5, 1996 Agreement for Cooperative Use of Communication Patents among Inline
Connection Corporation, you in your individual capacity, and CAIS, Inc. (the
"Agreement").
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Agreement is hereby amended and modified as follows:
1. Section 12 of the Agreement currently provides in pertinent part that
"Should CAIS find patent protection desirable on new developments by David D.
Goodman or other Inline personnel covered by this Agreement, Inline shall file
appropriate patent application and will prosecute such application at Inline's
expense." Inline has requested, and CAIS has agreed, that because of the recent
increase in patent related expenses and the expectation that such increased
expenses will continue in the near term, that this arrangement be modified as
follows:
a. Upon request by Inline, CAIS shall advance funds to Inline for the
purpose of Inline's payment of expenses related to patent applications and
prosecutions contemplated by the provisions of Section 12 of the Agreement (the
"Patent Expenses") provided that:
(i) Inline has received CAIS's approval and consent prior to
authorizing and incurring such Patent Expenses; and
(ii) Inline has complied with its obligation under Section 12 of the
Agreement to consult with attorneys for CAIS regarding the scope and
sufficiency of patent protection for the TWP technology covered by the
Agreement.
1
<PAGE>
b. Such advances by CAIS shall accrue interest at a rate of 8% per annum
from the date they are advanced to Inline until repaid. If not repaid by
Inline sooner, such advances, including accrued interest, shall be recoverable
by CAIS from Inline as a partial offset against royalty payments otherwise due
from CAIS to Inline pursuant to Sections 7 and/or 8 of the Agreement. For
purposes of this provision, partial offset shall mean that CAIS shall be
entitled to hold back and apply to such recovery fifty percent (50%) of the
royalties otherwise due from CAIS to Inline.
c. If and to the extent the Agreement is terminated for any reason prior
to the full offset of such advances and accrued interest by royalties otherwise
becoming due from CAIS to Inline, then the balance, if any, of such advances
including accrued interest, shall be due and payable from Inline to CAIS not
later than 90 days from the effective date of such termination.
2. During the term of the Agreement, and for a period of one year thereafter,
neither Inline nor CAIS shall attempt to hire away the other's employees or
provide the other's employees with any form of compensation or inducement that
was not approved in advance by the employing entity.
All other terms and conditions of the Agreement remain in full force and effect.
If the above reflects your understanding and meets with your approval, please so
indicate by countersigning below on behalf, respectively, of Inline and in your
individual capacity.
Sincerely,
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
-----------------------------------
Ulysses G. Auger, II, President
Agreed to:
Inline Connection Corporation
By: /s/ David D. Goodman
--------------------------------
David D. Goodman, President
8/11/97
---------------------
Date
Agreed to:
2
<PAGE>
/s/ David D. Goodman
--------------------------------
David D. Goodman, in his individual capacity
8/11/97
------------------------
Date
3
<PAGE>
EXHIBIT 10.17
CAIS, INC.
1232 22nd Street, N.W.
Washington, D.C. 20037
Tel. (202) 463-8500
Fax (202) 463-7190
October 21, 1997
Mr. David D. Goodman
Inline Connection Corporation
730 N. Danville Street
Arlington, VA 22201
Dear David:
This will confirm our agreement regarding certain modifications to the November
5, 1996 Agreement for Cooperative Use of Communication Patents among Inline
Connection Corporation, you in your individual capacity, and CAIS, Inc. (the
"Agreement").
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the second sentence of the sixth paragraph of Section 4 of
the Agreement is hereby revised to provide as follows:
"CAIS hereby agrees to commit to spend up to $200,000 from the date of this
Agreement through a date nine (9) months following the date of the exercise
of the Option."
All other terms and conditions of the Agreement remain in full force and effect.
If the above reflects your understanding and meets with your approval, please so
indicate by countersigning below on behalf, respectively, of Inline and in your
individual capacity.
Sincerely,
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
----------------------------------------
Ulysses G. Auger, II, President
Agreed to:
Inline Connection Corporation
By: /s/ David D. Goodman
--------------------------------
David D. Goodman, President
10/21/97
-----------------------
Date
Agreed to:
/s/ David D. Goodman
---------------------------------
David D. Goodman, in his individual capacity
10/21/97
----------------------
Date
<PAGE>
EXHIBIT 10.18
Inline Connection Corporation
730 N. Danville Street
Arlington, VA 22201
January 6, 1999
Mr. Ulysses G. Auger, II
CAIS, Inc.
1232 22nd Street, N.W.
Washington, D.C. 20037
Re: PCT Serial No. PCT/US97/12045
Dear Ulysses:
Consistent with our recent discussions, this will confirm that pursuant to the
second paragraph of Section 12 of the November 5, 1996 Agreement for Cooperative
Use of Communication Patents among Inline Connection Corporation, David Goodman
in his individual capacity, and CAIS, Inc. (the "Agreement"), Inline hereby
notifies CAIS that Inline has determined that, other than with respect to a
national application for the country of Israel (which application Inline shall
prosecute and maintain at Inline's expense), Inline will assign the referenced
PCT international application to CAIS, with CAIS assuming responsibility for the
costs of the assignment and for future costs of prosecuting and maintaining this
property. CAIS agrees to provide Inline with copies of all substantive
correspondence with any patent office related to such property and to consult
with Inline regarding the scope and sufficiency of protection. Inline agrees
that it will provide reasonable assistance as requested by CAIS in CAIS's
prosecution and maintenance of this property, and will timely provide copies of
any files or other documentation as requested by CAIS and reasonably required by
CAIS to conduct such prosecution and maintenance.
Upon assignment of this property to CAIS, CAIS agrees to prosecute the
applications for the property in the following countries at a minimum: United
Kingdom, Germany, France and Canada.
The parties acknowledge that this assignment shall not affect any rights held by
Terk Technologies Corp. under a License Agreement between Terk Technologies and
Inline dated December 17, 1994.
If the above reflects your understanding, please so Acknowledge by
countersigning below on behalf of CAIS.
Sincerely,
Inline Connection Corporation
By: /s/ David D. Goodman
---------------------
David D. Goodman, President
Acknowledged:
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
-------------------------
Ulysses G. Auger, II, President
1/6/99
-------------
Date
cc. Gary Walpert, Esquire
Jace Holman, Esquire
<PAGE>
EXHIBIT 10.19
ASSIGNMENT
----------
WHEREAS, INLINE CONNECTION CORPORATION (hereinafter Assignor), a Virginia
Corporation, located and doing business at 730 N. Danville Street, Arlington,
Virginia 22201, is the owner of USSN 08/893,403, filed February 27, 1998, and
PCT/US97/12045, filed July 11, 1997, both for a DIGITAL COMMUNICATION SYSTEM FOR
APARTMENT BUILDINGS AND SIMILAR STRUCTURES USING EXISTING TELEPHONE WIRES; and
WHEREAS, CAIS, Inc. (hereafter Assignee), a Virginia corporation, located
and doing business at 1232 22nd Street N.W., Washington, D.C. 20037, is
desirous of acquiring the complete title and interest in said patent application
and invention in countries foreign to the United States excluding Israel;
NOW, THEREFORE, in consideration of the sum of one dollar ($1.00) and other
good and valuable consideration, the receipt of which is hereby acknowledged,
Assignor by these presents does sell, assign and transfer unto said Assignee,
its successors, legal representatives, heirs and assigns the entire right, title
and interest in all countries foreign to the United States except Israel, to
said invention as described in said patent application and including the right
to claim priority, the eventual Letters Patent, and all reissues, or extensions
of said Letters Patent to be held and enjoyed by said Assignee for its own use,
or for its legal representatives, successors, heirs, and assigns to the full end
of the term for which said Letters Patent is granted, and any extensions
thereof, as fully and entirely as the same would have been held by said Assignor
had this assignment and sale not been made, and for the same consideration, said
Assignor hereby covenants and agrees that at the time of execution and delivery
of this instrument it is the lawful owner of the complete right, title and
interest in and to said invention and said Letters Patent above mentioned, its
interest is unencumbered, except as provided in a License Agreement between
Assignor and Terk Technologies, Inc., dated December 17, 1994, and that it has
good and full right and lawful authority to sell and convey its interest in the
manner set forth herein; and for the same consideration Assignor hereby
covenants and agrees that it will, when ever counsel for Assignee, or counsel
for its legal successors, legal representatives, heirs or assigns shall advise
that any proceedings in connection with said Letters Patent or any re-issue or
extension of said Letters Patent to be obtained thereon, is lawful and
desirable, sign all papers and documents, make all lawful oaths, and do all acts
necessary as required to be done for the
<PAGE>
procurement, maintenance, enforcement and defense of said Letters Patent,
without charge to said Assignor, its successors, legal representatives, heirs
and assigns, but at the expense of said Assignee, its successors, legal
representatives, heirs and assigns.
Assignor hereby further assigns to Assignee all claims and causes of action
for infringement of the patent rights assigned herein, including the right to
sue for, and collect damages for, any and all acts of past and future
infringement.
Assignor hereby grant(s) the law firm of Jacobson, Price, Holman & Stern,
PLLC, 400 Seventh Street, N.W., Washington, D.C. 20004, the power to insert on
this assignment any further identification which may be necessary or desirable.
Signed this 6th day of January, 1999.
INLINE CONNECTION CORPORATION
By /s/ David D. Goodman
-------------------------
David D. Goodman
President
Witnesses:
(1) /s/ Michael Plantamura
-------------------------
(2) /s/ Theodore D. Broomfield
--------------------------
<PAGE>
EXHIBIT 10.20
CAIS, INC.
1232 22nd Street, N.W.
Washington, D.C. 20037
Tel. (202) 463-8500
Fax (202) 463-7190
January 26, 1999
Mr. David D. Goodman
Inline Connection Corporation
730 N. Danville Street
Arlington, VA 22201
Dear David:
This will confirm our agreement regarding certain modifications to the November
5, 1996 Agreement for Cooperative Use of Communication Patents between Inline
Connection Corporation and you in your individual capacity, on the one hand, and
CAIS, Inc., on the other hand, as previously amended (the "Agreement").
For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Agreement is hereby clarified, and to the extent
required, amended and modified as follows:
1. Inline, CAIS, and you agree that the $750,000 compensation benchmark as set
forth in the first paragraph of Section 11 of the Agreement is deemed to have
been met by CAIS. Pursuant to the terms of Section 11, fifty percent (50%) of
the ownership of Inline's interest in all of the properties set forth on
Appendix I of the Agreement, as same may be supplemented from time to time in
accordance with the provisions of this Agreement, shall be assigned to CAIS.
Inline and you agree to timely execute all assignment and/or other similar
documents as reasonably requested by CAIS to effectuate and evidence such
assignments. The parties acknowledge that the terms of this paragraph 1 shall
not apply to, or affect, those patent rights related to PCT Serial No.
PCT/US97/12045 that have previously been assigned to CAIS under the terms of a
letter agreement between Inline and CAIS dated January 6, 1999, and assignment
documents entered into concurrently therewith.
2. Inline, CAIS, and you agree that for purposes of Section 7.4 of the
Agreement, CAIS or a CAIS affiliate shall be deemed to be the "underlying
provider" of the Internet or other information service, video service, or
digital audio radio service that is delivered to end users in a structure by use
of the TWP Technology that is installed in such structure where either:
(i) CAIS or a CAIS affiliate is selling its own Internet or other
information services, video services, or digital audio radio services, or
(ii) CAIS or a CAIS affiliate is re-selling a third party's Internet or
other information services, video services, or digital audio radio
services.:
3. With regard to Inline's payment of its patent expenses, CAIS agrees to
advance $75,000 in funds to Inline for Inline toward such expenses within two
months of today's date pursuant to the terms of the letter amendment to the
Agreement dated August 1, 1997. CAIS shall negotiate an arrangement acceptable
to CAIS and Inline's patent counsel, Fish & Richardson, as to the timing of
Inline's payments to Fish & Richardson from such advances.
4. Inline and CAIS agree that the "first anniversary" minimum annual royalty
payment by CAIS to Inline as provided for in Section 8 of the Agreement shall be
paid to Inline upon CAIS's receipt of funds from the private placement. Inline
acknowledges that, as provided in paragraph 1(b) of the letter
1
<PAGE>
amendment to the Agreement dated August 1, 1997, 50% of the initial $100,000
minimum annual royalty paid shall be offset as repayment by Inline of patent
expense advances previously made by CAIS to Inline.
5. CAIS and Inline agree that the "second anniversary" minimum annual royalty
payment by CAIS to Inline as provided for in Section 8 of the Agreement shall be
due to Inline from CAIS on December 31, 1999, and subsequent anniversary minimum
royalty payments shall be due from Inline to CAIS on December 31 of each year
thereafter, subject to the terms of the Agreement as amended; provided, however,
that in the event that Inline fails to complete the video subsystem of the TWP
System as described in Section 4 of the Agreement on or before December 31,
1999, the minimum annual royalty obligation shall be suspended until such time
as Inline completes such video subsystem. CAIS agrees to expend up to an
additional $100,000 for R&D efforts for such video subsystem subject to the
budgeting and other provisions applicable to such R&D expenditures as provided
in Section 4.
6. CAIS agrees to advance Inline $200,000 within 60 days following the date
any initial public offering of common shares or other equity securities of
CAIS's parent company, CGX Communications, Inc., pursuant to a registration
statement filed on Form S-1, or such other form as may then be applicable,
becomes effective under the Securities Act of 1933, as amended, and the rules
and regulations thereunder. Such $200,000 advance shall be offset against
future royalty payment obligations that would otherwise be due from CAIS to
Inline after December 31, 2000.
All other terms and conditions of the Agreement, as previously amended, remain
in full force and effect.
If the above reflects your understanding and meets with your approval, please so
indicate by countersigning below on behalf, respectively, of Inline and in your
individual capacity.
Sincerely,
CAIS, Inc.
By: /s/ Ulysses G. Auger, II
---------------------------------
Ulysses G. Auger, II, President
Agreed to:
Inline Connection Corporation
By: /s/ David D. Goodman
----------------------------------------
David D. Goodman, President
1/26/99
---------------------------
Date
Agreed to:
/s/ David D. Goodman
--------------------------------------------
David D. Goodman, in his individual capacity
1/26/99
---------------------------
Date
2
<PAGE>
EXHIBIT 10.21
ASSIGNMENT
-------------------
WHEREAS, INLINE CONNECTION CORPORATION (hereinafter Assignor), a
Virginia corporation, located and doing business at 730 N. Danville Street,
Arlington, Virginia 22201, is the owner of the patents and applications set
forth in Schedule A which is to be amended to include all future inventions
covered by the various agreements between Assignor and Assignee (hereinafter
Patent Properties); and
WHEREAS, CAIS, INC. (hereinafter Assignee), a Virginia corporation,
located and doing business at 1232 22/nd/ Street, N.W., Washington, D.C. 20037,
is desirous of acquiring 50% title and interest in said patents, applications
and inventions present and future (Patent Properties) in the United States and
in countries foreign to the United States excluding Israel;
NOW, THEREFORE, in consideration of the sum of one dollar ($1.00) and
other good and valuable consideration, the receipt of which is hereby
acknowledged, Assignor by these presents does sell, assign and transfer unto
said Assignee, its successors, legal representatives, heirs and assigns a 50%
right, title and interest in the United States and all countries foreign to the
United States except Israel, to said Patent Properties including the right to
claim priority, the eventual Letters Patent, and all reissues, or extensions of
said Letters Patent to be partially held and enjoyed by said Assignee for its
own use, or for its legal representatives, successors, heirs, and assigns to the
full end of the term for which said Letters Patent is granted, and any
extensions thereof, as fully and entirely as the same will also be held by said
Assignor, and for the same consideration said Assignor hereby covenants and
agrees that at the time of execution and delivery of this instrument it is the
lawful owner of the complete right, title and interest in and to said Patent
Properties, its interest is unencumbered, except as provided in a License
Agreement between Assignor and Terk Technologies, Inc., dated December 17, 1994
and subsequently amended, and that it has good and full
<PAGE>
right and lawful authority to sell and convey part of its interest in the manner
set forth herein; and for the same consideration Assignor hereby covenants and
agrees that it will, when ever counsel for Assignee, or counsel for its legal
successors, legal representatives, heirs or assigns shall advise that any
proceedings in connection with said Patent Properties or any re-issue or
extension of said Letters Patent to be obtained thereon, is lawful and
desirable, sign all papers and documents, make all lawful oaths, and do all acts
necessary as required to be done for the procurement, maintenance, enforcement
and defense of said Patent Properties.
Assignor hereby further assigns to Assignee all claims and causes of
action for infringement of the patent rights assigned herein, including the
right to sue for, and collect damages for, any and all acts of past and future
infringement.
Assignor hereby grants the law firm of Jacobson, Price, Holman &
Stern, PLLC, 400 Seventh Street, N.W., Washington, D.C. 20004, the power to
insert on this assignment any further identification which may be necessary or
desirable.
Enclosure: Schedule A
Signed this 26 day of January , 1999
-------- ---------
INLINE CONNECTION CORPORATION
By: /s/ David D. Goodman
-------------------------
David D. Goodman
President and inventor
Witnesses:
- ----------
(1) /s/ Ulysses G. Auger, II
-----------------------------
(2) /s/ Michael Plantamura
-----------------------------
<PAGE>
CORRECTED SCHEDULE A
--------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Country Serial No. Filing Date Status
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Canada 2020841 July 10, 1990 Issued June 21, 1994, Patent No.
2020841
- ------------------------------------------------------------------------------------------------
EPO 90307260.1 July 3, 1990 Issued March 4, 1998, Patent No.
0408236
- ------------------------------------------------------------------------------------------------
EPO 97201163.9 July 3, 1990 Published
- ------------------------------------------------------------------------------------------------
France 09037260.1 July 3, 1990 Issued March 4, 1998, Patent No.
0408236
- ------------------------------------------------------------------------------------------------
Germany 90307260.1 July 3, 1990 Issued March 4, 1998, Patent No.
0408236
- ------------------------------------------------------------------------------------------------
PCT US98/11197 June 1, 1998 Published
- ------------------------------------------------------------------------------------------------
South Korea 90-22240 Dec. 28, 1990 Pending
- ------------------------------------------------------------------------------------------------
United Kingdom 90307260.1 July 3, 1990 Issued March 4, 1998, Patent No.
0408236
- ------------------------------------------------------------------------------------------------
United States 07/379,751 July 14, 1989 Issued April 23, 1991, Patent No.
5,010,399
- ------------------------------------------------------------------------------------------------
United States 08/670,216 June 21, 1996 Allowed
- ------------------------------------------------------------------------------------------------
United States 08/814,837 March 11, 1997 Issued December 1, 1998, Patent No.
5,844,596
- ------------------------------------------------------------------------------------------------
United States 08/819,120 March 17, 1997 Allowed
- ------------------------------------------------------------------------------------------------
United States 08/893,403 July 11, 1997 Pending
- ------------------------------------------------------------------------------------------------
United States 09/047,970 March 25, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 09/113,526 July 10, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 09/157,714 Sept. 21, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 09/191,971 Nov. 13, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 09/191,168 Nov. 13, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 09/191,760 Nov. 13, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 60/074,078 Feb. 9, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 60/079,304 March 25, 1998 Pending
- ------------------------------------------------------------------------------------------------
United States 60/079,305 March 25, 1998 Pending
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.22
ASSIGNMENT
----------
WHEREAS, Cleartel Communications, Inc. (Assignor), a District of Columbia
corporation, located and doing business at 1232 22/nd/ Street, N.W., Washington,
D.C. 20037, is the owner of the following trademarks and U.S. registrations
therefore:
<TABLE>
<CAPTION>
TRADEMARK APPLN/REG. NO. FILING/REG. DATE
--------- -------------- -----------------
<S> <C> <C>
INTERNET SERVICE FOR
THE 21ST CENTURY 75/422,964 January 23, 1998
LANJACK 75/389,573 November 13, 1997
OVERVOICE 75/298,311 May 27, 1997
TELEFARE 1,833,488 April 26, 1994
THE WAIT IS OVER 75/423,436 January 23, 1998
</TABLE>
(hereinafter referred to an "Assignors' Marks"); and
WHEREAS, CAIS, Inc., (Assignee) a Virginia corporation, located and doing
business at 1232 22nd Street, N.W., Washington, D.C. 20037 is desirous of
acquiring Assignor's Marks;
NOW, THEREFOR, for good and valuable consideration, the receipt of which
is hereby acknowledged, Assignor does hereby sell, assign, set over and transfer
to Assignee, the entire right, title and interest in and to Assignor's Marks and
any and all U.S. Applications and Registrations as set forth herein, together
with the whole of the goodwill of the business pertaining thereto, the rights of
the Assignor to be held and enjoyed by Assignee for its own use and enjoyment,
and for the use and enjoyment of its
<PAGE>
successors, assigns or other legal representatives, at common law and/or to the
end of the term or terms for which registration of the Assignor's Marks may be
granted or renewed, as fully and entirely as the same would have been held and
enjoyed by Assignor if this Assignment and sale had not been made; together with
all claims for damages by reason of past infringement of the Assignor's Marks
with the right to sue for and collect the same for its own use and benefit, and
for the use and on behalf of its successors, assigns or other legal
representatives.
IN TESTIMONY WHEREOF, Assignor has caused its name to be assigned and its seal
affixed, by its duly authorized officer, this 9th day of February
-------- -----------------
, 1999.
Cleartel Communications, Inc.
By: /s/ Ulysses G. Auger, II
----------------------------------------------
Signature
Ulysses G. Auger, II
------------------------------------------------
Typed Name
President
------------------------------------------------
Title
I.D.: JCH/dls
Folio: 9580/T25933US0
Date:
<PAGE>
<TABLE>
<CAPTION>
Exhibit 10.23
- ------------------------------------------------------------------------------------------------------------------------------------
CAIS INTERNET SERVICE AGREEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
----------------------------------------------------
[_] Dial-up Services PHYSICAL LOCATION
----------------------------------------------------
[_] CAIS Classic (ISDN) COMPANY
[_] CAIS Classic Dial-Up Hongkong Telecom at PAIX
[_] Dave's Deal SLIP/PPP ----------------------------------------------------
[_] Mail Boxes NAME
[_] Software Package Adrian Watt
----------------------------------------------------
[_] Web Services ADDRESS
29/F, HongKong Telecom Tower
[_] Dedicated Servers (10 megs) ----------------------------------------------------
[_] Virtual Web Page Hosting (25 megs) ADDRESS COUNTY
[_] Corporate Virtual Web Page Hosting (10 megs) Quarry Bay, Hong Kong
[_] Business Web Page Hosting (10 megs) ----------------------------------------------------
[_] Personal Web Hosting (No CGI) CITY STATE ZIP CODE
----------------------------------------------------
[X] Dedicated Services
----------------------------------------------------
[_] Standard [X] Managed AREA CODE PHONE NUMBER
852-2888-1912
[_] 10 Meg ----------------------------------------------------
[_] Point to Point CREDIT INFORMATION
[_] Frame Relay ----------------------------------------------------
[_] ISDN NAME AS IT APPEARS ON CARD EXPIRATION DATE
[_] 56K Frame Relay
[_] 28.8/33.6kbs ----------------------------------------------------
INDUSTRY
[X] Other Multiple T3s
----------------------------------- ----------------------------------------------------
BANK NAME ACCT NUMBER AREA CODE/PHONE NUMBER
- --------------------------------------------------------
SALES REPRESENTATIVE ----------------------------------------------------
- -------------------------------------------------------- TRADE REF ACCT NUMBER AREA CODE/PHONE NUMBER
AGENT SIGNATURE
----------------------------------------------------
- -------------------------------------------------------- TRADE REF ACCT NUMBER AREA CODE/PHONE NUMBER
AGENT ID#
----------------------------------------------------
- -------------------------------------------------------- FED TAX ID# SS#
FOR CAIS INTERNAL USE ONLY
----------------------------------------------------
- -------------------------------------------------------- PRINCIPAL OR CORPORATE OFFICER OF BUSINESS AND TITLE
- -------------------------------------------------------- ----------------------------------------------------
MC or VISA ACCOUNT #
(RESIDENTIAL ONLY)
----------------------------------------------------
BILLING INFORMATION
CAIS ----------------------------------------------------
INTERNET COMPANY
Hongkong Telecom
6861 Elm Street, McLean, Virginia 22101 ----------------------------------------------------
(703) 448-4470 Fax (703) 790-8805 NAME
http://www.cais.net Adrian Watt
----------------------------------------------------
ADDRESS
29/F, HongKong Telecom Tower
----------------------------------------------------
ADDRESS COUNTY
Quarry Bay, Hong Kong
----------------------------------------------------
CITY STATE ZIP CODE
----------------------------------------------------
----------------------------------------------------
AREA CODE PHONE NUMBER
----------------------------------------------------
Please refer to Terms and Conditions of the CAIS
Internet Service Agreement for billing information.
Authorized Signature /s/ Adrian Watt
--------------------------------
Print Name Adrian Watt
----------------------------------------------------
Title Manager Internet Service Development
----------------------------------------------------
Date 24/10/97
----------------------------------------------------
SPECIAL REMARKS
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
----------------------------------------------------
</TABLE>
<PAGE>
CAIS INTERNET SERVICE STANDARD TERMS AND CONDITIONS
Access to the CAIS, Inc. network is provided subject to the following terms and
conditions:
1. CAIS, Inc. (CAIS) exercises no control over the content of the information
passing through it.
2. CAIS makes no warranties of any kind, whether expressed or implied, for the
service it is providing. CAIS also disclaims any warranty of merchantability or
fitness for a particular purpose. CAIS will not be responsible for any damages
Customer suffers. This includes loss of data resulting from delays,
nondeliveries, misdeliveries or service interruptions caused by Customer or
CAIS' negligence, errors or omissions, or due to inadvertent release or
disclosure of information sent by Customer.
3. CAIS' service may only be used for lawful purposes. Unauthorized transmission
or storage of any information, data, or material in violation of any Federal or
state law or regulation is prohibited. This includes, but is not limited to:
copyrighted material, material that is obscene or material protected by trade
secret. Customer agrees to indemnify and hold harmless CAIS from any claims
(including CAIS' attorneys fees) resulting from Customer's use of the service
which damages Customer or another party or parties.
4. Access to CAIS' service is subject to compliance with CAIS' Acceptable Use
Policies. Any access to other networks connected to CAIS' network must comply
with the rules for that other network.
5. Payment is due upon receipt of invoice. Accounts are in default if payment is
not received within 15 days after date of invoice. If Customer payment is
returned to CAIS unpaid, Customer is immediately in default and subject to a
returned check charge of $25 from CAIS. Accounts unpaid 30 days after date of
invoice may have their service interrupted. Such interruption does not relieve
Customer from the obligation to pay the monthly account charge. Only a written
request to terminate Customer's service relieves Customer of Customer's
obligation to pay subsequent monthly account charges subject to notice
requirements contained in the applicable Schedule(s). Accounts in default are
subject to an interest charge of 1.5% per month or Customer's state's legal
maximum allowable rate, whichever is less. If Customer defaults, Customer agrees
to pay CAIS its reasonable expenses, including attorney and collecting agency
fees, incurred in enforcing its rights under these terms and conditions. An act
of default accelerates payments to be due immediately, as credit is no longer
being extended.
6. The initial term of the agreement, the terms under which this agreement may
be extended or canceled, and the nonrecurring and recurring fees for the
services provided under this Agreement are contained in the applicable
Schedule(s). CAIS reserves the right to change the rates and otherwise modify
these terms and conditions by notifying Customer 60 days in advance of the
effective date of the change. All telephone company fees represent a pass
through of telephone company charges and are subject to change without notice.
These terms and conditions supersede all previous representations,
understandings or agreements and shall prevail notwithstanding any variance with
terms and conditions of any order submitted.
Termination/Cancellation
If service is cancelled by Customer prior to the completion of the Initial Term,
Customer shall remain obligated to pay CAIS Monthly Recurring fees (i) through
the completion of the Initial Term, (ii) through the effective termination date
requested by Customer, or (ii) through the completion of the 60 day period
following CAIS' receipt of written notice from Customer or Customer's intent to
terminate the agreement, whichever is later. Customer, further, shall be
responsible for all Telephone Company fees (i) through the effective termination
date requested by Customer, or (ii) through the completion of the 60 day period
following CAIS' receipt of written notice from Customer or Customer's intent to
terminate the agreement, whichever is later.
Following completion of the Initial Term, this agreement will continue in effect
on a month-to-month basis until such time as either party provides the other
party with advance written notice of its intent to terminate the agreement, such
notice to be provided at least 60 days prior to the effective termination date,
and Customer to be responsible for all CAIS and Telephone Company fees through
the effective termination date requested by Customer, or (ii) through the
completion of the 60 day period following CAIS' receipt of written notice from
Customer or Customer's intent to terminate the agreement, whichever is later.
Accepted by:
CAIS, Inc. Hongkong Telecom*
--------------------------
Company Name
/s/ [Initials not legible]
- ------------------------ --------------------------
Initial Initial
<PAGE>
DATE: TUESDAY, OCTOBER 21, 1997 SCHEDULE NO. 1
- ------------------------------------------------------------------------------
1. Services
a) CAIS Dedicated Point to Point Connection T3 (DS3) Connection and circuit.
CAIS will provide domain and sameserver support, Usenet newsfeed, mail
fallback spooling, and Class C Addresses as required.
b) Sprint Dedicated Point to Point Connection T3 (DS3) Connection and
circuit. OR Fractional T3 (DS3)
c) UUNET Dedicated Point to Point Connection T3 (DS3) Connection and circuit.
OR Fractional T3 (DS3)
NOTE: CAIS will honor the fractional level of service selected by Hongkong
Telecom for each of the 3 transit providers based on the pricing from
pages 5 (Sprint pricing) or page 6 (UUNET pricing) subject to change if
these vendors change their pricing.
2. Term:
Initial Term: Annual, beginning the date of first Internet packets arriving
to your account.
<TABLE>
<S> <C> <C>
__________ DS3 45Mbs $22,000
__________ DS3 Fractional Service
__________ DS3 3Mbs $ 3,500
__________ DS3 6Mbs $ 4,900
__________ DS3 9Mbs $ 6,300
__________ DS3 12Mbs $ 7,700
__________ DS3 15Mbs $ 9,100
__________ DS3 18Mbs $10,500
____X_____ DS3 21Mbs $11,900
__________ DS3 24Mbs $14,000
__________ DS3 27Mbs $16,100
__________ DS3 30Mbs $18,200
__________ DS3 33Mbs $20,300
__________ DS3 36Mbs $23,800
__________ DS3 39Mbs $27,300
__________ DS3 42Mbs $30,800
__________ DS3 45Mbs $34,300
</TABLE>
3. Non-Recurring Fees:
__________CAIS One Time Setup: $15,000
4. Invoicing:
Service is invoiced monthly in advance
Please Initial:
[Initials not legible]
---------------- --------------
CAIS, Inc. CUSTOMER
<PAGE>
<TABLE>
<CAPTION>
HONGKONG TELECOM PORT FEE MONTHLY
PAIX SERVICES MANAGED BY CAIS OR BUILD OUT FEE COST
<S> <C> <C>
CAIS Fractional T3 Internet Transit at 21 Mbs Waived $11,900.00
T3 Circuit to CAIS POP $ 5,400.00 $ 3,650.00
UUNET T3 Internet Transit (burstable) $ 6,000.00 $28,000.00
T3 Cross Connect at PAIX (Coax) Paid for See Note #2
by hkt.net Paid for
by hkt.net
See Note #3
Sprint T3 Internet Transit (One Year Term) $ 6,000.00 $21,570.00
T3 Circuit to Sprint POP $ 5,400.00 $ 3,250.00
CAIS Administration Fee $ 2,500.00
Total $22,800.00 $75,249.00
</TABLE>
Note 1: Does not include equipment or T3 Circuit across the Pacific. This is
paid for directly by Hongkong Telecom.
Note 2: UUNET's flat rate T3 at $28,000 per months runs for the first 8 months
only. After the 8th month, the rate changes to the Standard Rate for UUNET
Burstable T3 service and could be up to $55,000 per month depending on usage.
Note 3: Cross Connect to UUNET at PAIX is paid for directly by Hongkong Telecom.
Note 4: Circuits
The installation date for the physical circuits (for connecting to CAIS POP and
Sprint POP respectively) is scheduled for December 5, 1997. CAIS will use its
best effort to delay the circuit to Sprint POP if Hongkong Telecom's T3 circuit
across the Pacific is delayed beyond December 5. However, Hongkong Telecom
agrees to begin payment of those circuits as soon as they are installed and
tested, regardless of whether or not the Hongkong Telecom circuit across the
Pacific is available.
Note 5: Transit Services
In the event that the availability of the Hongkong Telecom T3 Circuit across the
Pacific is delayed beyond December 5, 1997, CAIS will use its best efforts on
behalf of Hongkong Telecom to delay the Internet Transit billing from UUNET and
Sprint respectively. In the event however, UUNET and/or Sprint refuse to extend
the billing commencement dates and begin to charge for their transit services,
Hongkong Telecom's payment obligation to CAIS shall begin at such time(s).
Page 1
<PAGE>
Note 6: Hongkong Telecom shall pay for
required hardware/equipment within their
space at the PAIX.
Note 7: All rates in the shaded areas are
"Straight Pass Through" and Hongkong Telecom
agrees that should these rates change or taxes
be imposed on such services, the revised rates
and taxes will apply and be payable by
Hongkong Telecom to CAIS.
CAIS reserves the right to enter into a multi-year
contract for either or both of the circuits. CAIS
will pass through to Hongkong Telecom any
savings resulting from such
multi-year commitments if Hongkong Telecom
commits to a multi-year contract with CAIS
of equal term.
Note 8: CAIS Requires all "Port Fees"
or "Build Out Fees" to be paid in advance.
Page 2
<PAGE>
Hongkong Telecom will be Invoiced one month in advance with payment due no later
than 10 days following the date of the invoice. This payment schedule is
absolutely critical to maintain good working relationship with all the vendors
involved in the Hongkong Telecom Palo Alto IX Project.
/s/ [Initials not legible]
__________________________
Customer Initials
__________________________
CAIS Initials
<PAGE>
EXHIBIT 10.24
February 18, 1998
Ulysses G. Auger, II
President
CAIS, Inc.
1232 22nd St. N.W.
Washington, D.C.n 20037
Re: Microsoft/CAIS collaboration on IPORT market trials
Dear Ulysses:
This letter of agreement ("LOA") will confirm the agreement and
understanding of CAIS, Inc.("CAIS") and Microsoft Corporation ("Microsoft")
(collectively, the "Parties", and singly, a "Party"), with respect to their
collaboration (the "Relationship") in sponsoring the beta trials of Atcom,
Inc.'s ("Atcom") high speed internet access project, commonly referred to as
IPORT (the "Market Trials"). The Parties acknowledge that each is working with
Atcom, under separate contractual arrangements, with respect to certain other
elements of the Market Trials.
In addition to the Parties' independent commitments to collaborate with
Atcom regarding the Market Trials through their respective technological and
implementational commitments, Microsoft and CAIS each shall contribute the
following additional resources in an effort to successfully implement the Market
Trials.
A. Microsoft's Role. Microsoft's role in the Relationship includes the
following:
1. Microsoft has made a significant financial contribution toward the
overall project costs of implementing the Market Trials.
2. Microsoft has agreed to work with Atcom to license certain software
and other intellectual property rights to Atcom for use in connection
with the Market Trials. Microsoft and Atcom are separately negotiating
such license and other terms.
3. Microsoft has agreed to contribute significant marketing and
promotional services as an in-kind contribution toward the
implementation of the Market Trials. Such contributions include
advertising and marketing services, financial contributions toward
marketing and promotional costs, corporate marketing efforts and
related efforts. Microsoft shall take the lead role in marketing the
Market Trials.
4. Microsoft shall, as it deems appropriate, include and reference
OverVoice in future IPORT white papers, marketing and other materials
as a co-sponsor of the Market Trials. Following completion of the
Market Trials, Microsoft would, as it deems appropriate, promote
CAIS's OverVoice system as one of a limited number of solutions
through which the IPORT system may be available to hotels.
5. Microsoft has also agreed to contribute certain computer and
networking equipment to be used in the physical Market Trial
locations.
<PAGE>
B. CAIS' Role. CAIS' role in the Relationship includes the following
elements:
1. CAIS has agreed to work with Atcom in the implementation of the
physical resources required for the Market Trials. In this role, CAIS
will act as an integrator to deliver the Market Trials. CAIS and
Atcom are separately negotiating the terms of their respective
commitments.
2. CAIS has agreed to provide certain in-kind goods and services,
including wiring services and related equipment in the physical Market
Trial locations.
3. CAIS will participate in and support marketing and advertising
efforts associated with the Market Trials.
The Parties acknowledge that third party sponsors and/or contributors
may subsequently join and participate in the sponsorship of the Market Trials.
The contributions of such third parties shall be documented as mutually agreed
at the time of participation.
Limitation of Liability. In no event shall either Party be liable to the
------------------------
other Party for consequential damages of any sort or kind whatsoever, including
without limitation indirect, special, consequential, and/or punitive, resulting
from or arising out of this Letter Agreement or the Market Trials.
The Parties acknowledge that they are independent contractors; neither
party has any actual or implied authority to act on behalf of or to otherwise
bind the other. If the provisions of this LOA meet with your approval, please
indicate your acceptance by signing a copy of this letter in the space provided
below and returning it to me at your earliest convenience.
Sincerely,
MICROSOFT CORPORATION
/s/ Stan Julien
-------------------
Stan Julien
HOSPITALITY INDUSTRY MANAGER
-----------------------------
Title
Acknowledged and Agreed:
CAIS, INC.
/s/ Ulysses G. Auger, II
- ------------------------
Ulysses G. Auger, II
President
- ------------------------
Title
2/26/98
- ------------------------
Date
<PAGE>
Exhibit 10.25
CAIS IPORT(TM) INTEGRATOR LICENSE AGREEMENT
(North America, Hotels Only)
(Nonexclusive)
This Agreement (the "Agreement") is effective as of Sept 10, 1998, between
--------- -------------
ATCOM, INC., a California Corporation, d/b/a ATCOM/INFO ("ATCOM") and
-----
CAIS Inc., a VIRGINIA Corporation ("Licensee").
------------------- --------
In consideration for the following mutual agreements, the parties agree as
follows:
1. "Software" means ATCOM's proprietary IPORT(TM) server software program as
--------
described in Exhibit A, all in object code form, and any related materials, in
---------
machine readable and/or printed form, furnished to Licensee by or on behalf of
ATCOM.
2. IPORT(TM) License Grant. Subject to the terms of this Agreement, ATCOM hereby
-----------------------
grants to Licensee, and Licensee accepts and agrees to purchase, a non-
transferable, nonexclusive right to use such number of object code copies of the
Software as are set forth on Exhibit B. For each such object code copy of the
---------
Software paid for by Licensee, Licensee will have a fully paid-up, perpetual
license to use such object code copy of the Software. The parties may amend and
supplement Exhibit B from time to time to add licenses to use additional object
---------
code copies. The licenses granted pursuant to this Agreement will be only for
one server per object code copy of the Software. Except as may be expressly set
forth in this Agreement, no right is granted hereby to use any of ATCOM's
trademarks, trade names, brand names, logos or service marks.
3. Restrictions. Licensee may not copy the Software except that it may make one
------------
copy of the Software per object code copy licensed solely for backup purposes.
Each copy of the Software may be run on one server only. Unless and to the
extent otherwise expressly provided in this Agreement, Licensee will not (i)
attempt to construct or discover, decompile or reverse engineer any source code,
structure, algorithms, or other underlying ideas or processes of the Software by
any means whatever; (ii) remove any copyright or other proprietary notices,
(iii) modify, incorporate into other software or create a derivative work of any
part of the Software, or (iv) export the Software or any copy or direct product
thereof out of the United States except in compliance with any applicable export
laws and regulations.
4. Other Internet Software and Services. Licensee may provide other Internet
- -- ------------------------------------
related services and software to its customers or sell Licensee hardware to
companies that compete with ATCOM, but Licensee will not develop or make
Internet access software that competes with, or would in any way affect
adversely, impair or decrease the use of, ATCOM's Software in the hotel and
motel market.
5. Delivery and Installation. Licensee will be solely responsible for
- -- -------------------------
installing the Software and providing all hardware, telephone, cabling,
telecommunications and network service connections, including Internet service
access provisions, parts, and supplies,
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
1
<PAGE>
necessary for installing the Software at the site location but Licensee's
installation must conform to the requirements of Exhibits F and G. Upon receipt
----------------
of the Software from ATCOM, Licensee will complete and return to ATCOM within
five business days an IPORT(TM) Property Site Survey in substantially the form
of the specimen of Exhibit C. ATCOM may change the form of the IPORT(TM)
---------
Property Site Survey from time to time. Licensee will retain all original disks
or CDs provided to Licensee by ATCOM containing the Software for purposes of
verification of compliance with this Agreement. The method, service provider and
hardware required for the Internet connection will be within the sole discretion
of Licensee. Licensee will pay the monthly fee for the Internet connection
directly to the provider.
6. Joint Efforts. ATCOM may, in its sole discretion, request Licensee to assist
-------------
ATCOM or otherwise participate with ATCOM in connection with IPORT(TM)
technology implementations on behalf of ATCOM's own customers. In such event,
Licensee and ATCOM agree to negotiate in good faith reasonable terms and
conditions therefor.
7. Customization and Advertising Services. During the term of this Agreement,
--------------------------------------
upon Licensee's written request and at Licensee's expense (based on ATCOM's time
and material rates set forth on Exhibit B), and upon prior mutual agreement on
---------
payment, design, delivery, and other relevant terms and conditions, ATCOM will
provide customization and advertising services.
8. Training. During the term of this Agreement, upon Licensee's written request
--------
and at Licensee's expense (based on ATCOM's time and material rates set forth on
Exhibit B), ATCOM will provide training reasonably necessary for Licensee to
- ---------
effectively use and instruct end users on the use of the Software.
9. Modification & Releases. During the term of this Agreement, ATCOM will
-----------------------
deliver to Licensee, without additional charge, any modifications, enhancements,
versions or releases of the Software, and Licensee will keep ATCOM informed as
to any problems encountered with the Software and any resolutions arrived at for
those problems.
10. License Fees. In consideration for the licenses granted pursuant to this
------------
Agreement, Licensee will pay ATCOM the non-refundable license, monitoring, and
use fees as set forth on Exhibit B. ATCOM reserves the right unilaterally to
---------
change the prices set forth as Exhibit B upon 30 days advance notice to
---------
Licensee.
11. Monitoring and Help Desk. During the term of this Agreement, ATCOM will
------------------------
provide the monitoring and help desk services, and Licensee will pay to ATCOM
the monitoring and help desk fees, in each case as set forth on Exhibit B. If
---------
requested by ATCOM, Licensee will allow ATCOM to make a reasonable limited on-
site inspection and limited on-site operational testing with respect to Software
performance. Such inspection and operational testing will include assessing the
physical integrity of the installed IPORT(TM) system (including the Software
loaded on the server and the corresponding Licensee Jacks) and attempting to
operate the system in a manner similar to that expected of an end user.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
2
<PAGE>
Licensee will allow ATCOM to remotely monitor the IPORT system for purposes of
auditing and statistics gathering.
12. Payment Due Dates. All fees will be payable as set forth on Exhibit B.
----------------- ---------
All fees will be deemed overdue if they remain unpaid 31 days after they become
payable. All payments will be made without abatement, set-off, or deduction for
any amount whatsoever. All overdue payments will bear interest from the date
when due to the date when paid at the maximum rate permitted by applicable law.
The payment obligations of Licensee pursuant to this Agreement will be absolute
and unconditional and will in no way be released, discharged or otherwise
affected by reason of any set off or claim Licensee may have against ATCOM or
any customer of Licensee.
13. Branding and Notices. Licensee agrees and acknowledges that the Internet
--------------------
access system enabled by the Software will be known only as the "IPORT(TM)
system," provided, however, that Licensee shall not be restricted from
referencing OverVoice in connection with Licensee's OverVoice(TM) infrastructure
system and equipment, and in connection with hotels or other facilities using
the OverVoice(TM) infrastructure solution. Licensee must not alter or remove
ATCOM's trade name, service marks, trademarks or copyright notice and any other
proprietary notices or trademarks on each installed copy or any backup copies
and must include ATCOM's "IPORT(TM)" trademark on the Licensee Jacks. Licensee's
"OverVoice(TM)" trade name, service mark, or trademarks shall be included on all
wall jacks and other equipment proprietary to Licensee where the OverVoice(TM)
infrastructure solution is used. ATCOM is the sole owner of the service marks,
trademarks and trade names "ATCOM/INFO," "IPORT(TM)" and "INTERNET DIAL TONE"
(the "ATCOM Marks"). Licensee agrees to actively promote the IPORT(TM) system by
-----------
furnishing ATCOM's promotional literature and technical information and related
assistance to end users and prospective end users of the IPORT(TM) system.
Licensee will comply in all respects with the trademark quality control
requirements set forth by ATCOM on Exhibits D. If ATCOM produces marketing
----------
materials or artwork that would help publicize the IPORT(TM) system, ATCOM will
make samples of such materials or artwork available to Licensee at no cost, and
Licensee will ensure that such materials are displayed in all appropriate
locations. Each party may use the other's name in marketing the IPORT(TM)
system, but each party will perform no actions to harm the other's name and
reputation.
14. Ownership and Proprietary Rights. ATCOM has and will retain all ownership
--------------------------------
and intellectual property rights in the Software and any derivative works
thereof, and, except as may be expressly provided in this Agreement, ATCOM has
the exclusive right to protect by copyright or otherwise to reproduce, publish,
sell or distribute the Software to anyone. ATCOM reserves the sole right to
modify and update the Software. Licensee acknowledges and agrees that ATCOM is
the sole and exclusive owner of all patents, copyrights and trademarks relating
to the Software and the IPORT(TM) system, whether or not registered. Licensee
will not take any action that might impair in any way any right, title or
interest of ATCOM and/or any licensee of ATCOM in or to any of ATCOM's
intellectual property rights or challenge the ownership of any patents or
validity or ownership of any of ATCOM's
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
3
<PAGE>
copyrights, trade names or trademarks. Licensee will in no manner represent that
it has any ownership interest in the Software, the IPORT(TM) system or ATCOM's
intellectual property.
15. Confidentiality. Licensee agrees to receive and maintain the Software and
---------------
all information and ideas with respect thereto (collectively "Confidential
------------
Information") in confidence using at least, but not limited to, the same degree
- -----------
of care to protect such Confidential Information it takes in protecting its own
confidential information. Except as expressly provided in this Agreement,
Licensee will not use Confidential Information or disclose it to third parties.
Without granting any license, ATCOM agrees that Licensee will have no
obligations under this section with respect to information Licensee demonstrates
by written records (a) was already rightfully known to Licensee without
restriction prior to disclosure by ATCOM; (b) is generally publicly available at
the time of disclosure; (c) is disclosed to Licensee by a third party who is not
in breach of an obligation of confidentiality, provided that all restrictions
imposed by such third party are complied with; or (d) becomes generally publicly
available after disclosure through no act or omission of Licensee. The
provisions of this section will survive any termination of the license or this
Agreement.
16. Termination. Unless earlier terminated in accordance with the provisions
-----------
of this Section, the term of this Agreement will continue from the date of this
Agreement until the third anniversary thereof and will automatically renew for
an additional one year term unless either party provides the other party with at
least 90 days notice of such party's intention not to renew. Either party may
terminate this Agreement at any time upon 90 days advance notice and by payment
of all accrued fees up to and including the effective date of termination or
upon 30 days notice if the other party materially fails to comply with any
provision of this Agreement and such failure is not cured within such 30-day
notice period. Upon termination, (a) Licensee will immediately and any
Confidential Information and return to ATCOM within one month after termination
of Confidential Information and (b) ATCOM will have no further obligations to
support, maintain, enhance or upgrade the Software as to provide any
customization, advertising, training, monitoring or help desk services, but
Licensee may continue to operate and maintain, but not copy, any object code
copies of the Software for which Licensee has previously paid ATCOM the
applicable up-front fees. This requirement applies to copies of Confidential
Information in all forms, partial and complete, in all types of media and
computer memory, and whether or not modified or merged into other materials.
Termination of this Agreement will not limit either party from pursuing any
other remedies available to it, including injunctive relief, nor will such
termination relieve Licensee of its obligation to pay all fees that accrued
prior to such termination.
17. Warranty. ATCOM warrants for a period of the earlier of 90 days from the
--------
date of installation of the Software that the Software, unless modified by
Licensee, will perform the functions described in the documentation provided by
ATCOM, as updated by ATCOM from time to time, when operated on the operating
system described on Exhibit A. ATCOM will undertake to correct any substantial
---------
defect in the Software which has been reported to ATCOM by Licensee and any
minor defects will be corrected in a subsequent release. In addition, ATCOM
warrants the tapes, CDS, diskettes, or other tangible media to be free of
defects and materials and workmanship under normal use for 90 days from the date
of this
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ------ ----- -----
4
<PAGE>
Agreement. During the 90-day period, Licensee may return defective media to
ATCOM and it will be replaced without charge. Replacement of media is Licensee's
sole remedy in the event of a media defect. In the case of breach of warranty of
the Software, ATCOM will correct or replace any defective Software or, if not
practicable, ATCOM will accept the return of the defective Software and refund
to Licensee the amount actually paid to ATCOM for the defective Software. THE
WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES, CONDITIONS,
REPRESENTATIONS, INDEMNITIES AND GUARANTIES WITH RESPECT TO THE SOFTWARE,
WHETHER EXPRESS OR IMPLIED, ARISING BY LAW, CUSTOM, BY ORAL OR WRITTEN
STATEMENTS BY ATCOM, ITS LICENSORS, OR REPRESENTATIVES OR OTHERWISE.
18. Disclaimer. ATCOM DOES NOT WARRANT THAT THE SOFTWARE WILL MEET LICENSEE'S
----------
OR ITS CUSTOMERS' REQUIREMENTS, THAT THE SOFTWARE WILL OPERATE IN THE
COMBINATIONS WHICH LICENSEE MAY SELECT FOR USE, THAT THE OPERATION OF THE
SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT ALL SOFTWARE ERRORS WILL
BE CORRECTED. THE SOFTWARE IS PROVIDED WITHOUT ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT. FURTHER, ATCOM DOES NOT
WARRANT, GUARANTEE, OR MAKE ANY REPRESENTATIONS REGARDING USE, OR THE RESULTS OF
USE, OF THE SOFTWARE IN TERMS OF CORRECTNESS, ACCURACY, RELIABILITY,
CURRENTNESS, OR OTHERWISE. THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF
THE SOFTWARE IS ASSUMED BY LICENSEE.
19. Limitation of Remedies and Damages. ATCOM WILL NOT BE RESPONSIBLE OR
----------------------------------
LIABLE UNDER ANY PROVISION OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR LOSS OR INACCURACY OF
DATA, COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR TECHNOLOGY, OR ANY
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES INCLUDING, BUT NOT LIMITED TO,
LOSS OF REVENUES AND LOSS OF PROFITS REGARDLESS OF WHETHER ATCOM HAS BEEN
ADVISED OF THE EXPECTATION OR EXISTENCE OF SUCH DAMAGES. ANY LIABILITY OF ATCOM
UNDER ANY THEORY WHATSOEVER WILL BE LIMITED EXCLUSIVELY TO PRODUCT REPLACEMENT
OR, IF UNENFORCEABLE, TO PAYMENT OF AN AMOUNT NOT GREATER THAN AMOUNTS ACTUALLY
RECEIVED BY ATCOM PURSUANT TO THE PROVISIONS OF THIS LICENSE AGREEMENT.
20. Notices. Any notice required or permitted pursuant to this Agreement to
-------
the parties to this Agreement will be in writing and will be deemed to have been
duly given if delivered personally, by telecopy upon appropriate answer-back or
mailed by first-class, registered or certified U.S. mail, postage prepaid or
reputable overnight courier, and if to Licensee, addressed to Licensee at the
address set forth on the signature page to this Agreement and if to ATCOM,
addressed to ATCOM at 308 G Street, San Diego, California 92101, FAX:
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
5
<PAGE>
(619) 699-4040. The parties will promptly notify each other in writing of any
changes in address.
21. Indemnity. ATCOM will defend and indemnify Licensee against a claim that
---------
Software furnished and used within the scope of this Agreement infringes a
United States copyright or misappropriates any trade secret, provided that: (a)
Licensee notifies ATCOM in writing within 30 days of the claim, (b) ATCOM has
sole control of the defense and all related settlement negotiations, and (c)
Licensee provides ATCOM with the assistance, information, and authority
necessary to perform the above. ATCOM will have no liability for any claim of
infringement based on: (a) use of a superseded or altered release of Software
if such infringement would have been avoided by the use of a current unaltered
release of the Software that ATCOM provides to Licensee; (b) any customized
Software, to the extent that such customization was at the request of Licensee;
or (c) the combination, operations, or use of any Software furnished under this
Agreement with Software or data not furnished by ATCOM if such infringement
would have been avoided by the use of the Software without such Software or
data. If the Software is held or is believed by ATCOM to infringe, ATCOM will
have the option, at its expense, to (a) modify the Software to be noninfringing,
(b) obtain for Licensee a license to continue using the Software, or (c)
terminate the license for the infringing Software and refund the license fees
paid for those Software, prorated from the date such Software was delivered.
THIS SECTION STATES ATCOM'S ENTIRE LIABILITY FOR INFRINGEMENT.
22. Assignment/Affiliated Entities/Licensing of Licensee's Channel Partners.
-----------------------------------------------------------------------
a) The License is not assignable or transferable by Licensee and the
Software may not be sublicensed without the prior written consent of ATCOM,
which consent shall not be unreasonably withheld, and provided, however, that
Licensee may assign this License, without the further consent of ATCOM, to any
successor entity or in connection with the sale or transfer of all or
substantially all of Licensee's assets subject to assignee's assumption of all
Licensee's rights and obligations hereunder. Any other attempted transfer,
assignment or sublicense will be void and a material breach of this Agreement.
This Agreement is assignable by ATCOM.
b) ATCOM agrees that Licensee may elect to allow one or more entities
affiliated with Licensee to opt into the terms and conditions of this License as
a licensee following written notice by Licensee and such affiliated entity to
ATCOM of such election.
c) ATCOM agrees to provide Licensee from time to time with updated
pricing and other terms under which ATCOM would be prospectively offering to
license the Software to Licensee's channel partners. Licensee shall have the
right to provide such information as furnished by ATCOM to Licensee's actual and
prospective channel partners on a non-binding basis and for informational
purposes only, recognizing that the pricing and other terms of any license
agreement between ATCOM and a channel partner of Licensee would be subject to
subsequent negotiation and execution of mutually acceptable license agreement
between ATCOM and such channel partner of Licensee.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
6
<PAGE>
23. Taxes. Licensee will pay or reimburse ATCOM for all duties, sales and
-----
use taxes and other charges relating to the Software, this Agreement or payments
pursuant to this Agreement, with the sole exception of taxes on ATCOM's income.
24. Dispute Resolution. This Agreement will be governed and construed by and
------------------
under the laws of the State of California without regard to the application of
the principles of conflict of laws, and, subject to the arbitration provisions
set forth below. Licensee and ATCOM (the "Parties") will submit all disputes
-------
arising out of or related to these terms and conditions or to the performance,
breach or termination thereof, to binding arbitration pursuant to the Expedited
Procedures of the Commercial Arbitration Rules ("Rules") of the American
-----
Arbitration Association ("AAA"). The arbitration will take place in San Diego,
---
California at the offices of the AAA. The dispute will be resolved by a single
arbitrator appointed by the AAA in accordance with the list procedure described
in Paragraph 13 of the Rules, except that the AAA will transmit the list within
ten days of the filing of the Demand for Arbitration, and the Parties will have
five days to return the list to the AAA with their objections and preferences.
Discovery will be limited to one deposition by each side and written document
requests, requesting the production of specific documents. The Parties will
voluntarily produce any and all documents that they intend to use at the hearing
before the close of discovery, subject to supplementation for purposes of
rebuttal or good cause shown. The period for taking discovery will be sixty
days, commencing upon the day that the answer is due under the Rules. The
arbitrator will hold a pre-hearing conference within three days of the close of
discovery, and will schedule the hearing within thirty days of the close of
discovery. The Parties expressly agree that prior to the selection of the
arbitral panel, nothing in this Agreement will prevent the Parties from applying
to a court that would otherwise have jurisdiction for provisional or interim
injunctive or other equitable measures. After the arbitral panel is selected, it
will have sole jurisdiction to hear such applications, except that the Parties
agree that any measure ordered by the arbitrator may be immediately and
specifically enforced by a court otherwise having jurisdiction over the Parties.
All fees and costs will be allocated to the Parties to the arbitration as
determined by the arbitrator. To the extent that the state or federal law under
which a Party's claim arises provides for the award of attorneys fees to the
prevailing party, the arbitrator is empowered to award such fees. The Parties
submit to the exclusive jurisdiction of any court sitting in the County of San
Diego, State of California, for the resolution of any dispute or enforcement of
any right arising our of or relating to this section, and waive any objection to
the venue or personal jurisdiction of said courts.
25. Equitable Relief. Either party may have injunctive, preliminary or other
----------------
equitable relief (without needing to post bond or other security) to remedy any
actual or threatened breach of this Agreement, including without limitation, the
unauthorized copying or use of the Software or disclosure of confidential
information, in addition to such other and further relief as may be proper.
26. Publicity. ATCOM will have the right to inform its customers and the
---------
public that Licensee is a customer of ATCOM. Each party may use the other's
name in marketing the Software or related products or systems and may link to
each other's websites, but each party will perform no actions to harm the
other's name and reputation.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
7
<PAGE>
27. Miscellaneous. It is expressly agreed that each of the parties is acting
-------------
as an independent contractor and under no circumstances will any of the
employees of either party be deemed the employees or agents of the other party
for any purpose. If any provisions of this Agreement are deemed to be invalid or
unenforceable, the remaining provisions will nevertheless continue in full force
and effect. No amendments, modifications or waivers will be binding or
enforceable unless they are in writing and executed by each party. This
Agreement, together with all attachments and exhibits, constitutes the entire
agreement between the parties with respect to the subject matter of this
Agreement.
28. Export Law Compliance. Licensee will comply with all export laws and
---------------------
restrictions and regulations of the Department of Commerce or any other United
States or foreign agency or authority, and not export, or allow the export or
reexport of any Software or information supplied or licensed to it pursuant to
this Agreement or any direct product thereof in violation of any such
restrictions, laws or regulations.
29. Customer Obligations. Licensee will require its customers to agree to and
--------------------
abide by the terms and conditions set forth on Exhibits E, F and G.
-------------------
30. Most Favored Licensee. If during the term of this Agreement, ATCOM
----------------------
subsequently enters an agreement with a third part integrator which (i) requires
ATCOM to grant a non-transferable, nonexclusive right to use a similar quantity
of object code copies of the Software, under substantially the same terms and
conditions, for integration and use in a similar quantity of hotel rooms, and
(ii) includes a most favorable licensee provision, ATCOM will notify CAIS of
such an agreement. Within 30 days of such notice, the parties will initiate
negotiations in good faith to amend this Agreement to include terms and
conditions similar to such most favorable licensee provision. Such most
favorable licensee provision will only be effective for so long as the same
terms and most favorable licensee provision apply to such third party
integrator. In no event will ATCOM be obligated to repay or reimburse CAIS for
any amounts paid or due up to the time of execution of such amendment of this
Agreement. The requirements of this provision will not apply to any strategic
agreement or any agreements with third party integrators which ATCOM may enter
on an evaluation or "beta trial" basis in order to demonstrate, promote, prove
or verify the capability of the Software to any third party.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first written above.
<TABLE>
<S> <C>
ATCOM, INC. Licensee: CAIS, INC.
308 G Street -------------------------------
San Diego, CA 92101 Address: 6861 ELM STREET
-------------------------------
McLEAN, VA 22101
-------------------------------
-------------------------------
/s/ Neil R. Senturia /s/ Evans K. Anderson
- ------------------------------------ -----------------------------------------
Signature
</TABLE>
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
8
<PAGE>
<TABLE>
<S> <C>
Neil R. Senturia Name: Evans K. Anderson
--------------------------------
Its: Chief Executive Officer Its:Vice President/General Manager
----------------------------------
10/5/98
</TABLE>
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
9
<PAGE>
EXHIBIT A
---------
PRODUCTS
IPORT(TM) Product
- -----------------
The IPORT server software is a pay per-use Internet access system and runs
on a Windows(R) NT server operating system.
CYBERSHELL(TM) Product
- ----------------------
The CyberShell public terminal software (includes integration with the IPORT
server for metered use applications)
LICENSEE IS SPECIFICALLY EXCLUDED FROM SELLING OR DISTRIBUTING ANY OTHER ATCOM
BRANDED OR ATCOM OWNED PRODUCT WHICH IS NOT DESCRIBED ABOVE IN THIS EXHIBIT A.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
10
<PAGE>
EXHIBIT B
---------
QUANTITIES, FEES, AND PAYMENT TERMS
. For each object code copy of the Software at a property, Licensee will pay to
ATCOM:
An up-front one-time license fee of $4,000.00 plus any third party
software.
. IPORT service fee revenue sharing:
<TABLE>
<S> <C> <C> <C>
Usage Rate 0 - 3.5% 3.5 - 7% greater than 7%
- -------------------------------------------------------------------------
% of revenue to Licensee * % * % * %
- -------------------------------------------------------------------------
% of revenue to ATCOM * % * % * %
- -------------------------------------------------------------------------
</TABLE>
Usage Rate is calculated as:
(Total monthly IPORT uses per month)
-----------------------------------------------------------
(Number of IPORT installed rooms) multiplied by (75%)
The IPORT per use fee is for any 24 hour period the IPORT service is used
from noon to noon
All monthly recurring fees are due to ATCOM 15 days following the end of
the month during which such fees are collected.
The per use fee includes the 24x7 IPORT Help Desk service via a toll-free
number. The service level delivered at the telephone Help Desk is to
------------------------------------------------------------
answer 80% of calls within 20 seconds with an available representative that
---------------------------------------------------------------------------
can provide the assistance required.
-----------------------------------
ATCOM will be allowed to remotely monitor all IPORT servers for read-only
purposes of quality control and statistical usage analysis.
. IPORT Client software is provided free of charge. IPORT server upgrades will
be priced individually and released periodically.
. Licensee must install a minimum of fifty (50) ports per property.
*Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
11
<PAGE>
. For each individual PC in which the Licensee installs the CyberShell software,
Licensee will pay ATCOM a one-time license fee of $195.00. CyberShell
software upgrades will
. be priced individually and released periodically. If ATCOM provides the PC
hardware, Licensee will be charged for the hardware and third party software
plus a 20% handling fee.
. Licensee is responsible for payment of all fees associated with
shipping/handling and export/import (FOB).
. If ATCOM provides educational and training services the charge will be
$1,000.00 and the IPORT training for Licensee will take place at the ATCOM
home office in San Diego, California.
. For customization and advertising services requested during the term of this
Agreement, Licensee will pay to ATCOM a non-recurring engineering charge set
forth below. This charge is only applicable in the event Licensee requests
customization or advertising work in writing.
Non recurring engineering charge: $125.00 per hour.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
12
<PAGE>
EXHIBIT C
---------
IPORT PROPERTY SITE SURVEY
ATCOM/INFO - 308 G Street, San Diego, CA 92101, 619-699-4000, Fax: 619-699-4040
- -------------------------------------------------------------------------------
ATCOM/INFO PROPERTY SITE SURVEY
- -------------------------------------------------------------------------------
Please return this form for each property that IPORT(TM) will be installed in.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Primary Contact Title:
---------------------------- -------------------
Phone: E-mail:
---------------------------- -------------------
Technical Contact Name: Title:
---------------------------- -------------------
Phone: E-mail:
---------------------------- -------------------
Company Name:
---------------------------------------------------------
Address:
---------------------------------------------------------
---------------------------------------------------------
Fax: Website:
----------------------------- ------------------
</TABLE>
- --------------------------------------------------------------------------------
Property Name:
---------------------------------------------------------
Property Address:
---------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
General Manager: Phone:
---------------------------- -----------------
Director of Sales: Phone:
---------------------------- -----------------
Number of Rooms: Number of Floors:
----------------- -----------------
Weekday Rate: Weekend Rate:
----------------- -----------------
</TABLE>
Description of Typical Guest/Customer:
----------------------------------------
Purpose of Visit: Average Length of Visit:
---------------------
Average Occupancy Percentage on Weekdays: Weekends:
-------------- --------------
What is the existing room wiring configuration?
---------------------------------
Do you currently offer a second in-room phone line for data (Internet) access?
Yes [_] No [_]
What additional business services do they offer (e.g. fax, business center)?
- --------------------------------------------------------------------------------
Percentage of guests with laptop computers:
-------------------------------------
PMS Vendor: Name: Phone:
----------------------------- -----------------------
PMS Support: Name: Phone:
----------------------------- -----------------------
Hotel PMS Contact: Name: Phone:
------------------------ -----------------------
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
------ ------ ----- -----
13
<PAGE>
EXHIBIT D
---------
TRADEMARK AND BRANDING REQUIREMENTS
The Mark:
[LOGO OF IPORT(TM)]
Specifications:
. The Mark must be used in promotional materials in connection with the IPORT
service and label all IPORT jacks with the Mark.
. The Mark may only be used as provided by ATCOM electronically and in hard
copy form, and may not be altered in any manner.
. The Mark may not be used in any manner that expresses or might imply IPORT or
ATCOM's affiliation, sponsorship, endorsement, certification, or approval of
any other services.
. Except as otherwise provided in this Agreement, the Mark may not be combined
with any other object, including, but not limited to, other logos, words,
graphics, photos, slogans, numbers, design features, or symbols. The Mark must
appear by itself, with a minimum spacing (the height of the Mark) between each
side of the Mark and other graphic or textual elements.
. The Mark may not be used in whole or in part, as part of its company name,
domain name, product or service name, logo, trade dress, design, slogan, or
other trademarks without express written permission from ATCOM.
. The Mark shall include the (TM) symbol as shown in this exhibit or if notified
by ATCOM, the (R) symbol.
. The Mark shall be attributed to ATCOM Inc. in all materials where it is used,
with the attribution clause "IPORT is a trademark of ATCOM Inc. in the United
States and other countries and is used by Licensee under license."
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
14
<PAGE>
EXHIBIT E
---------
CUSTOMER OBLIGATIONS
Customer will not (i) attempt to construct or discover, decompile or reverse
engineer any source code, structure, algorithms, or other underlying ideas or
processes of ATCOM's IPORT(TM) software (the "Software") by any means whatever;
--------
(ii) remove any copyright or other proprietary notices, (iii) modify,
incorporate into other software or create a derivative work of any part of the
Software, or (iv) export the Software or any copy or direct product thereof out
of the United States except in compliance with any applicable export laws and
regulations.
Customer agrees and acknowledges that the Internet access system enabled by the
Software will be known only as the "IPORT(TM) system." Customer must not alter
or remove ATCOM's trade name, service marks, trademarks or copyright notice and
any other proprietary notices or trademarks on each installed copy or any backup
copies and must include ATCOM's "IPORT(TM)" trademark on the IPORT(TM) jacks.
ATCOM is the sole owner of the service marks, trademarks and trade names
"ATCOM/INFO," "IPORT(TM)" and "INTERNET DIAL TONE" (the "ATCOM Marks"). Customer
-----------
agrees to actively promote the IPORT(TM) system by furnishing ATCOM's
promotional literature and technical information and related assistance to end
users and prospective end users of the IPORT(TM) system. Customer will comply in
all respects with the trademark quality control requirements set forth by ATCOM
and provided to Customer from time to time. ATCOM will have the right to inform
its customers and the public that Customer is a customer of ATCOM's IPORT(TM)
system.
Customer will not take any action that might impair in any way any right, title
or interest of ATCOM and/or any licensee of ATCOM in or to any of ATCOM's
intellectual property rights or challenge the ownership of any patents or
validity or ownership of any of ATCOM's copyrights, trade names or trademarks.
Customer will in no manner represent that it has any ownership interest in the
Software, the IPORT(TM) system or ATCOM's intellectual property.
Customer agrees to receive and maintain all ATCOM's information and ideas
(collectively "Confidential Information") in confidence using at least, but not
------------------------
limited to, the same degree of care to protect such Confidential Information it
takes in protecting its own confidential information.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
15
<PAGE>
CUSTOMER ACKNOWLEDGES AND AGREES THAT ATCOM DOES NOT WARRANT THAT THE SOFTWARE
WILL MEET CUSTOMER'S REQUIREMENTS, THAT THE SOFTWARE WILL OPERATE IN THE
COMBINATIONS WHICH CUSTOMER MAY SELECT FOR USE, THAT THE OPERATION OF THE
SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT ALL SOFTWARE ERRORS WILL
BE CORRECTED. THE SOFTWARE IS PROVIDED WITHOUT ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT. FURTHER, ATCOM DOES NOT
WARRANT, GUARANTEE, OR MAKE ANY REPRESENTATIONS REGARDING USE, OR THE RESULTS OF
USE, OF THE SOFTWARE IN TERMS OF CORRECTNESS, ACCURACY, RELIABILITY,
CURRENTNESS, OR OTHERWISE. THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF
THE SOFTWARE IS ASSUMED BY CUSTOMER.
ATCOM WILL NOT BE RESPONSIBLE OR LIABLE UNDER ANY PROVISION OF THIS AGREEMENT OR
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY FOR LOSS OR INACCURACY OF DATA, COST OF PROCUREMENT OF SUBSTITUTE GOODS,
SERVICES OR TECHNOLOGY, OR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
INCLUDING, BUT NOT LIMITED TO, LOSS OF REVENUES AND LOSS OF PROFITS REGARDLESS
OF WHETHER ATCOM HAS BEEN ADVISED OF THE EXPECTATION OR EXISTENCE OF SUCH
DAMAGES. ANY LIABILITY OF ATCOM UNDER ANY THEORY WHATSOEVER WILL BE LIMITED
EXCLUSIVELY TO PRODUCT REPLACEMENT OR, IF UNENFORCEABLE, TO PAYMENT OF AN AMOUNT
NOT GREATER THAN AMOUNTS ACTUALLY RECEIVED BY ATCOM PURSUANT TO THE PROVISIONS
OF THIS LICENSE AGREEMENT.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
16
<PAGE>
EXHIBIT F
---------
INSTALLATION REQUIREMENTS
Each property where IPORT is installed the following requirements must be met:
. The IPORT Instruction card must be visible to IPORT end users in the guest
room.
. All IPORT jacks must be branded with the IPORT image shown in Exhibit D.
. IPORT jacks must be placed within 3 feet of the guest room desk or work area.
. A 10BaseT cable must be provided in each guest room to connect the laptop to
the IPORT jack.
. ATCOM must pre-approve the model and vendor of Ethernet switch used for the
IPORT installation. All Ethernet switches must be configured to prevent
individual guests from snooping network information originating from other
guests. Ethernet Hubs are NOT allowed in any IPORT installation.
. IPORT wiring to guest rooms must use Category 5 type cable or an ATCOM pre-
approved alternative wiring specification. Fiber Optic cable must be used when
installing a network backbone in each IPORT property.
. ATCOM must pre-approve the model and vendor of Internet router equipment and
the configuration used at the IPORT property.
. Adequate Internet bandwidth must be provisioned at the IPORT property to
ensure at least a shared bandwidth of 1.5 Megabits for each IPORT user.
. ATCOM must pre-approve the model and vendor of IPORT server hardware.
. Licensee must provide an adequate level of IPORT training for the property
staff members.
. Licensee must comply to Exhibit G in regards to the IPORT Services Display.
. The following list represents ATCOM approved equipment for Licensee
properties:
OverVoice Jack, OverVoice Control Units, OverVoice Universal Jack, OverVoice
----------------------------------------------------------------------------
Certified Ethernet Hub Solutions
- --------------------------------
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
17
<PAGE>
EXHIBIT G
---------
THE IPORT SERVICES DISPLAY
The IPORT Services Display is the visual web-based layout displayed by the IPORT
product before payment of IPORT services, after payment of IPORT services, and
upon termination of IPORT services.
[CHART APPEARS HERE]
Specifications:
. Region A is reserved as a header area for IPORT branding. Region A may
not be altered.
. Region B is reserved as a header area for Hotel or Property branding and
may not be altered except in accordance and with permission from the
legal owner of the associated property brand impressions.
. Region C is reserved as a content area for standard IPORT services and
may not be altered.
. Region D is reserved for the Licensee and may be altered at any time.
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
18
<PAGE>
EXHIBIT H
---------
ACKNOWLEDGMENT OF CAIS DEVELOPMENT WORK
---------------------------------------
The parties acknowledge that CAIS had been developing and continues to develop a
- --------------------------------------------------------------------------------
server and server and Internet access software solution for the MDU market, and
- -------------------------------------------------------------------------------
ATCOM agrees that such development work shall not be considered a breach of
- ---------------------------------------------------------------------------
paragraph 4 of this Agreement as long as CAIS does not deploy any Internet
- --------------------------------------------------------------------------
access software so developed in the hotel and motel market during the term of
- -----------------------------------------------------------------------------
this Agreement, notwithstanding whether any such software developed by CAIS for
- -------------------------------------------------------------------------------
the MDU market has potential application in the hotel and motel market.
- ----------------------------------------------------------------------
CAIS
ATCOM Initial/Date: / Licensee Initial/Date: /
----- ----- ----- -----
19
<PAGE>
EXHIBIT 10.26
Agreement Number
----------------
Effective Date
----------------
UNISYS Marketing Associate
Solution Alliance
Agreement
THIS AGREEMENT is between Unisys Corporation, Township Line and Union Meeting
Roads, Blue Bell, PA 19422, Unisys(TM) and
Marketing Associate (MA)
- ----------------------------------------------------------------------------
Name
CAIS, Inc.
- ----------------------------------------------------------------------------
Address
1232 22nd St. NW
- ----------------------------------------------------------------------------
City, State, ZIP code
Washington, D.C. 20037
- ----------------------------------------------------------------------------
Attention Telephone number Fax number
Ulysses G. Auger, II 202-463-8500
- ----------------------------------------------------------------------------
Country
USA
- ----------------------------------------------------------------------------
MA ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THIS AGREEMENT, INCLUDING THE
NEXT THREE PAGES AND ALL ATTACHED EXHIBITS, AND THAT IT IS NOT ENTERING INTO
THIS AGREEMENT ON THE BASIS OF ANY REPRESENTATIONS NOT EXPRESSLY SET FORTH
HEREIN.
Agreed and Accepted MA
Unisys Corporation CAIS, Inc.
----------------------------------
/S/Ulysses G. Auger, II
- -------------------------------------------------------------------------
Signature Date Signature Date
- ---------------------------------- ----------------------------------
[ILLEGIBLE] name: [ILLEGIBLE] name:
President & Chairman
- ---------------------------------- ----------------------------------
Title Title
<PAGE>
Terms and Conditions
- ------------------------------------------------------------------------------
1. Background
MA (a) has developed and is the owner of, or otherwise has the right to
market, products which will run on/with certain computer equipment, and/or
(b) can provide services to users of certain types of computer equipment. MA
is interested in marketing its computer products and/or services to current
or prospective users of Unisys and multivendor computer equipment, subject to
the terms and conditions of this Agreement. Unisys is willing to market its
computer equipment in conjunction with MA computer products and/or provide
marketing support for MA's products and/or services subject to the terms and
conditions of this Agreement.
2. Definitions
2.1 "Product" means the MA equipment and the MA computer software programs
which operate with the Computer System(s) listed in Exhibit A of this
Agreement. The Products consists of all items listed on Exhibit B of this
Agreement and includes all Corrections, Improvements, and Enhancements,
Updates and Upgrades made by or for MA.
2.2 "Services" means the MA services offered by MA to users of the Computer
System(s) listed in Exhibit A of this Agreement. The Services include all the
services listed on Exhibit B of this Agreement.
2.3 "Documentation" means all materials (and all revisions) relating to the
Product and Services including as applicable, but not limited to, brochures,
specifications, operating instructions, input information, instructional and
other documentation, including guides and manuals.
2.4 "Corrections" means changes to the Product to make it conform to the
then-current Documentation.
2.5 "Improvements" means additions or changes to the Product intended to
improve performance.
2.6 "Enhancements" means new functions or features for the Product, which
provide a new capability.
2.7 "Updates" means subsequent releases for the Product, which incorporate
accumulated Corrections, Improvements and Enhancements together with
revised Documentation for the Update.
2.8 "Upgrades" means changes to the Product, which enable the Product to
operate with changes to the Computer Systems and software furnished with
such Systems.
2.9 "Computer System" means the Unisys and multivendor equipment series
listed on Exhibit A. "Multivendor" means equipment series not manufactured
by Unisys.
2.10 "Qualified Prospect" means the prospective end-user of the Products
or Services who is qualified by Unisys and given this designated status
according to this Agreement.
2.11 "End-User" means the buyer/licensee of the Product and/or Service that
contracts directly with MA for the Products and Services for which Unisys
is entitled to a fee.
3. Obligations of MA
3.1 MA will provide Unisys with (a) marketing brochures published by MA
describing the Products and Services and (b) an accurate description of the
Products including, but not limited to, the functional specifications and
performance characteristics suitable for submission by Unisys to potential
End-Users. The description of the Products and services will be updated
by MA as frequently as required to maintain accuracy.
3.2 MA also will provide to Unisys: (a) guidelines for qualification of
potential End-Users; (b) a detailed description and definition of the
minimum Computer System configuration required to use the Product and
Service with each Computer System and guidelines for configuring the Unisys
Computer System used in conjunction with the Product and Service; (c) if
available, an analysis and comparison of the Product and Service to
functionally similar computer products and services offered by MA's
competitors; (d) a reasonable quantity of MA sales brochures for the
Products and Services; and (e) if available, benchmark test results for
Products as used with Unisys Computer Systems.
3.3 MA will accept a worksheet to assist Unisys in qualifying prospective
End-Users. This worksheet will be based on the guidelines furnished to
Unisys by MA under 3.3(a) above.
3.4 MA will accept worksheets from Unisys and designate the prospect profiled
on the worksheet as a Qualified Prospect unless MA is already working with
the prospect without any involvement of Unisys. MA will sign the worksheet
and return it, along with a letter that either accepts or rejects the
prospect as a Qualified Prospect, to the Unisys designated point of contact.
If Qualified Prospect status is withheld, MA shall provide a written
explanation for its determination. If a worksheet is not signed by MA and
returned to Unisys within 30 days of its submission to MA, the prospect
profiled on the worksheet will be deemed a Qualified Prospect. If there is
no account activity with a Qualified Prospect over a 90 day period, then
that account will lose its Qualified Prospect status and MA will be allowed
to initiate sales contact activity with said account.
3.5 MA will offer each End-User a support and maintenance agreement in the
form attached as Exhibit C of this Agreement (or MA's subsequent standard
support and maintenance agreement generally offered by MA to its buyers/
licensees) and in accordance with the terms and conditions of the
agreement(s) between MA and End-User,
<PAGE>
provide the support services listed in Exhibit D of this Agreement.
3.6 MA will deliver Corrections, Improvements, Enhancements, Updates and
Upgrades, as applicable, for the products sold/licensed to End-Users in
accordance with the terms of the MA's sale/license agreement and/or support
and maintenance agreement between MA and an End-User; provided, however,
delivery of Corrections, Improvements and Enhancements to End-Users of
Unisys Computer Systems will be made no later than the delivery of
equivalent Corrections, Improvement and Enhancements to users of MA Products
on multivendor Computer Systems.
3.7 MA will provide Unisys with a regular written activity report in which
the content, structure, and frequency of such reporting to be negotiated
by the Parties.
3.8 If the Territory, identified on the face of this Agreement, includes
Canada, MA agrees and is obligated to obtain all legal consents, permits,
licenses and governmental approvals required in order for MA to do business
in Canada.
4. Obligations of Unisys
4.1 Unisys will market Unisys Computer Systems in conjunction with the
Products and/or will provide marketing support to MA in conjunction with the
offering of Products and Services to users and prospective users of Unisys
Computer Systems, where such users are also multivendor users.
4.2 Unisys will distribute to its appropriate sales representatives the
sales literature provided by MA as well as the information provided by MA
under 3.2 and 3.3
4.3 Subject to availability and advance scheduling by MA:
(a) Unisys will use reasonable efforts to make available for use by MA for
demonstration purposes any Unisys Computer System installed in Unisys
offices in the Territory identified on the cover page of this Agreement;
(b) Unisys will include the Products in appropriate demonstrations and
benchmark tests otherwise being conducted by Unisys for potential
End-Users;
(c) Unisys will provide pre-sales technical assistance to MA for the sole
purpose of designing the capabilities of the Unisys Computer System;
(d) Unisys will register End-Users for education courses at Unisys Education
Centers. Such End-Users will pay the then-current Unisys charges for the
selected education courses;
(e) Unisys sales representatives may invite MA to participate with Unisys
in relevant conventions, trade shows and seminars; and
(f) Unisys will provide MA with use of a Unisys facility for MA training of
Unisys sales representatives on industry concepts and sales techniques
relating to the Products and Services.
4.4 Unisys will complete the worksheet provided to Unisys according to
Section 3.4 to qualify prospective buyers/licensees of the Products and
Services. Unisys will submit the worksheet to MA for each prospect that
Unisys wants designated as a Qualified Prospect.
4.5 Unisys will brand the OverVoice service mark on all wall jacks, launch
pad screens, and hotel marketing materials that describe high speed Internet
service in all hotels that have the OverVoice technology installed.
4.6 Unisys agrees to pay MA a 5% branding fee for all in-hotel guest room
revenue generated from Unisys touch pad screens in hotel guest rooms in
which OverVoice technology is installed.
5. Development/Demonstration Unisys Computer System
5.1 MA may obtain on a consignment basis from Unisys one equipment
configuration of each Unisys Computer System listed in Exhibit A and
license software for MA demonstration and/or developmental purposes. MA
agrees to provide to Unisys proprietary OverVoice wall jacks and control
units on a consignment basis for Unisys demonstration and/or developmental
purposes, the number of such consignment wall jacks and control units to be
mutually agreed upon by the partners.
5.2 The Unisys development/demonstration equipment acquired by the MA will
not be leased or resold by the MA for a period of one year (or other
applicable period of time specified in then-current Unisys Marketing
Associate policy) from the date of MA payment for such equipment.
6. Fees
6.1 Unisys will earn a fee in the range of * to *% for each proprietary
product sold to a hotel property, depending upon an annual volume incentive
schedule to be negotiated by the parties. Unisys will earn a fee in the
range of * to *% for all CAIS Internet access services sold to a hotel
property, depending upon an annual volume incentive schedule to be
negotiated by the parties. Fees will be paid for all proprietary products
and Internet access services sold during the term of this Agreement and
within six months after any termination or cancellation of this Agreement.
The parties agree that any revenues from OverVoice laptop and/or meeting
room solutions are excluded from commissionable revenues to Unisys under
this section.
6.2 MA's current published list prices are set forth in Exhibit E. MA will
notify Unisys in writing at least 30 days prior to the effective date of any
change in MA's published list prices.
6.3 MA will pay the fee to Unisys within 30 days after the End-User is billed
for the Product and Service. Unisys may impose a late payment charge equal
to the lessor of (1) 1-1/2% per month or (2) the maximum rate allowed
by law.
6.4 MA will keep its business records according to generally accepted
accounting principles. MA will permit Unisys to examine the records related
to this Agreement during regular business hours at MA's address on the
cover page of this Agreement upon at least 10 days written notice from
Unisys.
7. MA Warranties
- ---------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
<PAGE>
7.1 MA warrants and represents that it (a) owns all right, title and
interest in, or by license or otherwise has the right to market, the
Products and Service and (b) knows of no claim of infringement of a patent,
copyright or other proprietary right or of improper use or misappropriation
of a third party trade secret by the Products or Services.
7.2 MA warrants that the Products and Services will substantially conform
to the description of the Products and Services delivered to Unisys in
accordance with 3.2 above.
7.3 MA warrants and represents that it has the right, without the consent
of any third party, to sell/license the Products and Services to End-Users
and to otherwise perform its obligations under this Agreement.
7.4 MA warrants and represents that it has and will retain a sufficient
number of technically qualified employees to fulfill its contractual
obligations to its End-Users to support and maintain the Products.
8. Use of Trademarks
Neither party is authorized to sue the trade name or any trademark of the
other or to refer to the other party's products or services in any
advertisement, brochure, news release or any document intended for delivery
to a third party without the prior written approval of an officer of the
other party.
9. Patent, Copyright and Trade Secret Indemnification
9.1 Unisys, at its own expense, will defend and indemnify MA and End-Users
against claims that Unisys products furnished to End-Users pursuant to this
Agreement infringe a United States patent or copyright or are subject to
claims of misappropriation of trade secrets protected under United States
law, provided MA (a) gives Unisys prompt written notice of such claims
pursuant to Section 16.9, (b) permits Unisys to defend or settle the claims,
and (c) provides all reasonable assistance to Unisys in defending or
settling the claims. Unisys will not defend or indemnify MA or End-Users if
any claim of infringement or misappropriation results from (a) design or
alteration of any Unisys product by End-Users or MA or (b) use of any Unisys
product in combination with any non Unisys product. This section 9.1 states
the entire liability of Unisys and MA's sole and exclusive remedy for patent
or copyright infringement or trade secret misappropriation with respect to
Unisys products.
9.2 MA, at its own expense, will defend and indemnify Unisys and End-Users
against claims that any Products or Services or any part thereof furnished
pursuant to this Agreement infringes a United States patent or copyright or
is subject to claims of misappropriation of trade secrets protected under
United States law, provided Unisys (a) gives MA prompt written notice of
such claims pursuant to Section 15.9, (b) permits MA to defend or settle the
claims, and (c) provides all reasonable assistance to MA in defending or
settling the claims. Unisys may be represented by counsel of its own choice
at its own expense. MA will not defend or indemnify Unisys or End-User if
any claim of infringement or misappropriation results from (a) design or
alteration of any Product or service by Unisys or End-Users or (b) use of
any Product in combination with any non-MA product. This Section 9.2 states
the entire liability of MA and Unisys sole and exclusive remedy for patent
or copyright infringement or trade secret misappropriation with respect to
the Products and Services.
10. Protection of Information
10.1 Neither party shall have any obligation to keep information disclosed
by the other confidential unless the information disclosed is in tangible
form and clearly marked "proprietary," "confidential," "restricted" or
with a similar notice. Each party will exercise the same degree of care to
avoid disclosure of such proprietary/confidential/restricted information
of the other as it affords to its own similar information, but in no event
less than a reasonable degree of care.
10.2 Information which is marked "proprietary," "confidential," "restricted"
or with a similar notice will be used by the receiving party only as
necessary for the purposes of this Agreement and will be maintained in
confidence, during and after the term of this Agreement, unless the
receiving party can prove that such information: (a) is publicly available
other than through a breach of this Agreement, (b) has been rightfully
obtained from a third party with no obligation of confidentiality, (c) is
known or developed independently of the disclosure by the disclosing party,
(d) was already known prior to disclosure by the disclosing party or (e) was
disclosed to a third party by the disclosing party without imposing an
obligation of confidentiality.
11. Arbitration
11.1 Subject to Sections 11.2 through 11.5 below, any controversy or claim
arising out of or relating to this Agreement or the breach thereof will be
settled by arbitration before three arbitrators in accordance with the Rules
of the American Arbitration Association ("AAA") then in effect, and
judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction. Any such arbitration will be conducted in the
city nearest MA's main U.S. office having an AAA regional office. The
arbitrators will be selected from a panel of persons having experience with
and knowledge of electronic computers and the computer business, and at
least one of the arbitrators selected will be an attorney.
11.2 The arbitrators will have no authority to award punitive damages nor
any other damages not measured by the prevailing party's actual damages, and
may not, in any event, make any ruling, finding or award that does not
conform to the terms and conditions of this Agreement.
11.3. Either party, before or during any arbitration, may apply to a court
having jurisdiction for a temporary restraining order or preliminary
injunction where such relief is necessary to protect its interests pending
completion of the arbitration proceedings.
<PAGE>
11.4 Neither party nor the arbitrators may disclose the existence or results
of any arbitration hereunder without the prior written consent of both
parties.
11.5 Prior to initiation of arbitration or any other form of legal or
equitable proceeding, the aggrieved party will give the other party at least
30 days prior written notice in accordance with Section 15.9 describing the
claim and amount as to which it intends to initiate action.
12. Term, Termination and Cancellation
12.1 This Agreement will begin on the Effective Date specified on the cover
page of this Agreement and continue in effect for a period of 12 months
("Initial Period") and thereafter until terminated according to its terms.
12.2 Unisys or MA may terminate this Agreement without cause as of the end
of the Initial Period or any time thereafter upon at least sixty (60) days
prior written notice.
12.3 Except as provided in Section 12.4 below, if either party breaches this
Agreement, the other may cancel it upon thirty (30) days written notice,
unless the breach is cured within the notice period.
12.4 Either party may terminate this Agreement at any time upon written
notice, without providing the other party with an opportunity to cure, if:
(a) there is a change in control or ownership of the other party (or if its
parent or any affiliated companies) or if all or subsequently all of the
assets of the other party are sold; (b) if a receiver is appointed to the
other party or its property; (c) the other party becomes insolvent or unable
to pay its debts as they mature or ceases to pay its debts as they mature in
the ordinary course of business or makes an assignment for the benefit of
its creditors; or (d) the other party is liquidated or dissolved.
12.5 Proposals for Products and Services that are submitted to End-Users by
the effective date of any termination or cancellation of this Agreement and
accepted by such End-Users within sixty (60) days thereafter will be subject
to the terms and conditions of this Agreement.
12.6 No damages (whether direct, consequential, special or incidental and
including expenditures and loss of profit), indemnities or other
compensation will be due or payable to either party by reason of a possible
termination or cancellation of this Agreement by the other party.
13. Disclaimer
Except as expressly stated in this Agreement, neither party has made or
relied on any warranties or representations (express or implied, by
operation of law or otherwise) regarding the scope, duration or success of
any marketing effort which Unisys or MA or both may undertake.
14. Limitation of Liability
IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, INDIRECT,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF
USE, LOSS OF GOODWILL OR OTHER DIMINUTION IN THE VALUE OF THE OTHER'S
BUSINESS, REVENUES, PROFITS OR SAVINGS, EVEN IF SUCH PARTY KNEW OR SHOULD
HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.
15. Other Provisions
15.1 THIS AGREEMENT WILL BE GOVERNED BY THE LOCAL LAW OF THE COMMONWEALTH
OF PENNSYLVANIA.
15.2 The relationship of Unisys and MA under this Agreement is that of
independent contractors only, and neither is authorized to act as the agent
or legal representative of the other. No provision of this Agreement or any
act by either party in furtherance of the intent of this Agreement will
create a joint venture relationship between the parties for any purpose
whatsoever.
15.3 Unisys may delete any Unisys Computer System from Exhibit A at any time
upon at least sixty (60) days prior written notice to MA.
15.4 Unisys will not be liable to MA for late delivery of any Computer
System. MA will not be liable to Unisys for late delivery of the Products
and Services.
15.5 Any failure or delay by either party in exercising any right or remedy
will not constitute a waiver. The waiver of any one default will not waive
subsequent defaults of the same or different kind.
15.6 Neither party will be liable for any failure to fulfill its obligations
when due to causes beyond its reasonable control including, without
limitation, the bankruptcy of any supplier or commercial impracticality.
15.7 This Agreement or any performance under it may not be assigned by
either party. Any purported assignment will be void and of no effect.
15.8 No legal proceeding, regardless of form, related to or arising out
of this Agreement may be brought by either party more than two years after
the cause of action has accrued.
15.9 All notices required by this Agreement to be given to MA will be sent
to its address on the cover page of this Agreement.
All notices required by Sections 9 and 11 will be sent by certified or
registered mail and, when given to Unisys, will be addressed to:
Office of the General Counsel
Unisys Corporation
Township Line and Union Meeting Roads
Blue Bell, PA 19422
All other notices to Unisys will be sent to:
Vice President, Channel Marketing
Unisys Corporation
Township Line and Union Meeting Roads
Blue Bell, PA 19422
15.10 Each provision of this Agreement is severable and, if one or more
provisions are declared invalid, the remaining
<PAGE>
provisions of the Agreement will remain in full force and effect.
15.11 The rights and obligations of Unisys and MA under Sections 3.4, 3.5,
7, 9, 10, 11, 13, 14, and 15 will survive any termination or cancellation
of this Agreement.
15.12 All Exhibits referenced in this Agreement are part of it. With respect
to its subject matter, this Agreement constitutes the entire agreement of
the parties and supersedes all prior proposals and agreements, both written
and oral, and all other written and oral communications between the parties,
except that provisions of prior agreements between the parties which survive
termination, cancellation or expiration of such agreements will not be
superseded by this Agreement, unless specifically agreed to by the parties
in writing.
15.13 This Agreement may be modified only by writing signed by a duly
authorized representative of each party. The duly authorized representatives
of Unisys are individuals with the title of Vice President or Contracts
Manager.
<PAGE>
Marketing Associates Solution Alliance Agreement
UNISYS Exhibit A - Computer Systems
Agreement
---------------
---------------
UNISYS Computer Systems
- --------------------------------------------------------------------------------
[illegible] applicable systems Other (Specify):
A Senes Systems Unisys Servers
---------------------------------------------
2200 Series Systems
---------------------------------------------
UNIX Systems
---------------------------------------------
PC Systems
---------------------------------------------
CTCS Systems
---------------------------------------------
DP Series
---------------------------------------------
- --------------------------------------------------------------------------------
Multivendor Computer Systems
- --------------------------------------------------------------------------------
Specify Vendor and System Type
<PAGE>
Marketing Associate Solution Alliance Agreement Agreement Number
UNISYS Exhibit B - MA Products and Services -------------------
-------------------
MA Software Products
- -------------------------------------------------------------------------------
Software name Brief description
[illegible]
- -------------------------------------------------------------------------------
MA Equipment Products
- -------------------------------------------------------------------------------
Name Brief description
See Attached List Replacement Wall Jack (see specifications)
Control Unit (see specifications)
CAIS Inc., at Unisys request, may supply commodity items to make the
infrastructure complete (ethernet hubs, 110 blocks, cabling, etc.)
- -------------------------------------------------------------------------------
MA Services
- -------------------------------------------------------------------------------
Service type Brief description
See Attached List Internet Services (see overview)
- -------------------------------------------------------------------------------
<PAGE>
Marketing Associate Solution Alliance Agreement Agreement Number
UNISYS Exhibit C - MA Agreements -------------------
-------------------
MA Support and Maintenance Agreement
- -------------------------------------------------------------------------------
See Attached List
(Attach a copy of standard agreement generally offered by MA to
[illegible])
MA service and maintenance agreement will be customized based upon
agreed terms and conditions by the parties.
- -------------------------------------------------------------------------------
Exhibit D - MA Support Services
MA Support Services for Products
- -------------------------------------------------------------------------------
MA will, at a minimum
(a) provide End-User training for the Products including, if required for
software Products, instructions regarding the use of the Products with
Unisys Computer Systems, the methods of input, the logic of the software
Products and the output generated.
(b) provide technical services by maintaining a support group to provide direct
support of an End-User to assist in the understanding of the use of the
Products.
(c) provide a diagnostic service to ascertain the nature of the problems an
End-User may be experiencing with software Products. This may be
accomplished by the use of telephone "hotline".
(d) provide centralized training facilities for End-Users, if appropriate, MA
may separately contract to use Unisys facilities, if available.
(e) [illegible] support and update the software Products on a continuing basis,
it being understood that such support will include, at a minimum
[illegible], programming required by changes in laws of the various states
where End-Users are located and keeping the software compatible with Unisys
then-current system software for Unisys Computer Systems.
(f) correct all errors, malfunctions or defects in the Products.
(g) provide End-Users with all appropriate documentation and updates for the
Products when documentation shall include operating instructions, End-Users
manuals and other Documentation.
<PAGE>
Marketing Associate Solution Alliance Agreement Agreement Number
UNISYS Exhibit E - MA Current Published Prices -------------------
-------------------
MA Current Published Prices for Software Products
- -------------------------------------------------------------------------------
Software name [illegible]
[illegible]
- -------------------------------------------------------------------------------
MA Current Published Prices for Equipment Products
- -------------------------------------------------------------------------------
Name [illegible]
See Attached List
- -------------------------------------------------------------------------------
MA Current Published Prices for Services
- -------------------------------------------------------------------------------
Name [illegible]
See Attached List
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.27
HILTON HOTELS CORPORATION
MASTER LICENSE AGREEMENT
FOR
CAIS, INC.
<PAGE>
TABLE OF CONTENTS
Paragraph Page No.
- --------- --------
1. LICENSE............................................................1
2. USE OF LICENSED AREA...............................................2
3. TERM OF INDIVIDUAL HOTELS..........................................2
4. FEES...............................................................3
5. INSTALLATION AND OPERATING PROCEDURES..............................4
6. INTERFERENCE.......................................................6
7. MAINTENANCE AND REMOVAL OF LICENSEE'S EQUIPMENT; SITE MAINTENANCE..7
8. HAZARDOUS SUBSTANCES...............................................8
9. INSURANCE..........................................................9
10. INDEMNITIES........................................................9
11. LIMITATION ON CONSEQUENTIAL DAMAGES; DISCLAIMER OF WARRANTIES.....11
12. LIENS.............................................................11
13. OWNERSHIP.........................................................12
14. LICENSOR RIGHT TO ENTER OR GRANT ENTRY............................12
15. LICENSEE'S PROPERTY...............................................12
16. TERMINATION.......................................................12
17. HOLDING OVER......................................................14
18. SUBLICENSING AND ASSIGNMENT.......................................14
<PAGE>
19. RELOCATIONS OF LICENSED AREA AND OR THE EQUIPMENT.................15
20. NATURE OF LICENSE.................................................15
21. NOTICES...........................................................16
22. DEFAULT UNDER OTHER LICENSE.......................................16
23. ACCESS TO THE SERVICES............................................16
24. REPRESENTATIONS AND WARRANTIES OF LICENSEE........................17
25. INDEPENDENT CONTRACTOR............................................17
26. DRAFTING AND PREPARATION..........................................17
27. MISCELLANEOUS.....................................................17
28. SEVERABILITY......................................................19
29. ENTIRE AGREEMENT..................................................19
EXHIBIT A LIST OF EQUIPMENT..........................................A-1
EXHIBIT B ARBITRATION PROVISIONS.....................................B-1
SCHEDULE 1 LIST OF HOTELS............................................S-1
OPTION ADDENDUM.....................................................OD-1
<PAGE>
MASTER LICENSE AGREEMENT
THIS MASTER LICENSE AGREEMENT dated for reference purposes only,
December 23, 1998, by and between Hilton Hotels Corporation, a Delaware.
corporation, (hereinafter referred to as "Licensor"), and CAIS, Inc. a Virginia
corporation (hereinafter referred to as "Licensee").
W I T N E S S E T H:
-------------------
WHEREAS, Licensor operates a national chain of hotels in various cities
of the United States commonly known as the Hilton Hotels; and
WHEREAS, Licensee has devised a commercial, high speed data
communications service as more particularly defined in Paragraph 2 (the
"Service") and desires to make the Service available to Licensor and third
parties at Licensor Hotels: and
WHEREAS, Licensor has agreed to license to Licensee the nonexclusive
right to place equipment for the provision of the Service (the "Equipment") in
certain guest rooms and other areas within the specific hotels named in riders
attached as Participating Hotel Site Acknowledgement (the "Riders") and the
respective Hotels (the "Hotels") included are subject to increase or decrease
from time to time; and
WHEREAS, Licensor desires to grant to Licensee the right to install and
operate the Equipment necessary for the Service at the Hotels and Licensee
desires to acquire such right;
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
---------
1. LICENSE
-------
a. Licensor hereby licenses to Licensee, and Licensee hereby
Licenses from Licensor, the nonexclusive right to use certain areas and existing
telephone wiring for the installation and operation of the Equipment for the
Service in certain guest rooms and other areas to be determined from time to
time by Licensor within the Hotels. The certain area, as they may be changed by
Licensor from time to time hereinafter shall be collectively called the
"Licensed Area".
b. Licensee shall, at it sole cost and expense, install maintain,
operate, repair, upgrade and replace and Equipment and construct any other
improvements necessary including connections for power and telephone lines, as
further defined in Paragraph 5 hereof.
c. At each of the (participating) Hotels, Licensee shall install
the Service
1
<PAGE>
in all Meeting Rooms and in a minimum of (a) 200 Guest Rooms where the
(participating) Hotel has 400 or greater Guest Rooms, or (b) 50% of the Guest
Rooms where the (participating) Hotel has fewer than 400 Guest Rooms.
d. Costs for use of telephone lines shall be at Licensee's sole
cost and expense.
2. USE OF LICENSED AREA
--------------------
The Licensed Area shall be used by Licensee only for the provision of
the Service. The Service shall mean and is limited to the installation and
operation of a networking system including all related components, software,
wiring and communications services as set forth in Exhibit A, whereby Guests in
---------
separate Guest Rooms or Meeting Rooms at the Hotel will be able to connect
Ethernet-capable laptop computers, servers, and other Ethernet-capable computer
equipment to a network provided by Licensee. The Service shall allow networking
and interoperation of computer equipment within the Hotels (respectively) and
shall allow computers connected to the Licensee supplied network within the
Hotels to access the public Internet through dedicated 1.5 Mbps T1 or greater
telecommunications line provided by Licensee. No other Service or use of the
Licensed Area is permitted without Licensor's prior written approval.
3. TERM OF INDIVIDUAL HOTELS
-------------------------
a. For each of the (participating) Hotels having 1,000 or greater
Guest Rooms, the Initial Term shall be two (2) years and the optional Extended
Term shall be three (3) years. For each of the (participating) Hotels having
fewer than 1,000 Guest Rooms, the Initial Term shall be three (3) Years and the
Extended Term shall be two (2) years. The commencement and termination dates for
the individual Hotels are defined in the Rider(s). Notwithstanding the
foregoing, the Initial Terms shall not extend beyond (i) December 31, 2001 (for
participating Hotels having 1,000 Guest Rooms or greater) or (ii) December 31,
2002 (for participating Hotels having less than 1,000 Guest Rooms), and the
optional Extended Terms shall expire no later than December 31, 2004.
b. Hilton Hotels Corporation must specifically and individually
approve the extension of the dates as defined above in subparagraph 3a in the
event Licensee and individual Hotels are planning to execute the Rider(s) after
December 31, 1999.
c. Licensor's exercise of the Extended Term(s) shall be at its
sole discretion. Licensor shall provide ninety (90) days prior written notice of
its intention to exercise the Extended Term(s).
2
<PAGE>
4. FEES
----
a. Allocation of Usage Fees
------------------------
For each participating Hotels, the allocation of Usage Fees is as
defined in Schedule A attached to the Riders.
b. Fee and Payment Term Procedure
------------------------------
(i) Based upon daily information reported by the Service
monitoring equipment (provided and installed by Licensee at no cost to Licensor)
the Hotels shall charge Guests on a per-use or other basis for access to the
System an amount (the "Usage Fee") based on a pricing schedule mutually agreed
to by Licensee and Licensor and defined in the Riders. Usage Fees shall include
---------------------
Set-Up Fees. Access Fees, and or other billed amounts derived directly from or
in relation to use of the Service by Guests.
(ii) The Service monitoring equipment shall generate an accurate
record ("Access Record") of the usage and access to the Service by any Guests,
including a record of the usage charges for each individual Guest's bill or
account. Licensee shall be responsible for the costs associated with the
programming of the computer within the Service monitoring equipment to enable it
to provide the aforesaid data.
(iii) Licensee shall make available to the Hotels information
sufficient to ensure proper billing of Guests and other information on Service
usage reports as the Hotels may reasonably request to track Service usage.
(iv) Licensee may review and use the Access Record for such
purposes as Licensee may reasonable deem appropriate, except that Licensee shall
not disclose any such information to third parties except as agreed to by the
Hotels. In the event of any such disclosure by Licensee, Licensee shall
indemnify and hold harmless the Hotels and Licensor from all claims, loss,
damages or actions arising from such disclosure.
(v) The Hotels may, in their sole discretion, adjust the Usage
Fee as to any Guest of the Hotel in conjunction with any dispute with such Guest
in which case the "Usage Fee" shall mean the Usage Fee for such Guest as so
adjusted, Licensee understands and agrees that the Hotel shall generally refund
the Usage Fee to the Guest in the event the Guest disputes the charge or
expresses dissatisfaction with the Service.
(vi) During the Term of the Agreement, the Hotels shall be
responsible for billing and collection of Usage Fees from Guests. Usage Fees
shall be
3
<PAGE>
allocated to the Hotel and Licensee respectively, in accordance with the
percentages set forth above. The Hotels shall pay Licensee's allocation of the
Usage Fees to Licensee on a monthly basis with in twenty (20) days following the
Hotel's receipt of a monthly invoice from Licensee. The Hotel shall provide
Licensee with a monthly statement of any credits issued to Guests.
(vii) If requested by Licensee, the Hotels shall collect from
Guests any applicable taxes levied on or measured by the Usage Fees and forward
them as set forth in the monthly invoice from Licensee. Licensee shall remit all
such taxes to the appropriate taxing jurisdictions. Licensee shall notify the
Hotels of the appropriate tax base, tax rate and exemption policy ("Tax
Elements") to apply to the Usage Fee and of any changes to these Tax Elements.
The Hotel will incorporate these Tax Elements into its billing systems and cause
them to be applied to the Usage Fees. The ultimate responsibility for the
collection and/or payment of any taxes, interest, and/or penalty levied on or
measured by the Usage Fees shall be that of Licensee.
(viii) If Licensor collects Licensee's Usage Fee through a
collection agency or through legal action, Licensor need only remit to Licensee
the net amount collected after deducting Licensor's costs of collection and the
Hotel's appropriate allocation of Fees.
(ix) Notwithstanding anything to the contrary contained in this
Agreement, the addenda, riders or schedules, the parties agree to adjust Usage
Fees as necessary at either the individual hotels or collectively as the case
may be to accurately reflect the "market rate" for the Service.
5. INSTALLATION AND OPERATING PROCEDURES
------------------------
a. Licensee shall operate the Equipment during the Term hereof in
compliance with all present and future rules and regulations imposed by any
local, state or federal authority having jurisdiction with respect thereto
(including, without limitation the rules and regulations of the FCC and the
Federal Aviation Administration (the "FAA"). Licensee shall promptly forward to
Licensor copies of all applications for all FCC operating licenses (if required)
and copies of other licenses which it has been issued pertinent to this License.
Licensee shall have at all times any licenses, permits and approvals necessary
for the installation or operation of the Equipment. Licensor shall cooperate
with Licensee in securing licenses, permits and approvals. Prior to installation
of the Equipment, or any modification or changes to or removal of the Equipment,
if any, Licensee shall comply with the following:
(i) Licensee shall submit in writing all plans for such
installations, modifications or changes for Licensor's approval. No other
equipment shall be added to the Licensed Area without Licensor's prior written
consent.
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(ii) Prior to commencement of any work, Licensee shall
obtain Licensor's prior written approval and any required approvals of all
federal, state and local agencies. If requested, Licensee shall promptly deliver
to Licensor written proof of compliance with all applicable federal, state and
local laws, rules and regulations in connection with any installations,
modifications or changes to or removal of the Equipment.
(iii) All of such modifications, installations, changes or
removal work shall conform to Licensor's design specifications, weight and
windload requirements, and shall not interfere with any other radio
communications systems and equipment located in and upon the Licensed Area, and
shall be in compliance with all applicable local, state and federal government
requirements, including but not limited to zoning, FAA and FCC specifications.
(iv) All of the wireless access Equipment shall be clearly
marked with waterproof lables to show Licensee's name, address, telephone number
and the name of the person to contact in case of emergency, FCC call sign,
frequency and location (if any). All coaxial cable relating to the wireless
access Equipment shall be identified in the same manner at the bottom and top of
the line. The Equipment shall be installed in a manner so as to be reasonably
inaccessible to unauthorized persons and to pose no hazard to safety of life or
property with respect to persons or property on or about the site.
b. Licensor reserves the absolute right to withhold approval in
all matters where Licensor's approval is required, if Licensor should determine
(in its sole discretion), that a possibility or a threat of interference or
other disruption to the business of the Hotel or Licensor or to other existing,
licensee(s) or tenants exists.
c. Licensor shall provide at its sole cost electric power in
accordance with Paragraph 8 of the Riders.
d. In the event a zoning variance is required at any Hotel in
connection with the installation or modification of Licensee's wireless access
Equipment, Licensor shall have the right, at its sole discretion, to either
(i) cancel this Agreement as to that specific Hotel, or (ii) allow Licensee at
Licensee's sole cost and expense, to obtain such variance. Should Licensee not
obtain such variance within thirty (30) days, Licensor shall have the right to
cancel this Agreement at the end of such thirty (30) days.
e. In order to assure Licensee's compliance with the provisions of
this Agreement, the plans and specifications for Licensee's wireless access
Equipment and any modifications thereto shall be submitted to engineers and
consultants selected by Licensor for review and approval. Licensee shall
reimburse Licensor for Licensor's reasonable out of pocket expenses incurred in
connection with such review and approval. All work performed at the site
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in connection with the installation and modification of Licensee's wireless
access Equipment shall be performed in a workmanlike manner by contractors
approved by Licensor, at Licensee's expense and all subcontractors shall be
properly licensed.
f. If access is required by Licensee to the Licensed Area in the
Hotels, Licensee shall provide twenty-four (24) hours prior notice to the
Director of Property Operations or the Manager on Duty at such Hotel for such
access. In the event of an emergency Licensee may have access to the Equipment
on a twenty-four (24) hour basis with reasonable notice to the above Hotel
officials. Access shall not be unreasonably denied by Licensor.
6. INTERFERENCE
------------
a. The installation, operation and/or removal of Licensee's
Equipment shall not interfere by way of electromagnetic, radio, microwave or
any other transmission or emission, electrically, or in any other manner
whatsoever, including health effects with the equipment, facilities, operations
or guests of Licensor, any present or future licensee, tenant of Licensor in
the Hotel at which the site is located, or any other third party, including,
but not limited to, any radio systems operated by the Hotel, no matter where
or when such systems are installed. Notwithstanding anything in this Agreement
to the contrary, it is expressly understood and agreed that if the
installation, operation or removal of Licensee's Equipment shall interfere
with Licensor's facilities or operations, or any other radio communications
systems and equipment at any time, Licensee shall, upon request (verbal or
otherwise), immediately suspend its operations and do whatever Licensor deems
necessary to eliminate or remedy such interference. If Licensee is unable to
rectify the interference within thirty (30) days, then Licensor, upon the
expiration of the thirty (30) day cure period, at its option, may terminate
this Agreement as to that specific Hotel, disconnect power and require
Licensee to remove any and all of the Equipment at Licensee's sole cost and
expense, or Licensor may (without termination of the Agreement) eliminate or
remedy such interference at Licensee's sole cost and expense. Licensee's duty
to pay all fees required under this Agreement shall continue through any cure
period and despite any suspension of Licensee's operations pursuant to this
paragraph.
b. Nothwithstanding the provisions of subparagraph c. below,
Licensee acknowledges that Licensor has licensed, and/or will continue to
license access for other types of equipment and services at the Hotels to third
parties. Licensee accepts this License with this knowledge and waives any and
all claims against Licensor resulting from or attributable to interference
caused by presently existing facilities or methods of operation employed by
Licensor in its business upon any Hotel. Licensee also waives any and all claims
against Licensor and against any other licensee or tenant of Licensor because of
interference resulting to Licensee by virtue of equipment, facilities or
operations employed by Licensor or by any other licensee or tenant of Licensor
in its business upon the site. In the event that any such interference occurs,
Licensee's sole remedy, in lieu of any and all other remedies at law, or in
equity, shall be to
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terminate this Agreement as to that specific Hotel at any time thereafter by
giving Licensor thirty (30) days prior written notice to that effect, and such
termination shall be effective at the end of such thirty (30) day period.
Licensee shall pay to Licensor any fees due for the period up to the termination
of this Agreement. Any advance fee payments for periods after the termination
of this Agreement will be reimbursed to Licensee.
c. The foregoing notwithstanding and without modifying Licensee's
sole remedy listed above, Licensor shall use commercially reasonable efforts to
prevent future installations from interfering with Licensee's Equipment or the
provisions of the Service.
7. MAINTENANCE AND REMOVAL OF LICENSEE'S EQUIPMENT: SITE MAINTENANCE
-----------------------------------------------------------------
a. Licensee, at its sole cost and expense, shall be responsible
for the maintenance of the Equipment and improvements, if any, at the Hotels and
shall keep all areas neat and clean, in accordance with all applicable laws and
regulations and this Agreement. Licensee shall not create any nuisance,
interfere with, annoy or disturb any other licensee of Licensor or any licensee,
tenant or guest of the Hotels. Licensor, at its sole cost shall maintain the
site in good repair to permit Licensee to use the Licensed Area at the site as
intended by the parties as embodies in this Agreement. Licensor shall have no
obligation to obtain licenses for Licensee, maintain, insure, operate or
safeguard Licensee's Equipment. All maintenance work shall be subject to prior
approval of Licensor and shall be performed by contractors, previously approved
by Licensor, such approvals not be unreasonably withheld or delayed. In the
event Licensor, in its opinion, determines that any structural modifications or
repairs need to be made to any portion of a specific Hotel as a result to the
presence of Licensee's Equipment or other improvements, Licensor shall have the
right to (i) terminate this Agreement as to that specific Hotel by giving
written notice to Licensee, or (ii) notify Licensee of needed modifications and
repairs, and Licensee at its sole cost and expense shall immediately make all
such noticed modifications or repairs in accordance with the terms of this
Agreement.
b. Provided that Licensee is not in default in the performance of
its obligations hereunder, at the expiration of this Agreement or earlier
termination thereof, Licensee may remove all Licensee's Equipment at Licensee's
sole cost and expense in accordance with the terms of this Agreement. Any and
all removal of Licensee's Equipment shall be performed by a contractor
previously approved in writing by Licensor and in accordance with a previously
approved removal plan, performed in a workmanlike manner, without creating any
interference, damage or destruction to any other equipment, structures or
operations at the Hotels or to any other equipment of other licensees thereon
ordinary wear and tear excepted. If Licensee fails to remove such Equipment
within sixty (60) days following termination of this License, Licensor may in
each instance remove the Equipment at Licensee's expense. All such interference
or damage caused to the Hotels or Equipment of other licensees shall be
immediately repaired or
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eliminated by Licensee. In the event Licensee fails to make such repairs within
five (5) days Licensor may perform all the necessary repairs at Licensee's cost
and expense and such sum shall be immediately due upon the rendering of an
invoice as an additional fee hereunder.
The foregoing notwithstanding, Licensee shall not remove jacks placed
in Guest Rooms or wiring installed in electrical closets, subceilings or attic
spaces. In all instances, such wiring and jacks shall become property of
Licensor.
8. HAZARDOUS SUBSTANCES
--------------------
a. Licensee represents, warrants and covenants that it will
conduct its activities at the Hotels in compliance with all applicable
Environmental Laws (as hereinafter defined). Licensor represents, warrants and
agrees that it will conduct its activities at the Hotels in compliance with all
applicable Environmental Laws.
b. Licensee agrees to defend, indemnify and hold Licensor
harmless from and against any and all claims, causes of action, demands and
liability including but not limited to damages, costs, expenses, assessments,
penalties, fines, losses,judgments and attorneys' fees that Licensor may suffer
due to the existence or discovery of any Hazardous Substance (as hereinafter
defined) at the Hotels or the migration of any Hazardous Substance to other
properties or released into the environment, that are caused by or result from
Licensee's activities at the Hotels.
c. Licensor agrees to defend, indemnify and hold Licensor
harmless from and against any and all claims, causes of action, demands and
liability including but not limited to damages, costs, expenses, assessments,
penalties, fines, losses,judgments and attorneys' fees that Licensor may suffer
due to the existence or discovery of any Hazardous Substance (as hereinafter
defined) at the Hotels or the migration of any Hazardous Substance to other
properties or released into the environment, that are caused by or result from
Licensee's activities at the Licensed Area.
d. The indemnifications in this Paragraph 8 shall survive the
expiration or earlier termination of this Agreement.
e. As used in Paragraph 8, "Environmental Laws" means all
federal, state and local environmental laws, rules, regulations, ordinaces,
judicial or administrative decrees, orders, decisions authorizations or permits
pertaining to the protection of human health and/or the environment, incuding
but not limited to, the Resource Conservation and Recovery Act, 42 U.S.C.
(Section) 6901 et seq., the Clean Air Act, 42 U.S.C. (Section) 7401 et seq.,
the Emergency Planning and Community Right to Know Act 42, U.S.C. (Section) 1101
et seq., the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (Section) 9601 et seq., the Toxic Substances Control Act, 15
U.S.C. (Section) 2601 et seq., the Oil Pollution Control Act, 33 U.S.C. and any
other
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comparable local, state or federal statute or ordinance pertaining to the
environment or natural resources and all regulations pertaining thereto. This
definition includes all federal, state and local land use laws dealing with
environmental sensitivity, including, but not limited to, laws regarding
wetlands, steep slopes, aquifers, critical or sensitive areas, shore lines, fish
and wildlife habitats or historical or archeological significance.
f. As used in this Paragraph 8, "Hazardous Substance" means any
hazardous substances as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, as amended from time to time; any hazardous
waste as defined by the Resource Conservation and Recovery Act of 1976, as
amended from time to time; any and all materials or substances defined as
hazardous pursuant to any federal, state or local laws or regulations or orders
and any substance which is or becomes regulated by any federal, state or local
governmental authority; any oil petroleum products and their by-products.
9. INSURANCE
---------
For each of the (applicable) Hotels, Licensee shall maintain in force
during the term of this License Agreement, at its own expense with responsible
insurance companies that have an A.M. Best Company rating of "A VIII" or better,
policies public liability insurance, including commercial general and automobile
liability insurance, insuring the contractual liability of Licensee under this
Paragraph, in an amount not less than TWO MILLION AND NO/100THS DOLLARS
($2,000,000) per occurrence. Licensee shall also provide worker's compensation
in an amount not less than the statutory requirements required by the State and
employers liability coverage in the amount of ONE MILLION DOLLARS ($1,000,000)
per accident, per disease policy limit and per disease per employee covering all
employees of Licensee.
All policies will name Hilton Hotels Corporation, the Hotels and other
entity listed on each of the Riders as may be executed by the Parties from time
to time, as "Additional Insureds." All policies of insurance shall be considered
primary of any existing similar insurance carried by Licensor, Hotel or
Licensee. Licensee shall provide the Licensor with Certificates of Insurance
carried by Licensee. If requested by the Hotels, Licensee shall furnish
certified copies of insurance carried. Copies of said Certificates of Insurance
or certified policies of Insurance shall be delivered to the offices of Licensor
and the Hotel by Licensee and must be kept current during the term of this
Agreement. No Policy of Insurance shall be canceled or materially changed
without thirty (30) days prior written notice to the Hotel.
10. INDEMNITIES
-----------
a. Licensee hereby agrees to indemnify, defend and hold
Licensor, their hotels, partners, subsidiaries, affiliates, franchises, and
allied companies and each of their officers, directors, agents, contractors,
subcontractors and employees (collectively,
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"Indemnitees") harmless from and against any and all claims, liabilities,
damages, fines penalties or costs of whatsoever nature (including reasonable
attorneys' fees), and whether or not occurring during the term hereof or
occasioned or contributed to by the negligence of Licensor, a Hotel, or any
agent or employee of the Indemnitees, or any of them (except as and to the
extent otherwise prohibited by applicable law), arising out of or in any way
connected with, and whether by reason of death of or injury to any person or
loss of or damage to any property or otherwise, arising out of or in any way
connected with actions or omissions of Licensee under this Agreement. Licensee's
representations, warranties, covenants agreements and licenses hereunder, the
services provided by Licensee or any Licensees or other subcontractors, of
Licensee hereunder or any related act of failure to act by Licensee, its agents,
licensees, subcontractors, servants employees or invitees, including without
limitation the use of the Licensed Area and any allegation that the Equipment or
any part of them infringes any rights of any other person, including without
limitation copyright, patent, trade secret, trademark, artist rights, droit
moral, privacy, publicity or other intellectual property laws, whether or not
occurring during the term hereof or occasioned or contributed to by the
negligence of an Indemnitee or an agent or employee of the Indemnitees, or any
of them (except as and to the extent prohibited by applicable law). In the event
that any claim is made or any action or proceeding is brought against the
Indemnitees, or any of them, arising out of or connected with this Agreement,
any such Indemnitees may be notice to Licensee, elect to require Licensee, at
Licensee's expense, to resist such claim or take over the defense of any such
action or proceeding and employ counsel for such purpose, such counsel to be
subject to the prior approval of such Indemnitee.
b. If the Service's system or any part thereof, furnished by
Licensee to the Hotels becomes, or in the opinion of Licensee may become, the
subject of any claim, suit or proceeding for infringement of any United States
patent or copyright, or in the event of an adjudication that such product or
part infringes any United States patent or copyright, or if the use, lease or
sale of such product or part is enjoined, Licensee shall elect and implement one
of the following options at its expense: (1) procure for the Hotel the right
under such patent or copyright to use, lease or sell, as appropriate, such
system or part, or (2) replace, modify, or remove such system or part. If the
Hotels or Licensor determines, in its sole discretion, that such replacement,
modification, or removal of the system or part has a significant negative impact
on the overall functioning of the Service, the Hotels or Licensor have the right
to terminate this Agreement thirty (30) days after giving written notification
to Licensee of such intention to terminate. In the event of such termination,
Licensee agrees to remove the Service as provided herein.
c. Licensee represents and warrants that (i) the Client-Server
Software does not contain any viruses, disabling code, or similar devices which
are designed to damage the Hotel's data, software, or hardware, or to interfere
with the Hotel's use of the Client Server-Software, (ii) the Client-Server
Software will function substantially in accordance with its
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specifications, (iii) Licensee has all rights necessary to grant the rights set
forth in this Agreement, and (iv) the Client-Server Software will, without
adverse effect, (A) function on and after January 1, 2000, and (B) process,
store and otherwise handle data containing or depending upon dates and after
January 1, 2000.
d. Licensor shall indemnify and hold Licensee harmless from and
against any and all claims which the Licensee may suffer, sustain or incur
arising from, or based upon Licensor's gross negligence, willful misconduct or
failure to act in good faith.
11. LIMITATION ON CONSEQUENTIAL DAMAGES: DISCLAIMER OF WARRANTIES
-------------------------------------------------------------
EXCEPT AS EXPRESSLY PROVIDED HEREIN, NO EXPRESS OR IMPLIED WARRANTY IS
MADE WITH RESPECT TO THE SERVICES TO BE SUPPLIED BY LICENSEE HEREUNDER,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, AND LICENSEE DOES NOT WARRANT THE RESULTS OF ANY
SERVICES. In particular, Licensor agrees that Licensee will in no event be
responsible for any losses or damages of any and every nature (including, but
not limited to, consequential losses incurred by Licensor, by any
subcontractors, marketing agents, sales representatives, affiliates or employees
utilized by Licensor, by any Guests, or by any other party) to the extent due to
service outages or interruptions, delays, failure to provide service, or
discontinuance of service, and not caused by the fault or negligence of Licensee
and/or Licensee's agents, subcontractors, representatives, or affiliates
(including, but not limited to, losses or damages of any nature resulting from
the loss of data, inability to access the Internet, or inability to transmit or
receive information). Except for indemnified claims and except to the extent
Licensee, any of its employees, agents and/or contractors are held liable for
gross negligence or intentional misconduct, neither party, the Indemnitees, or
each of their subsidiaries shall be liable for loss of profits, or indirect,
special, incidental or consequential damages, even if such party has been
advised of the possibility of such damages. This paragraph shall survive
termination of this agreement.
12. LIENS
-----
In every instance at the Hotels, Licensee covenants and agrees to keep
the equipment and property of Licensor and the Hotels free and clear from any
and all liens for work performed or materials furnished hereunder and Licensee
agrees to indemnify the Indemnitees from and against any and all costs,
expenses, losses and all damage resulting from the filing of any such liens
against Licensor and the Hotels or the Licensed Area of Licensor and the Hotels.
As a condition to payment hereunder. Licensee shall from time to time, upon
request by Licensor or the Hotel, furnish waivers or releases of such liens or
receipts in full for all claims for such work or
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materials and an affidavit that all such claims have been fully satisfied.
13. OWNERSHIP
---------
Ownership of the Equipment and related systems providing the Service
shall at all times be and remain vested in Licensee. Any proposed use by
Licensor or by any third party of the System or of the Equipment for additional
applications shall require the prior approval of Licensee. The Equipment shall
not under any circumstances constitute, be or be deemed to be fixtures annexed
to Licensor's real property and the Equipment shall at all times be and remain
free and clear of any claims, liens, or encumbrances created by Licensor.
14. LICENSOR RIGHT TO ENTER OR GRANT ENTRY
--------------------------------------
Licensor shall have the right, without liability to Licensee, to allow a
duly authorized officer or agent of a federal, state or local governmental
agency, admittance to the Licensed Area at any time and from time to time, as
needed or requested by such agency. It is specifically understood that such
agency need not obtain a search warrant or provide a subpoena.
15. LICENSEE'S PROPERTY
-------------------
All property belonging to Licensee, its employees, agents, or invitees,
or any occupant of the Licensed Area that is in the Hotels, or the Licensed
Area, shall be there at the risk of Licensee or other person only, and Licensor
shall not be liable for damage thereto for theft or misappropriation thereof;
further, Licensee shall indemnify and hold harmless Licensor and the Hotels from
any claims, causes of action arising from theft or misappropriation of the
property belonging to the aforementioned. Nothing herein to the contrary shall
require Licensee to indemnify or hold harmless Licensor for the intentional
tortious acts of Licensor's employees or agents. The burden of proving such
intent shall be upon Licensee.
16. TERMINATION
-----------
a. This Agreement shall be subject to termination by Licensor
either at each of the (applicable) Hotels or in general as defined below upon
the occurrence of any of the following events:
(i) At the Hotels, if Licensee shall fail to pay the sums to
Licensor called for in Paragraph 4 hereof and such failure continues for five
(5) business days after written notice that the same is due;
(ii) At the Hotels, if Licensee shall violate or breach any of
the material terms, conditions or covenants hereof and shall not remedy such
violation or breach
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within ten (10) days after written notice by Licensor to Licensee of such
violation or breach.
(iii) At the Hotels, if Licensee's operation and use of the
Licensed Area shall at any time violate or fail to conform to covenants and
conditions established herein or reasonable standards and practices as may be
modified or supplemented by Licensor from time to time in writing to Licensee,
and such noncompliance is not cured within ten (10) days after written notice by
Licensor to Licensee of such noncompliance (provided that if the nature of such
noncompliance is curable but that the same cannot with due diligence be cured
within ten (10) days. Licensee shall not be deemed to be subject to termination,
if it shall within such ten (10) day period commence curing and thereafter
diligently prosecutes the same to completion;
(iv) In general, if Licensee shall make an assignment for the
benefit of creditors or file a voluntary petition in bankruptcy or be adjudged
insolvent or shall admit in writing its inability to meet its obligations as
they mature, or if a permanent receiver of all or any portion of Licensee's
property shall be appointed in any judicial proceeding, or there shall be
entered against it an order adjudicating it a bankrupt or insolvent or an order
appointing a liquidator, receiver or trustee for it or all or substantially all
of its assets or approving as properly filed against it a petition seeking
reorganization, arrangement or other proceeding under any bankruptcy or other
law for the relief or debtors, which order shall continue unstayed and in effect
for, or which proceeding shall not be terminated and Licensee released from such
proceeding within thirty (30) days, or if Licensee shall attempt to assign or
encumber this Agreement or permit any other person, firm or corporation to
conduct the business or Services provided for hereunder;
(v) At the Hotels, if any statute, ordinance, rule or
regulation hereafter promulgated by any legislative body or agency having
jurisdiction over the Licensee shall prohibit the operation of the Licensed Area
by Licensee as provided for herein, provided that Licensee shall first be given
a reasonable opportunity to modify its operation of the Licensed Area so as to
comply with any such statute, ordinance, rule, or regulation; or,
(vi) At the Hotels, in the event that: (1) The premises upon
which the Licensed Area is located should be sold; (2) Licensor should assign
its rights to the site to a third party, or (3) Licensor proposes, or is
required for any reason to structurally renovate or demolish the Hotel or a
substantial portion thereof which includes all or a portion of the Licensed
Area, then Licensor shall have the right, upon not less than one hundred eighty
(180) days prior written notice to Licensee, to terminate this Agreement. In
such event Licensor shall reimburse Licensee's unamortized installation expense
calculated at an initial expense of $185.00 per installed room (guest or
meeting), such amortizaiton shall be "straight line" method using the Initial
Term as the period of full amortization.
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(vi) In general, if during the Term or Extended Term or this
Agreement, Licensor reasonably expects to be at a competitive disadvantage
because of a commercially available and nationally available system
substantially similar to the Service that is faster, more reliable, has easier
end-user connectivity, and is less expensive than Licensee's system. If such
failure is curable by upgrading all or a portion of the Equipment, then
Licensee shall have not more than one hundred twenty days (120) to perform such
work at the Hotels and demonstrate to Licensor's reasonable satisfaction, and on
terms acceptable to Licensor, that the system is technologically equivalent and
reasonably competitive.
b. At the Hotels, this Agreement shall be subject to termination
by Licensee upon the occurrence of a violation or breach of any of the material
terms, conditions or covenants hereof by Licensor and shall not remedy such
violation or breach within thirty (30) days after written notice by Licensee of
such violation.
17. HOLDING OVER
------------
In every instance at the Hotels, if Licensee, with Licensor's consent,
leave the Equipment in the Licensed Area after expiration or termination of the
Term, or after the date in any notice given by Licensor to Licensee terminating
this License, such event shall be deemed to be a month-to-month holdover
terminable on thirty (30) days notice given at any time by either party. All
provisions of this License except those pertaining to the term of this License
shall apply to the month-to-month holdover.
In every instance at the Hotels and in general, if Licensee, without
Licensor's consent, leaves its Equipment in the Licensed Area after expiration
or termination of the term, or after the date in any notice given by Licensor to
Licensee terminating this License, Licensee shall pay to Licensor fees at double
the rate as defined in Paragraph 4 hereof, for the time Licensee thus remains in
the Licensed Area, and in addition thereto, shall pay Licensor all direct and
consequential damages sustained by reason of Licensee's retention of the
Licensed Area, including Licensor's attorney's fees.
18. SUBLICENSING AND ASSIGNMENT
---------------------------
Licensee may not sublicense the Licensed Area or assign the Agreement or
any rights and obligations hereunder without prior written consent of the
Licensor given or withheld in its sole discretion, provided, however, that if
Licensee is not in breach hereunder, Licensor shall not unreasonably withhold
its consent to an assignment to and assumption by a proposed sublicensee that
succeeds to substantially all of Licensee's business, operations,
responsibilities and liabilities (as used herein the term "substantially all"
shall include but not be limited to each and every License Agreement by and
between Licensee and Licensor and any Hilton franchised hotels contracting with
Licensee at the time of the proposed assignment or
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sublicense), and (a) is in compliance with Paragraph 24, (b) provides reasonably
satisfactory financial, technical and other professional assurances of its
ability to perform throughout the term hereof, (c) is not otherwise restricted
under Licensor's other, third party contracts at the time of proposed
assignment, and (d) executes and delivers to Licensor an assignment and
assumption agreement in Licensor's then standard form. Subject to the foregoing,
the conditions, covenants and agreements in the foregoing Agreement to be kept
and performed by the parties hereto shall bind and inure to the benefit of their
successors and assigns.
In connection with any such transfer to which Licensor may consent.
Licensee agrees to furnish Licensor with copies of all documents, and subsequent
amendments thereto, executed in connection with such transfer. Any consent of
Licensor to a subletting, assignment or transfer of control shall be deemed to
be a consent to the initial subletting, assignment or transfer of control and
shall not be deemed to be a consent to any further subletting, assignment or
transfer of control.
Further, notwithstanding any permitted subletting or assignment, the
Licensee hereunder shall at all times remain fully responsible and liable for
the payment of Fees hereunder and for compliance with all of Licensee's
obligations under the terms, provisions and covenants of this License Agreement.
19. RELOCATION OF LICENSED AREA AND OR THE EQUIPMENT
------------------------------------------------
Licensor hereby reserves the right at the Hotels on ninety (90) days
notice to require Licensee, to relocate all or a portion of the Equipment at any
time during the Term or Extended Term to a reasonably comparable location as
follows: (i) at Licensee's sole cost and expense, for the relocation of any
particular portion of Licensee's Equipment on one (1) occasion per Hotel during
the Initial Term hereof; or (ii) at Licensor's expense for any subsequent
relocation (of such previously relocated Equipment) per Hotel during the Initial
Term.
20. NATURE OF LICENSE
-----------------
The License granted hereby is a non-exclusive license for Licensee to
use the Licensed Area solely as required to perform its obligations hereunder,
revocable according to the terms hereof. In no event shall this License be
deemed or construed to run with the land or create or vest any easements or
other rights in any of Licensor's Hotels or properties. Licensee agrees that no
permanent or possessory interest shall accrue to Licensee or its licensees in
Licensor's Hotels or properties at any time or by exercise of the permission
given hereunder, and that Licensee shall not claim any such interest in any of
Licensor's Hotels or properties. THIS LICENSE DOES NOT CREATE ANY RECORDABLE
INTEREST AND SHALL NOT BE RECORDED IN ANY OFFICIAL RECORDS.
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21. NOTICES
-------
Whenever, by the terms of this Agreement, or otherwise, notice is
required or desired to be given, such notice shall be effective only if in
writing and served personally, via facsimile or sent by certified mail or
registered mail, postage prepaid as follows:
(a) If intended for Licensor, addressed to the attention of
General Manager at the Hotel address as listed in the Rider, with a copy to
Licensor's General counsel at:
Hilton Hotels Corporation
9336 Civic Center Drive
Beverly Hills, CA 90210
(310) 278-4321
or such other address as may from time to time hereafter be designated by
Licensee by like notice.
(b) If intended for Licensee, addressed to the attention of
Licensee's General Counsel at:
CAIS, Inc.
1232 22nd St., NW
Washington, D.C. 20037
Phone: (202) 463-8500
Fax: (202) 463-7190
or to such other address as may from time to time hereafter be designated by
Licensee by like notice. All notices utilizing the U.S. Mail shall be deemed
given four (4) business days after the postmark thereof, if by facsimile then it
shall be deemed given one (1) business day after transmission, if served
personally then it shall be deemed given the day served.
22. DEFAULT UNDER OTHER LICENSE
---------------------------
Intentionally omitted.
23. ACCESS TO THE SERVICES
----------------------
16
<PAGE>
Licensee will use its best efforts to insure that usage and access to
the Service is consistently in good operation and is available to the Hotel's
Guests at a minimum of 95% of the time when access or usage is attempted. If
requested by Licensor, within twenty (20) days after the end of each month.
Licensee will provide Licensor with a written report showing the total number of
Usage access connections attempted and completed during the previous month for
the purpose of insuring access availability.
24. REPRESENTATIONS AND WARRANTIES OF LICENSEE
------------------------------------------
Licensee represents and warrants that there are no agreements or
arrangements, whether written or oral, that would be breached by Licensee upon
execution of this Agreement or that would impair or prevent Licensee from
rendering the Services to Licensor during the term hereof, and Licensee further
represents, warrants, covenants and agrees that it has and will maintain
throughout the term hereof all qualifications required to perform its Services
hereunder, and that it has not made and will not make any commitment or do any
act in conflict with this Agreement. Licensee shall promptly provide Licensor
with all information reasonably requested by Licensor or its Compliance
Committee with respect to Licensee and its affiliates including their respective
officers, directors or shareholders. The information requested may include but
not necessarily be limited to financial condition, personal and family
background, litigation, indictment, criminal proceedings and the like in which
any of the aforementioned may have been involved (collectively, the "Requested
Information"), solely in order for Licensor to determine that the Requested
Information does not disclose any fact which might adversely affect, in any
manner, any gaming licenses or permits held by Licensor or its affiliates or the
current stature of Licensor or its affiliates with any gaming commission, board
or similar regulatory agency.
25. INDEPENDENT CONTRACTOR
----------------------
In connection with this Agreement each party is an independent
contractor and as such will not have any authority to bind or commit the other.
Nothing herein shall be deemed or construed to create a joint venture,
partnership or agency relationship between the parties for any purpose.
26. DRAFTING AND PREPARATION
------------------------
Each party has cooperated and participated in the drafting and
preparation of this Agreement. Therefore, if any construction is to be made of
this Agreement of any of its terms, both parties shall be construed to be
equally responsible for the drafting and preparation of same.
27. MISCELLANEOUS
-------------
17
<PAGE>
a. This Agreement is made subject to all local, state and federal
laws and regulations now or hereafter in force, and shall not be modified or
extended (other than as set forth, herein) except by an instrument duly signed
by Licensor and Licensee and approved by Licensor. Waiver of a breach of any
provisions hereof under any circumstances will not constitute a waiver of any
subsequent breach of such provision, or of a breach of any other provision of
this Agreement.
b. Licensor and Licensee represent and warrant to each other than
no broker's involved in connection with this transaction and each party agrees
to indemnify and hold the other harmless from and against the claims of any
broker (if any), made in connection with this transaction.
c. This License shall be governed by and constructed in accordance
with the laws of the state in which the specific Hotel in question is located.
d. This License shall be binding upon the parties, and their
permitted successors and assigns.
e. Licensor and Licensee agree to do any further acts and execute
such additional documents as the other may reasonably require to confirm this
License and carry out the purpose of this License.
f. During the Term, Licensee shall supply the underlying dedicated
Internet connectivity for the Service between Licensee and the Hotels. Licensee
shall be responsible for the costs associated with the installation of the
dedicated connection to the Hotels. In some, but not all instances, depending on
geographic location, topology and other factors, Licensee may provision the
required local dedicated connections to the Hotels through wireless broadband
links. Licensor reserves the right of approval of such wireless systems.
g. The Hotels acknowledge that in the event that Licensee, at any
time, reasonably believes that the System services are being utilized by a Guest
in contravention of the terms and provisions of this agreement, Licensee may, at
its sole discretion, immediately discontinue any such System services to such
Guest without liability.
h. Licensee shall provide to the Hotels and end user Guests a 24
hours per day 365 days per year help desk support manned by Internet experienced
technicians. This help desk support shall include direct access via a toll free
888 access to answer the Hotels and Guest questions and fix problems as needed.
i. Licensee will provide Licensor with an on-site account manager
based at Licensor's corporate headquarters, and hired, employed and trained by
Licensee. Licensor will
18
<PAGE>
endeavor but is not required to make reasonable office space and facilities
available for this account manager at Licensor's offices.
The dedicated account manager will perform the following functions:
1. Serve as Liaison between Licensor and Licensee.
2. Manage overall relationship.
3. Act as single point of contact for Licensor and the Hotels.
4. Promote quality control.
j. Provided that Licensee has fully and faithfully kept and
performed all of the terms, conditions, and covenants contained herein. Licensor
agrees that the Licensee shall be the "preferred" supplier of the Service at the
Hotels and shall receive preferred selection of, and positioning within, the
individual Hotels within the Hilton Hotels Corporation System.
k. Either party's delay in, or failure of, performance under this
Agreement shall not constitute a default where such delay or failure is caused
by elements of nature, fire or other catastrophe, fluctuations in third party
telecommunications equipment and lines and power supplies, organized work
stoppage, or acts of government or agencies thereof outside such party's
reasonable control. In any such event, each party will be excused from any
further performance or observance of the obligations so affected only for as
long as such circumstances prevail and each party continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
28. SEVERABILITY
------------
It is agreed that if any provision of this License shall be determined
to be void by any court of competent jurisdiction, then such determination shall
not affect any other provision of this License and all such other provisions
shall remain in full force and effect; and it is the intention of the parties
hereto that if any provision of the license is capable of two constructions, one
of which would render the provison void and the other of which would render the
provision valid, then the provision shall have the meaning which renders it
valid.
29. ENTIRE AGREEMENT
----------------
This Agreement including all exhibits, addenda, schedules and riders
contain the full and complete understanding of the parties concerning the
subjects contained herein and supersedes any and all prior written or oral
agreements between the parties and cannot be amended except in writing signed
by both parties.
19
<PAGE>
30. DISPUTE RESOLUTION.
If there is any dispute, claim or controversy, other than one involving
Licensor's right to seek equitable relief, between the parties arising out of or
relating to this Agreement (a "Disputed Matter"), the parties shall attempt to
amicably resolve such Disputed Matter in good faith. If the initial efforts to
resolve such Disputed Matter are not successful, the parties shall submit the
Disputed Matter jointly to the respective senior officers of Licensor and
Licensee. If such senior officers cannot reach a mutually agreeable resolution
of the Disputed Matter within ten (10) business days after reference of the
matter to them, either party may elect to have the Disputed Matter settled in
accordance with the arbitration procedures detailed in Exhibit B attached
hereto. Without limiting the generality of the foregoing, the parties expressly
agree that any and all disagreements regarding whether an issue is a Disputed
Matter under this Section shall be settled in accordance with the arbitration
procedures defined in Exhibit B.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of date first above written.
Hilton Hotels Corporation, CAIS, Inc.,
a Delaware corporation a Virginia corporation
By: By: /s/ Laura Newman
---------------------------- --------------------------
[Signature Illegible] Laura A. Newman
---------------------------- --------------------------
Its: Senior Vice President Its: Vice President
20
<PAGE>
EXHIBIT "A" TO MASTER LICENSE AGREEMENT DATED DECEMBER 23, BY AND BETWEEN HILTON
HOTELS CORPORATION, A DELAWARE CORPORATION, LICENSOR, AND CAIS, INC., A VIRGINIA
CORPORATION, LICENSEE.
LIST OF EQUIPMENT TO BE INSTALLED BY LICENSEE
---------------------------------------------
1. CSU/DSU (Channel Service Unit/Digital Service Unit): This device
---------------------------------------------------
converts the T1 digital signal into a useable data stream that the
router can understand.
2. Router: This is an internetworking device that is responsible for
------
connecting two networks together (i.e. the Hotel network to the Internet
Network).
3. Server: This acts as a gateway between the Internet and the hotel. As
------
a gateway, the server allows for controlling traffic and integration
into the hotels property management system for billing. The server also
provides the necessary services to the end client for seamless Internet
connectivity.
4. Switch/Hub: The switch/hub is responsible for aggregating multiple
----------
Ethernet connections into or vise-versa.
5. OverVoice Wiring Block*: This is a wire-terminating block that
-----------------------
accommodates the Overvoice Control Unit and the telephone wires.
6. OverVoice Control Unit*: This connects to the Overvoice Wiring Block
-----------------------
and is responsible for combining and separating the voice and Ethernet
signals to and from the rooms.
7. OverVoice wall jack(s)*: This houses the patented circuitry that
-----------------------
splits the telephone and Ethernet signals and directs them to 2 jacks, 1
for the telephone, and 1 for the computer.
*Denotes patented technologies specific to the OverVoice system.
A-1
<PAGE>
Exhibit B to Master License Agreement (the "Agreement") dated December 23, 1998,
by and between Hilton Hotels Corporation, a Delaware Corporation ("HHC"), and
CAIS, Inc., a Virginia corporation ("Licensee").
Arbitration Provisions
1. Rules: Jurisdiction. Any Disputed Matter (as defined in the
-------------------
agreement to which this exhibit is attached) shall be settled by final and
binding arbitration in the City of Los Angeles, California, and, except as
herein specifically stated, in accordance with the commercial arbitration rules
of the American Arbitration Association ("AAA Rules") then in effect, subject to
the provisions of the United States Arbitration Act, 9 U.S.C. & 1 et seq.
-------
("Title 9"). To the extent the AAA Rules conflict with, or are supplemented by,
the provisions of Title 9, the provisions of Title 9 shall govern and be
applicable. However, in all events these arbitration provisions shall govern
over any conflicting rules that may now or hereafter be contained in either the
AAA Rules or Title 9. Any judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction of the subject matter thereof.
The arbitrators shall have the authority to grant any equitable and legal
remedies that would be available in any judicial proceeding instituted to
resolve a disputed matter. The parties hereby submit to the in personam
-- --------
jurisdiction of the Superior Court of Los Angeles County and the Federal
District Court for the Central District of California for purposes of confirming
any such award and entering judgment thereon.
2. Compensation of Arbitrators. Any such arbitration shall be
---------------------------
conducted before a panel of three arbitrators who shall be compensated for their
services at a rate to be determined by the parties or by the American
Arbitration Association but based upon normal and reasonable hourly or daily
consulting rates for the neutral arbitrator in the event the parties are not
able to agree upon his or her rate of compensation.
3. Selection of Arbitrators. Within five (5) business days of
------------------------
notice by a party seeking arbitration under this provision, the party requesting
arbitration shall appoint one person as an arbitrator and within fifteen (15)
business days thereafter the other party shall appoint the second arbitrator.
Except with the other party's prior, express and written consent, no arbitrator
may be appointed who is employed by, or who is engaged by, or who has been
engaged within one (1) year by, any entity that is a major competitor of either
party. Within twenty (20) business days after the appointment of the second
arbitrator, the two arbitrators so chosen shall mutually agree upon the
selection of the third impartial and neutral arbitrator. The majority decision
of the arbitrators will be final and conclusive upon the parties hereto.
4. Payment of Costs. Each party hereby agrees to pay one-half (1/2)
----------------
of the compensation to be paid to the arbitrators in any such arbitration and
one-half (1/2) of the costs of transcripts and other expenses of the arbitration
proceedings; provided, however, that the prevailing party in any arbitration
shall be entitled to an award of reasonable attorneys' fees and costs,
arbitrators' fees and costs, fees and costs of expert witnesses and all other
costs of
B-1
<PAGE>
arbitration to be paid by the losing party.
5. Evidence and Discovery. The parties shall be entitled to conduct
----------------------
discovery proceedings to the fullest extent permissible under California law and
the Federal Rules of Evidence.
6. Burden of Proof. For any claim submitted to arbitration, the burden
---------------
of proof shall be as it would be if the claim were litigated in a judicial
proceeding. All testimony of witnesses shall be taken under oath and shall be
subject to the Federal Rules of Evidence.
7. Judgment. Upon the conclusion of any arbitration proceedings,
--------
hereunder, the arbitrators shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by them and shall deliver such documents to each party to the Agreement
along with a signed copy of the award.
8. Terms of Arbitration. The arbitrators chosen in accordance with these
--------------------
provisions shall not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of the Agreement.
9. Exclusive Remedy. Except as specifically provided in this exhibit or
----------------
in the Agreement, arbitration shall be the sole and exclusive remedy of the
parties for any disputed matter arising out of such agreement.
10. Arbitration Confidential. Neither party will disclose the existence
------------------------
of any arbitration proceedings hereunder, nor the outcome thereof, except; (i)
insofar as such disclosure is reasonably necessary to carry out and make
effective the terms of this Agreement, including without limitation, pleadings
or other documents filed seeking entry of judgment upon an award of the
arbitrators; (ii) insofar as a party hereto is required by law to respond to any
demand for information from any court, governmental entity, or governmental
agency, or as may be required by federal or state securities laws; (iii) insofar
as disclosure is necessary to be made to a party's independent accountants for
tax or audit purposes; (iv) insofar as disclosure is necessary to be made to a
party's attorneys for purposes of rendering advice or services relating to this
Agreement; and (v) insofar as the parties may mutually agree in writing.
B-2
<PAGE>
Schedule 1 to Master License Agreement (the "Agreement") dated December 23,
1998, by and between Hilton Hotels Corporation, a Delaware corporation ("HHC"),
and CAIS, Inc., a Virginia corporation ("Licensee").
List of Hotels Corporate Owned or Managed
-----------------------------------------
<TABLE>
<CAPTION>
Legal Name City State Country Total Rms
- ---------- ---- ----- ------- ---------
<S> <C> <C> <C> <C>
More than 1,000 Rooms
Hilton Hawaiin Village Honolulu HI US 2545
Hilton New York & Towers New York NY US 2040
Hilton San Francisco & Towers San Francisco CA US 1896
Palmer House Hilton Chicago IL US 1639
Hilton New Orleans Riverside New Orleans LA US 1600
Hilton Anaheim & Towers Anaheim CA US 1572
Hilton Chicago & Towers Chicago IL US 1544
The Waldorf=Astoria New York NY US 1330
Hilton Waikoloa Village Waikoloa HI US 1240
Hilton Los Angeles Airport Los Angeles CA US 1236
Hilton Atlanta & Towers Atlanta GA US 1222
Fontainebleau Hilton Resort & Towers Miami Beach FL US 1206
Hilton Washington & Towers Washington DC US 1118
500 - 999 Rooms
Hilton Chicago O'Hare Airport Chicago IL US 853
Hilton Minneapolis & Tower Minneapolis MN US 821
Hilton in the WALT DISNEY WORLD RESORT Lake Buena Vista FL US 814
Hilton Pittsburgh & Towers Pittsburgh PA US 713
Pointe Hilton South Mountain Resort Phoenix AZ US 638
Hilton Anchorage Anchorage AK US 591
Pointe Hilton Tapatio Cliffs Resorts Phoenix AZ US 585
Hilton Beverly Hills Beverly Hills CA US 581
Pointe Hilton Squaw Peak Resort Phoenix AZ US 563
Millenium Hilton Next to the World Trade Center New York NY US 561
Capital Hilton Washington DC US 544
Hilton Atlanta Airport & Towers Atlanta GA US 503
Hilton Miami Airport & Towers Miami FL US 500
300 - 499 Rooms
Hilton Burbank Airport & Convention Center Burbank CA US 486
Hilton Turtle Bay Resort Kahuku-Oahu HI US 485
Hilton Palacio del Rio San Antonio TX US 481
Hilton McLean Tysons Corner McLean VA US 458
Hilton Portland Portland OR US 455
Hilton Rye Town Rye Breck NY US 437
Hilton Charlotte & Towers Charlotte NC US 407
Hilton East Brunswick & Towers East Brunswick NJ US 405
Hilton DFW Lakes Executive Conference Center Grapevine TX US 385
Hilton Long Beach Long Beach CA US 366
Hilton Newark Airport Elizabeth NJ US 365
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Legal Name City State Country Total Rms
- ---------- ---- ----- ------- ---------
<S> <C> <C> <C> <C>
Hilton Oakland Airport Oakland CA US 363
Hilton San Diego Resort San Diego CA US 357
Ali'l Tower at the Hilton Hawaiian Village Honolulu, Oahu HI US 348
Hilton New Orleans Airport Kenner LA US 317
Hilton Short Hills Short Hills NJ US 301
Less than 299 Rooms
Hilton Pasadena Pasadena CA US 291
Hilton Tarrytown Tarrytown NY US 246
Hilton Suites Anaheim/Orange Orange CA US 230
Hilton Suites Phoenix Phoenix AZ US 226
Hilton Suites Auburn Hills Auburn Hills MI US 224
Hilton Suites Oakbrook Terrace Oakbrook Terrace IL US 212
Hilton Suites Brentwood Brentwood TN US 203
The Waldorf Towers New York NY US 198
Hilton Inn Southfield Southfield MI US 195
Hilton Seattle Airport Seattle WA US 178
The Fontainbleau Towers Miami Beach FL US
<CAPTION>
List of Hotels Franchised
-------------------------
More than 1,000 Rooms None
500 - 999 Rooms
<S> <C> <C> <C> <C>
Hilton Sandestin Beach & Golf Resort Destin FL US 598
Hilton Washington Dulles Airport Herndon VA US 598
Hilton Parsippany Parsippany NJ US 510
300 - 499 Rooms
Hilton Milwaukee City Center Milwaukee WI US 478
Hilton Universal City & Towers Universal City CA US 469
Hilton Baltimore & Towers Baltimore MD US 439
Hilton Clearwater Beach Resort Clearwater FL US 426
Hilton Guadalajara Guadalajara MX 422
Hilton Arlington Park Arlington Heights IL US 420
Hilton Cherry Hill Cherry Hill NJ US 408
Hilton Montreal Bonaventure Montreal CA 395
Hilton Fort Lauderdale Airport Dania Beach FL US 388
Hilton Hartford Hartford CT US 388
Hilton Crystal City at National Airport Arlington/Crystal VA US 386
Hilton San Antonio Airport & Conference Center San Antonio TX US 386
Hilton Boston Back Bay Boston MA US 385
Hilton Inn Sunnyvale Sunnyvale CA US 372
Hilton Torrance/South Bay Torrance CA US 371
Hilton Springfield Springfield IL US 367
Hilton Salt Lake City Salt Lake City UT US 362
Hilton San Jose & Towers San Jose CA US 354
Hilton San Diego Mission Valley San Diego CA US 350
Hilton Kansas City Airport Kansas City MO US 347
Hilton Harrisburg & Towers Harrisburg PA US 341
Hilton Valley Forge King of Prussia PA US 340
Hilton North Raleigh Raleigh NC US 338
Hilton Woodcliff Lake Woodcliff Lake NJ US 336
</TABLE>
S-2
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Hilton St. Petersburg St. Petersburg FL US 333
Hilton Philadelphia Airport Philadelphia PA US 331
Hilton Sacramento Arden West Sacramento CA US 331
Hilton Concord Concord CA US 330
Hilton JFK Airport Jamaica NY US 330
Hilton Lafayette & Towers Lafayette LA US 327
Hilton Oceanfront Resort Hilton Head Island Hilton Head SC US 323
Hilton Orlando Altamonte Springs Altamonte FL US 322
The Seelbach Hilton Louisville Louisville KY US 321
Hilton Woodland Hills & Towers Woodland Hills CA US 318
Hilton Knoxville Knoxville TN US 317
Hilton Newark/Fremont Newark CA US 315
Hilton Dallas Parkway Dallas TX US 310
Hilton Arlington Arlington TX US 309
Hilton Lisle/Naperville Lisle IL US 309
Hilton Ontario Airport Ontario CA US 309
Hilton Denver Tech South Englewood CO US 305
Hilton Houston Hobby Airport Houston TX US 305
Hilton College Station & Conference Center College Station TX US 303
Windsor Hilton Windsor ON CA 303
Hilton Huntington Melville NY US 302
Hilton Gaithersburg Gaithersburg MD US 301
Hilton Wichita Airport Executive Conference Center Wichita KS US 301
Hilton Baton Rouge Baton Rouge LA US 300
Hilton Minneapolis/St. Paul Airport Bloomington MN US 300
Less than 299 Rooms
Hilton Fort Lauderdale/Sunrise Sunrise FL US 297
Hilton Cocoa Beach Oceanfront Cocoa Beach FL US 296
Hilton Charleston North North Charleston SC US 296
Meadowlands Hilton Secaucus NJ US 296
Hilton Houston Westchase & Towers Houston TX US 294
Hilton Marco Island Beach Resort Marco Island FL US 294
Hilton Pleasanton at The Club Pleasanton CA US 294
Hilton Tulsa Southern Hills Tulsa OK US 294
Hilton Houston Southwest Houston TX US 292
Hilton Jacksonville & Towers Jacksonville FL US 292
Hilton Waterfront Beach Resort Huntington Beach CA US 290
Hilton Irvine/Orange County Airport Irvine CA US 289
Hilton Salt Lake City Airport Salt Lake City UT US 287
Hilton Beaumont Beaumont TX US 284
Hilton Greensboro Greensboro NC US 281
Hilton Jackson & Conference Center Jackson MS US 278
Hilton Huntsville Huntsville AL US 277
Hilton Atlanta Northeast Norcross GA US 272
Hilton Eugene & Conference Center Eugene OR US 272
Hilton El Paso Airport El Paso TX US 271
Hilton Wilmington Christiana Newark DE US 266
Hilton Albuquerque Albuquerque NM US 264
Hilton East Memphis Memphis TN US 254
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Hilton St. Louis Frontenac St. Louis MO US 264
Hilton Inn Little Rock Little Rock AR US 263
Hilton Mesa Pavilion Mesa AZ US 263
Hilton Palm Springs Resort Palm Springs CA US 260
Hilton Greenville & Towers Greenville SC US 256
Hilton Phoenix Airport Phoenix AZ US 255
Hilton Newark Gateway Newark NJ US 253
Hilton San Bernardino San Bernardino CA US 251
Hilton Fort Wayne Convention Center Fort Wayne IN US 250
Hilton Scottsdale Resort & Villas Scottsdale AZ US 250
Hilton Dedham Place Dedham MA US 249
Hilton Midland & Towers Midland TX US 249
Hilton Norfolk Airport Norfolk VA US 249
Hilton Palm Beach Airport West Palm FL US 247
Hilton Savannah DeSoto Savannah GA US 246
Hilton Sonoma County/Santa Rosa Santa Rosa CA US 246
Hilton San Diego/Del Mar Del Mar CA US 245
Hilton Springfield Springfield VA US 245
Hilton Northbrook Northbrook IL US 244
Hilton Charlotte University Place Charlotte NC US 243
Hilton Houston Nassau Bay & Marina Houston TX US 243
Hilton Danbury & Towers Danbury CT US 242
Hilton Novi Novi MI US 239
Hilton Tampa Airport Westshore Tampa FL US 238
Hilton Melbourne Airport Melbourne FL US 237
Hilton Seattle Seattle WA US 237
Hilton Fort Lee at the George Washington Bridge Fort Lee NJ US 236
Hilton Knoxville Airport Alcoa TN US 236
Hilton Fayetteville Fayetteville AR US 235
Hilton Tucson East Tucson AZ US 233
Hilton Grand Rapids Airport Grand Rapids MI US 226
Hilton Port of Los Angeles/San Pedro San Pedro CA US 226
Hilton Allentown Allentown PA US 224
Hilton Carson Civic Plaza Carson CA US 224
Hilton Atlanta Northwest Atlanta GA US 222
Hilton Deerfield Beach/Boca Raton Deerfield Beach FL US 221
Hilton Inn North Little Rock Riverfront North Little AR US 220
Hilton St. Louis Airport St. Louis MO US 220
Hilton Oklahoma City Northwest Oklahoma City OK US 218
Hilton Lake Lanier Islands Lake Lanier GA US 216
Hilton Daytona Beach Oceanfront Resort Daytona Beach FL US 214
Hilton Toledo Toledo OH US 213
Hilton Arlington & Towers Arlington VA US 209
Hilton Greater Cincinnati Airport Florence KY US 206
Hilton Monterey Monterey CA US 204
Hilton Akron/Fairlawn Akron OH US 203
Hilton Las Cruces Las Cruces NM US 203
Hilton Whittier Whittier CA US 202
Hilton Hot Springs Convention Center Hot Springs AR US 201
</TABLE>
S-4
<PAGE>
Hilton Waco Waco TX US 199
Hilton Southbury Southbury CT US 198
Hilton Woodbridge Iselin NJ US 198
Hilton Ocala Ocala FL US 197
Hilton Durham Durham NC US 194
Hilton Washington Embassy Row Washington DC US 193
Hilton Sioux City Sioux City IA US 193
Hilton Cleveland South Cleveland OH US 191
Hilton Wilmington North Claymont DE US 190
Hilton Santa Maria Santa Maria CA US 190
Hilton Austin North & Towers Austin TX US 189
Hilton Northfield Troy MI US 186
Hilton Mystic Mystic CT US 184
Hilton Houston Plaza Houston TX US 181
Hilton Bellevue Bellevue WA US 180
Hilton Lake Placid Resort Lake Placid NY US 179
Hilton Oshkosh & Convention Center Oshkosh WI US 179
Hilton Charlotte Executive Park Charlotte NC US 178
Hilton Key West Resort & Marina Key West FL US 178
Hilton Wilmington Riverside Wilmington NC US 178
Hilton Oak Lawn Oak Lawn IL US 178
Interstone Partners I, LLP Columbus GA US 177
Hilton Minneapolis North Brooklyn MN US 176
Hilton Suites Lexington Green Lexington KY US 174
Hilton Akron Akron OH US 173
Hilton Pikesville Baltimore MD US 171
Hilton Canton Canton OH US 170
Hilton Lynchburg Lynchburg VA US 167
Houston West Hilton Inn Houston TX US 165
Hilton Milwaukee River Milwaukee WI US 163
Oxnard Hilton Inn Oxnard CA US 160
Hilton Richmond Airport Sandston VA US 160
Hilton Santa Fe Santa Fe NM US 157
Hilton Columbia Columbia MD US 152
Hilton Suites Detroit Metro Airport Romulus MI US 151
Hilton Pearl River Pearl River NY US 150
Hilton Galveston Island Resort Galveston TX US 149
McAllen Airport Hilton Inn McAllen TX US 149
Hilton Greenville Greenville NC US 141
Hilton Palm Beach Oceanfront Resort Palm Beach FL US 134
Hilton Charleston Harbor Resort Mount Pleasant SC US 131
Hilton Mexico City Airport Mexico City MX 129
Hilton Tampa Bay/
North Redington Beach Resort North FL US 125
Hilton Virginia Beach Oceanfront Virginia Beach VA US 124
Hilton Melbourne Beach Oceanfront Indialantic FL US 113
Hilton Longboat Key Beach Resort Longboat Key FL US 102
Hilton University of Houston Houston TX US 86
Sunset Key Guest Cottages at
Hilton Key West Resort Key West FL US 37
S-5
<PAGE>
OPTION ADDENDUM
Option Addendum to Master License Agreement (the "Agreement") dated December 23,
1998, by and between Hilton Hotels Corporation, a Delaware corporation ("HHC"),
and CAIS, Inc., a Virginia corporation ("Licensee").
HHC and Licensee agree that HHC shall have the option (the "Five-Year Option")
to modify certain terms and conditions of the Agreement, as specifically shown
below. The Five-Year Term Option may be exercisable by Hilton any time during
the First Year of the Agreement and shall be exercised by written notice to
Licensee as defined in the Agreement.
1. Paragraph 1c of the Agreement shall be modified by deleting it in its
entirety and substituting the following:
a. At each of the (participating) Hotels, Licensee shall install the
Service in all Meeting Rooms and in all Guest Rooms.
2. Paragraph 3a of the Agreement shall be modified by deleting it in its
entirety and substituting the following:
b. For each of the (participating) Hotels the Term shall be five (5)
years from the date Option was exercised. Notwithstanding the foregoing,
the Terms shall expire no later than December 31, 2005.
3. Paragraph 3b of the Agreement shall be modified by deleting it in its
entirety and substituting the following:
c. Hilton Hotels Corporation must specifically and individually approve
the extension of the December 31, 2005 date as defined above in
subparagraph 3a in the event Licensee and individual Hotels are planning
to execute the Rider(s) after December 31, 1999.
4. Paragraph 3c of the Agreement shall be modified by deleting it in its
entirety.
5. Paragraph 2 of the Rider to the Agreement shall be modified by deleting
references to "Initial Term" and "Option".
/s/ [Initials Illegible] /s/ [Initials Illegible]
------------------------ ------------------------
Initials Initials
0D-1
<PAGE>
MARKETING/ADMINISTRATION FUND AND INCENTIVE AGREEMENT
-----------------------------------------------------
THIS MARKETING/ADMINISTRATION FUND AND INCENTIVE AGREEMENT dated for reference
purposes only, December 23, 1998, by and between Hilton Hotels Corporation, a
Delaware corporation (herein after referred to as "HHC"), and CAIS, Inc., a
Virginia corporation ("CAIS").
WITNESSETH:
WHEREAS, CAIS and HHC have entered into that certain Master License Agreement
dated 199_ (the "Master Agreement"); and
WHEREAS, the parties desire to promote and advertise the services described in
Master Agreement (the "Services") to HHC's customers; and,
WHEREAS, CAIS desires to contribute funds for such promotions and advertising;
and
NOW, THEREFORE, the parties acknowledge and agree as follows:
1. Corporate Incentive Payments. An Incentive Payment shall be paid
----------------------------
to HHC based on the number of corporate owned or managed Hotels
that participate in the Services during the term of the Agreement
as provided below:
a. For each corporate owned or managed Hotel Property having 1,000
or greater Guest Rooms (a current example of which is listed on
Schedule 1), HHC shall be eligible for the Incentive Plan
Payments set forth below in years 3-5. The parties agree that
HHC shall from time to time update Schedule 1 to include all
HHC corporate owned or managed hotel properties. HHC will
notify CAIS if there are changes to Schedule 1.
b. For corporate owned or managed Hotel Properties having fewer
than 1,000 Guest Rooms, HHC shall be eligible for the Incentive
Plan Payments in years 4-5. The parties agree that HHC shall
from time to time update Schedule 1 to include all HHC
corporate owned or managed hotel properties.
c. The Incentive Payment percentage within each size category
shall be multiplied by the aggregate Usage Fees (as defined in
paragraph 4 of Master Agreement) for the participating
corporate owned or managed hotels in that size category, and
the resulting total shall be paid directly to HHC at its
offices in Beverly Hills on the fifteenth (15th) day of each
month applicable to the month immediately preceding.
d. For purposes of the Payment Matrix below, the participation
percentage
1
<PAGE>
shall be based on (i) corporate owned or managed Hotels in a
particular Room Size category that are operating the Service
during the month for which the incentive payment would apply, as a
percentage of (ii) all corporate owned or managed Hotels in that
Room Size Category.
Corporate Incentive Payment Matrix
- ----------------------------------
<TABLE>
<CAPTION>
Corporate Owned or Managed Hotel Properties Operating the
Service as Percentage of all Schedule 1 Corporate Owned or
Managed Hotel Properties in Size Category
*% *% *%
-------------------------------------------
Incentive
---------
<S> <C> <C> <C>
Room Size
- ---------
1,000 and greater *% *% *%
500 - 1,000 *% *% *%
300 - 500 *% *% *%
299 and fewer *% *% *%
</TABLE>
2. Marketing and Administration Fund. In a manner approved by HHC,
---------------------------------
CAIS shall set up an account (The "Account") to pay advertising
and administration costs and fees incurred by HHC and third
parties as mutually approved HHC and CAIS. CAIS shall provide
funds for the Account with monthly contributions as follows:
a. For any 1,000 and greater Room Size Hotels (e.g. owned, managed
or franchised), (i) during the first 2 Years of the term
following installation and deployment of Service at such Hotel,
$* per month for each wired Guest Room and Meeting Room (up to
a maximum of 200 rooms per hotel), (ii) during the subsequent 3
Years of the term, $* per month for each wired Guest Room and
Meeting Room (up to a maximum or 200 rooms per hotel);
b. For all other participating Hotels, during the first 2 Years of
the term following installation and deployment of the Service
at such Hotel Property, $* per month for each wired Guest Room
and Meeting Room (up to a maximum of 200 rooms per hotel).
- ---------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
2
<PAGE>
INTENTIONALLY LEFT BLANK
<PAGE>
regulations now or hereafter in force, and shall not be modified or extended
(other than as set forth herein) except by an instrument duly signed by HHC and
CAIS and approved by HHC. Waiver of a breach of any provisions hereof under any
circumstances will not constitute a waiver of any subsequent breach of such
provision or of a breach of any other provision of this Agreement.
b. HHC and CAIS represent and warrant to each other that no
broker is involved in connection with this transaction and each party agrees to
indemnify and hold the other harmless from and against the claims of any broker
(if any), made in connection with this transaction.
c. This Agreement shall be governed by and constructed in
accordance with the laws of the state of California.
d. This Agreement shall be binding upon the parties, and their
permitted successors and assigns.
e. HHC and CAIS agree to do any further acts and execute such
additional documents as the other may reasonably require to confirm this
Agreement and carry out the purpose of this Agreement.
5. SEVERABILITY
------------
It is agreed that if any provision of this Agreement shall be determined
to be void by any court of competent jurisdiction, then such determination shall
not affect any other provision of this Agreement and all such other provisions
shall remain in full force and effect, and it is the intention of the parties
hereto that if any provision of the license is capable of two constructions, one
of which would render the provision void and the other of which would render the
provision valid, then the provision shall have the meaning which renders it
valid.
6. DISPUTE RESOLUTION
------------------
A. If there is any dispute, claim or controversy, other than one
involving HHC's right to seek equitable relief, between the parties arising out
of or relating to this Agreement (a "Disputed Matter"), the parties shall
attempt to amicably resolve such Disputed Matter in good faith. If the initial
efforts to resolve such Disputed Matter are not successful, the parties shall
submit the Disputed Matter jointly to the respective senior officers of HHC and
CAIS. If such senior officers cannot reach a mutually agreeable resolution of
the Disputed Matter within ten (10) business days after reference of the matter
to them, either party may elect to have the Disputed Matter settled in
accordance with the arbitration procedures detailed in Paragraph B attached
hereto. Without limiting the generality of the foregoing, the parties expressly
agree that any and all disagreements regarding whether an issue is a Disputed
Matter under this Section shall
4
<PAGE>
be settled in accordance with the arbitration procedures defined in Paragraph B.
B. Arbitration Procedures
----------------------
(i) Rules Jurisdiction. Any Disputed Matter (as defined in the
------------------
agreement in which this exhibit is attached) shall be settled by final and
binding arbitration in the City of Los Angeles, California, and, except as
herein specifically stated, in accordance with the commercial arbitration rules
of the American Arbitration Association ("AAA Rules") then in effect, subject to
the provisions of the United States Arbitration Act 9 U.S.C. and 1 et seq.
-------
("Title 9"). To the extent the AAA Rules conflict with, or are supplemented by,
the provisions of Title 9, the provisions of Title 9 shall govern over any
conflicting rules that may now or hereafter be contained in either the AAA Rules
or Title 9. Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction of the subject matter thereof. The
arbitrators shall have the authority to grant any equitable and legal remedies
that would be available in any judicial proceeding instituted to resolve a
disputed matter. The parties hereby submit to the in personam jurisdiction of
-- --------
the Superior Court of Los Angeles County and the Federal District Court for the
Central District of California for purposes of confirming any such award and
entering judgment thereon.
(ii) Compensation of Arbitrators. Any such arbitration shall be
---------------------------
conducted before a panel of three arbitrators who shall be compensated for their
services at a rate to be determined by the parties or by the American
Arbitration Association but based upon normal and reasonable hourly or daily
consulting rates for the neutral arbitrator in the event the parties are not
able to agree upon his or her rate of compensation.
(iii) Selection of Arbitrators. Within five (5) business days of notice
------------------------
by a party seeking arbitration under this provision, the party requesting
arbitration shall appoint one person as an arbitrator and within fifteen (15)
business days thereafter the other party shall appoint the second arbitrator.
Except with the other party's prior, express and written consent, no arbitrator
may be appointed who is employed by, or who is engaged by, or who has been
engaged within one (1) year by, any entity that is a major competitor of either
party. Within twenty (20) business days after the appointment of the second
arbitrator, the two arbitrators so chosen shall mutually agree upon the
selection of the third impartial and neutral arbitrator. The majority decision
of the arbitrators will be final and conclusive upon the parties hereto.
(iv) Payment of Costs. Each party hereby agrees to pay one-half (1/2)
----------------
of the compensation to be paid to the arbitrators in any such arbitration and
one-half (1/2) of the costs of transcripts and other expenses of the arbitration
proceedings; provided, however, that the prevailing party in any arbitration
shall be entitled to an award of reasonable attorneys' fees and costs,
arbitrators' fees and costs, fees and costs of expert witnesses and all other
costs of arbitration to be paid by the losing party.
5
<PAGE>
(v) Evidence and Discovery. The parties shall be entitled to conduct
----------------------
discovery proceedings to the fullest extent permissible under California law and
the Federal Rules of Evidence.
(vi) Burden of Proof. For any claim submitted to arbitration, the
---------------
burden of proof shall be as it would be if the claim were litigated in a
judicial proceeding. All testimony of witnesses shall be taken under oath and
shall be subject to the Federal Rules of Evidence.
(vii) Judgement. Upon the conclusion of any arbitration proceedings,
---------
hereunder, the arbitrators shall render findings of fact and conclusions of law
and a written opinion setting forth the basis and reasons for any decision
reached by them and shall deliver such documents to each party to the Agreement
along with a signed copy of the award.
(viii) Terms of Arbitration. The arbitrators chosen in accordance with
--------------------
these provisions shall not have the power to alter, amend or otherwise affect
the terms of these arbitration provisions or the provisions of the Agreement.
(ix) Exclusive Remedy. Except as specifically provided in this
----------------
Agreement, arbitration shall be the sole and exclusive remedy of the parties for
any disputed matter arising out of such agreement.
(x) Arbitration Confidential. Neither party will disclose the
------------------------
existence of any arbitration proceedings hereunder, nor the
outcome thereof, except: (i) insofar as such disclosure is
reasonably necessary to carry out and make effective the terms of
this Agreement, including without limitation, pleadings or other
documents filed seeking entry of judgement upon an award of the
arbitrators; (ii) insofar as a party hereto is required by law to
respond to any demand for information from any court,
governmental entity, or governmental agency, or as may be
required by federal or state securities laws; (iii) insofar as
disclosure is necessary to be made to a party's independent
accountants for tax or audit purposes; (iv) insofar as disclosure
is necessary to be made to a party's attorneys for purposes of
rendering advice or services relating to this Agreement; and (v)
insofar as the parties may mutually agree in writing.
6
<PAGE>
7. TERM
----
This Agreement shall commence and terminate on the same dates the Master
Agreement commences and terminates.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of date first above written.
Hilton Hotels Corporation, CAIS, Inc.,
a Delaware corporation a Virginia corporation
By: /s/ [SIGNATURE ILLEGIBLE] By: /s/ Laura A. Newman
--------------------------- ---------------------------
Laura A. Newman
--------------------------- ---------------------------
Its: Senior Vice President Its: Vice President
---------------------------
7
<PAGE>
Schedule 1 to Marketing/Administration Fund and Incentive (the "Agreement")
dated December 23, 1998, by and between Hilton Hotels Corporation. a Delaware
corporation ("HHC), and CAIS, Inc., a Virginia corporation ("CAIS).
List of Hotels Corporate Owned or Managed
-----------------------------------------
<TABLE>
<CAPTION>
Legal Name City State Country Total Rooms
- ---------- ---- ----- ------- -----------
<S> <C> <C> <C> <C>
MORE THAN 1000 ROOMS
Hilton Hawaiian Village Honolulu HI US 2545
Hilton New York & Towers New York NY US 2040
Hilton San Francisco & Towers San Francisco CA US 1896
Palmer House Hilton Chicago IL US 1639
Hilton New Orleans Riverside New Orleans LA US 1600
Hilton Anaheim & Towers Anaheim CA US 1572
Hilton Chicago & Towers Chicago IL US 1544
The Waldorf-Astoria New York NY US 1380
Hilton Waikoloa Village Waikoloa HI US 1240
Hilton Los Angeles Airport Los Angeles CA US 1236
Hilton Atlanta & Towers Atlanta GA US 1222
Fontainebleau Hilton Resort & Towers Miami Beach FL US 1206
Hilton Washington & Towers Washington DC US 1118
500 - 999 ROOMS
Hilton Chicago O'Hara Airport Chicago IL US 853
Hilton Minneapolis & Towers Minneapolis MN US 821
Hilton in the WALT DISNEY WORLD Resort Lake Buena Vista FL US 814
Hilton Pittsburgh & Towers Pittsburgh PA US 713
Pointe Hilton South Mountain Resort Phoenix AZ US 638
Hilton Anchorage Anchorage AK US 591
Pointe Hilton Tapatio Cliffs Resort Phoenix AZ US 585
Hilton Beverly Hills Beverly Hills CA US 581
Pointe Hilton Squaw Peak Resort Phoenix AZ US 563
Millenium Hilton Next to the World Trade Center New York NY US 561
Capital Hilton Washington DC US 544
Hilton Atlanta Airport & Towers Atlanta GA US 503
Hilton Miami Airport & Towers Miami FL US 500
300 - 499 ROOMS
Hilton Burbank Airport & Convention Center Burbank CA US 486
Hilton Turtle Bay Resort Kahuku-Oahu HI US 485
Hilton Palacio del Rio San Antonio TX US 481
Hilton McLean Tysons Corner McLean VA US 458
Hilton Portland Portland OR US 455
Hilton Rye Town Rye Brook NY US 437
Hilton Charlotte & Towers Charlotte NC US 407
Hilton East Brunswick & Towers East Burnswick NJ US 405
Hilton DFW Lakes Executive Conference Center Grapevine TX US 395
Hilton Long Beach Long Beach CA US 393
Hilton Newark Airport Elizabeth NJ US 375
Hilton Oakland Airport Oakland CA US 363
Hilton San Diego Resort San Diego CA US 357
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
All'l Tower at the Hilton Hawaiian Village Honolulu, Oahu HI US 348
Hilton New Orleans Airport Kenner LA US 317
Hilton Short Hills Short Hills NJ US 301
LESS THAN 299 ROOMS
Hilton Pasadena Pasadena CA US 291
Hilton Tarrytown Tarrytown NY US 246
Hilton Suites Anaheim Orange Orange CA US 230
Hilton Suites Phoenix Phoenix AZ US 226
Hilton Suites Auburn Hills Auburn Hills MI US 224
Hilton Suites Oakbrook Terrace Oakbrook Terrace IL US 212
Hilton Suites Brentwood Brentwood TN US 203
The Waldorf Towers New York NY US 198
Hilton Inn Southfield Southfield MI US 195
Hilton Seattle Airport Seattle WA US 173
The Fontainbleau Towers Miami Beach FL US
List of Hotels Franchised.
-------------------------
MORE THAN 1000 ROOMS None
590 - 999 Rooms
Hilton Sandestin Beach & Golf Resort Destin FL US 598
Hilton Washington Duiles Airport Herndon VA US 598
Hilton Parsippany Parsippany NJ US 510
300 - 400 ROOMS
Hilton Milwaukee City Center Milwaukee WI US 478
Hilton Universal City & Towers Universal City CA US 469
Hilton Baltimore & Towers Baltimore MD US 439
Hilton Clearwater Beach Resort Clearwater FL US 426
Hilton Guadalajara Guadalajara MX 422
Hilton Arlington Park Arlington Heights IL US 420
Hilton Cherry Hill Cherry Hill NJ US 408
Hilton Montreal Bonaventure Montreal CA 395
Hilton Fort Lauderdale Airport Dania Beach FL US 388
Hilton Hartford Hartford CT US 388
Hilton Crystal City at National Airport Arlington/Crystal VA US 386
Hilton San Antonio Airport & Conference Center San Antonio TX US 386
Hilton Boston Back Bay Boston MA US 385
Hilton Inn Sunnyvale Sunnyvale CA US 372
Hilton Torrance/South Bay Torrance CA US 371
Hilton Springfield Springfield IL US 367
Hilton Salk Lake City Salt Lake City UT US 362
Hilton San Jose & Towers San Jose CA US 354
Hilton San Diego Mission Valley San Diego CA US 350
Hilton Kansas City Airport Kansas City MO US 347
Hilton Harrisburg & Towers Harrisburg PA US 341
Hilton Valley Forge King of Prussia PA US 340
Hilton North Raleigh Raleigh NC US 338
Hilton Woodcliff Lake Woodcliff Lake NJ US 336
Hilton St. Petersburg St. Petersburg FL US 333
Hilton Philadelphia Airport Philadelphia PA US 331
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Hilton Sacramento Arden West Sacramento CA US 331
Hilton Concord Concord CA US 330
Hilton JFK Airport Jamaica NY US 330
Hilton Lafayette & Towers Lafayette LA US 327
Hilton Oceanfront Resort Hilton Head Island Hilton Head SC US 323
Hilton Orlando/Altamonte Springs Altamonte FL US 322
The Seelbach Hilton Louisville Louisville KY US 321
Hilton Woodland Hills & Towers Woodland Hills CA US 318
Hilton Knoxville Knoxville TN US 317
Hilton Newark/Freemont Newark CA US 315
Hilton Dallas Parkway Dallas TX US 310
Hilton Arlington Arlington TX US 309
Hilton Lisle/Naperville Lisle IL US 309
Hilton Ontario Airport Ontario CA US 309
Hilton Denver Tech South Englewood CO US 305
Hilton Houston Hobby Airport Houston TX US 305
Hilton College Station & Conference Center College Station TX US 303
Windsor Hilton Windsor ON CA 303
Hilton Huntington Melville NY US 302
Hilton Gaithersburg Gaithersburg MD US 301
Hilton Wichita Airport Executive Conference Center Wichita KS US 301
Hilton Baton Rouge Baton Rouge LA US 300
Hilton Minneapolis/St Paul. Airport Bloomington MN US 300
Less Than 299 Rooms
Hilton Fort Lauderdale/Sunrise Sunrise FL US 297
Hilton Cocoa Beach Oceanfront Cocoa Beach FL US 296
Hilton Charleston North North Charleston SC US 296
Meadowlands Hilton Secaucas NJ US 296
Hilton Houston Westchase & Towers Houston TX US 294
Hilton Marco Island Beach Resort Marco Island FL US 294
Hilton Pleasanton at The Club Pleasanton CA US 294
Hilton Tulsa Southern Hills Tulsa OK US 294
Hilton Houston Southwest Houston TX US 292
Hilton Jacksonville & Towers Jacksonville FL US 292
Hilton Waterfront Beach Resort Huntington Beach CA US 290
Hilton Irvine/Orange County Airport Irvine CA US 289
Hilton Salt Lake City Airport Salt Lake City UT US 287
Hilton Beaumont Beaumont TX US 284
Hilton Greensboro Greensboro NC US 281
Hilton Jackson & Conference Center Jackson MS US 278
Hilton Huntsville Huntsville AL US 277
Hilton Atlanta Northeast Norcross GA US 272
Hilton Eugene & Conference Center Eugene OR US 272
Hilton El Paso Airport El Paso TX US 271
Hilton Wilmington/Christiana Newark DE US 266
Hilton Albuquerque Albuquerque NM US 264
Hilton East Memphis Memphis TN US 264
Hilton St. Louis Frontenne St. Louis MO US 264
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Hilton Inn Little Rock Little Rock AR US 263
Hilton Mesa Pavilion Mesa AZ US 263
Hilton Palm Springs Resort Palm Springs CA US 260
Hilton Greenville & Towers Greenville SC US 256
Hilton Phoenix Airport Phoenix AZ US 255
Hilton Newark Gateway Newark NJ US 253
Hilton San Bernardino San Bernardino CA US 251
Hilton Fort Wayne Convention Center Fort Wayne IN US 250
Hilton Scottsdale Resort & Villas Scottsdale AZ US 250
Hilton Dedham Place Dedham MA US 249
Hilton Midland & Towers Midland TX US 249
Hilton Norfolk Airport Norfolk VA US 249
Hilton Palm Beach Airport West Palm FL US 247
Hilton Savannah DeSoto Savannah GA US 246
Hilton Sonoma County/Santa Rosa Santa Rosa CA US 246
Hilton San Diego/Del Mar Del Mar CA US 245
Hilton Springfield Springfield VA US 245
Hilton Northbrook Northbrook IL US 244
Hilton Charlotte University Place Charlotte NC US 243
Hilton Houston Nassau Bay & Marina Houston TX US 243
Hilton Danbury & Towers Danbury CT US 242
Hilton Novi Novi MI US 239
Hilton Tampa Airport Westshere Tampa FL US 238
Hilton Melbourne Airport Melbourne FL US 237
Hilton Seattle Seattle WA US 237
Hilton Fort Lee at the George Washington Bridge Fort Lee NJ US 236
Hilton Knoxville Airport Aicoa TN US 236
Hilton Fayetteville Fayetteville AR US 235
Hilton Tucson East Tucson AZ US 233
Hilton Grand Rapids Airport Grand Rapids MI US 226
Hilton Port of Los Angeles/San Pedro San Pedro CA US 226
Hilton Allentown Allentown PA US 224
Hilton Carson Civic Plaza Carson CA US 224
Hilton Atlanta Northwest Atlanta GA US 222
Hilton Deerfield Beach/Boca Raton Deerfield Beach FL US 221
Hilton Inn North Little Rock Riverfront North Little AR US 220
Hilton St. Louis Airport St. Louis MO US 220
Hilton Oklahoma City Northwest Oklahoma City OK US 218
Hilton Lake Lanier Islands Lake Lanier GA US 216
Hilton Daytona Beach Oceanfront Resort Daytona Beach FL US 214
Hilton Toledo Toledo OH US 213
Hilton Arlington & Towers Arlington VA US 209
Hilton Greater Cincinnati Airport Florence KY US 206
Hilton Monterey Monterey CA US 204
Hilton Akron/Fairlawn Akron OH US 203
Hilton Las Crucas Las Crucas NM US 203
Hilton Whittier Whittier CA US 202
Hilton Hot Springs Convention Center Hot Springs AR US 200
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Hilton Waco Waco TX US 199
Hilton Southbury Southbury CT US 193
Hilton Woodbridge Iselin NJ US 198
Hilton Ocala Ocala FL US 197
Hilton Durham Durham NC US 194
Hilton Washington Embassy Row Washington DC US 193
Hilton Sioux City Sioux City IA US 193
Hilton Cleveland South Cleveland OH US 191
Hilton Wilmington North Claymont DE US 190
Hilton Santa Maria Santa Maria CA US 190
Hilton Austin North & Towers Austin TX US 189
Hilton Northfield Troy MI US 186
Hilton Mystic Mystic CT US 184
Hilton Houston Plaza Houston TX US 181
Hilton Bellevue Bellevue WA US 180
Hilton Lake Placid Resort Lake Placid NY US 179
Hilton Oshkosh & Convention Center Oshkosh WI US 179
Hilton Charlotte Executive Park Charlotte NC US 178
Hilton Key West Resort & Marina Key West FL US 178
Hilton Wilmington Riverside Wilmington NC US 178
Hilton Oak Lawn Oak Lawn IL US 178
Interstone Partners I, LLP Columbus GA US 177
Hilton Minneapolis North Brooklyn MN US 176
Hilton Suites Lexington Green Lexington KY US 174
Hilton Akron Akron OH US 173
Hilton Pikesville Baltimore MD US 171
Hilton Canton Canton OH US 170
Hilton Lynchburg Lynchburg VA US 167
Houston West Hilton Inn Houston TX US 165
Hilton Milwaukee River Milwaukee WI US 163
Oxnard Hilton Inn Oxnard CA US 160
Hilton Richmond Airport Sandston VA US 160
Hilton Santa Fe Santa Fe NM US 157
Hilton Columbia Columbia MD US 152
Hilton Suites Detroit Metro Airport Romulus MI US 151
Hilton Pearl River Pearl River NY US 150
Hilton Galveston Island Resort Galveston TX US 149
McAllen Airport Hilton Inn McAllen TX US 149
Hilton Greenville Greenville NC US 141
Hilton Palm Beach Oceanfront Resort Palm Beach FL US 134
Hilton Charleston Harbor Resort Mount Pleasant SC US 131
Hilton Mexico City Airport Mexico City MX 129
Hilton Tampa Bay/North Redington Beach Resort North FL US 125
Hilton Virginia Beach Oceanfront Virginia Beach VA US 124
Hilton Melbourne Beach Oceanfront Indialantic FL US 113
Hilton Longboat Key Beach Resort Longboat Key FL US 102
Hilton University of Houston Houston TX US 86
Sunset Key Guest Cottages at Hilton Key West Key West FL US 37
Resort
</TABLE>
<PAGE>
PARTICIPATING HILTON HOTELS SITE ACKNOWLEDGEMENT
RIDER
THIS PARTICIPATING HILTON HOTELS SITE ACKNOWLEDGEMENT RIDER (the
"Rider") dated _______________, 1998, is by and between [Hotel Name]
(hereinafter referred to as "Hotel"), and CAIS, Inc., a Virginia corporation
(hereinafter referred to as "Licensee").
W I T N E S S E T H
WHEREAS, Licensee and Hilton Hotels Corporation have entered into that
certain Master License Agreement dated ____________, 199_ (the "Agreement"); and
WHEREAS, the Hotel is situated on the real property located at [Hotel
Address]; and
WHEREAS, Licensee has devised a commercial, high speed data
communications service as more particularly defined in Paragraph 2 of the
Agreement (the "Service") and desires to make the Service available to Licensor
and third parties at Licensor Hotels; and
WHEREAS, Hotel desires to have the Service available and Licensee
desires to provide the Service to joint customers of Hotel and Licensee and
other patrons; and
NOW, THEREFORE, the parties acknowledge and agree as follows:
1. The terms and conditions of the Agreement fully apply in the Hotel (in the
capacity of Licensor) and Licensee, which includes Licensee's obligation to
provide insurance policies as defined in Paragraph 10 of the License
Agreement and naming as "Additional Insureds" the following:
a.
-----------------
b.
-----------------
c.
-----------------
2. Commencement. Initial Term:______ Extended Term:______
Expiration. Initial Term:______ Extended Term:______
3. Allocation of Usage of Fees. Fees shall be paid by Licensee to Hotel in the
---------------------------
manner defined in Paragraph 4 of the Agreement and calculated in accordance
with Schedule A attached hereto and by this reference made an integral part
hereof.
4. Installation. Following appropriate provisions of the Agreement:
------------
a. Licensee will schedule the site survey and equipment installation of
the Hotel at a time
1
<PAGE>
and date convenient to the Hotel.
b. The Hotel shall have the opportunity to review the results of
the site survey and approve plans prior to installation.
c. Licensee will install its equipment at the Hotel at no cost to
the Hotel in accordance with the Agreement.
5. Training. Licensee shall provide training to employees of the
--------
Hotel on the use and operation of the Service. All training will be
provided to the Hotel for posting on the Hotel's intra-net web site
for future reference. Licensee also shall provide Hotel with
training manuals, collateral and help-line (technical support) for
launch and as needed for maintenance. Licensee shall furnish to
Hotel guidebooks for rooms, to include software directions, a
product overview, and contact numbers for help. Personnel of
Licensee shall be available twenty four (24) hours per day, 365 days
per year for telephone consultation to provide further assistance to
Hotel personnel regarding use and operation of the Service at no
charge.
6. Equipment Indentification. The Parties agree that all the jacks
-------------------------
in each unit shall bear the logo(s) of the OverVoice System. The
Parties agree that the start-up screen for Internet service shall
bear the logo of OverVoice, the Hotel and such other logos as
reasonably shall be agreed upon by the Parties as necessary
(including in some cases the logo of the provider of the Client-
Server Software).
7. Usage Fee. Subject to the provisions of Paragraph 4 (ix) of the
---------
Agreement. Hotel and Licensee agree that: A. Guest Room Usage Fee
shall be not less than $7.95 per day nor greater than $9.95 per day
for unlimited use from a Guest Room in any given day with usage
being tracked from noon until noon the next day.
B. Meeting Room Usage Fees and time periods are defined in Schedule
A and are due to Licensee without allocation to Licensor. Licensor
shall be entitled to retain all sums in excess of such amounts it is
able to charge for the Service.
2
<PAGE>
8. Power Consumption. Hotel shall provide at its sole cost electric power
-----------------
supply suitable for the Service including recurring monthly charges to a maximum
of Fifty Cents ($50/100) per installed guest and meeting rooms per month ($6.00
annual). Hotel reserves the right to charge Licensee for electrical usage in
excess of such amount.
9. In the event Hilton Hotels Corporation exercises the Option Addendum, the
Hotel shall be bound by the terms and conditions contained therein.
CAIS, Inc., [Hotel Name]
A Virginia corporation
By: __________________________ By: __________________________
__________________________ __________________________
Its: __________________ Its: __________________
<PAGE>
SCHEDULE A
----------
For Hilton Hotels with 1,000 or More Guest Rooms
------------------------------------------------
a. Usage Fees as defined in Section 4 of the Agreement shall be
allocated between Hotel and Licensee as follows:
i. Guest Room Usage Fee Share
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Hotel Share *% *% *% *% *%
Licensee Share *% *% *% *% *%
</TABLE>
ii. Meeting Room Usage Fee Share
Fixed Payments to Licensee (Rate Applicable in Years 1 through 5):
<TABLE>
<CAPTION>
128Kbps Rate Per day Multi Day Cap**
- ------- ------------ -------------
<S> <C> <C>
CPU 1 $ * $ *
Each Add'l CPU * *
1.5Mbps
- -------
CPU 1 $ * $ *
Each Add'l CPU * *
</TABLE>
Additional bandwidth above 1.5Mbs to be negotiated on an individual property by
property basis.
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
** The Multi-Day Cap is the maximum Usage Fee payable to Licensee with respect
to a customer of the Hotel using the Service in a Meeting Room for more than
one day in sequence (up to a maximum of 30 days).
<PAGE>
SCHEDULE A
For Hilton Hotels with 500-999 Guest Rooms
------------------------------------------
a. Usage Fees as defined in Section 3 of the Agreement shall be
allocated between Hotel and Licensee as follows:
i. Guest Room Usage Fee Share
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Hotel Share *% *% *% *% *%
Licensee Share *% *% *% *% *%
</TABLE>
ii. Meeting Room Usage Fee Share
Fixed Payments to Licensee (Rate Applicable in Years 1 through 5):
<TABLE>
<CAPTION>
128Kbps Rate Per day Multi Day Cap**
- ------- ------------ -------------
<S> <C> <C>
CPU 1 $ * $ *
Each Add'l CPU * *
1.5Mbps
- -------
CPU 1 $ * $ *
Each Add'l CPU * *
</TABLE>
Additional bandwidth above 1.5Mbs to be negotiated on an individual property by
property basis.
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
** The Multi-Day Cap is the maximum Usage Fee payable to Licensee with respect
to a customer of the Hotel using the Service in a Meeting Room for more than one
day in sequence (up to a maximum of 30 days).
<PAGE>
Schedule A
----------
For Hilton Hotels with 300-499 Guest Rooms
------------------------------------------
a. Usage Fees as defined in Section 3 of the Agreement shall be
allocated between Hotel and Licensee as follows:
i. Guest Room Usage Fee Share
Year 1 Year 2 Year 3 Year 4 Year 5
- --------------------------------------------------------------
Hotel Share: *% *% *% *% *%
Licensee Share: *% *% *% *% *%
ii. Meeting Room Usage Fee Share
Fixed Payments to Licensee (Rate Applicable in Years 1 through 5):
128 Kbps Rate Per day Multi Day Cap**
- -------- ------------ ---------------
CPU 1 $ * $ *
Each Add'l CPU * *
1.5Mbps
- -------
CPU 1 $ * $ *
Each Add'l CPU * *
Additional bandwidth above 1.5 Mbs to be negotiated on an individual property by
property basis.
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
** The Multi-Day Cap is the maximum Usage Fee payable to Licensee with respect
to a customer of the Hotel using the Service in a Meeting Room for more than one
day in sequence (up to a maximum of 30 days).
<PAGE>
SCHEDULE A
----------
For Hilton Hotels with fewer than 300 Guest Rooms
-------------------------------------------------
a. Usage Fees as defined in Section 3 of the Standard Terms and
------------------
Conditions shall be allocated between Hotel and Licensee as follows:
- ----------
i. Guest Room Usage Fee Share
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Hotel Share *% *% *% *% *%
Licensee Share *% *% *% *% *%
</TABLE>
ii. Meeting Room Usage Fee Share
Fixed Payments to Licensee (Rate Applicable in Years 1 through 5):
<TABLE>
<CAPTION>
128Kbps Rate Per day Multi Day Cap**
- ------- ------------ -------------
<S> <C> <C>
CPU 1 $ * $ *
Each Add'l CPU * *
1.5Mbps
- -------
CPU 1 $ * $ *
Each Add'l CPU * *
</TABLE>
Additional bandwidth above 1.5Mbs to be negotiated on an individual property by
property basis.
- ---------------------
* Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
** The Multi-Day Cap is the maximum Usage Fee payable to Licensee with respect
to a customer of the Hotel using the Service in a Meeting Room for more
than one day in sequence (up to a maximum of 30 days).
<PAGE>
EXHIBIT 10.28
AGREEMENT FOR HIGH SPEED INTERNET ACCESS SERVICE IN MULTIPLE
------------------------------------------------------------
DWELLING UNITS
--------------
This Agreement made and entered into on this 19th day of February, 1999, by and
between CAIS, INC. ("CAIS") a corporation organized under the laws of the
Commonwealth of Virginia, with its principal office at 1255 22nd Street, NW,
Washington, D.C. and OnePoint Communications Corp., a Delaware corporation with
principal offices at 2201 Waukegan Road, Suite 200E, Bannockburn, Illinois 60015
("ONEPOINT") (CAIS and ONEPOINT are hereinafter referred to collectively as the
"Parties.").
WITNESSETH
WHEREAS, CAIS is in the business of providing various Internet services
including high speed Internet access ("HSIA");
WHEREAS, CAIS owns, is licensee of, and/or otherwise controls rights to
certain patented, patent-pending and proprietary technology, known as OverVoice
(SM), that makes it possible to provide residents of apartment buildings and
similar multi-dwelling unit ("MDU") buildings with simultaneous telephone
service and high-bandwidth access to the Internet and other communication
services over existing in-building wiring; and
WHEREAS, ONEPOINT is a provider of bundled communications and entertainment
services to residents of approximately 1200 MDUs, with approximately 250,000
units, in high growth, densely populated urban and suburban markets, and has
entered into agreements to market Internet services on a preferential basis to
certain of those MDUs, and has the ability to add value to the sale and
licensing by CAIS of CAIS's Internet services to such MDUs; and
WHEREAS, the Parties wish to undertake to provide high speed Internet
access service by implementation of the OverVoice technology and or other
appropriate high speed internet access ("HSIA") infrastructure solutions in MDUs
for which ONEPOINT has or intends to obtain preferential rights for on-site
marketing of HSIA services;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
OnePoint - Channel Agreement - Confidential
Page 1
<PAGE>
Section 1
DEFINITIONS.
1.1 "Services", means any one or more of the services covered by this
Agreement, and which consist of Internet access, OverVoice service, and other
HSIA service offered to End-Users under the terms and conditions of a Subscriber
License Agreement incorporating in substance the terms and conditions set forth
in Section 14.1.
1.2 "Account", "Customer", "End-User", or "Subscriber", means any
person, partnership, corporation, trust company, unincorporated entity,
association, joint venture, or any entity whatsoever that has executed, for
purposes of utilizing the Services, a Subscriber License Agreement (in a form
acceptable to CAIS and ONEPOINT) that has been accepted by CAIS.
1.3 "Subscriber License Agreement", means an agreement (in a form
acceptable to ONEPOINT and CAIS) between CAIS and an End-User for use of the
Services.
1.4 "Building", means any multi-tenant unit building, including but not
limited to apartment buildings, condominiums and similar structures, within
which the OverVoice system or other HSIA service will be installed by CAIS
pursuant to this Agreement for the purpose of providing the Services to End
Users within such Building.
1.5 "Building Representative", means any person, partnership, corporation,
trust company, unincorporated entity, association, joint venture, or any entity
whatsoever that has the authority with respect to one or more Building(s) in the
Territory to enter into a Building Agreement with CAIS.
1.6 "Building Agreement", means an agreement (in a form acceptable to CAIS
and ONEPOINT) between CAIS and a Building Representative for the installation
and provisioning of the OverVoice system or other HSIA service to one or more
Building(s) controlled by the Building Representative.
1.7 "Confidential Information", means any secret or proprietary
information relating directly to party's business or to that of a party's
affiliated companies and subsidiaries, including, but not limited to, any and
all technical and non-technical information, including without limitation,
information concerning financial, accounting or marketing reports, business
plans, analyses, forecasts, predictions, projections, intellectual property,
trade secrets and know-how disclosed in connection with the Transactions.
Confidential Information may take the form of documentation, drawings,
specifications, software technical or engineering data, and other forms, and may
be communicated orally, in writing, by electronic or magnetic media, by visual
observation and by other means. Confidential Information includes any reports,
analyses, studies or other materials, whether prepared by the receiving party or
otherwise, that contain or are based upon proprietary or confidential
information. The term Confidential Information shall not include such portions
of the Confidential Information which (i) are or become generally available to
the public other than as a result of a disclosure in breach of this Agreement,
or (ii) are or become available on a non-confidential basis from a source which
is not known, after due
OnePoint - Channel Agreement - Confidential
Page 2
<PAGE>
and diligent inquiry, to be prohibited from disclosing such information by a
legal, contractual or fiduciary obligation.
1.8 "OverVoice", means services utilizing technology owned, licensed to,
and/or otherwise controlled by CAIS, which technology, among other things, is
utilized to communicate digital signals over twisted pair wires, including wires
actively conducting voiceband communication.
Section 2
SCOPE OF RELATIONSHIP
2.1 Subject to the terms and conditions hereof, ONEPOINT during the term
of this Agreement shall assign to CAIS ONEPOINT's preferential right to provide
HSIA services to certain Buildings, shall introduce CAIS to the appropriate
Building Representative for each such Building and shall facilitate any
negotiations, as provided for in Section 3.1, of a Building Agreement between
such Building Representative and CAIS regarding the HSIA services to be provided
to such Building. CAIS shall provide installation, support and other services
relating to the Services to Buildings and End-Users.
2.2 CAIS shall market, brand and label the Services under CAIS's company
name., The Parties agree that where "OverVoice" is utilized the proprietary
OverVoice wall jacks to be installed in apartment units in each Building shall
bear the logos of both OverVoice and ONE POINT. The Parties agree that the
start-up screen for Internet service to End-Users in the Buildings shall bear
the logos of both OverVoice and ONE POINT. CAIS subject to approval of both
parties to inclusion on the CAIS lead pages shall control all content on the
start-up screen. Revenues derived from advertisements or other content displayed
in the start-up screen shall be allocated, net of third party expenses, as
provided in Section 4.6c with respect to revenues attributable to End Users in
Buildings.
2.3 Each party is free to use its own employees, agents or other
independent contractors to market such party's own products and services, and
otherwise engage in business.
OnePoint - Channel Agreement - Confidential
Page 3
<PAGE>
Section 3
SERVICE DESCRIPTION - RIGHTS AND DUTIES
3.1 Prospective Buildings. a. The Buildings to be offered by ONEPOINT
---------------------
to CAIS for the purpose of evaluation by CAIS of whether CAIS desires to provide
HSIA services to such Buildings shall be all the Town & Country properties
throughout the United States where ONEPOINT has secured an agreement with the
Building to offer, on a preferential basis, Internet services (the "ONEPOINT
Designated Properties"). ONE POINT agrees to assign such agreements to CAIS as
requested by CAIS, subject to property owner approval, following the evaluation
described in Section 3.1b below. As of the date of this Agreement, the ONEPOINT
Designated Properties consists of approximately 30 Buildings with approximately
10,000 units. In addition, with respect to other ONEPOINT properties throughout
the United States, but excluding ONEPOINT properties in the Chicago and Phoenix
areas, where ONEPOINT has obtained an existing preferential right of entry for
Internet services and other communications services (the "ONEPOINT Property
Portfolio"), consisting of approximately 300 Buildings with approximately 90,000
units, ONEPOINT agrees to use its best efforts to provide suitable introductions
to Building Representatives of Buildings selected by ONEPOINT , provided,
however, that CAIS shall have the right to decline ONEPOINT's assistance and
exclude from inclusion in this Agreement any Buildings in the ONEPOINT Property
Portfolio for which CAIS has an existing relationship independent of ONEPOINT.
(The parties acknowledge that with respect to ONEPOINT properties in the Chicago
and Phoenix areas where ONEPOINT desires to provide HSIA service in conjunction
with CAIS and where ONEPOINT intends to act as the lead provider of HSIA
services to such properties, such arrangements will be covered by separate
agreement between ONEPOINT and CAIS.)
b. The parties agree that they shall commence an evaluation period with
respect to the ONEPOINT Designated Properties and the ONEPOINT Property
Portfolio upon execution of this Agreement. The parties will agree upon a
reasonable time period within which CAIS shall evaluate and select from those
Buildings offered by ONEPOINT from the ONEPOINT Designated Properties and from
the ONEPOINT Property Portfolio those Buildings for which CAIS intends to
provide HSIA services. As part of the evaluation process, ONEPOINT shall
provide to CAIS pertinent information regarding each such prospective Building,
including a copy of ONEPOINT's agreement with respect to each Building within
the ONEPOINT Designated Properties that provides ONEPOINT the right to offer, on
a preferential basis, Internet services in such Building. Nothing contained in
this Agreement shall require CAIS to agree to select a particular Building
offered to CAIS from within the ONEPOINT Designated Properties or from within
the ONEPOINT Property Portfolio to provide HSIA services. The parties agree
that where CAIS determines that it is necessary or advisable to modify,
supplement or otherwise negotiate with a Building Representative the terms
previously negotiated by ONEPOINT under which Internet services are to be
provided to a Building, ONEPOINT shall use its best efforts provide assistance
to CAIS in negotiating a Building Agreement with such Building Representative
for such Building as provided in Section 6. ONEPOINT agrees that it shall
provide to CAIS the pertinent information regarding each prospective Building
from the ONEPOINT Designated Properties within sixty (60) days of the date of
this Agreement, and
OnePoint - Channel Agreement - Confidential
Page 4
<PAGE>
shall provide to CAIS the pertinent information regarding each prospective
Building from the ONEPOINT Property Portfolio within twelve (12) months of the
date of this Agreement.
3.2 Internet Connectivity:
---------------------
a. CAIS shall supply the dedicated Internet connectivity that will support
each Building installation under this Agreement , provided that CAIS's prices
are competitive with prices available in the local market from other national
Tier One Internet service providers.
Section 4
RESPONSIBILITIES OF CAIS
4.1 a. The Parties agree that where CAIS determines it to be necessary or
advisable as provided in Section 3.1 above, and with the assistance to be
provided by ONEPOINT as set forth in Section 6, CAIS shall act to negotiate and
secure a Building Agreement with a prospective Building. CAIS shall endeavor,
with ONEPOINT's assistance, to negotiate to include in such Building Agreement
the right for CAIS to offer, on an exclusive basis, and for a minimum five (5)
year term, HSIA services to such Building, and which Building Agreement may
provide for financial contributions by the Property to cover a portion of the
up-front installation costs required for the provision of HSIA service. CAIS,
with ONEPOINT's assistance, shall use its best efforts to negotiate as part of
such Building Agreement an initial term of seven (7) years or longer, and in any
case, the initial term shall be for a minimum five (5) years. Such Building
Agreement shall also include the following:
i. Installation of "Equipment" in the basement, wiring closets, and
individual Building tenant units;
ii. Roof rights for access and installation of wireless local loop
technology to connect to basement hub and to other buildings;
iii. The Compensation, Commissioning or other revenue sharing arrangements
between and among CAIS, the Building Representative and, if applicable, the
Building owner (such arrangements to be subject to ONEPOINT's right to withdraw
as Co-Manager within 30 days of Co-Manager's receipt from CAIS of notice setting
forth the terms of the Compensation, Commissioning or other revenue sharing
arrangements to be applicable to such Building);
iv. CAIS's access to Building tenant information, including tenant
telephone numbers, for marketing purposes;
v. Building Representative commitment to assistance with marketing;
vi. Indemnification of Building owner by CAIS;
vii. to the extent a Building Representative for a particular Building is
not the owner of such Building, a signature on behalf of the owner of the
Building evidencing the owner's consent to the terms contained in the Building
Agreement with respect to that particular Building.
b. CAIS shall be responsible for all negotiations and/or customer service
to Building Representatives, including coordination of all issues related to
installation of the OverVoice or other HSIA system Service in the Building,
processing complaints, answering
OnePoint - Channel Agreement - Confidential
Page 5
<PAGE>
questions, handling all issues related to commissioning, and otherwise assisting
the Building Representative during the term of its contract with CAIS. CAIS may
outsource some or all of such functions to CAIS-approved vendors.
4.2 Service Provisioning. The Parties agree that CAIS shall be the
--------------------
primary service provider responsible for coordination and installation of the
Services in the Buildings. CAIS shall maintain the relationship with the
Building and the Building Representatives for the Services at all times and
shall provide account management to each Building on an on-going basis. CAIS
shall be responsible for the installation, maintenance and repair of any HSIA
systems hardware that will be provisioned in the basement and wiring closets of
Buildings. CAIS shall be responsible for the installation, maintenance and
repair of the any HSIA system equipment wall jacks that will be provisioned in
individual End User's units within the Buildings. Using only CAIS-certified
installation crews, CAIS shall install jacks (two or more in each unit), cabling
and telephone equipment.
The quantities of each of these components required for a given Building will be
determined by the specific Building's configuration and the number of End-Users
in the Building. Hardware installation, repair and maintenance may be undertaken
either directly by CAIS or outsourced to third parties provided that all such
work by either CAIS or CAIS's outsource vendors conforms to CAIS's operational
standards. CAIS shall use its best efforts to develop relationships with
outsource vendors on a local and national level. CAIS shall identify a local
vendor, reasonably acceptable to ONEPOINT, to perform cable modem or Ethernet
card installation for each standard metropolitan statistical area in which
CAIS's Buildings are located.
4.3 End-User Accounts. CAIS's responsibility shall be to use its best
-----------------
efforts to market, advertise, and otherwise solicit End-User customers for the
HSIA Service and to sign said End-Users to Subscriber License Agreements. Such
agreements shall incorporate in substance the terms set forth in Section 13.1.
CAIS shall act as the billing entity and shall be responsible for and shall
provide all End-User billing and tier-one customer service needs including
billing inquiries, issuance of credit, issuance of billing statements, and
collection of End-User retail rate. CAIS shall maintain a local and toll-free
telephone number for this purpose. CAIS also shall be responsible for and shall
provide additional customer service to such Subscribers, including processing
complaints, answering questions, and otherwise assisting the End-Users during
the term of their contract with CAIS for use of the Services CAIS may outsource
some or all of such functions to CAIS-approved vendors.
4.4 Budgeting. For Buildings where ONEPOINT has agreed to participate
---------
financially as Co-Manager as provided in this Agreement, the Parties agree that
capital costs for (i) the OverVoice or other HSIA infrastructure solution and
(ii) the server software solution (iii) and any other items that are mutually
agreed upon by the Parties as reasonably necessary to provide the Services shall
be budgeted by CAIS on a Building-by-Building basis.
4.5 Allocation of Expenses. For each Building offered by ONEPOINT to CAIS,
----------------------
ONEPOINT shall indicate to CAIS whether or not ONEPOINT intends to participate
financially
OnePoint - Channel Agreement - Confidential
Page 6
<PAGE>
as a "Co-Manager" for such Building by no later than ten (10) business days
following notice from CAIS that CAIS intends to provide HSIA services to such
Building.
a. Joint Costs. For each Building where ONEPOINT has agreed to
participate as Co-Manager, CAIS shall contribute and pay for 75% of the non-
recurring and recurring costs identified as "Joint Costs" as outlined in the
chart in Section 4.5(c) and as set forth in the budget developed pursuant to
Section 4.4, and ONEPOINT shall contribute the remaining 25% of such costs. Any
shortfall of the non-recurring and recurring costs identified as "Joint Costs"
as outlined in the chart in Section 4.5(c) shall be made up by contributions of
CAIS and ONEPOINT in the same 75% to 25% ratio. Where ONEPOINT has declined to
participate as Co-Manager, CAIS shall contribute and pay for 100% of the non-
recurring and recurring costs identified as "Joint Costs" as outlined in the
chart in Section 4.5(c).
b. Expenses Prior to Allocation of Revenues. The following
additional recurring expenses shall be paid by CAIS out of the gross End-User
revenues prior to allocation of net revenue sharing between CAIS and ONEPOINT,
with any shortfall to be made up by contributions (1) where ONEPOINT has agreed
to participate as Co-Manager, 75% by CAIS and 25% by ONEPOINT or (2) where
ONEPOINT has declined to participate as Co-Manager, 100% by CAIS:
(i) the recurring monthly cost of the local loop (including
DS3 local loop and bandwidth, ISDN, and Dial costs)
(ii) the monthly cost of the Internet access for each Building ;
(iii) Commission/Revenue Share to Building/Building
Representative (The negotiation by CAIS of any revenue sharing payments to
Building/Building Representative for a Building shall be subject to the
withdrawal rights of ONEPOINT as described in Section 4.1a(iii) above).
c. The chart below summarizes the allocation of responsibility for various
non-recurring and recurring cost items:
Non-Recurring Costs
<TABLE>
<CAPTION>
Costs to be
allocated as
Joint
Cost Item: Costs
(75/25)
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Dial up capability (modem RAS, routers) X
Consumer services capability (email, authentication) X
COM21 Headend equipment X
DS3 Installation X
ISDN or other PL installation for dial-in X
DID numbers X
Cable modem purchase and inventory X
</TABLE>
OnePoint - Channel Agreement - Confidential
Page 7
<PAGE>
<TABLE>
<S> <C> <C>
Network set up costs, including design, equipment, ordering X -
Basement/Closet Equipment Installation, configuration, and X
testing (XXwer, other equipment)
The equipment, installation and other set up costs X
to provide the local loop and
Ethernet Switching Hubs, X
Server,CSU/DSU X
OV/ Jacks and control units X
Related Schedule H equipment expenses X
</TABLE>
OnePoint - Channel Agreement - Confidential
Page 8
<PAGE>
Recurring Costs
<TABLE>
<CAPTION>
Costs to be
allocated to:
Joint Costs
Cost Item: (75/25) CAIS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 Customer Service X
Customer Acquisition X
Modem Provisioning, installation X
Billing and Collection X
Basement/Closet Equipment Installation, Maint. & Repair X
(including 3rd Party Vendors)
Tier 2 Customer Service and Technical Support to Building X
Internet Account Activation and Allocation/Server Disconnection X
Web site , mgmt., hosting X
E-Mail Set-Up X
Royalty Payments for OverVoice licensing rights... X
Web site design X
</TABLE>
4.6 Revenue Sharing. Unless agreed otherwise with respect to a particular
---------------
Building, as provided in Section 4.3 above, Revenues from End-Users at each
Building during the Agreement shall be billed and collected by CAIS. After
payment of the expense items provided for in subsection 4.5(b) above, collected
revenues shall be allocated and paid as follows based on
OnePoint - Channel Agreement - Confidential
Page 9
<PAGE>
(1) whether or not ONEPOINT is participating with respect to such Building
as Co-Manager, and (2) the End-User penetration level in such Building during
the month for which such revenue is generated:
a. For a Building where ONEPOINT is participating as Co-Manager:
<TABLE>
<CAPTION>
Penetr. Level CAIS Rev. % ONEPOINT Rev. %
- ------------- ----------- ---------------
<S> <C> <C>
0-5% * % * %
5-10% * % * %
10-15% * % * %
15-20% * % * %
20-25% * % * %
25-30% * % * %
30-35% * % * %
35%+ * % * %
</TABLE>
b. For a Building where ONEPOINT is not participating as Co-Manager:
<TABLE>
<CAPTION>
Penetr. Level CAIS Rev. % ONEPOINT Rev. %
- ------------- ----------- ---------------
<S> <C> <C>
0-5% * % * %
5-10% * % * %
10-15% * % * %
15-20% * % * %
20%+ * % * %
</TABLE>
c. Revenues derived from advertisements or other content displayed in the
start-up screen shall be allocated and paid, net of third party expenses, with
respect to revenues attributable to End-Users in a Building to which CAIS is
providing HSIA services under this Agreement, on the percentage allocation basis
provided in Section 4.6a above based on the End-User penetration level in such
Building during the month for which such revenue applies, and irrespective of
whether or not ONEPOINT is participating with respect to such Building as Co-
Manager.
d. Any installation revenues shall accrue to CAIS.
*Confidential Treatment Requested. The redacted material has been separately
filed with the Commission.
4.7. Payments and Audit Rights. CAIS, as the party responsible for billing
-------------------------
and collection from End-Users, also shall be responsible for handling payments
to vendors for expenses to be jointly paid under the capital budget, and for
calculation and distribution of revenue share payments to ONEPOINT. Monthly
revenue share payments shall be due and payable from CAIS to ONEPOINT by the
15th of the month following the month in which the Services to which the fees
relate were provided to the End-User. CAIS shall report revenue data to
ONEPOINT on a monthly basis in a format mutually agreed upon by CAIS and
ONEPOINT . ONEPOINT shall have the right to audit CAIS's books and accounts with
respect
OnePoint - Channel Agreement - Confidential
Page 10
<PAGE>
to the HSIA Services furnished at Buildings where to which CAIS is providing
HSIA services under this Agreement. Such audit shall be conducted at the expense
of ONEPOINT, unless such audit reveals a variance of more than five percent from
the revenue data reported to ONEPOINT, in which event CAIS shall be obligated to
reimburse ONEPONT for the cost of such audit (as well as compensate ONEPOINT for
any shortfalls in payments due to ONEPOINT revealed as a result of such audit.)
4.8 CAIS agrees that it shall also perform the following:
a. Promote, market and support the Services by:
(i) Identification of prospective End-Users within
the Buildings;
(ii) Contacting of such prospective End-Users and
arranging for and conducting competent and effective
presentations relating to the Services;
(iii) Performance of marketing efforts, pricing and
promotion by Lead Manager as CAIS may in its sole discretion
determine necessary to obtain duly executed Subscriber License
Agreements;.
(iv) Provision of a "Demonstration System" where
appropriate sufficient for the purposes of conducting
demonstrations and performance benchmarks of the Services;
(v) Performance of launch events, and
demonstrations of the Services to prospective End-Users in
Buildings either at the Demonstration Center, on the premises
of such Buildings or End-Users, or at locations arranged by
and paid for by CAIS, as necessary to demonstrate the Services
effectively;
(vi) Obtaining, where CAIS determines necessary or
advisable and with the participation and assistance of
ONEPOINT, prior to the transfer or delivery of an HSIA system
to a Building, a Building Agreement for the Services executed
by the authorized Building Representative and by CAIS, and
incorporating such terms and conditions as are referenced in
Section 4.1;
(vii) Obtaining, prior to the transfer or delivery of
the Services to an End-User, a Subscriber License Agreement
for such Services executed by End-User and CAIS and
incorporating
OnePoint - Channel Agreement - Confidential
Page 11
<PAGE>
such terms and conditions as are referenced in Sections 4.3
and 14.1;
(viii) Providing post-delivery telephone customer
service (at CAIS or customer locations) to End-Users by
trained personnel respecting the documentation, functions, and
operation of the HSIA services;
(ix) Maintaining a copy of any executed Building
Agreement, with ONEPOINT having the right to review such
agreements, for each Building to which CAIS is providing HSIA
services under this Agreement;
(x) Maintaining copies of Subscriber License
Agreements with ONEPOINT having the right to review such
agreements; and providing ONEPOINT with a monthly report
reflecting additions/deletions to the list of active
Agreements;
(xi) Maintaining standards reasonably acceptable to
both ONEPOINT and CAIS of: (a) professionalism in dealing with
customers; (b) technical proficiency in demonstration of the
Services, and End-User and Building support; and (c) Building
and End-user installation timeliness; and
(xii) Following reasonable rules and guidelines as
outlined in OverVoice and/or other applicable policy and
procedure manuals, copies of which shall be delivered to
ONEPOINT upon execution hereof with CAIS to provide ONEPOINT
with any amendments thereto.
b. Pay any applicable taxes, including federal, state, municipal,
excise or similar taxes, and shipping charges.
Section 5
ADDITIONAL UNDERTAKINGS OF CAIS
5.1 CAIS agrees for the period of this Agreement that it shall:
a. Secure the use of the OverVoice technology and make
payment of all licensing fees related thereto;
b. Provide tier-two customer support ;
OnePoint - Channel Agreement - Confidential
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<PAGE>
c. Undertake the activation and maintenance of customer
Internet accounts, allocation and set-up of customer electronic
mail addresses and boxes;
d. Assign an appropriate number of account and/or project
coordinators to determine equipment requirements, to facilitate
installations, and to manage ongoing operations; and
e. Keep ONEPOINT informed of the status of updates and
improvements being developed by CAIS for the Services or
documentation, or any component thereof, during the term of this
Agreement.
5.2 CAIS represents and warrants to ONEPOINT as follows, and the knowledge
is that ONEPOINT is relying on such representations and warranties in entering
into this agreement:
a. CAIS has all rights necessary to grant any rights herein
to ONEPOINT or the Building or End-User;
b. CAIS will use its best efforts to ensure that the
Service does not contain any routines or devices that
could interfere with the use of the Service (including
without limitation, time locks, keys or "bombs") or
interfere with, corrupt or destroy any software or data
(commonly known as "viruses");
c. There are no agreements, covenants or encumbrances with
respect to the service which anyway conflicts or
interferes with CAIS's right to enter into this
Agreement, to provide the Service or which conflicts or
interferes with ONEPOINT'S right to exercise the rights
granted under this Agreement;
d. That the Service is designed to be used prior to,
during, and after the calendar Year 2000 A.D., and that
the Service will operate during each such time period
without error relating to date data, specifically
including any error relating to, or the product of, date
data which represents or references different centuries
or more than one century.
OnePoint - Channel Agreement - Confidential
Page 13
<PAGE>
Section 6
ADDITIONAL UNDERTAKINGS OF ONEPOINT
ONEPOINT agrees for the period of this Agreement that it shall perform the
following:
6.1 Assign to CAIS the preferential rights held by ONEPOINT to provide
Internet services to such Buildings from the ONEPOINT Designated Properties as
selected by CAIS from those offered, subject to property owner approval.
6.2 Provide suitable introductions to Building Representatives of the
Buildings from the ONEPOINT Designated Properties and the ONEPOINT Property
Portfolio offered by ONEPOINT and selected by CAIS pursuant to Section 3.1b,
and, where determined by CAIS to be necessary or advisable, use ONEPOINT's best
efforts to provide to CAIS assistance in the negotiation and completion of a
Building Agreement between CAIS and such Building Representative for each
applicable Building.
6.3 Assist in ongoing relations with Buildings and Building
Representatives.
Section 7
EQUIPMENT OWNERSHIP
7.1. Ownership of the equipment to be installed in each Building to provide
the Services shall be allocated as follows:
a. in the same proportion as expenses are allocated for such Building in Section
4.5 above; provided, however, that CAIS shall own all of the proprietary
OverVoice equipment where installed in each Building to provide the Services.
Section 8
PROPRIETARY RIGHTS; COMPETITION
8.1 ONEPOINT acknowledges and agrees that the OverVoice system and
technology are owned by and/or controlled by and proprietary to CAIS and embody
valuable patents, copyrights and trade secrets. ONEPOINT shall make no
additional copies of OverVoice system proprietary equipment and documentation
and shall not attempt to reverse engineer the OverVoice system. ONEPOINT shall
protect the OverVoice services and other CAIS materials related to the OverVoice
services from unauthorized access, copying, dissemination, disclosure, or
decompilation or other unauthorized use. In addition, both parties agree and
acknowledge that, pursuant to the terms of the Mutual Non-Disclosure Agreement
between the parties dated May7, 1998, they will keep strictly confidential all
Confidential Information and will not, without
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express written authorization, signed by the other parties authorized officer,
use, sell, market or disclose any Confidential Information to any third person,
firm, corporation, or association for any purposes.
8.2 CAIS shall own all additions, modifications, changes, or other
derivative works for the OverVoice System developed by ONEPOINT (collectively
"COMPANY Works"), and ONEPOINT hereby agrees to treat such ONEPOINT Works as
works made for hire to the extent permissible under law and to otherwise assign
to CAIS the same. ONEPOINT agrees to sign all documents and perform all such
acts reasonably necessary to perfect CAIS's rights. ONEPOINT agrees to provide
CAIS with a copy of all ONEPOINT Works together with the any supporting
documentation, at least once per year, or upon request by CAIS.
8.3 ONEPOINT acknowledges that it obtains no right, title nor interest in
or to any CAIS copyright, trademark, patent or other proprietary right relating
to the OverVoice services, and ONEPOINT agrees not to remove, alter, cover or
obscure any copyright, patent, trademark or other proprietary rights notice on
proprietary equipment and documentation related to the OverVoice services or any
portion thereof. ONEPOINT shall comply with reasonable directions submitted by
CAIS from time to time regarding the placement of notices on the proprietary
equipment and materials related to the OverVoice services. ONEPOINT agrees that
it shall comply with the following restrictions on use of products containing
the OverVoice technology, that the following language regarding such
restrictions shall appear on the exterior packaging of any such product, and
that such restrictions shall be included in any agreements by ONEPOINT to resell
or further sub-license such products:
"Purchaser (or licensee) agrees not to use this product in
detached single-family residential structures, and also
agrees not to use this product in business establishments
earning at least 90% of their revenues from the sale of food
and beverages consumed on premises."
8.4 ONEPOINT shall: (a) notify CAIS immediately of the unauthorized
possession, use, or knowledge of any Services, materials, other items or
Confidential Information or trade secrets supplied or made available to ONEPOINT
under this Agreement, by a person or organization not authorized by this
Agreement to have such possession, use, or knowledge; (b) assist in correcting
any such unauthorized possession, use, or knowledge to the extent ONEPOINT
determines reasonable; and (c) cooperate with CAIS in any litigation against
third parties deemed necessary by CAIS to protect its proprietary rights. Any
and all expenses incurred by ONEPOINT at CAIS's request in connection with
compliance with this Section, including reasonable attorneys' fees, shall be
reimbursed to ONEPOINT by CAIS.
8.5 ONEPOINT has and shall execute no authority to make statements or
representations concerning the Services that exceed or are inconsistent with the
marketing materials and technical specifications provided to ONEPOINT by CAIS.
ONEPOINT has and shall exercise no authority to bind CAIS to any undertaking or
performance with respect to the Services.
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8.6 To assist CAIS in the protection of its proprietary rights, ONEPOINT
will permit reasonable inspections by representatives of CAIS, not more than two
times per year at CAIS's sole cost and expense, to review ONEPOINT's
confidentiality policies and procedures relating to the safeguard of CAIS 's
Services and proprietary material, as well as the accounting information
regarding the same.
8.7 ONEPOINT agrees not to make modifications to Services for the purpose
of installing or operating the same with incompatible hardware.
8.8 ONEPOINT agrees that it will not use any CAIS Confidential
Information for the purpose of development or distribution, directly or
indirectly, of any product or program similar to, or competitive with, the
OverVoice System. CAIS agrees that it will not use any ONEPOINT Confidential
Information for the purpose of development or distribution, directly or
indirectly, of any product or program similar to, or competitive with, the
products or programs offered by ONEPOINT.
8.9 This Agreement is expressly made subject to any laws, regulations,
orders or other restrictions on the export from the United States of America of
products and information about the products, which may be imposed from time to
time by the Government of the United States of America. Notwithstanding
anything contained in this Agreement to the contrary, ONEPOINT shall not export
or reexport, directly or indirectly, any product, or information pertaining
thereto to any country or destination or permit its trans-shipment to any
country or destination for which such Government or any agency thereof requires
an export license or other governmental approval at the time of export without
first obtaining such license or approval.
Section 9
TERM AND TERMINATION
9.1 The term of this Agreement shall commence as of the date first set
forth above and shall continue the later of (i) seven (7) years from the date
hereof or (ii) the latest expiration of CAIS's right to provide HSIA services to
any Building for which HSIA services are provided pursuant to this Agreement,
unless sooner terminated in accordance with the provisions herein. Following
completion of the initial seven year term, this Agreement shall be extended
automatically for additional successive one year terms unless either party give
the other 90 days' advance written notice of its intention to terminate the
Agreement at the end of the initial term or any renewal term. Notwithstanding
the preceding, the terms of this Agreement shall continue to apply with respect
to any Building until the termination date of any Building Agreement entered
into pursuant to this Agreement.
9.2 a. If conditions exist that constitute a material breach of this
Agreement by a party , the non-breaching party shall provide written notice of
the details of the material breach to the breaching party. If the breaching
party's breach has not been resolved to the other party's satisfaction within
thirty (30) days, the other party has the right to terminate this Agreement.
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b. In the event, after default by a party hereunder, counsel is
employed by the other party to enforce the defaulting party's obligations,
defaulting party hereby agrees to pay the attorney's fees so incurred by the
non-defaulting party, whether or not suit be brought, and all other costs and
expenses connected with such enforcement.
9.3 a. Upon expiration or termination of this Agreement, for any reason,
the Parties agree that they shall work together to establish a method of
terminating the HSIA service to such Building and for resolving ownership/cost
recovery and removing proprietary equipment in a manner that causes no
disruption either to the service received by the end user or to the relationship
between ONEPOINT and the end user or between ONEPOINT and the management of such
Building.
b. The parties obligation respecting non-use and nondisclosure of
the other party's Confidential Information or trade secrets related to the
Services shall survive termination of this Agreement and shall remain in effect
for so long as such information shall remain proprietary to the owner of such
information.
9.4 Each party's accrued payment obligations to the other party for
service and other charges shall survive termination of this Agreement.
Section 10
INDEMNITIES
10.1 Each party shall defend, indemnify and hold the other party and its
employees, independent contractors, and agents from and against any and all
claims, taxes, penalties, interest, costs, demands, expenses, damages, lawsuits,
or other liabilities (including without limitation, reasonable attorneys' fees)
relating to or arising out of (i) acts or omissions of the indemnifying party
or the indemnifying party's Subcontractors (or their respective employees,
independent contractors or agents), or the indemnifying party's Building
Representatives (or their respective employees, independent contractors or
agents) or End-User Customers (ii) the operation of the indemnifying party's
business(es), (iii) agreements or understandings between the indemnifying party
and third parties (including Subcontractors) relating to the indemnified party
or the Services, (iv) workers' compensation, employment insurance, Social
Security, income tax, welfare benefit, pension or similar laws with respect to
the indemnifying party, its employees and the Subcontractors (v) any material
breach of any representation, warranty or covenant contained herein, that is not
timely cured as provided for in Section 9.2a or (vi) any material defect in
the OverVoice or HSIA services that is not timely cured as provided for in
Section 9.2a.
10.2 The indemnities contained in Section 10.1 hereof shall be conditioned
upon the indemnifying party receiving (1) prompt written notice of any claims,
demands, or actions for which indemnity is sought; (2) cooperation in the
defense by the indemnified party; and (3) control of the defense and/or
settlement of such claim, demand, or action as to which indemnity is sought.
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10.3 CAIS will defend or settle, at its own expense, any claim or suit
against ONEPOINT alleging that the Services infringe any United States patent,
trademark, copyright, or trade secret. CAIS also will pay all damages and costs
that by final judgment may be assessed against ONEPOINT due to such
infringement.
10.4 CAIS's obligation as set forth in the foregoing paragraph is expressly
conditioned upon the following: (1) that CAIS shall be notified promptly in
writing by ONEPOINT of any claim or suit; (2) that CAIS shall have sole control
of the defense or settlement of any claim or suit; (3) that ONEPOINT shall
cooperate with CAIS in a reasonable way to facilitate the settlement or defense
of any claim or suit; and (4) that the claim or suit does not arise from any
non-CAIS modifications to the Services.
10.5 If any Services become the subject of a claim of infringement, CAIS
will, at its option: (1) procure the right to continue using the applicable
Services; (2) replace the Services with a non-infringing product substantially
complying with the Services' specifications; (3) modify the Services so they
become non-infringing and perform in a substantially similar manner to the
original services; or (4) upon failure of the foregoing, CAIS will cease any
infringing use of the Services and CAIS or its agents will refund the fees paid
CAIS for the infringing Services, less a reasonable allowance for use and pay
any and all costs, expenses, penalties, including reasonable attorneys fees,
which may be suffered by ONEPOINT as a result of the termination of the Services
to the Buildings and/or the End Users.
10.6 SECTIONS 10.3 THROUGH 10.5 STATE THE ENTIRE LIABILITY OF CAIS, ITS
AFFILIATES, SUBCONTRACTORS AND REPRESENTATIVES FOR INFRINGEMENT BY ANY LICENSED
SERVICES.
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Section 11
EXPENSES
11.1 Except as otherwise specified in this Agreement, each party agrees
that it shall be responsible for its own expenses and costs under this
Agreement, and that the other party shall have no obligation to reimburse such
party for any expenses or costs incurred by such party in the performance of
such party's duties hereunder.
Section 12
LIMITATIONS OF LIABILITY
12.1 a. Neither party shall have a right to or shall claim limited,
special, indirect, or consequential damages, including lost profits, for breach
of this Agreement. Remedies shall be limited to claims for amounts due
hereunder or for indemnification as provided for herein. The foregoing
limitation of remedies shall not apply to any action by CAIS for infringement by
ONEPOINT; any action based on or with respect to unauthorized publication,
disclosure, or use of confidential information or trade secrets of CAIS; or any
action based on CAIS 's rights in patents, copyrights, trademarks, or trade
names or other proprietary rights in the Services.
b. ONEPOINT agrees that CAIS will in no event be responsible for any
losses or damages of any and every nature (including, but not limited to,
consequential losses) incurred by ONEPOINT, by any subcontractors, marketing
agents, sales representatives, affiliates or employees utilized by ONEPOINT, by
any End Users, or by any other party, arising out of or resulting from service
outages or interruptions, delays, failure to provide service, or discontinuance
of service, whether or not caused by the fault or negligence of CAIS, including,
but not limited to, losses or damages of any nature resulting from the loss of
data, inability to access Internet, or inability to transmit or receive
information. ONEPOINT agrees to be responsible for appropriately conveying this
disclaimer to any subcontractors, marketing agents, sales representatives,
affiliates, employees, and End Users in Buildings where ONEPOINT is the Lead
Manager.
c. Not withstanding the provisions of Section 13.1b, CAIS upon
request of ONEPOINT will agree to adjust the fees for the Internet connectivity
service provided to a Building by CAIS pursuant to Sections 3.2 and 4.5b(ii) by
50% if such Building's connection time for such month is below 99.5%, and will
agree to adjust the monthly service fee for such Building by 100% if the
connection time for such month is below 99.0%. Normal periodic but scheduled
maintenance is to be considered up time for purposes of this calculation. CAIS
is not responsible for Internet network problems external to the CAIS network
and outages attributable to such external causes shall not be considered down
time for purposes of this calculation.
d. CAIS represents and warrants to ONEPOINT that CAIS owns, is a
licensee of, and/or otherwise controls rights to the OverVoice Internet
technology and that its use as provided
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in this Agreement is both authorized by its license and does not infringe upon
the rights of any third party and does not violate any local, state, or federal
law of the United States.
12.2 FOR A PERIOD OF NINETY (90) DAYS FROM THE DATE THE OVERVOICE
INTERNET TECHNOLOGY IS INSTALLED AND READY FOR USE AT A BUILDING, IF THERE
APPEAR ANY DEFECTS IN THE OVERVOICE INTERNET TECHNOLOGY OR THE SERVICE THAT
ARISES (UNDER PROPER AND NORMAL USE AND CARE) DURING THIS WARRANTY PERIOD, CAIS
WILL REPLACE OR REPAIR THE OVERVOICE INTERNET TECHNOLOGY AND ANY DEFECTIVE
EQUIPMENT RELATED THERETO WITHOUT CHARGE, PROVIDED THAT ONEPOINT NOTIFIES CAIS
IN WRITING OF THE EXISTENCE OF A CLAIMED DEFECT WITHIN THE PERIOD SPECIFIED
HEREIN. CAIS MAKES NO OTHER WARRANTY OR REPRESENTATION AS TO THE PERFORMANCE OR
OPERATION OF ANY OF THE SERVICES TO THE ONEPOINT OR ANY THIRD PARTY. ONEPOINT
SHALL MAKE NO REPRESENTATION OR WARRANTY WITH REGARD TO THE SERVICES. ANY
IMPLIED WARRANTIES (INCLUDING, BUT WITHOUT LIMITATION, MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE) ARE HEREBY EXCLUDED. THE PARTIES AGREE THAT
CAIS'S LIABILITY, IF ANY, FOR DAMAGES RELATING TO ANY SERVICES SHALL BE LIMITED
TO THE ACTUAL END-USER SUBSCRIBER LICENSE AGREEMENT FEES PAID FOR THOSE SERVICES
AND WILL IN NO EVENT INCLUDE ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL OR
OTHER DAMAGES OF ANY KIND, EVEN IF CAIS HAS BEEN APPRAISED OF THE LIKELIHOOD OF
SUCH DAMAGE OCCURRING.
THE ONEPOINT UNDERSTANDS AND ACKNOWLEDGES THAT CAIS'S PRICE TERMS
DEPEND IN PART UPON THIS EXCLUSION OF WARRANTIES AND LIABILITIES.
Section 13
SERVICE USAGE
13.1 The Services may be utilized by the Parties and their respective End
User Customers only for lawful purposes, and the usage of the Services in
connection with or adjunct to any matter or thing which violates any foreign,
municipal, state, county or federal statute or regulation is prohibited. Both
Parties agrees to comply with the terms and conditions for use of the Services
set forth below in this Section 13.1. Such terms and conditions shall apply to
all of both Parties' respective downstream End-user Customers, and CAIS is
responsible for notifying such End Users of these terms and conditions by
incorporating such terms and conditions in all of CAIS's End-User Subscriber
License Agreements, and for assuring and enforcing compliance with these terms
and conditions by CAIS's End-User Subscribers.
a. Subject to the terms of ONEPOINT's Agreement with CAIS, End-Users
agree to subscribe to OverVoice or other HSIA service, and are
granted through CAIS, where applicable, a non-transferable, non-
assignable, non-exclusive sub-license to
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use the OverVoice technology and any software provided as part of the
HSIA service, for the term of the End-User's service agreement.
b. The utilization of any data or information received End-User
Customers from the utilization of the Service to be provided by CAIS
is at End-User Customer's respective sole and absolute risk. CAIS
specifically disclaims and denies any responsibility for the
completeness, accuracy or quality of information obtained through the
Services to be provided.
c. Other than as specifically provided in this Agreement, CAIS makes
no warranties of any kind, whether expressed or implied, for the
services or software it is providing. CAIS also disclaims any
warranty of merchantability or fitness for a particular purpose. CAIS
will not be responsible for any damages End-User Customer suffers.
This includes loss of data resulting from delays, nondeliveries,
misdeliveries, or service interruptions caused by ONEPOINT's,
Customer's or CAIS's negligence, errors or omissions, or due to
inadvertent release or disclosure of information sent by the End-User.
d. The Services may only be used for lawful purposes. Unauthorized
transmission or storage of any information, data, or material in
violation of any Federal or state law or regulation is prohibited.
This includes, but is not limited to: copyrighted material, material
which is obscene, or material protected as a trade secret. End-Users
agree to indemnify and hold harmless CAIS from any claims (including
CAIS's attorney fees) resulting from End User's use of the Services
which damages the End-User or another party or parties.
e. End-User's access to CAIS's Internet service is subject to
compliance with the CAIS and, where applicable, OverVoice Acceptable
Use Policies, which are available on the CAIS and OverVoice home page
at: http://www.cais.com/cais/comp_aup.htm and
http://www.overvoice.com/aup.htm, respectively. Any access to other
networks connected to CAIS's network must comply with the rules for
that other network.
f. OverVoice service is a shared high bandwidth Internet service, and
CAIS reserves the right to prohibit or limit uses of the service that
could unduly interfere with the provision of service to other
customers. An End-User may not conduct web services or operate any
type of server through the End-User's OverVoice account.
g. CAIS shall have the right to correspond by e-mail directly with
all End-User Subscribers of the OverVoice service in order to update
such Subscribers on the Services.
Section 14
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AUTHORITY
14.1 CAIS and ONEPOINT each represent to the other that this Agreement has
been authorized by all necessary corporate action. CAIS represents that to the
best of its knowledge it is either in compliance or is in the process of
becoming compliant with any and all regulatory requirements applicable to its
business as presently conducted. ONEPOINT similarly represents that to the best
of its knowledge it is either in compliance or is in the process of becoming
compliant with any and all regulatory requirements applicable to its business as
presently conducted. Upon request from one party, the other party shall provide
written documentation by any and all appropriate judicial, legislative, or
regulatory agency reflecting the other party's ability to sell the Services in
each state such other party provides service. CAIS represents that it is duly
authorized to entering into sub-license agreements under the terms of CAIS's
license agreement for use of the OverVoice technology.
Section 15
STATUS OF PERSONNEL
15.1 Relationship of the Parties. CAIS and ONEPOINT acknowledge and
---------------------------
agree that the relationship between them is solely that of independent
contractors, and nothing in this Agreement is to be construed to constitute the
parties as employer/employee, franchisor/franchisee, agent/principal, partners,
joint venturers, co-owners, or otherwise as participants in a joint or common
undertaking. Each party shall be responsible for wages, hours, and conditions of
employment of such party's personnel during the term of and under this
Agreement. Nothing herein shall be construed as implying that employees of one
party are employees of the other. Employees of one party are not entitled to
benefits of any nature whatsoever provided by the other party to its employees.
Neither CAIS nor ONEPOINT (or their respective employees, subcontractors, or
agents) have any right, power, or authority to act or create any obligation,
express or implied, on behalf of the other.
15.2 Non-Solicitation of Employees. During the term of the Agreement, and
-----------------------------
for a period of one year thereafter, neither ONEPOINT nor CAIS shall hire away
or attempt to hire away the other's employees or provide the other's employees
with any form of compensation or inducement that was not approved in advance by
the employing entity.
Section 16
INSURANCE
16.1 Each party agrees, at its respective sole cost, to carry and keep in
full force and effect at all times during the term of this Agreement and during
any extension thereof, a commercial liability insurance policy with a single
limit of no less than $1 Million, including coverage for bodily injury, property
damage and personal injury liability. CAIS shall name ONEPOINT and the Building
owner for each of CAIS's Buildings as additional insureds. Such
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<PAGE>
policy shall stipulate that the insurer shall provide the other party at least
thirty (30) days written notice prior to cancellation, failure to renew or any
material change in coverage of the policy. At a party's request, the other party
shall provide the requesting party with a certificate of insurance which
evidences the minimum levels of insurance set forth above and names the
requesting party as an additional insured. Each party also agrees, at its
respective sole cost, to carry and keep in full force and effect at all times
during the term of this Agreement and during any extension thereof, a workers
compensation insurance policy in an amount not less than prescribed by statutory
limits.
Section 17
USE OF NAMES, LOGOS, SERVICE MARKS, ETC.; MARKETING AND PUBLIC RELATIONS
17.1 a. Except for such use and for use for the purposes of identification
of the Services, no right, title, interest, or license in or to any trademark or
service mark of CAIS is granted to ONEPOINT under this Agreement. ONEPOINT may
on its business cards state that ONEPOINT is an authorized provider of CAIS's
Services for sub-licensing of the Services of CAIS. CAIS shall be permitted to
identify ONEPOINT in marketing and related material to promote CAIS' services.
Except as provided herein, no party may otherwise use the name, logos, trade
names, service marks, trademarks, printed materials, or art work of any other
party, or of any third party, in any promotional or advertising material without
the prior consent of such party or such third party.
b. Public Relations Program. The Parties agree to implement a joint
-----------------------------
public relations program including a series of joint press releases, media
interviews, and on-going handling of media inquiries, as determined and mutually
agreed to by the Parties before publication. This program is to include the
joint announcement of the Parties Agreement through traditional press releases,
postings on each Party's web site(s), and the establishment of appropriate
hyperlinks between both Parties' web sites.
Section 18
COST OF LITIGATION
18.1 In the event of litigation arising under this Agreement, upon final
judgment and award of a court of competent jurisdiction, the prevailing party
shall be entitled to recover, in addition to other amounts awarded under such
judgment, reasonable attorney fees of such prevailing party.
Section 19
NOTICES
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19.1 All notices, demands, or consents required or permitted under this
Agreement shall be in writing and shall be delivered personally, or sent by
overnight delivery service or certified or registered mail to the appropriate
party at the address set forth in the first paragraph of this Agreement or at
such address as shall be given by either party to the other in writing.
Section 20
MISCELLANEOUS
20.1 This Agreement shall be deemed to be made in the District of Columbia,
and shall in all respects be interpreted, construed, and governed by and in
accordance with the laws of the District of Columbia.
20.2 The parties agree that any suit to enforce any provision of this
Agreement arising out of or based on this Agreement or the business relationship
between any of the parties hereto shall be brought in the United States District
Court for the District of Columbia, or the local courts of the District of
Columbia. Each party hereby agrees that such courts shall have in personam
jurisdiction with respect to such party, and each party hereby submits to the in
personam jurisdiction of such courts.
20.3 Each party agrees to keep each and every item to which the other party
retains title free and clear of all claims, liens, and encumbrances except those
of such other party, and any act of such first party, either voluntary or
involuntary, purporting to create a claim, lien or encumbrance on such an item
shall be void. Any equipment which is owned solely by one party to this
Agreement may be encumbered by such party as such party deems appropriate.
20.4 Each party hereby acknowledges that, in the event such party breaches
its duties under this Agreement, the other party will suffer immediate and
irreparable damage, and that injunctive relief will be appropriate. Any and all
remedies herein expressly conferred upon a party shall be deemed cumulative and
not exclusive of any other remedy conferred hereby or by law on such party, and
the exercise of any one remedy shall not preclude the exercise of any other.
20.5 Invalidity of Provisions. If any covenant or provision is ultimately
------------------------
determined to be invalid, illegal or incapable of being enforced, all other
conditions and provision, contained herein shall, nevertheless, remain in full
force and effect, and no covenant or provision shall be dependent upon any other
covenant or provision unless so expressed herein.
20.6 Survival. The provisions of Sections 9.1 though 9.9, 10, 12, 15.2,
--------
17, and 20.4 shall survive the expiration or termination of this Agreement.
20.7 Assignment. Either party shall have the right to assign this
----------
Agreement to any affiliated entity or in connection with the sale or transfer of
all or substantially all of such party's assets. Each party's respective rights
and obligations under this Agreement shall inure to the
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benefit of and be binding upon such party's successors and assignees. Neither
party shall assign this Agreement or any interest therein without the other
party's prior written consent, which consent shall not be unreasonably withheld.
Any assignment or transfer without the required consent is void. A sale of a
controlling interest in a party, including but not limited to a transfer of 50%
or more of the voting securities of such party, shall be considered a transfer
under this Agreement.
20.8 Entire Agreement. The parties agree that this Agreement is the
----------------
complete and exclusive statement thereof between the parties and that it
supersedes and merges all prior proposals and understandings, and all other
agreements, whether oral or written, between the parties relating to the subject
matter hereof. This Agreement may not be modified or altered except by a
written instrument duly executed by the parties hereto.
20.9 Amendments; Waivers; Remedies. This Agreement, or any of its
-----------------------------
provisions may not be amended, supplemented, or modified, and no provision may
be waived, unless such amendment, supplement, modification, or waiver is in
writing and signed by the party against whom enforcement of any of the foregoing
is sought. The waiver of any breach or default under this Agreement does not
constitute the waiver or an other breach or default, whether or not similar, nor
any subsequent breach of the same provision. The election by either party of
any right or remedy contained in this Agreement is not exclusive of any other
rights or remedies in law or equity other than as may be limited by this
Agreement.
20.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which is an original, but all of which together shall
constitute one and the same instrument.
20.11 Authority to Execute; Binding Effect. The individuals signing this
------------------------------------
Agreement represent and warrant that they are authorized to bind and do so bind
the party on behalf of which they are executing this Agreement. This Agreement
is binding on the parties and their respective successors and permitted assigns.
20.12 Compliance with Laws. During the term of this Agreement, each party
--------------------
must comply with all local, state and federal laws and regulations applicable to
its business and the performance of its obligations under this Agreement.
20.13 Force Majeure. Either party's delay in, or failure of, performance
-------------
under this Agreement is excused, to the extent any delay in its performance is
caused by or is the result of factors beyond its control, including act of God,
fire or other catastrophe, electrical, explosion, accident, flood, storm,
vandalism, strike or lock-out , work stoppage, or acts of government or agencies
thereof outside such party's reasonable control.
20.14 Third Parties. The provisions of this Agreement and the rights
-------------
and obligations created hereunder are intended for the sole benefit of CAIS and
ONEPOINT, and do not create any right, claim or benefit on the part of any
person not a party to this Agreement, including Building Representatives,
Subscribers and sub-contractors.
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IN WITNESS, WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers, indicating their acknowledgment, acceptance and
approval thereof as of the date first written above.
ONEPOINT COMMUNICATIONS CORP. CAIS, INC.
/s/ William F. Wallace /s/ Evans K. Anderson
- -------------------------------- -------------------------------
Name Name
President SR VP Sales and Markerting
- -------------------------------- -------------------------------
Title Title
2/19/99 2/19/99
- -------------------------------- -------------------------------
Date Date
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EXHIBIT 10.29
OFFICE LEASE
THIS DEED OF LEASE, made in triplicate, this 28 day of July 1997 by and between
RAMAY FAMILY PARTNERSHIP, a Virginia general partnership, Landlord, and CAIS,
----
Inc., a Virginia Corporation , Tenant.
- ----------------------------
WITNESSETH: For and in consideration of the covenants and agreements contained
in this Lease Agreement, Landlord demises unto Tenant and Tenant leases from
Landlord all of that office space (the Demised Premises) outlined in red on the
plan titled 3rd Floor Raehn Office Building # 5, 6861 Elm Street McLean,
--------- ---------------------------
Virginia 22101 attached hereto and marked Exhibit "A", which said area comprises
approximately 7,033 square feet, together with the right to the non-exclusive
-----
use of such facilities customarily designed for common use as may be installed
by Landlord, all subjects to the terms and conditions of this Lease Agreement
which Landlord and Tenant agree to as follows:
1. TERM: Tenant shall use and occupy the demised premises for office space for
----
the term of 4 years commencing on the 1st day of August, 1997, and ending on
- --- ------ ----
the 30th day of July, 2001 subject to the provisions contained in paragraph 25
---- ---- ----
hereof.
2. RENT: Tenant agrees to pay to Landlord as annual rent the sum of One hundred
---- -----------
Sixteen Thousand Forty Four and 50/100 Dollars ($ 116,044.50 ) to be paid in
- -------------------------------------- ------------
equal monthly installments of: Nine Thousand Six Hundred Seventy and 38/100
--------------------------------------------
Dollars ($ 9,670.38 ) on the first day of each month during the said term, in
----------
advance and without demand, at such place as shall be designated by Landlord
from time to time. Tenant agrees to pay to Landlord as annual rent for the
second year the sum of One Hundred Nineteen Thousand Five Hundred Sixty One and
--------------------------------------------------------
00/100 Dollars ($119,561.00) to be paid in equal monthly installments of: Nine
- ------ ----------- ----
Thousand Nine Hundred Sixty Three and 42/1 00 Dollars ($ 9,963.42 ) on the first
- --------------------------------------------- ----------
day of each month during the said term, in advance and without demand, as
written above. Tenant agrees to pay to Landlord as annual rent for the third
year the sum of One Hundred Twenty Six Thousand Five Hundred Ninety Four and
------------------------------------------------------------
00/1 00 Dollars ($ 126,594.00)
- ------- ------------
<PAGE>
to be paid in equal monthly installments of: Ten Thousand Five Hundred Forty
-------------------------------
Nine and 50/100 Dollars ($10,549.50) on the first day of each month during the
- --------------- ----------
said term, in advance and without demand, as written above. Tenant agrees to pay
to Landlord as annual rent for the fourth year the sum of One Hundred Thirty
------------------
Three Thousand Six Hundred Twenty Seven and 00/100 Dollars ($ 133,627.00) to be
- -------------------------------------------------- ------------
paid in equal monthly installments of: Eleven Thousand One Hundred Thirty Five
---------------------------------------
and 59/100 Dollars ($11,135.59) on the first day of each month during the said
- ---------- ----------
term, in advance and without demand, as written above. During any renewal
term(s) the annual rent shall be increased by 3% per year on the anniversary
date of August 1st of each year of the renewal term(s) is in effect.
3. SECURITY DEPOSIT: Tenant agrees to deposit with the Landlord, upon execution
----------------
of this Deed of Lease the sum Six Thousand One Hundred Eighty Nine and 50/100
-----------------------------------------------
Dollars, ($ 6,189.50 Already on Deposit), as security for the faithful
-----------------------------
performance by Tenant of the terms and covenants of this Lease, but may not be
deemed by Tenant to constitute rent for any month. Such deposit, without
interest, will be repaid to Tenant after the termination of this Deed of Lease,
provided Tenant shall have made all such payments and performed all such terms
and conditions. Upon default by Tenant hereunder, all or part of said deposit
may, at any time and in Landlord's sole discretion, be applied on account of
such default and thereafter Tenant shall restore the resulting deficiency in
said deposit within ten (10) days notice of Landlord's application.
4. USE OF PREMISES: Tenant shall use and occupy the premises for general office
---------------
and Telecommunications use and for no other purpose without prior approval of
the Landlord.
5. LANDLORD'S OBLIGATIONS: Landlord agrees to provide office lighting in a range
----------------------
of 50 to 70 footcandles, and heating up to 70 F, or air conditioning down to 76
F, as appropriate, during normal business hours, MONDAY THROUGH FRIDAY EXCLUDING
HOLIDAYS, FROM 8A.M. TO 6P.M.; and to provide such electrical service and water,
weekday janitorial services and maintenance services at Landlord's expense.
Notwithstanding the foregoing, if, because of Landlord's failure to provide any
of the
<PAGE>
services described in this Section, all or part of Demised Premises becomes
untenantable, Tenant shall be entitled to a proportionate abatement of rent for
all or such part of the Demised Premises. If such failure continues for thirty
(30) days, Tenant may terminate this Lease by notice to Landlord.
6. SPECIAL PROVISIONS:
------------------
A. The liebert units and diesel generator installed by Tenant will
remain the property of Tenant and will be removed by Tenant at or prior
to the termination of this herein lease or any subsequent extension(s)
and premises restored to the original condition.
B. Tenant is allowed to install an exterior sign on the building of
approximately 20' by 5' in size subject to said sign to meet all zoning
and permit requirements of the federal, state and local government.
C. Tenant is allowed two (2) five (5) year options to extend this
herein lease with written notice to Landlord six (6) months prior to
the expiration date of this initial term or any extensions thereof.
Landlord agrees to provide Tenant with a written reminder notice a
minimum of fifteen (15) days prior to the extension option exercise
deadline for each extension term. The lease extension or extensions
shall be under the same terms and conditions except that of the 3%
annual rental increase as stated in Paragraph 2 of this herein Lease.
D. Rooftop Pole and Antenna Installation: Tenant shall have the right,
subject to compliance with any applicable zoning/permitting
requirements, to install up to four (4) poles, with up to three (3)
small (approximately 24 inches in diameter or less) dish antennas per
pole, on the building rooftop, which shall be removed and restored to
original condition at or prior to termination of this herein lease or
any subsequent extension(s).
7. LIABILITY: Tenant shall keep in full force and effect a policy of public
---------
liability insurance with respect to the Demised Premises and the business
operated by Tenant, and/or any sub-tenants of Tenant in the Demised Premises, in
which both Landlord and Tenant shall be named as parties covered thereby, or
which provides equivalent protection to Landlord. Tenant agrees to indemnify and
hold Landlord harmless from all damages, liabilities, and expenses which may
arise or be claimed for any injuries, loss, or damages to the person or property
of any persons, firm, or corporation consequent upon or arising from the use or
occupancy of the Demise Premises by Tenant of from any acts, omission, neglect,
or fault of Tenant, its agents, invitees, customers, or employees. Tenant shall
neither be liable for any injuries, loss or damages to the person or property of
any persons, firm or corporation consequent upon or arising from Landlord's
acts, omissions, neglect or fault. Tenant agrees that
<PAGE>
all personal property in said premises shall be and remain at Tenant's sole
risk, and Landlord shall not be liable for any damage to nor loss of such
personal property arising from any acts of negligence of any other persons; nor
from the leaking of the roof; nor from heating or plumbing fixtures; nor from
electric wires or fixtures; nor from any cause whatsoever; nor shall the
Landlord be liable for any injury to the person of the Tenant or other persons
in said premises; the Tenant expressly agreeing to save the Landlord harmless in
all such cases. Tenant shall be responsible for all compliances to the "American
with Disabilities Act" in regards to their demised space and shall hold Landlord
and the Property Manager harmless from any claims arising from noncompliance.
8. REPAIRS: Landlord shall keep the building and parking areas in good repair,
-------
except that Landlord shall not be called on to make any such repairs occasioned
by the act of negligence of Tenant, its agents, invitees, customers, or
employees. Landlord's responsibility shall include the maintenance and repair of
all mechanical, heating and cooling, and electrical systems.
9. DAMAGES: All injury to the Demised Premises or the building of which they are
-------
a part, caused by moving the property of Tenant into, or out of, the said
building and all breakage done by Tenant, or the agents, servants, employees and
visitors of Tenant shall be repaired by the Tenant, at the expense of the
Tenant. In the event that the Tenant shall fail to do so, the Landlord shall
have the right to make such necessary repairs, alterations and replacements,
(Structural, nonstructural or otherwise) and any charge or cost so incurred by
the Landlord shall be paid by the Tenant with the right on the part of the
Landlord to elect in its discretion, to regard the same as additional rent, in
which event such cost or charge shall become additional rent payable with the
installment of rent next becoming due or thereafter falling due under the terms
of this Lease. This provision shall be construed as an additional remedy granted
to the Landlord and not in limitation of any other rights and remedies which the
Landlord has or may have in said circumstances.
10. FLOOR LOAD: Tenant will not overload the floors nor install any heavy
----------
business machines or any heavy equipment of any kind, without prior written
approval of
<PAGE>
Landlord, which consent shall not be unreasonably withheld or delayed, which, if
granted, may be conditioned upon moving by skilled licensed handlers and
installation and maintenance at Tenant's expense of special reinforcing settings
adequate to absorb and prevent noise and vibration. In no event will Tenant be
allowed to place a load exceeding fifty (50) pounds per square foot on any floor
of the building without Landlord's prior written consent.
11. ASSIGNMENT AND SUBLEASE: The Tenant shall not assign or sublet the whole or
-----------------------
any part of this Lease, or convey any interest therein, without prior written
consent of the Landlord in each instance, which consent shall not be
unreasonably withheld. The Tenant shall not suffer the leased premises to be
occupied for any business or purpose which is disreputable or hazardous on
account of fire. Notwithstanding the foregoing, Tenant shall have the privilege,
without the consent of Landlord, to assign its interests in this Lease to any
business which is a successor to Tenant, or to any business subsidiary, parent,
or affiliate of Tenant.
12. CARE OF PREMISES: Tenant shall not perform any acts or carry on any
----------------
practices which may damage said Building, reasonable use and wear excepted, or
be a nuisance or menace to other tenants in the Building. Tenant shall keep the
leased premises under its control clean at all times and shall store all trash
and garbage within said premises. Tenant shall at all times maintain the
interior of the said premises in good condition and repair, and also in a clean,
sanitary, and safe condition in accordance with the laws of the State of
Virginia and in accordance with all directions, rules, and regulations of the
health officer, fire marshal, building inspector, or other proper officers or
the governmental agencies having jurisdiction. Both the Landlord and Tenant
shall comply with all requirements of law, ordinances and otherwise, affecting
the leased premises; and shall permit no waste, damage or injury to said
premises. Tenant shall not display any merchandise or signs on or otherwise
obstruct the sidewalks or areas adjacent to said premises, and Tenant shall not
use or permit the use of any portion of said premises for any unlawful purpose.
Tenant shall not permit or install any exterior lighting or plumbing fixtures,
shades or awnings, window or door signs, or paint or decorate any part of the
exterior of the leased premises, or make any changes to the leased premises
without the previous
<PAGE>
written permission of the Landlord. Tenant shall not use any advertising media
that shall be considered objectionable such as loud speaker, phonographs, or
radio broadcasts in a manner to be heard outside of said premises without the
previous written permission of the Landlord. The plumbing facilities shall not
be used for any purpose other than that for which they are constructed, and no
foreign substance of any kind shall be thrown therein, and the expense of any
breakage, stoppage, or damage resulting from a violation of this provision shall
be the Tenant's liability.
13. MECHANIC'S LIENS: Tenant shall discharge or bond off of record, within
----------------
thirty (30) days, any mechanic's lien or other liens filed against the Demised
Premised for work or material furnished to Tenant. Tenant further agrees that
Tenant will indemnify Landlord against all legal costs and charges, bond
premiums for release of liens, including counsel fees reasonably incurred in and
about the defense of any suit in discharging the said premises or any part
thereof from any liens, judgments, or encumbrance caused or suffered by Tenant.
It is understood and agreed between the parties hereto that the cost and charges
above referred to shall be considered as rent due and shall be included in any
lien for rent. Tenant shall have no authority to create liens for labor or
material in the Landlord's interest on the Demised Premises.
14. TERMINATION: Upon the expiration of this Lease, or any extension thereof,
-----------
the Tenant will quit and surrender the leased premises, without the necessity of
any notice from either Landlord or Tenant to terminate the same, and Tenant
hereby waives notice to vacate said premises, and agrees that Landlord shall be
entitled to the benefit of all provisions of law respecting the summary recovery
of possession of said premises from a tenant holding over to the same extent as
if statutory notice has been given. Tenant will quit and surrender said premises
in as good a state and condition as they were when entered into, reasonable use
and wear thereof, damage by fire, unavoidable accident, or act of God excepted.
15. ELECTRICAL EQUIPMENT, EXCESS UTILITY CONSUMPTION: Tenant will not install or
------------------------------------------------
operate in the Demised Premised any electrically operated equipment or other
equipment or other machinery, other than normal office equipment using 110-120
voltage wiring, without first obtaining the prior consent in writing of
Landlord,
<PAGE>
who may condition such consent upon the payment by Tenant of additional rent in
compensation for such excess consumption of water and/or electricity or wiring
as may be occasioned by the operation of said equipment of any kind or nature
whatsoever which will or may necessitate any changes, replacements, or addition
to, or require the use of, water system, plumbing system, heating system, air
conditioning system, or the electrical system of the Demised Premises, without
the prior written consent of Landlord.
16. ALTERATIONS: Tenant will not make any alterations, installations, changes,
-----------
replacements, additions, or improvements, structural or otherwise, in or to the
Demised Premises, or any part thereof, without the prior written consent of
Landlord. All alterations, installations, changes, replacements, additions, or
improvements upon the Demised Premises whether with or without Landlord's
consent will, unless Landlord elects otherwise, become the property of Landlord,
without cost to Landlord, and will remain upon and be surrendered with the
Demised Premises at the expiration of the Lease, without disturbances,
molestation or injury. In the event Landlord shall elect otherwise, then such
alterations, installations, changes, replacements, additions to, or improvements
upon the Demised Premises, will be removed by Tenant upon termination of this
Lease or upon termination of any renewal period hereof and Tenant agrees to and
will restore Demised Premises to the original condition, which shall be defined
as the condition and the design of the space at time of acceptance of the space
by Tenant, at Tenant's sole cost and expense, on or before the expiration of the
term of this lease or any renewal thereof, and should Tenant fail to remove
same, then in such event Landlord will cause same to be removed at Tenant's
expense, and Tenant hereby agrees to reimburse Landlord for the cost of such
removal, together with any and all damages which Landlord may suffer and sustain
by reason of the failure of Tenant to remove the same. It is further agreed that
Landlord shall have the right to enter leased area at any reasonable time with a
minimum of inconvenience to Tenant for the purpose of completing, modifying, or
maintaining space above, below or alongside of subject space.
17. LANDLORD'S RIGHT OF ENTRY: Landlord shall have the right to enter upon the
-------------------------
Demised Premises at all reasonable hours for the purpose of inspecting the same,
for
<PAGE>
protecting the same, for preventing damage or injury to the same, or for making
any repairs, additions, or alterations necessary to maintain the Building or the
Demised Premises, or any property owned or controlled by Landlord, or for
exhibiting the same to prospective tenants during the last three (3) months of
the term of this Lease
18. BANKRUPTCY OF TENANT: If Tenant shall make an assignment of its assets for
--------------------
the benefit of creditors, or if Tenant shall file a voluntary petition in
bankruptcy, or if an involuntary petition in bankruptcy or for receivership be
instituted against Tenant and the same be not dismissed within ninety (90) days
for the filing thereof, or if Tenant be adjudged bankrupt, then and in any of
said events, this Lease shall immediately cease and terminate, at the option of
Landlord, with the same force and effect as though the date of occurrence of
said event was the day herein fixed expiration of the term of this Lease.
19. DEFAULT: If any rent payable by Tenant to landlord shall be and remain
-------
unpaid for more than fifteen (15) days after the same is due and payable, or if
Tenant shall violate or default any of the other covenants, agreements,
stipulations, or conditions herein, and such violation or default shall continue
for a period of thirty (30) days after written notice of such violation or
default, then it shall be optional for Landlord to declare this Lease forfeited
and said term ended, and to re-enter the Demised Premised pursuant to law, to
remove all persons or personal property including furniture therefrom and
Landlord shall not be liable for damages by reason of such reentry of
forfeiture; but not withstanding such re-entry, Tenant shall remain liable for
any rent or damages which may be due or sustained prior thereto and Tenant shall
pay the amount of rent reserved under this lease at the times herein stipulated
for payment of rent for the balance of the term, less any amount received by
Landlord during such period from others to whom the Demised Premises may be
rented on such terms and conditions and at such rentals as Landlord in its sole
discretion shall deem proper, but Landlord shall use its best effort to re-lease
the Demised Premises at market rates. If Landlord shall pay any moneys or incur
any expenses including any reasonable attorney's fees in correction of violation
of covenants herein set forth the amounts so paid or incurred shall, at
Landlord's option and on notice to Tenant, be considered additional rentals
payable by Tenant with the first installment of rental thereafter to
<PAGE>
become due and payable, and may be collected or enforced by Landlord.
20. HOLDING OVER: In the event, with the written permission of Landlord, Tenant
------------
remains in possession of the herein Demised Premises after the expiration of
this Lease, and without the execution of a new Lease, it shall be deemed to be
occupying the Demised Premises as a Tenant from month to month, subject to all
the conditions, provisions, and obligation of this Lease insofar as the same are
applicable to a month to month tenancy.
21. WAIVER: One or more waivers of any covenant or condition by Landlord shall
------
not be construed as a waiver of a subsequent breach of the same covenant or
condition, and the consent or approval by Landlord to or of any act by Tenant
requiring Landlord's consent or approval to or of any subsequent similar act by
Tenant.
22. SUBORDINATION: Tenant agrees that this Lease shall be subordinate to any
-------------
mortgages or trust deeds that may now or hereafter be placed upon or affect the
Demised Premises and to any and all advances to be made thereunder, and to the
interest thereon, and all renewal, replacements, and extensions thereof,
Landlord may freely and fully assign its interest in the Lease.
23. FIRE: If the said Building shall be partially destroyed by fire, or other
----
casualty, whereby the Building shall be rendered untenantable only in part, the
Landlord shall promptly, at its own expense, cause the damage to be repaired,
and the rent meanwhile shall be abated proportionately as to the portion of the
Demised Premises rendered untenantable. If by any reason of said fire or other
casualty the Building shall be rendered wholly untenantable, Landlord shall
promptly, at its own expense, cause such damage to be repaired, and the rent
shall be abated in whole until said Building is restored, unless within ninety
(90) days after said occurrence Landlord shall give Tenant written notice that
it has elected not to reconstruct the destroyed Building, in which event this
Lease and the tenancy hereby created shall cease as of the date of said
occurrence, the rental to be adjusted as of such date. Tenant shall promptly
execute and comply with all statutes, ordinances, rules, orders, regulations and
requirements of the federal, state, and county governments, and of any and all
<PAGE>
their departments and bureaus, applicable to said premises for the correction,
prevention, and abatement of nuisances or other grievances, in, upon, or
connected with said premises during said term and shall also promptly comply
with and execute all rules, orders and regulations of the Fire Underwriters
Association for the Prevention of Fires, at Tenants own cost and expense.
24. CONDEMNATION: In the event any portion of said Demised Premises is taken by
------------
any condemnation or eminent domain proceedings, the monthly rental herein
specified to be paid shall be ratably reduced according to the area of the
Demised Premises which is taken, and Tenant shall be entitled to no other
consideration by reason of such taking, and any damages suffered by Tenant on
account of the taking of any portion of said leased premises and any damages to
any structures erected on said Demised Premises, respectively, that shall be
awarded to Tenant in said proceedings shall be paid to and received by Landlord
and Tenant shall have no right therein or thereof, and Tenant does hereby
relinquish and assign to Landlord all of Tenant's rights and equities in and to
any such damages. Should all of the Demised Premises be taken by eminent domain,
then and in that event Tenant shall be entitled to no damages of any
consideration by reason of such taking, except the cancellation and termination
of this Lease as of the date of said taking.
25. POSSESSION: If the Landlord is unable to give possession of the Demised
----------
Premises on the date of the commencement of the aforesaid terms by reason of the
holding over any prior tenant or tenants or for any other reason, an abatement
or diminution of the rent to be paid hereunder shall be allowed Tenant under
such circumstances, but nothing herein shall operate to extend the term of the
lease beyond the agreed expiration date, and said abatement in rent shall be the
full extent of Landlord's liability to Tenant for any loss or damage to Tenant
on account of said delay in obtaining possession of the premises, and Landlord
shall use its best efforts to remove the holdover tenant as promptly as possible
and to keep Tenant informed as to Landlord's effort and progress. If Landlord is
unable to give possession of the Demised Premises to Tenant within ninety (90)
days after the commencement of the term of this Lease, then Tenant shall have
the right to cancel this Lease upon written notice thereof delivered to Landlord
within ten (10) days after the lapse of said ninety
<PAGE>
(90) day period, and upon such cancellation, Landlord and Tenant shall each be
released and discharged from all liability on this Lease.
26. TITLE: Landlord hereby warrants that it has title to the Demised Premises
-----
and that no other person or corporation has the right to lease said premises.
Tenant shall have the peaceful and quiet use and possession of said premises
without hindrance on the part of the Landlord, provided, Tenant has not violated
any provision of this Lease.
27. PARKING: Tenant shall be limited to N/A parking stalls in the parking area
------- ---
serving the building, and Landlord, if Landlord so elects, shall designate and
mark N/A stalls for exclusive use by Tenant; otherwise, Tenant's use of the
---
parking areas shall be in common with the other Tenants of the building.
28. ADDRESSES AND NOTICES: Rent payments shall be sent to Landlord made payable
---------------------
to RAEHN MANAGEMENT, 1311A Dolley Madison Blvd., Suite 3D, McLean, Virginia
22101 or any subsequent address of payee which Landlord shall designate in
writing. All notices required under this Lease shall be in writing and deemed to
be properly served if sent by registered mail to Landlord at the last address
where rent was paid, or to the Tenant at 6861 Elm Street, 3rd Floor , McLean,
------------------------------------
Va. 22101 or to any subsequent address which Tenant may designate.
- ---------
29. BENEFICIAL INTEREST: This Lease and the covenants and conditions herein
-------------------
contained shall inure to the benefit of and be binding upon Landlord, its
successors and assigns, and shall inure to the benefit of Tenant and only such
assigns of Tenant to whom the assignment by Tenant has been consented to by
Landlord.
30. JURISDICTION: The covenants, conditions, and provisions of this Lease shall
------------
be construed, performed and enforced under the laws of the State of Virginia.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement
under their respective seals as of the day and year first written below.
TENANT: CAIS, Inc. RAMAY Family Partnership
A Virginia General Partnership
By: /s/ Ulysses G. Auger, II /s/ Raymond V. Raehn
--------------------------- ---------------------------
President Raymond V. Raehn
Managing Partner
Date: 7/30/97 Date: August 6, 1997
------------------------- ----------------------
CORPORATE SEAL:
<PAGE>
[BLUEPRINT OF BUILDING #5,
6861 ELM STREET, MCLEAN, VIRGINIA 22101
3RD FLOOR PLAN APPEARS HERE]
<PAGE>
Exhibit 10.30
OFFICE LEASE
THIS DEED OF LEASE, made in triplicate, this 28th day of May 1998 by and
---- ----- --
between RAMAY FAMILY PARTNERSHIP, a Virginia general partnership, Landlord, and
CAIS, Inc., a Virginia corporation , Tenant.
- ------------------------------------
WITNESSETH: For and in consideration of the covenants and agreements contained
in this Lease Agreement, Landlord demises unto Tenant and Tenant leases from
Landlord all of that office space (the Demised Premises) outlined in red on the
plan titled 2E Raehn Office Building # 5,6861 Elm Street McLean, Virginia 22101
---- -------------------
attached hereto and marked Exhibit "A", which said area comprises approximately
1,566 square feet, together with the right to the non-exclusive use of such
- -----
facilities customarily designed for common use as may be installed by Landlord,
all subjects to the terms and conditions of this Lease Agreement which Landlord
and Tenant agree to as follows:
1. TERM: Tenant shall use and occupy the demised premises for office space for
----
the term of 38 months commencing on the 1st day of June, 1998 , and ending on
---- ----- ------ -----
the 30th day of July , 2001 subject to the provisions contained in paragraph 25
------ ------- -----
hereof.
2. RENT: Tenant agrees to pay to Landlord as annual rent the sum of Twenty Eight
---- -------------
Thousand Nine Hundred Seventy One and no/100 Dollars ($ 28,971.00,) to be paid
- --------------------------------------------- ------------
in equal monthly installments of: Twenty Four Hundred Fourteen and 25/100
-----------------------------------------
Dollars ($ 2,414.25 ) on the first day of each month during the said term, in
-------------
advance and without demand, at such place as shall be designated by Landlord
from time to time. The herein annual rent shall be increased by 3% over the
preceding rental rate each year the lease is in effect.
3. SECURITY DEPOSIT: Tenant has already on deposit with the Landlord, the sum
----------------
Six Thousand One Hundred Eighty nine and 50/1 00 Dollars ($6,189.50) as security
for the faithful performance by Tenant of the terms and covenants of this Lease,
but may not be deemed by Tenant to constitute rent for any month. Such deposit,
without
1
<PAGE>
interest, will be repaid to Tenant after the termination of this Deed of Lease,
provided Tenant shall have made all such payments and performed all such terms
and conditions. Upon default by Tenant hereunder, all or part of said deposit
may, at any time and in Landlord's sole discretion, be applied on account of
such default and thereafter Tenant shall restore the resulting deficiency in
said deposit within ten (10) days notice of Landlord's application.
4. USE OF PREMISES: Tenant shall use and occupy the premises for general office
---------------
use and for no other purpose without prior approval of the landlord.
5. LANDLORD'S OBLIGATIONS: Landlord agrees to provide office lighting in a range
----------------------
of 50 to 70 footcandles, and heating up to 70 F, or air conditioning down to 76
F, as appropriate, during normal business hours, Monday through Friday excluding
Holidays, from 8A.M. to 6P.M.; and to provide such electrical service and water,
weekday janitorial services and maintenance services at Landlord's expense.
Notwithstanding the foregoing, if, because of Landlord's failure to provide any
of the services described in this Section, all or part of Demised Premises
becomes untenantable, Tenant shall be entitled to a proportionate abatement of
rent for all or such part of the Demised Premises. If such failure continues for
thirty (30) days, Tenant may terminate this Lease by notice to Landlord.
6. SPECIAL PROVISIONS:
-------------------
a. Tenant is allowed two (2) five(5) year options to extend this herein
lease with written notice to Landlord six(6) months prior to the
expiration date of this initial term or any extensions thereof. The
lease extension or extensions shall be under the same terms and
conditions.
7. LIABILITY: Tenant shall keep in full force and effect a policy of public
---------
liability insurance with respect to the Demised Premises and the business
operated by Tenant, and/or any sub-tenants of Tenant in the Demised Premises, in
which both Landlord and Tenant shall be named as parties covered thereby, or
which provides equivalent protection to Landlord. Tenant agrees to indemnify and
hold Landlord harmless from all damages, liabilities, and expenses which may
arise or be claimed
2
<PAGE>
for any injuries, loss, or damages to the person or property of any persons,
firm, or corporation consequent upon or arising from the use or occupancy of the
Demise Premises by Tenant of from any acts, omission, neglect, or fault of
Tenant, its agents, invitees, customers, or employees. Tenant shall neither be
liable for any injuries, loss or damages to the person or property of any
persons, firm or corporation consequent upon or arising from Landlord's acts,
omissions, neglect or fault. Tenant agrees that all personal property in said
premises shall be and remain at Tenant's sole risk, and Landlord shall not be
liable for any damage to nor loss of such personal property arising from any
acts of negligence of any other persons; nor from the leaking of the roof; nor
from heating or plumbing fixtures; nor from electric wires or fixtures; nor from
any cause whatsoever; nor shall the Landlord be liable for any injury to the
person of the Tenant or other persons in said premises; the Tenant expressly
agreeing to save the Landlord harmless in all such cases. Tenant shall be
responsible for all compliances to the "American with Disabilities Act" in
regards to their demised space and shall hold Landlord and the Property Manager
harmless from any claims arising from noncompliance.
8. REPAIRS: Landlord shall keep the building and parking areas in good repair,
-------
except that Landlord shall not be called on to make any such repairs occasioned
by the act of negligence of Tenant, its agents, invitees, customers, or
employees. Landlord's responsibility shall include the maintenance and repair of
all mechanical, heating and cooling, and electrical systems.
9. DAMAGES: All injury to the Demised Premises or the building of which they are
-------
a part, caused by moving the property of Tenant into, or out of, the said
building and all breakage done by Tenant, or the agents, servants, employees and
visitors of Tenant shall be repaired by the Tenant, at the expense of the
Tenant. In the event that the Tenant shall fail to do so, the Landlord shall
have the right to make such necessary repairs, alterations and replacements,
(Structural, nonstructural or otherwise) and any charge or cost so incurred by
the Landlord shall be paid by the Tenant with the right on the part of the
Landlord to elect in its discretion, to regard the same as additional rent, in
which event such cost or charge shall become additional rent payable with the
installment of rent next becoming due or thereafter falling due under the terms
of this
3
<PAGE>
Lease. This provision shall be construed as an additional remedy granted to the
Landlord and not in limitation of any other rights and remedies which the
Landlord has or may have in said circumstances.
10. FLOOR LOAD: Tenant will not overload the floors nor install any heavy
----------
business machines or any heavy equipment of any kind, without prior written
approval of Landlord, which consent shall not be unreasonably withheld or
delayed, which, if granted, may be conditioned upon moving by skilled licensed
handlers and installation and maintenance at Tenant's expense of special
reinforcing settings adequate to absorb and prevent noise and vibration. In no
event will Tenant be allowed to place a load exceeding fifty (50) pounds per
square foot on any floor of the building without Landlord's prior written
consent.
11. ASSIGNMENT AND SUBLEASE: The Tenant shall not assign or sublet the whole or
-----------------------
any part of this Lease, or convey any interest therein, without prior written
consent of the Landlord in each instance, which consent shall not be
unreasonably withheld. The Tenant shall not suffer the leased premises to be
occupied for any business or purpose which is disreputable or hazardous on
account of fire. Notwithstanding the foregoing, Tenant shall have the privilege,
without the consent of Landlord, to assign its interests in this Lease to any
business which is a successor to Tenant, or to any business subsidiary, parent,
or affiliate of Tenant.
12. CARE OF PREMISES: Tenant shall not perform any acts or carry on any
----------------
practices which may damage said Building, reasonable use and wear excepted, or
be a nuisance or menace to other tenants in the Building. Tenant shall keep the
leased premises under its control clean at all times and shall store all trash
and garbage within said premises. Tenant shall at all times maintain the
interior of the said premises in good condition and repair, and also in a clean,
sanitary, and safe condition in accordance with the laws of the State of
Virginia and in accordance with all directions, rules, and regulations of the
health officer, fire marshal, building inspector, or other proper officers or
the governmental agencies having jurisdiction. Both the Landlord and Tenant
shall comply with all requirements of law, ordinances and otherwise, affecting
the leased premises; and shall permit no waste, damage or
4
<PAGE>
injury to said premises. Tenant shall not display any merchandise or signs on or
otherwise obstruct the sidewalks or areas adjacent to said premises, and Tenant
shall not use or permit the use of any portion of said premises for any unlawful
purpose. Tenant shall not permit or install any exterior lighting or plumbing
fixtures, shades or awnings, window or door signs, or paint or decorate any part
of the exterior of the leased premises, or make any changes to the leased
premises without the previous written permission of the Landlord. Tenant shall
not use any advertising media that shall be considered objectionable such as
loud speaker, phonographs, or radio broadcasts in a manner to be heard outside
of said premises without the previous written permission of the Landlord. The
plumbing facilities shall not be used for any purpose other than that for which
they are constructed, and no foreign substance of any kind shall be thrown
therein, and the expense of any breakage, stoppage, or damage resulting from a
violation of this provision shall be the Tenant's liability.
13. MECHANIC'S LIENS: Tenant shall discharge or bond off of record, within
----------------
thirty (30) days, any mechanic's lien or other liens filed against the Demised
Premised for work or material furnished to Tenant. Tenant further agrees that
Tenant will indemnify Landlord against all legal costs and charges, bond
premiums for release of liens, including counsel fees reasonably incurred in and
about the defense of any suit in discharging the said premises or any part
thereof from any liens, judgments, or encumbrance caused or suffered by Tenant.
It is understood and agreed between the parties hereto that the cost and charges
above referred to shall be considered as rent due and shall be included in any
lien for rent. Tenant shall have no authority to create liens for labor or
material in the Landlord's interest on the Demised Premises.
14. TERMINATION: Upon the expiration of this Lease, or any extension thereof,
-----------
the Tenant will quit and surrender the leased premises, without the necessity of
any notice from either Landlord or Tenant to terminate the same, and Tenant
hereby waives notice to vacate said premises, and agrees that Landlord shall be
entitled to the benefit of all provisions of law respecting the summary recovery
of possession of said premises from a tenant holding over to the same extent as
if statutory notice has been given. Tenant will quit and surrender said premises
in as good a state and condition as they were when entered into, reasonable use
and wear thereof, damage by fire,
5
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unavoidable accident, or act of God excepted.
15. ELECTRICAL EQUIPMENT, EXCESS UTILITY CONSUMPTION: Tenant will not install or
------------------------------------------------
operate in the Demised Premised any electrically operated equipment or other
equipment or other machinery, other than normal office equipment using 110-120
voltage wiring, without first obtaining the prior consent in writing of
Landlord, who may condition such consent upon the payment by Tenant of
additional rent in compensation for such excess consumption of water and/or
electricity or wiring as may be occasioned by the operation of said equipment of
any kind or nature whatsoever which will or may necessitate any changes,
replacements, or addition to, or require the use of, water system, plumbing
system, heating system, air conditioning system, or the electrical system of the
Demised Premises, without the prior written consent of Landlord.
16. ALTERATIONS: Tenant will not make any alterations, installations, changes,
-----------
replacements, additions, or improvements, structural or otherwise, in or to the
Demised Premises, or any part thereof, without the prior written consent of
Landlord. All alterations, installations, changes, replacements, additions, or
improvements upon the Demised Premises whether with or without Landlord's
consent will, unless Landlord elects otherwise, become the property of Landlord,
without cost to Landlord, and will remain upon and be surrendered with the
Demised Premises at the expiration of the Lease, without disturbances,
molestation or injury. In the event Landlord shall elect otherwise, then such
alterations, installations, changes, replacements, additions to, or improvements
upon the Demised Premises, will be removed by Tenant upon termination of this
Lease or upon termination of any renewal period hereof and Tenant agrees to and
will restore Demised Premises to the original condition, which shall be defined
as the condition and the design of the space at time of acceptance of the space
by Tenant, at Tenant's sole cost and expense, on or before the expiration of the
term of this lease or any renewal thereof, and should Tenant fail to remove
same, then in such event Landlord will cause same to be removed at Tenant's
expense, and Tenant hereby agrees to reimburse Landlord for the cost of such
removal, together with any and all damages which Landlord may suffer and sustain
by reason of the failure of Tenant to remove the same. It is further agreed that
Landlord shall have the
6
<PAGE>
right to enter leased area at any reasonable time with a minimum of
inconvenience to Tenant for the purpose of completing, modifying, or maintaining
space above, below or alongside of subject space.
17. LANDLORD'S RIGHT OF ENTRY: Landlord shall have the right to enter upon the
-------------------------
Demised Premises at all reasonable hours for the purpose of inspecting the same,
for protecting the same, for preventing damage or injury to the same, or for
making any repairs, additions, or alterations necessary to maintain the Building
or the Demised Premises, or any property owned or controlled by Landlord, or for
exhibiting the same to prospective tenants during the last three (3) months of
the term of this Lease.
18. BANKRUPTCY OF TENANT: If Tenant shall make an assignment of its assets for
--------------------
the benefit of creditors, or if Tenant shall file a voluntary petition in
bankruptcy, or if an involuntary petition in bankruptcy or for receivership be
instituted against Tenant and the same be not dismissed within ninety (90) days
for the filing thereof, or if Tenant be adjudged bankrupt, then and in any of
said events, this Lease shall immediately cease and terminate, at the option of
Landlord, with the same force and effect as though the date of occurrence of
said event was the day herein fixed expiration of the term of this Lease.
19. DEFAULT: If any rent payable by Tenant to landlord shall be and remain
-------
unpaid for more than fifteen (15) days after the same is due and payable, or if
Tenant shall violate or default any of the other covenants, agreements,
stipulations, or conditions herein, and such violation or default shall continue
for a period of thirty (30) days after written notice of such violation or
default, then it shall be optional for Landlord to declare this Lease forfeited
and said term ended, and to re-enter the Demised Premised pursuant to law, to
remove all persons or personal property including furniture therefrom and
Landlord shall not be liable for damages by reason of such reentry of
forfeiture; but not withstanding such re-entry, Tenant shall remain liable for
any rent or damages which may be due or sustained prior thereto and Tenant shall
pay the amount of rent reserved under this lease at the times herein stipulated
for payment of rent for the balance of the term, less any amount received by
Landlord during such period from others to whom the Demised Premises may be
rented on such terms and
7
<PAGE>
conditions and at such rentals as Landlord in its sole discretion shall deem
proper, but Landlord shall use its best effort to re-lease the Demised Premises
at market rates. If Landlord shall pay any moneys or incur any expenses
including any reasonable attorney's fees in correction of violation of covenants
herein set forth the amounts so paid or incurred shall, at Landlord's option and
on notice to Tenant, be considered additional rentals payable by Tenant with the
first installment of rental thereafter to become due and payable, and may be
collected or enforced by Landlord.
20. HOLDING OVER: In the event, with the written permission of Landlord, Tenant
------------
remains in possession of the herein Demised Premises after the expiration of
this Lease, and without the execution of a new Lease, it shall be deemed to be
occupying the Demised Premises as a Tenant from month to month, subject to all
the conditions, provisions, and obligation of this Lease insofar as the same are
applicable to a month to month tenancy.
21. WAIVER: One or more waivers of any covenant or condition by Landlord shall
------
not be construed as a waiver of a subsequent breach of the same covenant or
condition, and the consent or approval by Landlord to or of any act by Tenant
requiring Landlord's consent or approval to or of any subsequent similar act by
Tenant.
22. SUBORDINATION: Tenant agrees that this Lease shall be subordinate to any
-------------
mortgages or trust deeds that may now or hereafter be placed upon or affect the
Demised Premises and to any and all advances to be made thereunder, and to the
interest thereon, and all renewal, replacements, and extensions thereof,
Landlord may freely and fully assign its interest in the Lease.
23. FIRE: If the said Building shall be partially destroyed by fire, or other
----
casualty, whereby the Building shall be rendered untenantable only in part, the
Landlord shall promptly, at its own expense, cause the damage to be repaired,
and the rent meanwhile shall be abated proportionately as to the portion of the
Demised Premises rendered untenantable. If by any reason of said fire or other
casualty the Building shall be rendered wholly untenantable, Landlord shall
promptly, at its own expense, cause such damage to be repaired, and the rent
shall be abated in whole until said
8
<PAGE>
Building is restored, unless within ninety (90) days after said occurrence
Landlord shall give Tenant written notice that it has elected not to reconstruct
the destroyed Building, in which event this Lease and the tenancy hereby created
shall cease as of the date of said occurrence, the rental to be adjusted as of
such date. Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirements of the federal, state,
and county governments, and of any and all their departments and bureaus,
applicable to said premises for the correction, prevention, and abatement of
nuisances or other grievances, in, upon, or connected with said premises during
said term and shall also promptly comply with and execute all rules, orders and
regulations of the Fire Underwriters Association for the Prevention of Fires, at
Tenants own cost and expense.
24. CONDEMNATION: In the event any portion of said Demised Premises is taken by
------------
any condemnation or eminent domain proceedings, the monthly rental herein
specified to be paid shall be ratably reduced according to the area of the
Demised Premises which is taken, and Tenant shall be entitled to no other
consideration by reason of such taking, and any damages suffered by Tenant on
account of the taking of any portion of said leased premises and any damages to
any structures erected on said Demised Premises, respectively, that shall be
awarded to Tenant in said proceedings shall be paid to and received by Landlord
and Tenant shall have no right therein or thereof, and Tenant does hereby
relinquish and assign to Landlord all of Tenant's rights and equities in and to
any such damages. Should all of the Demised Premises be taken by eminent domain,
then and in that event Tenant shall be entitled to no damages of any
consideration by reason of such taking, except the cancellation and termination
of this Lease as of the date of said taking.
25. POSSESSION: If the Landlord is unable to give possession of the Demised
----------
Premises on the date of the commencement of the aforesaid terms by reason of the
holding over any prior tenant or tenants or for any other reason, an abatement
or diminution of the rent to be paid hereunder shall be allowed Tenant under
such circumstances, but nothing herein shall operate to extend the term of the
lease beyond the agreed expiration date, and said abatement in rent shall be the
full extent of Landlord's liability to Tenant for any loss or damage to Tenant
on account of said
9
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delay in obtaining possession of the premises, and Landlord shall use its best
efforts to remove the holdover tenant as promptly as possible and to keep Tenant
informed as to Landlord's effort and progress. If Landlord is unable to give
possession of the Demised Premises to Tenant within ninety (90) days after the
commencement of the term of this Lease, then Tenant shall have the right to
cancel this Lease upon written notice thereof delivered to Landlord within ten
(10) days after the lapse of said ninety (90) day period, and upon such
cancellation, Landlord and Tenant shall each be released and discharged from all
liability on this Lease.
26. TITLE: Landlord hereby warrants that it has title to the Demised Premises
-----
and that no other person or corporation has the right to lease said premises.
Tenant shall have the peaceful and quiet use and possession of said premises
without hindrance on the part of the Landlord, provided, Tenant has not violated
any provision of this Lease.
27. PARKING: Tenant shall be limited to N/A parking stalls in the parking area
------- ----
serving the building, and Landlord, if Landlord so elects, shall designate and
mark N/A stalls for exclusive use by Tenant; otherwise, Tenant's use of the
-----
parking areas shall be in common with the other Tenants of the building.
28. ADDRESSES AND NOTICES: Rent payments shall be sent to Landlord made payable
---------------------
to RAEHN MANAGEMENT, P.O. Box 6276, McLean, Virginia 221 06-6276 or any
subsequent address of payee which Landlord shall designate in writing. All
notices required under this Lease shall be in writing and deemed to be properly
served if sent by registered mail to Landlord at the last address where rent was
paid, or to the Tenant at 6861 Elm Street, Suite 2E , McLean, Va. 22101 or to
-----------------------------------------------
any subsequent address which Tenant may designate.
29. BENEFICIAL INTEREST: This Lease and the covenants and conditions herein
-------------------
contained shall inure to the benefit of and be binding upon Landlord, its
successors and assigns, and shall inure to the benefit of Tenant and only such
assigns of Tenant to whom the assignment by Tenant has been consented to by
Landlord.
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<PAGE>
30. JURISDICTION: The covenants, conditions, and provisions of this Lease shall
------------
be construed, performed and enforced under the laws of the State of Virginia.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement
under their respective seals as of the day and year first written below.
TENANT: CAIS, Inc. RAMAY Family Partnership
A Virginia General Partnership
By: /s/ Evans K. Anderson /s/ Raymond V. Raehn
---------------------------- --------------------------------
Vice President Raymond V. Raehn
Managing Partner
Date: 6/3/98 Date: June 22, 1998
--------------------------- ---------------------------
CORPORATE SEAL:
11
<PAGE>
[BLUEPRINT OF BUILDING #5,
6861 ELM STREET, MCLEAN, VIRGINIA 22101
2ND FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT 10.31
OFFICE BUILDING LEASE
1255 22ND STREET LIMITED PARTNERSHIP
and
CGX COMMUNICATIONS, INC.
---------------------------------------------
LEASE
-----
<PAGE>
This Lease, made this 21 day of Nov, 1998, between 1255 22ND STREET
-- --- -
ASSOCIATES LIMITED PARTNERSHIP (hereinafter referred to as "Landlord"), and CGX
COMMUNICATIONS, INC., a Delaware Corporation (hereinafter referred to as
"Tenant").
Landlord, for and in consideration of the covenants and agreements set
forth hereinafter, leases to Tenant, and Tenant leases from Landlord, the
premises described, for the use set forth and for the term and at the rent
reserved herein.
<TABLE>
<CAPTION>
1. SPECIFIC PROVISIONS
<S> <C> C>
1.1 PREMISES
(a) Rentable Area : Approximately 32,500 square feet (Washington, D.C. Association of Realtors standard floor
area measured as defined in Exhibit G), on floors four (4) and six (6), in their entirety, as shown on
Exhibit "A".
(b) Complex: Not applicable (i.e. there is no Complex under this Lease)
(c) Building: WEST END COURT
(d) Address: 1255 22nd Street, N.W.
Washington, DC 20037
1.2 LEASE DATES
(a) Lease Term The term of this Lease ("Lease Term") shall be ten (10) years, commencing on February 15, 1999,
or if later the date the Construction Improvements (defined below) are substantially completed
("Commencement Date"), and expiring one hundred twenty (120) months after that time. Pursuant to Section 3.2
below, the Commencement Date (for purposes of rent commencement) may be postponed further with respect to
that certain portion of the Premises presently occupied by GSA (Federal Labor Relations Authority).
(b) Base Year: Base Year shall be defined as the period commencing on January 1, 1999, and ending on December
31, 1999.
(c) Fiscal Year: Fiscal Year shall be defined as each annual period or portion thereof, including within the
Lease Term commencing on January 1, and ending on December 31.
(d) Lease Year: The first Lease Year shall commence on the Commencement Date and shall terminate at 11:59 p.m.
on the day before the first anniversary of the Commencement Date. All subsequent Lease Years shall be for
twelve calendar months, except that the last Lease Year shall terminate on the date this Lease expires or is
terminated in accordance with the provisions hereof.
(e) Calendar Year: Calendar Year (sometimes appearing as `calendar year') shall be defined as each annual period
from January 1 through the immediately following December 31.
1.3 BASE ANNUAL RENT
(a) Initial Base Annual Rent : Eight Hundred Sixty-One Thousand Two Hundred
Fifty Dollars ($861,250.00), payable in equal monthly installments of
Seventy-One Thousand Seven Hundred Seventy and 83/100 Dollars ($71,770.83),
hereinafter referred to as "base monthly rent," for the first Lease Year.
(b) Percentage Factor : Two Percent (2%) (except in year 6).
(c) Mid-Term Increase : The then-escalated Base Rent shall be increased by
$2.00 at the beginning of year 6.
1.4 BASE YEAR COSTS
Not applicable.
1.5 ADDITIONAL RENT
Additional rent shall be payable by Tenant in accordance with Section 2,
commencing January 1, 2000, consisting of each of the following:
</TABLE>
<PAGE>
<TABLE>
<S> <C> C>
(a) Increases in Real Estate Taxes : Tenant's pro rata share, equal to Thirty
Two and Forty-Hundredths Percent (32.40%), of the amount of Real Estate
Taxes in excess of the Base Year Real Estate Taxes.
(b) Increases in Operating Expenses : Tenant's pro rata share, equal to
Thirty Two and Forty- Hundredths Percent (32.40%), of the amount of
Operating Expenses in excess of the Base Year Operating Expenses.
(c) Calculation of Pro Rata Share : The pro rata share shall be derived by
dividing Tenant's square footage, 32,500, by 100,313, the total rentable
area in the Building.
1.6 CONSTRUCTION OF PREMISES
See Exhibit F
1.7 RENEWAL/EXPANSION
</TABLE>
Tenant shall have one (1) renewal option for a five (5) year term at ninety-five
percent (95%) of fair market value in the building, including concessions.
Tenant will give Landlord twelve (12) months' written notice of its intent to
exercise its option to renew.
Landlord shall grant to Tenant a Right of First Offer on available space that
becomes available in the Building. Landlord shall give Tenant written notice of
the availability of any such space and the terms under which Landlord is
offering the space which shall be the then fair market terms for such space.
Tenant shall then have ten days following receipt of such notice from the
Landlord to accept or decline the offering of such space. In the event that
such ten (10) day period shall expire without Tenant responding, Tenant shall be
deemed to have declined.
1.8 PARKING
The building has three (3) levels of below grade parking at the prevailing rate
charged by the garage operator. Tenant will be entitled to purchase parking
passes for general access use for self-parking on an non-assigned basis, one (1)
parking space per 1,500 square feet leased. Landlord shall assist Tenant in
obtaining additional parking spaces as required by Tenant from time to time.
Landlord shall also assist Tenant in obtaining for the benefit of Tenant the
right to lease the parking lot immediately behind the Building for parking of
automobiles during the term of this Lease with the understanding that should
Tenant lease the lot, Tenant shall perform all required repairs and maintenance
to the lot needed to operate surface parking thereon and remove as reasonably
necessary snow and ice therefrom. Tenant shall also cause the lot to be included
in its policies of liability insurance with respect to the Premises. Such lot is
presently leased by Landlord to Diplomat Parking Corporation pursuant to a lease
agreement including also the garage. Landlord has provided to Tenant a true and
complete copy of such lease agreement. In the event Tenant is able to obtain the
agreement of Diplomat to surrender such lot, Tenant shall pay to Landlord the
reduction in annual rental presently paid by Diplomat resulting from the release
by Diplomat of its parking rights in such lot (i.e. Landlord shall receive from
Diplomat and Tenant the same amount as Landlord is presently entitled under the
Diplomat agreement notwithstanding the release of the lot from such agreement.)
Subsequent to the termination date of the present Diplomat lease agreement for
the garage (i.e. October 31, 2003), in the event Tenant has previously leased
the lot by reason of the surrender by Diplomat of the lot, Landlord shall be
entitled to re-negotiate the rental paid by Tenant for such lot to reflect 95%
of the then prevailing market rates for surface parking lot use (recognizing a
25 space lot with a location within a comparable area having similar access to
main streets as the particular lot). Further, in the event Tenant is unable to
obtain the agreement of Diplomat to surrender the lot during the term of the
Diplomat Lease, then if either the Diplomat lease is terminated before October
31, 2003, or upon termination of such lease as of October 31, 2003, Tenant shall
also be entitled to lease the lot at 95% of the then prevailing market rates for
surface parking lot use (recognizing a 25 space lot with a location within a
comparable area having similar access to main streets as the particular lot) .
In the event the parties are unable to agree upon market rates for the parking
lot to be payable for the duration of the term hereof, by either (x) December
31, 2003, (in the case of a determination made as of October 31, 2003) or (y)
within ninety (90) days following an earlier termination of the Diplomat Lease,
then in either such instance the three (3) broker method shall be used. For
purposes hereof, the three (3) broker method to be employed by the parties shall
be as follows: A board of three (3) licensed independent and unrelated
commercial real estate brokers, one of whom shall be named by Landlord, one by
Tenant, and the third selected by the two (2) brokers selected by the Landlord
and the Tenant shall be appointed. All of said brokers shall be licensed real
estate brokers in the District of Columbia specializing in commercial leasing in
the central business district having not less than ten (10) years experience and
recognized as ethical and reputable
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within their industry. The parties agree to select their respective
designated brokers within ten (10) days after written request from the
other party. The third broker shall be selected within fifteen (15) days
after both of the first two (2) brokers have been selected. Within fifteen
(15) days after the third broker has been selected all of the brokers shall
meet to attempt to agree upon 95% of the then prevailing market rate for
use of the lot as a surface parking lot, (recognizing a 25 space lot with a
location within a comparable area having similar access to main streets as
the particular lot) taking into consideration its "as-is" condition. If
they are unable to reach agreement, they shall within said fifteen (15) day
period submit in writing the prevailing market rate they deem appropriate
and the prevailing market terms shall be the amount which is the mean
between the two (2) closest amounts determined by two (2) of the brokers.
Each of the parties shall pay for the costs of the services of the broker
selected by it and the costs of the third broker shall be divided equally
between the Landlord and Tenant. It is understood and agreed by the parties
that the determination of the brokers shall be binding upon the parties;
unless Tenant elects within thirty (30) days of written notice to Tenant of
such determination to terminate its exercise of its rights hereunder on a
prospective basis, such termination to be effective on the date specified
by Tenant in its notice, but in no event later than ninety (90) days
following the date of Tenant's election.
1.85 SECURITY DEPOSIT
None
1.9 STANDARD BUILDING OPERATING DAYS AND HOURS
8:00 a.m. to 6:00 p.m., Monday through Friday
9:00 a.m. to 12:00 p.m., Saturday
1.10 USE OF PREMISES
General office use in keeping with the quality and nature of
comparable office buildings and/or any lawful use or activity in connection
with the provision of telecommunications and/or internet services which
shall include without limitation the installation, operation, maintenance
and replacement of communications and switch equipment and facilities and
various computer facilities. Such equipment may include an internet server
farm, a telephone tandem switch, and a high-speed Internet POP and a
network operation center (all of which requiring 24 hour operations). The
parties further recognize that the telecommunications and internet business
is constantly evolving, and Landlord shall reasonably cooperate with future
installations which result from technological advances which Tenant
determines are necessary at the Building. At Tenant's sole cost and
expense, and following written approval by Landlord of the plans and
specifications relating thereto, Tenant shall be entitled to install a fire
suppression system to be selected by Tenant and/or to modify the existing
Building sprinkler system servicing the Premises to a dry pipe double
reaction system. In addition, Tenant shall be entitled to install a
battery back-up system within the Premises and an electrical grounding
system, following receipt of prior written approval by Landlord and its
engineer of the plans and specifications for same. In addition, Tenant
shall be entitled to the use without additional charge to Tenant of an area
either within the garage or behind the Building or on the roof of the
Building (the "Additional Area") for the purpose of locating therein a
supplemental HVAC unit, together with an emergency power generator (with
appropriate conduit, wiring and cabling), and other facilities consistent
with Tenant's use of its Premises for continuous uninterrupted
telecommunications services, and/or a diesel generator, to be furnished and
installed at Tenant's sole cost and expense (i.e. Tenant shall bear the
cost of installation, maintenance and operation thereof). Tenant shall
have the right to conduct periodic tests of the emergency power generator
after normal business hours, at periodic intervals (e.g. once per week).
Landlord shall cooperate with Tenant to enable Tenant to utilize or create
additional space in or within the exterior of the Building or the roof of
the Building to accommodate future expansion of Tenant's emergency back-up
generator and/or any supplemental HVAC units (e.g. construction of a
structural platform to support HVAC equipment or provision of enclosures
for an emergency back-up generator). Landlord's prior written approval,
such approval not to be unreasonably withheld, conditioned or delayed, of
the plans and specifications for any such additional space shall be
required. Landlord shall also cooperate in permitting fiber cable to be
brought to the Building (with dual telecommunication entrances to the
Building) in connection with Tenant's operations and shall execute and
deliver the customary license agreements requested by the fiber cable
provider(s). Tenant shall be entitled to access from the main switch gear
room beyond the power distribution presently available to the Premises on
each floor up to 2,000 amps, 480 volt, 3-phase, 4 wire A/C of electric
capacity dedicated to the Premises. Landlord will cooperate with Tenant in
applying at Tenant's sole cost and expense with the local electric utility
to obtain additional power to the Building in the event Tenant shall
require additional power. Tenant is also hereby granted the right to
install telecommunications wiring and cabling (including, without
limitation, supporting structures such as conduits, trenches, backboards,
slots, sleeves, utility spaces, secured cable trays, adequate
telecommunication shielding, interconnecting locations and facilities
(inclusive of connections between portions of the Demised Premises with
other portions), and related service
iv
<PAGE>
locations (collectively the "Wiring and Cablings). Tenant may from time to
time install, maintain, repair and replace any or all the Wiring and
Cabling in accordance with plans and specifications from time to time
provided by Tenant to Landlord and approved by Landlord. Tenant's use may
extend up to six (6) four inch (4") conduits in each riser, in addition to
the risers to the rooftop for the rooftop installations. Adequate space in
the risers and utility closets shall be provided by Landlord to Tenant at
no additional cost to permit installation of the conduit required for
standard fiber back-bone installation, with the understanding that the
installation shall be performed in the most direct path available.
Landlord's approval of items under this section 1.10 shall not be
unreasonably withheld, delayed or conditioned, recognizing the need for
prompt response by Landlord to accommodate the move-in requirements of
Tenant. Nothing contained in this section 1.10 requiring particular items
to be at the sole cost or expense of Tenant shall be deemed to preclude use
by Tenant of the Construction Allowance toward such costs, and Landlord
agrees that Tenant shall be entitled to obtain reimbursement for the
supplemental HVAC and/or supplemental sprinkler system from either the
construction component (i.e. $17.625 per square foot) or remaining
component ($7.00 per square foot) portion of such allowance toward the
payment of same. In addition, Tenant shall be entitled to both (1) use up
to $3.00 per square foot of the $17.625 per square foot component of the
allowance towards the cost to furnish and install fiber optic cable to the
Building and Premises and (2) obtain from the $7.00 per square foot
component payment of any of the construction costs not paid from the
$17.625 per square foot component, as well as payment of costs to furnish
and install Wiring and Cabling (as defined in this Lease) and any generator
installed by Tenant. It is recognized that following installation of the
fiber optic cable to the Building, Landlord and its other tenants shall be
free to contract with the fiber cable provider(s) to enable such other
tenants to obtain use of the fiber optic cable brought to the Building.
1.11 (a) ADDRESS FOR NOTICES TO TENANT
Contact: Mr. Ulysses G. Auger, II
CGX Communications, Inc.
1255 22nd Street, NW, Suite 600
Washington, DC 20037
and
Contact: Attn: Mr. William M. Caldwell, IV
CGX Communications, Inc.
1232 22nd Street, NW
Washington, DC 20037
with a copy to:
Richard F. Levin, Esquire
Grossberg, Yochelson, Fox & Beyda
2100 Pennsylvania Avenue, N.W.
Suite 770
Washington, D.C. 20037
v
<PAGE>
(b) ADDRESS FOR NOTICES TO LANDLORD
1255 22nd Street Associates Limited Partnership
c/o TASEA Investment Company
8401 Connecticut Avenue
Suite 1006
Chevy Chase, MD 20815
(c) ADDRESS FOR PAYMENT OF RENT
1255 22nd Street Associates Limited Partnership
c/o Grubb & Ellis Management Services
8230 Leesburg Pike
Suite 750
Vienna, VA 22182
1.12 EXHIBITS TO LEASE
Exhibit A - Floor Plan
Exhibit B - Not Applicable
Exhibit C - Building Rules and Regulations
Exhibit D - Cleaning Specifications
Exhibit E - Approved Signage
Exhibit F - Construction of Premises
Exhibit G - Rentable Area Definition
IN WITNESS WHEREOF, Landlord has caused this Lease, composed of Specific
Provisions, General Provisions, Special Provisions and Exhibits, to be signed
and sealed by one or more of its Officers, General Partners, Trustees or Agents,
and Tenant has caused this Lease, as described above, to be signed in its legal
name, both with seal and duly witnessed.
WITNESS: LANDLORD: 1255 22ND STREET ASSOCIATES
LIMITED PARTNERSHIP
By: Tasea Investment Co., General Partner
/s/ Shirley Lowe By: /s/ [SIGNATURE ILLEGIBLE]
- -------------------- -------------------------------------(SEAL)
WITNESS: TENANT: CGX COMMUNICATIONS, INC.
/s/ Pat Steckler By: /s/ Ulysses G. Auger, II
- --------------------- ------------------------------------(SEAL)
Name: Ulysses G. Auger, II
Title: President
vi
<PAGE>
GENERAL PROVISIONS
2. RENT
2.1 Base Annual Rent.
-----------------
(a) Payment of Base Annual Rent. Tenant shall pay the first monthly
----------------------------
installment of Base Annual Rent specified in Section 1.3 upon execution of this
Lease. After the Commencement Date, Tenant shall pay the remaining monthly
installments of Base Annual Rent in advance without deduction, demand, right of
set-off or recoupment, absent any final unappealable judgment in favor of Tenant
against Landlord, in immediately available funds,on the first day of each and
every calendar month throughout the entire Lease Term specified in Section
1.2(a), to Grubb & Ellis Management Services, ("Landlord's Agent") at the
address specified in Section 1.9(c), or to such other person or at such other
place as Landlord may hereafter designate in writing.
(b) Escalation of Base Annual Rent. Commencing on the first anniversary
-------------------------------
date of the Commencement Date, and continuing on each subsequent anniversary
thereof, (with the exception of the fifth anniversary) the Base Annual Rent
shall be increased by the Percentage Factor stipulated in Section 1.3(b) times
the Base Annual Rent payable for the preceding Lease Year (all of which shall be
calculated without giving effect to any waiver of rent or rent credit otherwise
provided to Tenant). The escalated Base Annual Rent so determined shall be the
"Base Annual Rent" for all purposes of this Lease, including the calculation of
the increase in Base Annual Rent for the subsequent Lease Year.
2.2 Additional Rent. Commencing on the date set forth in Section 1.5 and
----------------
continuing throughout the Lease Term, Tenant shall pay as Additional Rent
Tenant's pro rata share of any (i) Real Estate Taxes and (ii) Operating
Expenses, in excess of the (i) Real Estate Taxes and (ii) Operating Expenses,
respectively, accruing during the Base Year. Additional Rent shall be
determined as follows:
(a) Real Estate Taxes. Tenant shall pay Tenant's pro rata share, as
------------------
defined in Section 1.5(a), of any Real Estate Taxes accruing during each Fiscal
Year falling entirely or partly within the Lease Term, in excess of the amount
of Real Estate Taxes accruing during the Base Year.
(i) The term "Real Estate Taxes" shall mean (1) all taxes, assessments
(including all assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and whether or not to be
completed within the Lease Term), water, sewer or other excises, levies, license
fees, permit fees, impact fees, inspection fees, and other authorization fees
and other similar charges, in each case whether general or special, levied or
assessed, ordinary or extraordinary, foreseen or unforeseen, of every character
which at any time during or in respect of the Lease Term, may, by any
governmental or taxing authority, be assessed, levied, confirmed, or imposed on
or in respect of, or be a lien upon, the land and the building improvements of
which the Demised Premises are a part, and on any land and/or improvements now
or hereafter owned by Landlord and/or others that provide the Complex or
locality or the Demised Premises with other services, programs, amenities or
common facilities, together with (2) any other tax imposed on real estate or on
owners of real estate generally, including taxes imposed on leasehold
improvements which are assessed against the Landlord and taxes upon or with
respect to any activity conducted on the land and improvements of which the
Demised Premises are a part, upon this Lease or any rent reserved or payable
hereunder, upon the revenues or receipts from the land and improvements of which
the Demised Premises are a part, or upon the use or occupancy thereof, and (3)
only to the extent the following taxes are in lieu of or a substitute for any
other taxes which are, or would be, payable by Landlord as Real Estate Taxes,
(a) any income, excess profits, or other taxes of Tenant determined on the basis
of its gross income, receipts, or revenues, (b) any gift, capital levy, or
similar tax of Tenant, (c) any franchise, capital stock, or similar taxes of
Landlord and (d) any income, excess profits, or other taxes of Landlord
determined on the basis of its gross income or revenue derived pursuant to this
Lease. However, in no event shall there be included in the amount of Real
Estate Taxes to be passed through hereunder to Tenant any tax computed on
Landlord's net rents or net income. Further, the term Real Estate Taxes shall
specifically exclude any capital levy, franchise, estate, inheritance, transfer
or recordation taxes, as well as any abatements, reductions or credits received
by Landlord. Assessments which may be paid over a period in excess of twelve
months without penalties shall be included with real estate taxes only to the
extent such payments are required to be made within the particular calendar
year. Tenant's obligation to pay Real Estate Taxes shall in no event include
penalties or interest imposed for late payment of Real Estate Taxes.
(ii) If Real Estate Taxes paid during the Base Year are subsequently
reduced by any application or proceeding brought by or on behalf of Landlord for
reduction in the amount of Real Estate Taxes payable by Landlord, the Real
Estate Taxes deemed to have been paid during the Base Year shall be decreased
and Landlord may promptly bill Tenant for the Additional Rent not previously
paid by Tenant for any Fiscal Year during the Lease Term, based upon the reduced
amount of Real Estate Taxes deemed paid the Base Year. In the event any contest
or appeal of the Real Estate Taxes for any given year shall result in a refund
of Real Estate Taxes previously paid by Tenant, Tenant will receive its
proportionate share of the amount of the net refund, inclusive of any interest
received by Landlord by reason of the refund of Real Estate Taxes (i.e., the net
amount remaining after paying all costs and expenses of securing the refund,
including reasonable attorney's fees). In no event shall Tenant be liable in
advance of receiving its proportionate share of the net refund for any costs and
expenses of securing a refund unless there shall be a net refund paid to Tenant,
and in such event, any such liability shall be factored into the net refund.
(iii) In addition to the pro rata share of any increase in Real Estate Taxes
to be paid by Tenant pursuant to Subsections 2.2(a)(i), (ii) and (iii) above,
Tenant shall reimburse Landlord within fifteen (15) days following written
notice of demand for any and all taxes required to be paid by Landlord upon,
measured
i
<PAGE>
by, or reasonably attributable to the cost or value of Tenant's Property or by
the cost or value of any Leasehold Improvements made in or to the Demised
Premises by or for Tenant, regardless of whether title to such Leasehold
Improvements shall be in Tenant or Landlord, and for all taxes required to be
paid by Landlord upon, measured by, or reasonably attributable to or with
respect to the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Demised Premises or any
portion thereof to the extent such taxes are not included in Real Estate Taxes.
In the event that Tenant shall be liable for any taxes described in this section
2.2(a)(iv), Real Estate Taxes described in section 2.2(a)(i) shall exclude any
similar taxes attributable to any other tenant in the Building.
(b) Operating Expenses. Tenant shall pay Tenant's pro rata share, as indicated
-------------------
in Section 1.5(b), of any Operating Expenses paid during each Fiscal Year
falling entirely or partly within the Lease Term, in excess of the Operating
Expenses paid during the Base Year.
(i) The term "Operating Expenses" shall mean any and all reasonable expenses
of Landlord in connection with the servicing, insuring, operation, maintenance,
replacement and repair of the Building and related interior and exterior
appurtenances of which the Demised Premises are a part, or for health, welfare
or safety; expenses, if any, of Landlord either alone or in conjunction with
others to maintain common facilities, amenities, programs and services required
or approved by jurisdictional authorities for the Building, the building site,
the Complex or the locality in which the Complex is situated; the cost of any
services to achieve a reduction of, or to minimize the increase in, Operating
Expenses or Real Estate Taxes provided same actually reduce such expenses;
management fees, provided such management fees do not exceed three percent (3%)
of the total gross rents collected for the Building; business license, personal
property and other taxes; capital expenditures and other costs of Landlord for
equipment or systems amortized over their useful life installed to reduce or
minimize increases in Operating Expenses which actually reduce or minimize same
or to comply with any governmental or quasi-governmental ordinance or
requirement resulting from a change in law occurring during the term of the
Lease
(ii) The term "Operating Expenses" shall not include any of the following:
(aa) except to the extent that such costs and expenses are specifically included
in Operating Expenses as described in Subsection 2.2(b)(i) above: capital
expenditures and depreciation of the Building; (bb) painting and decorating of
tenant space; (cc) interest and amortization of mortgages or any other debt of
Landlord; (dd) ground rent; (ee) compensation paid to officers or executives of
Landlord; (ff) taxes as measured by the net income of Landlord from the
operation of the Building; (gg) insurance reimbursements of Operating Expenses
to Landlord; (hh) Real Estate Taxes; (ii) brokerage commissions; and (jj)
marketing expenses.
Operating Expenses shall also exclude:
1. Costs incurred due to violations by Landlord of any of the terms and
conditions of any lease in the Building with respect to leasable space (as
opposed to common areas) in the Building;
2. Management fees except as expressly above provided; fees for overhead or
administrative services in view of such management fee; overhead and profit
to subsidiaries or affiliates of the Landlord for management services;
c. Costs attributable to enforcing leases against tenants in the Building,
such as attorneys' fees, court costs, adverse judgments and similar
expenses;
d. Rentals and other related expenses incurred in leasing equipment ordinarily
considered to be of a capital nature;
e. Repairs and other work occasioned by fire, or other casualty that is
reimbursable under customary insurance policies maintained by other similar
landlords;
f. Any fines or penalties incurred due to violations by landlord of any
governmental rule or authority and the defense of same;
g. Expenses for vacant or vacated space, including utility costs, securing and
renovating;
h. Repairs and maintenance performed in any tenant's exclusive space that was
solely for such tenant's exclusive space, and not for common area
maintenance;
i. Costs incurred to cause the Building to comply with the Americans with
Disabilities Act, as from time to time amended, or any codes or regulations
promulgated thereunder, or any similar laws of any state, municipality or
other governmental authority;
j. Any amounts not actually expended, such as a contingency funds, reserve
funds or sinking funds;
<PAGE>
k. Any costs that are reimbursable to Landlord by other tenants as a result of
provisions contained in the specific leases of said tenants in excess of
the common area or operating costs which are otherwise passed through to
the tenant;
l. All costs of repair or restoration to any portion of the Building due to an
eminent domain taking or conveyance of title in lieu of condemnation
proceedings;
m. All costs hereunder that are otherwise reimbursable by warranties held by
the Landlord;
14. Original or renovational construction costs of the Building;
15. Costs relating to maintaining Landlord's existence, either as a
corporation, partnership, or other entity, such as trustee's fees, annual
fees, partnership organization or administration expenses, deed recordation
expenses, legal and accounting fees (other than with respect to Building
operations);
16. Interest or penalties arising by reason of Landlord's failure to timely pay
any Operating Expenses;
17. Landlord's general corporate overhead and general and administrative
expenses;
18. Costs directly resulting from the negligence or willful misconduct of
landlord or its agents, contractors or employees;
19. The cost of any "tap fees" or one time lump sum sewer or water connection
fees for the building;
20. Any costs of defending lawsuits;
21. Any costs of disputes between third parties;
22. cost of expenses associated with leasing space in the Building or the sale
of any interest in the Building, including, without limitation, advertising
and marketing, commissions or any amounts paid for or on behalf of any
tenant such as space planning, moving costs, rental and other tenant
concessions;
23. any amounts paid to any person, firm, or corporation related to or
otherwise affiliated with Landlord or any general partner, officer or
director of Landlord or any of its general partners to the extent they
exceed arms-length competitive prices paid in Washington, D.C. for the
services or goods provided;
24. costs of electricity outside normal business hours sold to tenants of the
Building by Landlord or any other special service provided to other
tenants, or service in excess of that furnished to Tenant whether or not
Landlord receives reimbursement from such tenants as an additional charge;
25. costs of renovating or otherwise improving space for new or existing
tenants or in renovating space vacated by any tenant or any other work
which Landlord performs for any tenant;
26. salaries, wages, or other compensation paid to employees above the grade of
property manager of any property management organization being paid a fee
by Landlord for its services where such services are covered by a
management fee, or in the case of personnel, including accounting or
clerical personnel, providing services at the Building on other than a full
time basis, those salaries, wages, or other compensation to any such
employee allocable to periods spent at other properties of Landlord or its
management company;
<PAGE>
27. costs related to any Building or land not included in the Property,
including any allocation of costs incurred on a shared basis, such as
centralized accounting costs, unless the allocation is made on a reasonable
and consistent basis that fairly reflects the share of any costs actually
attributable to the Property;
28. increased insurance premiums caused by Landlord's or any other tenant's
hazardous acts;
29. improvements to common areas specifically undertaken by Landlord as
inducements or concessions in order to lease space to new or existing
tenants which would not have otherwise been undertaken;
30. costs of selling, syndicating, financing, mortgaging or hypothecating any
part of or interest in the Property; or
31. cost of replacing or retrofitting the HVAC system to comply with laws that
regulate or prohibit the use or release of chloroflurocarbons (CFCs) or
hydrocarbons (HCFCs).
ff. The parties expressly recognize that all references in this Lease to "the
Complex" shall be deleted inasmuch as there is no such Complex applicable
to this Lease. Vault rentals shall be excluded also from the definition of
Operating Expenses.
(iii) If during the Base Year, the Building's occupancy level is less
than ninety-five percent for the entire Base Year, or if the Building's
occupancy level is less than 95% for six (6) months or more during any Fiscal
Year other than the Base Year, or if all land and improvements upon which
Operating Expenses are calculated or may be calculated pursuant to Subsection
2.2(b)(i) above were not fully complete and operational, or if any tenant is
separately paying for services or utilities furnished to its premises or is
provided with fewer services than customarily provided for tenants of general
office space in the Building, then both (x) Operating Expenses accrued during
such Base Year shall be adjusted to reflect the "Gross-Up" (defined below), and
(y) such Operating Expenses accrued during such Fiscal Year or portion thereof
(other than the Base Year) may be adjusted, at Landlord's sole option, to
reflect the Gross-Up. For purposes hereof, the "Gross-Up" shall be defined as
the adjustment to actual Operating Expenses necessary so as to reflect all
additional expenses, as reasonably estimated by Landlord applying standard
accounting procedures, so that both (x) in the case of the Base Year, the
Operating Expenses equal the amount which would have been incurred by Landlord
had the Building been fully used and occupied by tenants in at least 95% of all
rentable area within the Building during the entire Base Year and (y) in the
case of any Fiscal Year, other than the Base Year, the Tenant's share of
Operating Expenses is the amount which would have been incurred by Tenant if the
Building were fully occupied by tenants occupying at least 95% of all rentable
area within the Building and all land and improvements upon which Operating
Expenses are calculated or may be calculated pursuant to Subsection 2.2(b)(i)
above were fully complete and operational during the entire such Fiscal Year
using services and utilities customarily provided for general office use. For
example, if the occupancy rate for the Building during at least six (6) months
of a Fiscal Year is seventy percent (70%), and if the janitorial contractor
charges $1.00 per square foot of occupied rentable area per year, and if the
Building contains 100,000 square feet of rentable area, and if Landlord
estimates that the Operating Expenses that would have been paid if the Building
had been ninety-five percent (95%) occupied by tenants, using such customary
janitorial services during such year, would have been $95,000, then for purposes
of determining the increase in Operating Expenses payable during such Fiscal
Year by Tenant, the Operating Expenses for such Fiscal Year shall be deemed to
equal the actual Operating Expenses incurred by Landlord (without inclusion of
the amount paid for the janitorial contractor charges) plus $95,000.
<PAGE>
2.3 Additional Rent Estimates and Adjustments.
------------------------------------------
(a) Initial Additional Rent Adjustments. Landlord at its option may submit
------------------------------------
to Tenant prior to the date set forth in Section 1.5 a statement of Landlord's
reasonable estimate of the increases described in Sections 2.2(a) and (b) above,
together with the amount of Tenant's Additional Rent which is estimated to
result from such increases, in which event Tenant shall pay such estimated
Additional Rent to Landlord in equal monthly installments beginning on the date
set forth in Section 1.5, on the dates and in the manner required for the
payment of Tenant's monthly installments of Base Annual Rent. In the
alternative, as soon as practicable after the end of the calendar year in which
Tenant's obligation to pay Additional Rent pursuant to Sections 2.2(a) and (b)
commences, Landlord may submit a lump sum statement to Tenant of the actual
increases in Real Estate Taxes and/or Operating Expenses, if any, which were
paid during the Fiscal Year which ended during such calendar year over the Real
Estate Taxes and Operating Expenses which were paid during the Base Year, all as
prorated based upon that portion of the Fiscal Year falling within the initial
partial year of the Lease Term, and Tenant shall pay its pro rata share as
Additional Rent on the date and in the manner required for the next monthly
installment of Base Annual Rent due after submission of Landlord's statement.
(b) Annual Budget. Subsequent to the calendar year in which Tenant's
--------------
obligation to pay each component of Additional Rent pursuant to Section 2.2
commences, Tenant shall thereafter pay each such component of Additional Rent in
twelve equal monthly installments based upon Landlord's estimates. In order to
provide for the current monthly payment of each component of Additional Rent
described herein, Landlord shall submit to Tenant a statement of Landlord's
reasonable estimate of the increases described in Section 2.2 above, together
with the amount of Tenant's Additional Rent which is estimated to result from
such increases. Tenant agrees to pay each such estimated component of
Additional Rent to Landlord in twelve equal installments beginning on January 1,
on the dates and in the manner required for the payment of Tenant's monthly
installments of Base Annual Rent.
(c) Additional Rent Reconciliations. Within one hundred twenty (120) days
--------------------------------
after the end of each calendar year, Landlord will submit to Tenant an financial
statement of the actual increases in Real Estate Taxes and Operating Expenses
paid during the Fiscal Year which ended during such calendar year over the Real
Estate Taxes and Operating Expenses which were paid during the Base Year,
respectively. Such statement shall also indicate the amount of Tenant's excess
payment or underpayment of Additional Rent based on Landlord's estimate
described in Sections 2.3(a) and 2.3(b). If Additional Rent paid by Tenant
during the preceding calendar year shall be in excess of, or less than, the
aggregate of its share of the actual increase in Real Estate Taxes and Operating
Expenses, Landlord and Tenant agree to make the appropriate adjustment following
the submission of Landlord's statement. Tenant shall either pay any Additional
Rent due with the installment of Base Annual Rent due for the month following
submission of Landlord's statement, or pay any Additional Rent due within thirty
(30) days if the Lease Term has expired or has otherwise been terminated.
Tenant shall deduct its excess payment, if any, from the installment of Base
Annual Rent due for the month or months if necessary following submission of
Landlord's statement, or following the expiration or earlier termination of the
Lease Term, Tenant shall be reimbursed within thirty (30) days thereafter for
any excess payments made, less any amounts then due Landlord under this Lease.
(d) Verification of Additional Rent. Unless Tenant asserts specific errors
--------------------------------
within six (6) months after Landlord has submitted the financial statement for a
Fiscal Year to Tenant, Tenant shall have no right to contest the amount of
Tenant's pro rata share of Real Estate Taxes and/or Operating Expenses or the
statement submitted by Landlord. No such assertion of error by Tenant shall
extend the time for payments as set forth in Sections 2.2 and 2.3 above. If
Tenant
<PAGE>
has given a timely assertion of error and if it shall be determined by Landlord
there is an error in Landlord's statement, Tenant shall be entitled to a credit
for any overpayment, which shall be applied to any sums then due Landlord under
this Lease and then to the next installment(s) of Additional Rent until fully
credited for the overpayment, or refunded if Tenant has vacated the Demised
Premises, or Tenant shall be billed for any underpayment and shall remit any
amount owing to Landlord within ten (10) business days of Tenant's receipt of
such statement. Tenant shall have the right to inspect Landlord's records of
Operating Expenses and Real Estate Taxes for a given Fiscal Year or the Base
Year, at Landlord's offices during normal business hours, on at least five (5)
days prior written notice. Any overpayment by Tenant of Rent for such year
reflected by such audit shall be promptly corrected. In the event as a result of
such audit it shall be determined that Landlord overcharged Tenant more than
five percent (5%) of the Operating Expenses or Real Estate Taxes, Landlord shall
also reimburse Tenant all reasonable costs incurred by Tenant with respect to
its audit. Tenant agrees that it shall not engage the services of an accountant
or agent which is compensated on a contingency basis for purposes of conducting
the audit.
(e) Fiscal Year. Landlord shall have the right to change its Fiscal Year
------------
from time to time. If Landlord changes its Fiscal Year during the Lease Term,
thereby creating a Fiscal Year with fewer than twelve (12) months (hereinafter
"short year"), the Real Estate Taxes and Operating Expenses for the short year
shall be determined on an annualized basis by taking the monthly average of the
actual Real Estate Taxes and Operating Expenses, respectively, and multiplying
each by twelve. The amounts determined by this method shall be used in
determining the increases described in Sections 2.2(a) and 2.2(b) for the short
year.
2.4 Rent Adjustment Limit. Notwithstanding any deductions from or
----------------------
adjustments to Base Annual Rent and Additional Rent as provided for above, in no
event shall the total monthly installment of Base Annual Rent and Additional
Rent to be paid by Tenant in any month during the Lease Term or any extension
thereof be less than the monthly installment of Base Annual Rent stipulated in
Section 1.3, except as required as the result of the Landlord's application of a
credit due to Tenant pursuant to Section 2.3(c), or as otherwise expressly
provided herein in the case of rent abatements to which the Tenant may be
entitled arising out of, for example, fire or casualty damage.
2.5 Survival of Rent Obligation. The obligation of Tenant with respect to
----------------------------
payment of Base Annual Rent, as defined in Section 2.1, and Additional Rent as
defined in Sections 2.2 and 2.10, together with all other sums due hereunder,
accrued and unpaid during the Lease Term and the survival of Landlord's
obligation to refund any overpayments of Base Annual Rent or Additional Rent and
any other sums which may be overpaid hereunder, shall survive the expiration or
earlier termination of this Lease.
2.6 Pro Rata Share. All space measurements shall be determined in
---------------
accordance with GWCAR standard method of measurement. Tenant shall be entitled
to verify the measurement of the Premises no later than the Rent Commencement
Date, and in the event as a result of Tenant's measurement the Premises contain
less than the number of square feet of leasable area set forth in the Lease
(subject to Landlord's rights to independently verify such measurement), then
and in such event both the Tenant's pro-rata share hereunder, as described in
Section 1.5 of this Lease, and the amount of Base Annual Rent during the Lease
Term and any extensions thereto shall be proportionately adjusted using the
corrected measurement.
2.7 Prorated Rent. Any Base Annual Rent or Additional Rent payable
--------------
pursuant to Sections 2.1 and 2.2 for one or more full calendar months in a
partial Fiscal Year at the beginning or end of the Lease Term shall be prorated
based upon the number of months in the Fiscal Year. Any Base Annual Rent or
Additional Rent payable pursuant to Sections 2.1 and 2.2 for a portion of a
calendar month shall be prorated based upon the number of days in the applicable
calendar month.
2.8 Application of Rent. No payment by Tenant or receipt by Landlord of
--------------------
lesser amounts of Base Annual Rent or Additional Rent than those required by
this Lease shall be deemed to be other than on account of the earliest unpaid
stipulated Base Annual Rent or Additional Rent. No endorsement or statement on
any check or any letter accompanying any check or payment as Base Annual Rent or
Additional Rent shall be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the balance of such Base Annual Rent and Additional Rent or pursue any other
remedy provided in this Lease. Any credit due to Tenant hereunder by reason of
overpayment of Base Annual Rent or Additional Rent shall first be applied to any
Base Annual Rent, Additional Rent or other sums owed to Landlord by Tenant as
set forth elsewhere in this Lease or if Tenant shall be in default when said
credit shall be owed.
<PAGE>
2.9 Late Payment Fee and Interest Charge. Except as expressly set forth in
-------------------------------------
the next sentence, in the event any installment of Base Annual Rent or
Additional Rent due hereunder is not paid within ten (10) calendar days after it
is due, then Tenant shall also pay to Landlord as Additional Rent (a) a late
payment fee equal to five percent (5%) of the payment as liquidated damages for
the additional administrative costs incurred by Landlord as a result of such
late payments, plus (b) an interest charge calculated at the rate of eighteen
percent (18%) per annum on the delinquent payment from the date due until paid.
In no event shall any late penalty or interest be payable by Tenant on any late
payment of Base Annual Rent or Additional Rent to Landlord in the event Tenant
remits to Landlord the late payment within five (5) days following written
notice to Tenant that Landlord has failed to timely receive any payment to which
Landlord is entitled under this Lease. However, in the event Tenant is late
more than two (2) times in any twelve (12) month period, Landlord shall be
entitled to the late charge and/or interest as provided in the Lease, without
the necessity of such written notice, if such payment is not made by Tenant
within five (5) days following the date when due.
2.10 Other Tenant Costs and Expenses. All costs and expenses which Tenant
--------------------------------
assumes or agrees to pay to Landlord pursuant to this Lease, including without
limitation costs of construction and alterations, shall be deemed Additional
Rent, whether or not the same is specifically designated herein as Additional
Rent, and, in the event of nonpayment thereof, Landlord shall have all the
rights and remedies herein provided for the nonpayment of Base Annual Rent and
Additional Rent payable pursuant to Sections 2.1 and 2.2, including assessment
of late payment fees and interest charges.
3. CONSTRUCTION OF PREMISES AND OCCUPANCY
3.1 Tenant Plans, Construction and Rent Liability. Exhibit F, attached to
----------------------------------------------
this Lease, describes the obligations of Landlord and Tenant, and the respective
time periods for performance thereof, for the preparation and approval of
construction plans, cost estimates, working drawings and completion of
improvements and fixturing for occupancy. The improvements to be constructed by
Landlord in the Demised Premises are hereinafter referred to as the
"Construction Improvements". Said time periods shall apply irrespective of
whether Tenant uses the architect, engineer and/or general contractor selected
by Landlord, or firms of Tenant's own selection. The Tenant shall deliver to
Landlord, by the dates specified on Exhibit F, a preliminary plan approved in
writing by the Tenant showing Tenant's partition, electrical and telephone
requirements, planned occupancy numbers and distribution within the Demised
Premises and all other requirements set forth in the Tenant Plans Guidelines,
attached hereto and made a part hereof as Exhibit E, or otherwise deemed
necessary by the Landlord for the preparation of the working drawings and cost
estimate.
(a) Preparation of Tenant Plans.
----------------------------
(i) Intentionally Deleted.
(iii) Tenant's preliminary plan, whether prepared by an architect or
engineer selected by Landlord or by Tenant's architect or engineer, shall
provide sufficient information to permit Landlord to have working drawings and
cost estimate prepared. Tenant's preliminary plan shall be certified by the
architect or engineer preparing same to be in compliance with applicable
building and fire codes, and with The Americans with Disabilities Act and all
amendments, modifications, extensions, replacements, regulations, orders and
directives in connection therewith (the "ADA"). If the Demised Premises as
reflected on Tenant's plans are not in compliance with applicable building and
fire codes, or do not comply with all requirements of the ADA, then Tenant's
plans shall not be, nor shall they be deemed to be, acceptable to Landlord.
Landlord's approval of Tenant's plans or work does not constitute certification
by Landlord that said plans or work meet the applicable requirements of any
building or fire codes, laws or regulations, or the ADA, nor shall it impose any
liability whatsoever upon Landlord. If Tenant's preliminary plans are
acceptable to Landlord, Landlord shall have working drawings prepared within the
time period set forth on Exhibit F, and when the working drawings are completed
by the architect and engineer, the Tenant shall approve in writing both the
working drawings and Landlord's final cost estimate within the number of working
days stipulated on Exhibit F. Tenant's failure to approve or disapprove any
estimates or plans within the time periods set forth on Exhibit F shall be
deemed to constitute approval for purposes of this Section.
(b) Extension of Construction Timetable. Nothing contained in this Section
------------------------------------
3.1, nor any delay in completing the Demised Premises, shall in any manner
affect the Commencement Date set forth in Section 1.2 or Tenant's liability for
payment of Base Annual Rent and Additional Rent from such Commencement Date,
except as follows. If Landlord requires longer than the number of working days
stipulated on Exhibit F, to prepare working drawings and prepare the cost
estimate following receipt of Tenant's approved preliminary plan, or if Landlord
requires longer than the number of working days stipulated on Exhibit F , to
substantially complete Construction Improvements in the Demised Premises after
the final working drawings and cost estimate have been approved by the Tenant in
writing, then the Commencement Date shall be postponed by one day for each
extra day Landlord requires for the foregoing preparation of working drawings
and cost estimate and/or substantial completion of Construction Improvements, as
the case may be, which postponement shall be Tenant's sole and exclusive remedy.
In the event Tenant delays approval of either the preliminary plan, the working
drawings and/or the final cost estimate or makes changes in the work after
approval of working drawings and the final cost estimate, or Tenant's
contractors interfere with Landlord's work, thereby delaying substantial
completion and Landlord's tender of possession of the Demised Premises to
Tenant, Tenant shall nevertheless remain liable for the payment of Base Annual
Rent and Additional Rent from the Commencement Date specified in Section 1.2.
Time is of the essence as to the Tenant's performance within the time periods
specified for approval of plans and cost estimates set forth on Exhibit F
pursuant to this Section 3.1.
<PAGE>
(c) Substantial Completion. For the purposes of this Section 3.1,
-----------------------
"substantial completion" of the Construction Improvements shall mean when all
work to be performed by Landlord pursuant to the approved working drawings and
final cost estimate has been completed, except for minor items of work and minor
adjustments of equipment and fixtures that can be completed after occupancy of
the Demised Premises without causing material interference with Tenant's
reasonable use of the Demised Premises (i.e., "punch-list" items) in accordance
with the "use of the premises" as defined in Section 1.8. In the event Tenant's
plans specify any Construction Improvements that are not building standard, or
are not immediately available in the metropolitan Washington, D.C., area within
the time period for construction set forth on Exhibit F, the delivery and
installation of which precludes Landlord from substantially completing the
Construction Improvements in the Demised Premises by the Commencement Date
specified in Section 1.2, Tenant shall nevertheless remain liable for the
payment of Base Annual Rent and Additional Rent from such Commencement Date.
(d) Punchlist Items. Upon Tenant's request made not later than fifteen
---------------
(15) days after the date Tenant commences business operations within the
Premises, Landlord and Tenant shall jointly prepare and agree upon a punchlist
of incomplete elements of Construction Improvements ("Punchlist"). Landlord
shall commence work on the Punchlist within seven (7) days after the date of the
Punchlist and shall continue and diligently attempt to complete all items on the
Punchlist within thirty (30) days thereafter, but in any event not later than
necessary to prevent material delay or interference with Tenant's use and
occupancy of the Leased Premises. If Landlord and Tenant disagree whether an
element of Construction Improvements should be included in the Punchlist or is
properly completed, Landlord and Tenant shall submit the matter to review by an
independent architect, and the decision of such architect shall bind both
parties. Additionally, if there are any defects in material or workmanship in
Construction Improvements which are not ascertainable from a careful physical
inspection of the Premises by a qualified construction representative, Landlord
shall correct such defects promptly.
3.2 Possession. If Landlord shall be unable to tender possession of the
-----------
Demised Premises on the Commencement Date set forth in Section 1.2 by reason
of: (a) the fact that the Demised Premises are located in a building being
constructed and which has not been sufficiently completed to make the Demised
Premises ready for occupancy; (b) the holding over or retention of possession of
any tenant or occupant; (c) the Construction Improvements have not been
substantially completed; or (d) for any other reason beyond the control of
Landlord, Landlord shall not be subject to any liability for the failure to
tender possession on said date. Under such circumstances the Base Annual Rent
and Additional Rent reserved and covenanted to be paid herein shall not commence
until possession of the Demised Premises is tendered to Tenant. No such
failure to tender possession on the Commencement Date set forth in Section 1.2
shall in any other respect affect the validity of this Lease or the obligations
of Tenant hereunder, nor shall same be construed to extend the termination date
of this Lease set forth in Section 1.2. In the event the Commencement Date
does not occur within six (6) months of the date this Lease is fully executed
and delivered by Landlord and Tenant, then Landlord , without further liability,
shall have the right to terminate this Lease upon thirty (30) days prior written
notice to the Tenant. If permission is given to Tenant to enter into possession
of the Demised Premises prior to the date specified as the Commencement Date,
Tenant covenants and agrees that such occupancy shall be deemed to be subject to
all of the terms, covenants, conditions and provisions of this Lease, and that
Tenant shall be responsible for payment of Base Annual Rent, in advance, at the
rate of 1/30th of the base monthly rent set forth in Section 1.3 for each day of
such occupancy prior to the Commencement Date, and Additional Rent set forth in
Section 1.5 shall begin to accrue on such date of possession.
Notwithstanding any provision in this Lease to the contrary, Landlord and
Tenant expressly recognize that a portion of the Premises is presently being
occupied by GSA (the Federal Labor Relations Authority) as a hold-over tenant.
Such portion is located on the fourth floor of the Building and contains
approximately 5,000 square feet of rentable area. Landlord agrees to use all
reasonable efforts to promptly tender such portion to Tenant, and in no event
shall Landlord acquiesce to any extension of the holdover occupancy by GSA.
Inasmuch as Tenant will not be afforded access to such portion concurrent with
the remainder of the Premises to perform the Construction Improvements, the
parties agree that notwithstanding the occurrence of the Commencement Date (as
to the remainder of the Premises), no rent or other charges shall be payable by
Tenant pertaining to such portion (pro-rated based upon a fraction 5,000/32,500)
until such time as the Construction Improvements have been completed within such
portion, and in the event delivery of such portion does not occur by December
15, 1998, to the extent that the costs of construction of the Construction
Improvements is increased to Tenant by reason of the inability to perform the
required work concurrent with the balance of the Premises, such increase in cost
shall be borne solely by Landlord and not by Tenant.
3.3 Permits. Tenant shall be responsible for obtaining at its sole cost
--------
and expense the construction and occupancy permits for the Demised Premises.
Tenant shall be responsible for obtaining any other permits or licenses
necessary for its lawful occupancy of the Demised Premises. Tenant shall
provide Landlord with a copy of all such permits and licenses.
3.4 Intentionally Deleted.
----------------------
4. SUBLETTING AND ASSIGNMENT
4.1 Consent. Without the prior written consent of Landlord, not to be
--------
unreasonably withheld, conditioned or delayed in accordance with Section 4.5,
Tenant will not sublet the Demised Premises or any part thereof or transfer
possession or occupancy thereof to any person, firm or entity, or transfer or
assign this Lease, and no subletting or assignment hereof shall be effected by
operation of law or in any other manner, such as the transfer of all or
substantially all of Tenant's assets or voting control of Tenant's stock,
partnership interest or other equity, without such prior written consent of
Landlord. All permitted sublettings and assignments of the Demised Premises and
this Lease shall be subject to the provisions of this Lease, including but not
limited to Section 4.3. No assignment shall be made except for the entire
Demised Premises and Tenant further agrees that any permitted assignment of this
Lease or subletting of the Demised Premises may be conditioned upon payment by
Tenant of consideration and the
<PAGE>
delivery of such additional guarantees, collateral and/or other security as
determined by Landlord. Any subletting or assignment consented to by Landlord,
to be effective, shall be evidenced in writing in a form acceptable to Landlord.
Consent by Landlord to any assignment or subletting by Tenant shall not operate
as a waiver of the necessity for obtaining Landlord's consent in writing to any
subsequent assignment or subletting. The collection or acceptance of rent from
any such assignee, subtenant or other occupant shall not constitute a waiver of
or release of Tenant from any covenant or obligation contained in this Lease,
nor shall such acceptance of rent be deemed to create any right to the Demised
Premises in such assignee, subtenant or other occupant, nor any legal or other
relationship between the Landlord and any such assignee, subtenant or other
occupant. Landlord's acceptance of any name for listing on the Building
directory shall not be deemed, nor will it substitute for, Landlord's consent as
required by this Lease, to each sublease, assignment and any other occupancy of
the Demised Premises. In the event that Tenant defaults under this Lease in the
payment of Base Annual Rent or Additional Rent following expiration of any
applicable cure period, Tenant hereby assigns to Landlord the rent and other
sums due from any subtenant, assignee or other occupant and hereby authorizes
each such subtenant, assignee and other occupant to pay said rent and other sums
directly to Landlord upon demand. Any transfer of this Lease or the Demised
Premises, or any transfer of any interest in Tenant restricted pursuant to this
Section 4.1, without the prior written consent of Landlord pursuant to this
Section 4.1 shall be void. By taking a transfer of this Lease by assignment,
transfer of interest in Tenant, or by any other manner described in this Section
4.1, or otherwise with Landlord's consent to the transfer, the transferee shall
be bound by all provisions of this Lease, which shall be binding upon the
transferee as if the transferee had signed this Lease in lieu of the original
Tenant named herein.
4.2 Recapture of Premises. In the event Tenant desires to sublet the
----------------------
Demised Premises or assign this Lease or effect the transfer of any interest in
this Lease or in Tenant restricted pursuant to Section 4.1, Tenant shall give to
Landlord written notice of Tenant's intended subtenant, assignee or transferee
in order to secure Landlord's written consent in accordance with Section 4.1.
Within thirty (30) days of receipt of said notice, Landlord shall have the
right, at its option to terminate this Lease by giving Tenant not less than
thirty (30) days notice if Tenant's notice states the Tenant's desire to sublet
more than fifty percent (50%) of the Demised Premises or effect a restricted
transfer of an interest in this Lease. If Landlord exercises its right to
terminate this Lease pursuant to the above provisions, Tenant agrees that
Landlord shall have access to all or any portion of the Demised Premises as soon
as Tenant has vacated the Premises.. Tenant and Landlord shall promptly execute
such lease amendments and other documents as Landlord may require to effectuate
the terms and intent of this Section 4.2.
4.3 Excess Rent and Other Consideration. Any rent and other consideration
------------------------------------
accruing to Tenant as a result of any sublease or any assignment of this Lease,
which is in excess of the pro rata share of Base Annual Rent and Additional Rent
then being paid by Tenant for all or a portion of the Demised Premises being
sublet or assigned, shall be paid by Tenant to Landlord monthly as Additional
Rent after recovery by Tenant of all of the costs and expenses incurred by
Tenant with respect to the subletting or assignment. Any consideration accruing
to Tenant as the result of any transfer of interest in this Lease restricted
pursuant to Section 4.1, which is paid or deemed paid in regard to the value of
this Lease (as opposed to any equipment or furnishings of Tenant located at the
Building) and which is in excess of the pro rata share of the Base Annual Rent
and Additional Rent which would have been paid by Tenant during the Lease Term
for such space, shall be paid by Tenant to Landlord promptly as Additional Rent
after recovery by Tenant of all of the costs and expenses incurred by Tenant
with respect to the transfer of the interest in this Lease.
4.4 Tenant Liability. In the event of any subletting of the Demised
-----------------
Premises or assignment of this Lease by Tenant or transfer of an interest in
this Lease or in Tenant, Tenant shall remain liable to Landlord for payment of
the Base Annual Rent and Additional Rent stipulated herein and all other
covenants and conditions contained herein. No subletting of the Demised
Premises or assignment of this Lease or transfer of an interest in this Lease or
in Tenant shall operate to release, discharge or otherwise affect the liability
of any guarantors, co-signers or other parties liable to Landlord pursuant to
the terms of any guaranty or otherwise for the obligations of Tenant under this
Lease.
4.5 Reasonable Standards of Consent. Tenant acknowledges that Landlord, in
--------------------------------
considering whether to grant or withhold consent required of Landlord pursuant
to this Section 4, shall be entitled to apply any or all of the following
criteria:
(a) The financial strength of proposed subtenant/assignee/ transferee must
be acceptable to Landlord in Landlord's reasonable discretion based on adequate
current and historical financial information given by Tenant. Landlord shall be
entitled to receive, and Tenant shall deliver or cause others to deliver, such
guarantees, collateral and other security as Landlord shall request in
conjunction with any prospective sublease, assignment or other transfer.
Failure to provide such financial information, guarantees, collateral and other
security shall be grounds for Landlord to withhold or deny consent;
(b) The proposed subtenant/assignee/transferee must have a good reputation
in the business community and must be credit-worthy;
(c) Use of the Demised Premises by the proposed
subtenant/assignee/transferee must be identical to the use permitted by this
Lease;
(d) Use of the Demised Premises by the proposed
subtenant/assignee/transferee shall not violate or create any potential
violation of any laws and must be in keeping with the character of the Building
and the Complex;
(e) Use of the Demised Premises by the proposed
subtenant/assignee/transferee shall not violate, or cause Landlord to violate,
any other leases, agreements or mortgages affecting (i) the Demised Premises,
the Building, the Complex or the land related to such improvements, or (ii) the
Landlord, Landlord's Agent or other tenants, whether such leases, agreements or
mortgages were entered into prior or subsequent to this Lease;
<PAGE>
(f) The proposed use shall compatible with all other uses within the
Building or Complex and the proposed use or user shall not cause a diminution in
the reputation of the Building, the Complex, Landlord, Landlord's Agent or other
tenants;
(g) In the event Tenant is in default, consent may be conditioned by
Landlord that such default be cured. .
4.6 Other Transfers. Notwithstanding anything herein to the contrary,
----------------
Tenant shall not pledge, assign, transfer, encumber or otherwise convey its
interest in the Demised Premises conditionally or as security for any
obligations of Tenant to any third party, or otherwise. Any such transfer in
violation of this provision shall be void.
4.7 Rights on Default. In the event Tenant defaults under this Lease after
------------------
notice and expiration of the applicable cure period, in addition to the rights
and remedies of Landlord outlined in Section 12, Landlord, at its option, may
elect to recognize any sublease between Tenant and any subtenant, or any
agreement by which Tenant has granted any leasehold estate or interest in the
Demised Premises, as a direct lease or agreement between Landlord and such
subtenant or other grantee, upon written notice to Tenant and such subtenant or
other grantee, without releasing or affecting the liability of Tenant to
Landlord under this Lease, and Tenant shall be deemed to have assigned its
interest in such sublease or other agreement to Landlord (without the need for
executing any further documentation evidencing same) and such subtenant or other
grantee shall attorn to and recognize the rights of Landlord under such sublease
or other agreement, as the case may be. Notwithstanding Tenant's consent or
acquiescence in the termination of this Lease and/or Tenant's voluntary
surrender of the Demised Premises (or any portion thereof), Landlord may
consider any sublease or other agreement transferring a leasehold estate or
interest in the Demised Premises, and/or any right to use or possess the Demised
Premises (or any portion thereof) by any subtenant or other grantee, terminated
as of the date Landlord terminates this Lease and/or Tenant's right to
possession of the Demised Premises, it being the intention of the parties that
any leasehold estate or other interest in the Demised Premises shall be subject
to the terms and conditions of this Lease, including all rights and remedies of
Landlord outlined herein, notwithstanding anything to the contrary contained in
such sublease or other agreement.
4.8 Notwithstanding the provisions set forth in section 4.1 hereinabove, in
no event shall any sale or assignment of any of Tenant's stock be deemed to
require Landlord's consent under this Lease. Further, Tenant shall have the
right to transfer this Lease and/or sublet all or any part of the Leased
Premises without obtaining Landlord's consent to any of the following: (1) any
entity which at the time of such transfer is the record holder of all of the
voting stock of Tenant; (2) any entity which at the time of such transfer is a
wholly owned subsidiary of Tenant or an entity which is the then record holder
of all of the voting stock of Tenant and into which Tenant has been
consolidated; (3) any entity which shall result from a merger of the Tenant with
one or more entities; or (4) any entity to whom Tenant or its shareholders shall
have sold all or substantially all of Tenant's assets or the stock of Tenant.
Tenant will agree to provide Landlord with copies of the Agreement executed by
the assignee of this Lease evidencing the assumption by such assignee of all of
the obligations and liabilities imposed upon Tenant under the Lease. Further,
Tenant will acknowledge that it shall remain liable on the Lease,
notwithstanding any such permitted transfer. If Landlord shall not respond to
Tenant's request to assign or sublet within thirty (30) days of its presentment,
such request shall be deemed approved by Landlord.
5. SERVICES AND UTILITIES
5.1 Building Standard Services and Utilities. Subject to the limitations
-----------------------------------------
set forth in Section 5.3 below, Landlord shall furnish sufficient electric
current for lighting and office equipment such as typewriters, calculators,
small copiers, desktop personal computers and word processors and similar items.
Landlord shall also furnish water for lavatory and drinking purposes, lavatory
supplies, fluorescent tube replacements, automatically operated elevator service
and nightly cleaning service in accordance with Landlord's prevailing practices
(as set forth in Exhibit D attached hereto), as they may be modified from time
to time, except that Landlord shall not be responsible for cleaning Tenant's
kitchens, private bathrooms, rugs, carpeting (except vacuuming) and drapes. Char
and cleaning service together with the other building services shall be
conducted at a level commensurate with such services provided in other
comparableoffice buildings in the downtown D.C. area. Landlord shall have no
liability for and expressly disclaims any responsibility for the engineering,
design, installation, provision of or maintenance of Tenant's telecommunications
and data transmission systems and the inside wire associated therewith.
Landlord further agrees to furnish heating and cooling during the appropriate
seasons of the year, between the hours and on the days set forth in Section 1.7
(exclusive of legal public holidays as defined in section 6103(a) and (c) of
Title 5 of the United States Code, as it may hereafter be amended, with holidays
falling on Saturday observed on the preceding Friday and holidays falling on
Sunday observed on the following Monday). All of the aforesaid services shall
be provided without cost to Tenant except as such expenses may be included in
calculating Additional Rent pursuant to the provisions of Sections 2.2 and 2.3.
Landlord shall not be liable for failure to furnish, or for suspension or delay
in furnishing, any of such services if such failure, suspension or delay is
caused by breakdown, maintenance or repair work, strike, riot, civil commotion,
governmental regulations, emergency periods due to weather or any other cause or
reason whatever beyond the reasonable control of Landlord. Failure, suspension,
delay or interruption of services shall not result in any abatement of Base
Annual Rent or Additional Rent, be deemed an eviction or breach of this Lease
(including any express or implied covenant of quiet enjoyment), or relieve
Tenant of performance of Tenant's obligations under this Lease unless the
Premises are rendered untenantable by such failure, suspension,
<PAGE>
delay or interruption of services due to the negligence or willful misconduct of
Landlord, provided same continues for a period in excess of five (5) days
following notice to Landlord of such failure, suspension, delay or interruption.
In the event of any such failure, suspension, delay or interruption continuing
as aforesaid, Tenant shall be entitled to abate paying all rents due hereunder
with respect to the portion of the Premises (including also all of the Premises
if applicable) which is affected by reason of the cessation of such service from
the commencement of such loss of service until such service is restored.
Landlord agrees to use its best efforts to restore any cessation in services,
recognizing that Tenant's communication business requires twenty-four hour
service, 365 days a year.
5.2 Overtime Services. Should Tenant require heating and cooling services
------------------
beyond the hours and/or days stipulated in Section 1.9, upon receipt of at least
48 hours prior written notice from Tenant, Landlord will furnish such additional
service at the then-prevailing hourly rates (except as below provided) for both
utility services and personnel as established by Landlord from time to time;
provided, further, that there will be a minimum charge of four (4) hours each
time overtime services are required on any Sundays or federal holidays, and a
minimum charge of one and one-half (1.5) hours each time overtime services are
required on any other day so long as such services are requested to be provided
during a time period occurring immediately after the Building standard hours for
such day (i.e. after 6:00 p.m. on weekdays or noon on Saturdays).
Notwithstanding the foregoing, Landlord agrees that to the extent Tenant
designates particular portions of the Premises as 24 hour zones, Landlord shall
provide at its direct cost (i.e. no profit, administrative charge, overhead or
markup) utilities necessary to permit Tenant to operate on a 24 hours a day,
seven days a week basis, either the building standard system servicing such zone
(if feasible) or Tenant's supplemental unit servicing such zone. Tenant shall
be entitled from time to time during the term to revise those portions of the
Premises designated as 24 hour zones. Landlord shall cooperate with Tenant in
the provision of chiller water, and other utilities recognizing that Tenant's
business operations require the conduct of business round-the-clock within
certain areas.
5.3 Excessive Usage.
----------------
(a) Equipment Restrictions. Tenant will not install or operate in the
-----------------------
Demised Premises any heavy duty electrical equipment or machinery or any other
equipment which consumes excess gas (where applicable), excess water, excess
sewer services or excess electricity as defined in Section 5.3(b) below, without
first obtaining prior written consent of Landlord which approval shall not be
unreasonably withheld, delayed or conditioned. Landlord may, among other things,
require as a condition to its consent for the installation of such equipment or
machinery that Tenant pay as Additional Rent the costs for excess consumption of
such utilities that may be occasioned by the operation of said equipment or
machinery. Landlord may make periodic inspections of the Demised Premises at
reasonable times and upon reasonable advance notice to determine that Tenant's
equipment and machinery comply with the provisions of this Section and Section
5.4.
(b) Excess Electrical Usage. The consumption of electricity, including
------------------------
lighting, in excess of five (5) watts per square foot for any portion of the
Demised Premises shall be deemed excessive. Additionally, any individual piece
of electrically operated machinery or equipment having a name plate rating in
excess of two (2) kilowatts shall also be deemed as requiring excess electric
current.
(c) Additional Utility Costs. Landlord shall have the right to either
-------------------------
require that one or more separate meters be installed to record the consumption
or use of electricity or other utilities, or cause a reputable independent
engineer to survey and determine the quantity of such utilities consumed by such
excessive use. In the event that excess consumption is determined, the cost of
any such survey and meters and of installation, maintenance and repair thereof
shall be paid for by Tenant. Tenant agrees to pay Landlord (or the utility
company, if direct service is provided by the utility company), promptly upon
demand therefor, for all such consumption and demand as shown by said meters, or
a flat monthly charge determined by the survey, as applicable, at the rates
charged for such service by the local public utility company. If Tenant's cost
of such utilities based on meter readings is to be paid to Landlord, Tenant
shall pay a service charge related thereto in an amount Landlord shall
reasonably determine. In no event shall Tenant be liable for more than the
actual cost of the utilities consumed by Tenant.
5.4 Excessive Heat Generation. Landlord shall not be liable for its
--------------------------
failure to maintain comfortable atmospheric conditions in all or any portion of
the Demised Premises due to heat generated by over-occupancy of the Demised
Premises or by any equipment, machinery or additional lighting installed by
Tenant (with or without Landlord's consent) that exceeds design capabilities for
the Building. Over-occupancy shall mean any occupancy of the Demised Premises
in excess of the planned occupancy disclosed by Tenant to Landlord pursuant to
Section 3.1. If Tenant desires additional cooling to offset excessive heat
generated by such over-occupancy, equipment, machinery or additional lighting,
Tenant shall pay for auxiliary cooling equipment and the operating, maintenance,
repair and replacement costs of such equipment, including without limitation
electricity, gas, oil and water. If Tenant does not desire such auxiliary
cooling equipment, Tenant shall pay for excess electrical consumption by the
existing cooling system.
5.5 Building Security. Any security system or other security measures
------------------
(collectively, the "Security System") that Landlord may undertake for protection
of the Demised Premises, the Building and/or Complex (including any parking
garages or areas) are for the protection of the physical structures only and
shall not be relied upon by Tenant, its agents, employees or invitees to protect
Tenant, Tenant's Property and Leasehold Improvements or Tenant's employees,
invitees or their property. Tenant shall not do anything to circumvent or allow
others to circumvent any Security System. Landlord shall not be liable for any
failure of any Security System to operate or for any breach or circumvention of
the Security System by others, and Landlord makes no representations or
warranties concerning the installation, performance and monitoring of any
Security System, or that it will detect or avert the occurrences which any such
Security System is intended or expected to detect or avert. In addition, a
centrally monitored proximity card system shall control after-hours access to
the Building and the garage
<PAGE>
5.6 Roof and Auxiliary Spaces. Tenant shall not use the roof, roof utility
--------------------------
closets or other auxiliary spaces in the Building for antennas, condenser
coolers, telecommunications and/or data transmission equipment or any other type
of equipment or for any other purpose without the prior written consent of
Landlord, which consent shall not be unreasonably delayed or withheld, but which
may be conditioned upon the terms of a separate written agreement and the
payment by Tenant of of a reasonable hourly supervisory fee to Landlord with
respect to the coordination of any installations or perforations performed by
Tenant's contractors on the roof. Landlord recognizes that Tenant shall be
entitled to place one or more antennae, dishes or future similar equipment,
together with associated wiring and cabling, on the roof, and that such use is
necessary in connection with Tenant's telecommunication business. Tenant shall
be entitled to retain access to, and the right to use such portion of the roof-
top area as may be reasonably necessary to accomplish the foregoing. Landlord
and Tenant agree that Tenant's communication equipment will require Tenant to
use the Building shafts, risers, chases, utility entrances, equipment rooms and
distribution areas or conduits between the Premises and other parts of the
Building (including the roof), and Tenant shall be afforded the right to use or
construct conduits to connect Tenant's telecommunications systems and services
to the roof. It is further agreed that Landlord shall be provided prior to
installation by Tenant with a copy of the plans describing what is to be
installed on the roof and the manner of installation. Upon expiration of the
term of this Lease, Tenant shall be required to remove all of its roof-top
installations and to restore any damage caused thereby to the roof. To secure
the obligation of Tenant to remove and restore as aforesaid, Landlord shall be
entitled to require a roof-top security deposit from Tenant in the amount of Two
Thousand Dollars, which sum shall be payable at Landlord's demand and, if
demanded as a condition to the installation by Landlord, prior to the
installation by Tenant of any roof-top installation.
5.7 Trash Removal. Tenant covenants and agrees, at its sole cost and
--------------
expense, to comply with all present and future laws, orders and regulations of
the federal, state, county, municipal and local governments, departments,
commissions, agencies and boards regarding the collection, sorting, separation
and recycling of trash. Upon request by Landlord, Tenant shall sort and separate
its trash into such categories as are provided by law. Each separately sorted
category of trash shall be placed in separate receptacles as directed by
Landlord. Landlord reserves the right to refuse to collect or accept from Tenant
any trash that is not separated and sorted as required by law and directed by
Landlord, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor reasonably satisfactory to Landlord.
Tenant shall pay all costs, expenses, fines, penalties and damages that may be
imposed on Landlord or Tenant by reason of Tenant's failure to comply with the
provisions of this Section, and Tenant, at Tenant's sole cost and expense, shall
indemnify, defend and hold Landlord harmless from and against any actions,
claims and suits (including reasonable legal fees and expenses) arising from
such noncompliance, utilizing counsel reasonably satisfactory to Landlord.
6. USE AND UPKEEP OF PREMISES
6.1 Use. Tenant shall use and occupy the Demised Premises only for the
----
purposes specified in Section 1.10 and for no other purpose whatsoever, and
shall comply, and cause its employees, agents, contractors to comply, and shall
use reasonable efforts to cause its invitees and other users of the Demised
Premises to comply, with applicable zoning and other municipal regulations,
including but not limited to smoking regulations. Any variation or deviation
from the specific use expressly set forth in Section 1.10 shall be deemed a
default of this Lease. Tenant shall pay before delinquency any business, rent
and other tax and fee that is now or hereafter assessed or imposed upon Tenant's
use or occupancy of the Demised Premises, the conduct of Tenant's business in
the Demised Premises or Tenant's Property. If any such tax or fee is enacted or
altered so that such tax or fee is imposed upon Landlord so that Landlord is
responsible for collection or payment thereof, then Tenant shall promptly pay
the amount of such tax or fee directly to the taxing authority, or if previously
paid by Landlord, to Landlord upon demand provided that evidence of such tax is
disclosed to Tenant. Tenant shall not be liable for any penalties or interest
caused by Landlord's failure to timely pay such taxes.
6.2 Illegal and Prohibited Uses. Tenant will not use or permit the Demised
----------------------------
Premises or any part thereof to be used for any disorderly, unlawful or extra
hazardous purpose and will not manufacture anything therein. Tenant will not use
or permit the Demised Premises to be used for any purposes that interfere with
the use and enjoyment by other tenants of the Building or Complex or, in
Landlord's reasonable opinion, impair the reputation or character of the
Building, Complex, Landlord or Landlord's Agent. Tenant shall immediately
refrain from and discontinue such use after receipt of written notice from
Landlord.
6.3 Insurance Rating. Tenant will not do or permit anything to be done in
-----------------
the Demised Premises, the Building or the Complex or bring or keep anything
therein which shall in any way increase the rate of fire or other insurance on
said Building or the Complex, or on the property kept therein, or conflict (or
permit any condition to exist which would conflict) with applicable fire laws or
regulations, or with any insurance policy upon said Building or Complex or any
part thereof, or with any statute, rules or regulations enacted or established
by any appropriate governmental authority. Tenant shall be responsible for any
increase in insurance costs with respect to the Building or Complex if the
increases were caused by its actions or failure to act absent the actions or
failure to act by Landlord, its contractors, agents or employees or the action
or failure to act of other tenants.
6.4 Alterations.
------------
(a) Approval Required. Tenant shall not make any alterations,
------------------
installations, changes, replacements, repairs, additions or improvements in or
to (or which interfere with) the structural elements of the Building or the
Demised
<PAGE>
Premises, or the Systems (hereinafter defined), without the prior written
consent of Landlord, which consent shall not be unreasonably delayed, withheld
or conditioned. Tenant shall not make any non-structural, non-System or cosmetic
alterations, changes, replacements, repairs, additions or improvements in or to
the Demised Premises or any part thereof, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld, delayed or
conditioned. All Tenant plans and specifications shall be submitted to Landlord
for prior approval. All Tenant engineering plans and specifications shall be
prepared at Tenant's expense by Landlord's designated engineer. Landlord may,
among other things, condition its consent upon Tenant's agreement that any
construction up-gradings required by any governmental authority as a result of
Tenant's work, either in the Demised Premises or in any other part of the
Building or Complex, will be paid for by Tenant in advance. Tenant shall not
install any equipment of any kind or nature whatsoever which will or may
necessitate any changes, replacements or additions to the water system, plumbing
system, heating system, ventilating system, air-conditioning system, supply,
return or control systems, Landlord's data system(s), or the electrical system
of the Demised Premises or the Building (collectively, the "Systems"), nor
install or use any air-conditioning unit, engine, boiler, generator, machinery,
heating unit, stove, water cooler, ventilator, radiator or any other similar
apparatus, nor modify or interfere with any of the Systems, without the prior
written consent of the Landlord, which consent shall not be unreasonably
withheld, delayed or conditioned, Landlord expressly recognizing that it is
imperative to Tenant's business operations that certain portions of the Premises
be provided with round the clock HVAC services as set forth in section 5.2
above. Any auxiliary air-conditioning equipment which Tenant may desire to
install in the Demised Premises shall be connected to the Building's commercial
condenser water system, if available, and Tenant shall pay to Landlord such
reasonable charges as established by Landlord from time to time for the use of
the Building's commercial condenser water system, subject to the provisions
contained in section 5.2. Tenant shall not modify or interfere with the Systems
without the prior written consent of Landlord, and then only as Landlord may
direct. Landlord may condition its consent upon Tenant's payment of all costs to
make such changes, replacements or modifications. Tenant shall not design,
configure, install, use or arrange for the design, configuration, installation
or use of its telecommunications and data transmission systems or inside wire
associated therewith in any manner that interferes with the existing
telecommunications and/or data transmission systems or inside wire associated
therewith of Landlord or other tenants in the Building. Landlord's consent to
any work by Tenant or approval of Tenant's plans or specifications shall not be
deemed a certification that such work complies with applicable building codes,
laws or regulations, nor shall it impose any liability whatsoever upon Landlord.
(b) Alteration Requirements. All of Tenant's approved work shall be done
------------------------
in accordance with Landlord's Supplemental Rules and Regulations for Contractors
(as promulgated and amended by Landlord from time to time) and shall be done by
duly qualified, licensed and bonded contractors in accordance with all
applicable laws, codes, ordinances, rules and regulations, and Tenant shall
obtain (or give) at its cost any required permits, licenses, registrations,
notices, or inspections for performance of its work. Prior to the commencement
of such work Tenant must obtain an executed waiver of lien from each contractor
or vendor that will perform or furnish to Tenant work, labor, services or
materials for any alterations, installations, replacements, additions or
improvements in or to the Demised Premises. Notwithstanding the aforesaid, if
any mechanic's or materialman's lien shall at any time, whether before, during
or after the Lease Term, be filed against any part of the Building or other
property of Landlord by reason of work, labor, services or materials performed
for or furnished to or on behalf of Tenant, Tenant shall forthwith cause the
lien to be released of record by being discharged or bonded off to Landlord's
satisfaction within five (5) days after being notified of the filing thereof.
If Tenant shall fail to cause such lien to be released of record within said
five (5) day period, then, in addition to any other right or remedy of Landlord,
Landlord may bond off or discharge the lien by paying the amount claimed to be
due. Any amount paid by Landlord, whether as bond premium or payment of the
lien amount, and all costs and expenses, including reasonable attorneys' fees
incurred by Landlord in procuring the same and its release from the appropriate
land records, shall be due from Tenant to Landlord as Additional Rent, and shall
be payable on the first day of the next following month, or if the Lease Term
has expired, upon demand.
(c) Intentionally Deleted.
(d) Compliance with Laws. In the event that during the Lease Term either
---------------------
Landlord or Tenant shall be required by the order or decree of any court, or any
other governmental authority, or by law, code or ordinance (including but not
limited to the ADA), to repair, alter, remove, reconstruct, or improve any part
of the Demised Premises, then Tenant or Landlord agrees, at its sole cost and
expense, to comply with such requirements imposed on the Demised Premises (in
the case of Tenant) or on the Building (in the case of Landlord). Landlord or
Tenant, as the case may be, shall perform, at its expense, or, with respect to
such matters imposed on the Demised Premises, Tenant shall permit Landlord to
perform, at Tenant's expense, such repairs, alterations, removals,
reconstructions, or improvements. Within ten (10) days after receipt, Tenant
shall advise Landlord in writing, and provide the Landlord with copies of (as
applicable), (i) any notices alleging violation of any law, code or ordinance
(including the ADA) relating to any portion of the Demised Premises or the
Building, (ii) any claims made or threatened in writing regarding noncompliance
with any law, code or ordinance and relating to any portion of the Building or
of the Demised Premises, or (iii) any governmental or regulatory actions or
investigations instituted or threatened regarding noncompliance with any law,
code or ordinance and relating to any portion of the Demised Premises. No such
order or decree or the compliance required therewith shall have any effect
whatsoever on the obligations or covenants of Tenant herein contained. Tenant
hereby waives all claims for damages or abatement of Base Annual Rent and
Additional Rent because of such repairing, alteration, removal, reconstruction,
or improvement, unless same arises from the neglect or willful act or omission
of Landlord.
(e) Special Provisions. Notwithstanding any provision contained in this
------------------
Lease to the contrary, Tenant shall not be required to comply with any laws,
ordinances or regulations which would either require Tenant to (i) perform any
structural alterations unless caused by Tenant's particular use (as opposed to
general office use), (ii) remove any hazardous material or substance installed
or caused by a party other than Tenant or by an agent, employee or contractor of
Tenant, (iii) perform any alterations or installations if Tenant's use without
same is
<PAGE>
"grandfathered" under existing laws, rules or ordinances, or (iv) correct or
cure any defect or deficiency in the initial Tenant Improvements.
6.5 Maintenance by Landlord.
------------------------
(a) Landlord Repairs and Maintenance. Except to the extent that Tenant is
---------------------------------
required to maintain and repair pursuant to Sections 5.4, 6.4, 6.7, 6.8, 6.10,
6.11, 9 and 21, Landlord shall maintain and repair all public or common areas
located within the Building, including external landscaping, walkways and
parking areas, and, except to the above extent, Landlord shall make repairs to
structural roofs, walls, standard heating, air conditioning, plumbing, sewage
systems, downspouts, utility lines, pipes, conduits and electrical systems and
equipment. Except as otherwise expressly provided in this Lease, such
maintenance shall be provided without cost to Tenant, except that (i) such
expenses may be included in calculating the Additional Rent pursuant to the
provisions of Sections 2.2 and 2.3 (subject to the limitations therein); and
(ii) if such expenses are incurred by Landlord in making repairs attributable to
acts or omissions of Tenant or Tenant's employees, agents, contractors or
invitees, then Tenant shall reimburse Landlord for all such expenses within ten
(10) days after Landlord submits a bill for such costs to Tenant. Landlord
shall make all repairs with due diligence and due care in a good and workmanlike
manner and in compliance with all applicable local, state and Federal
regulations, ordinances and laws and in making such repairs shall use reasonable
efforts to prevent any interference with Tenant's use of the Leased Premises.
Landlord shall promptly restore any damage to any portion of the Leased Premises
resulting from any act or omission of Landlord, its agents, servants, employees
or contractors. Landlord shall, without expense to Tenant, make any and all
structural or extraordinary alterations (including, but not limited to, the
installation of a sprinkler system at the Leased Premises) required to be made
to the Leased Premises by law, ordinance or regulation of any governmental
authority, board of fire insurance underwriters, Landlord's insurers, or similar
authority. In no event shall Tenant have any responsibility under this Lease
to repair or replace any component or item required as a result of any negligent
or willful act or omission of Landlord, its agents, employees or contractors,
and Landlord shall remain fully responsible therefor.
(b) Use of Demised Premises by Landlord. Landlord reserves the right to
------------------------------------
erect, use, maintain, repair and replace all pipes, ducts, conduits, wiring,
fluids, gases, components, and similar materials and structures in and through
the Demised Premises, including any changes, additions or replacements as
Landlord may from time to time make thereto. Landlord may install any and all
materials, equipment, pipes, ducts, conduits, wires, and related fluids, gases,
components and mechanical equipment serving other portions, tenants and
occupants of the Building, in, through the walls, under the floor or above the
ceiling in the Demised Premises that Landlord deems desirable and shall have the
right to locate, both vertically and horizontally, utility lines, wiring, air
ducts, flues, duct shafts, drains, sprinkler mains and valves, and such other
facilities within the Demised Premises as may be deemed necessary by engineering
design and/or code and/or other legal requirements and to repair, alter, replace
or remove these items. These shall be located so as to cause minimum
interference with Tenant's use of the Demised Premises and shall, if possible,
be located above Tenant's suspended ceiling, if any, or as close to the concrete
slab as possible, below the floor, along column lines or in storage areas.
Landlord shall have the right to remove or abate any hazardous materials located
in the Demised Premises and Tenant shall fully cooperate with Landlord in this
regard. Landlord's right to locate facilities within the Demised Premises shall
include facilities required by tenants or occupants in levels above or below the
Demised Premises as well as on the same level as the Demised Premises. None of
the above conduct by Landlord shall be deemed to constitute an interference with
Tenant's quiet enjoyment or an actual or constructive eviction of Tenant.
Tenant shall be entitled to no abatement of Base Annual Rent or Additional Rent
whatsoever on account of such installation, location, construction, use, entry,
removal, repair, maintenance or other conduct as aforesaid.
(c) Any actions taken by or on behalf of Landlord by reason of the
provisions contained in this Lease, including but not limited to actions related
to repairs, alterations, improvements, additions or maintenance of the Building,
the Leased Premises, or any fixture or element thereof, shall be performed at
such times and in such manner so as to minimize interference with Tenant's
business operations within the Leased Premises.
6.6 Signs and Publications. No sign, advertisement or notice shall be
-----------------------
inscribed, painted or affixed on any part of the outside of the Building, or in
the common areas of the Building, or inside the Demised Premises where it may be
visible from the public areas of the Building, except on the directories and
doors of offices, and then only in such size, color, method of attachment and
style as Landlord shall approve. Landlord shall have the right to prohibit any
signage or publication of Tenant on the Demised Premises which in Landlord's
opinion tends to impair the reputation or character of the Building, Complex,
Landlord or Landlord's Agent. Tenant shall refrain from and discontinue such
signage or publication upon receipt of written notice from Landlord, but in no
event later than one (1) day after receipt of such notice.
Notwithstanding any provision contained herein to the contrary Landlord
agrees that Tenant shall be entitled to place a sign on the exterior of the
Building containing Tenant's trade name, which sign shall be backlit and the
maximum size under local law. Landlord shall retain the right to reasonably
approve the color and materials for such sign. Landlord further agrees that no
other telecommunications business (wireless, cellular or other long distance
service) or internet service provider shall be entitled to place signage on the
exterior of the Building during the term of this Lease.
Landlord has previously reviewed and approved a photograph depicting the
contemplated exterior signage in the form attached hereto as Exhibit E . At
Tenant's option, such signage may read either CGX Communications or CAIS
Internet. Landlord shall be entitled to a reasonable hourly supervisory fee
during the course of installation by Tenant's contractor of such exterior
signage. Landlord shall also be entitled to require that Tenant remove the
signbox at expiration of the term of this Lease and restore any damage to the
Building caused thereby.
<PAGE>
6.7 Excessive Floor Load. Landlord shall have the right to prescribe the
---------------------
weight and method of installation of safes, computer equipment, and other heavy
fixtures or equipment. Tenant will not install in the Demised Premises any item
of Tenant's Property or fixtures that will place a load upon the floor exceeding
the designed floor load capacity of the floor and the Building. Landlord may
prescribe the placement and positioning of all such objects within the Demised
Premises and/or Building, and, if necessary, such objects shall be placed upon
platforms, plates or footings of such size as Landlord shall prescribe. All
damage done to the Building or the Demised Premises by installing or removing a
safe or any other article of Tenant's Property or fixtures, or due to its being
in the Demised Premises, shall be repaired at the expense of Tenant.
6.8 Moving and Deliveries.
----------------------
(a) Prohibitions/Notices. Moving in or out of the Building is prohibited
---------------------
on days and hours specified in Section 1.7. Tenant shall only use freight
elevators and loading areas, if provided in the Building, for all moving and
deliveries. Tenant shall provide Landlord with forty-eight (48) hours advance
written notice of any move and obtain Landlord's approval therefor, which
approval shall not be unreasonably withheld, delayed or conditioned, in order to
facilitate scheduling use of freight elevators and loading areas.
(b) Coordination with Landlord. No freight, furniture or other bulky
---------------------------
matter of any description shall be received into the Building or carried in the
elevators, except as authorized by Landlord. All moving of furniture, material
and equipment shall be under the direct control and supervision of Landlord, who
shall, however, not be responsible for any damage to or charges for moving same.
Deliveries from lobby and freight areas requiring use of hand carts shall be
restricted to freight elevators. All hand carts shall be equipped with rubber
tires and side guards. Any control exercised by Landlord hereunder shall be
deemed solely for the benefit of Landlord and the Building, and shall not be
deemed to make any of Tenant's employees, agents or contractors the agent or
servant of Landlord. Tenant shall promptly remove from the public areas in or
adjacent to said Building any of Tenant's property delivered or deposited there.
(c) Moving Damages. Any and all damage or injury to the Demised Premises
---------------
or the Building caused by moving the property of Tenant into or out of the
Demised Premises shall be repaired at the sole cost of Tenant. In conjunction
with the foregoing, Tenant shall indemnify, defend and hold Landlord harmless
with respect to any and all damages and injuries to the Demised Premises or the
Building, and with respect to any property damage and injury to others. Without
releasing Tenant from any liability hereunder, Tenant shall cooperate with
Landlord to identify delivery contractors and movers causing damage to the
Building or Demised Premises or causing property damage or injury to others.
6.9 Rules and Regulations. Tenant shall, and shall ensure that Tenant's
----------------------
agents employees, invitees and guests faithfully keep, observe and perform the
Building Rules and Regulations set forth in Exhibit C, attached hereto and made
a part hereof, and such amendments, modifications and additions thereto as
Landlord may promulgate from time to time, unless waived in writing by Landlord.
Any other such rules and regulations shall not adversely affect nor
substantially interfere with the intended use of the Demised Premises, but
Tenant acknowledges that the Building Rules and Regulations, which, in
Landlord's judgment, are needed for the general well-being, operation and
maintenance of the Demised Premises, the Building and the Complex, together with
their appurtenances, are reasonable. Landlord shall have the right to
specifically enforce all Building Rules and Regulations. In addition to any
other remedy provided for herein, Landlord shall have the right to collect from
Tenant a fine of $200 per incident for each violation of said Building Rules and
Regulations which is not cured within five (5) days after written notice to
Tenant. Nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce such Building Rules and Regulations,
or the terms, conditions or covenants contained in any other lease, as against
any other tenant, and Landlord shall not be liable to Tenant for violation of
the same by any other tenant, its employees, agents, invitees, licensees,
customers, clients, family members or guests. Further, it shall be in
Landlord's reasonable judgment as to whether Tenant is in compliance with the
Building Rules and Regulations. All rules and regulations that may be enforced
by the Landlord against the Tenant shall be reasonable and uniformly enforced
among all of the tenants in the Building. The Landlord shall use its reasonable
efforts to enforce all of the rules and regulations of the Building against
other tenants in the Building whose breach of such rules and regulations
adversely affect the use of the Leased Premises or of the Common Areas by
Tenant, its employees, customers and invitees. Tenant shall be notified in
writing of any alleged breach by the Tenant of the rules and regulations, and
Tenant shall be given five (5) days to cure such breach before any such breach
shall constitute a breach of the terms of the Lease.
6.10 Tenant Maintenance and Condition of Demised Premises Upon Surrender.
-------------------------------------------------------------------
At all times during the Lease Term, Tenant will keep the Demised Premises and
the Leasehold Improvements and Tenant's Property therein in good order and
condition, will suffer no waste or injury to the Demised Premises and Leasehold
Improvements, and will, subject to the provisions of Section 6.4(c), at the
expiration or other termination of the Lease Term, surrender and deliver up the
Demised Premises and Leasehold Improvements in like good order and condition as
they shall be at the Commencement Date, ordinary wear and tear and, subject to
the provisions of Section 9, damage by fire or other casualty excepted.
6.11 Tenant Property and Leasehold Improvements. Maintenance and repair of
-------------------------------------------
Tenant's Property and any Leasehold Improvements within or related to the
Demised Premises shall be the sole responsibility of Tenant, and Landlord shall
have no obligation in connection therewith. Notwithstanding anything herein to
the contrary, and subject to the provisions of Sections 6.4 and 12.8 pertaining
to removal from the Demised Premises, Tenant shall have no right to remove from
the Demised Premises any of Tenant's Property and/or Leasehold Improvements upon
and during the continuation of any default by Tenant under this Lease.
<PAGE>
6.12 Landlord's Right to Perform Tenant's Duties. In the event that
--------------------------------------------
repairs required to be made by Tenant pursuant to this Lease become necessary by
reason of Tenant's failure to maintain the Demised Premises, Tenant's Property
and Leasehold Improvements in good order and condition and in compliance with
all applicable laws, orders and regulations, Landlord may, but shall not be
obligated to, make repairs at Tenant's expense. Within ten (10) days after
Landlord renders a bill for the cost of said repairs, Tenant shall reimburse
Landlord. Tenant shall only be liable for such repairs in the event Landlord
has taken such action following Tenant's failure to perform same after
expiration of ten days (or more if otherwise provided herein) notice of the
requirement in this Lease for Tenant to perform such work.
6.13 Tenant's Right to Cure. If Landlord has not commenced repair or
----------------------
maintenance required to be performed by Landlord hereunder within ten (10) days
after written notice thereof from Tenant, or if so commenced, is not diligently
pursuing same to completion, Tenant shall have the right, but not the
obligation, to make such repairs and Landlord shall reimburse Tenant for the
reasonable cost thereof within ten (10) days after receipt of a bill therefor
from Tenant. In the event of an emergency, Tenant may (but shall not be
obligated to) perform such repairs which would otherwise be Landlord's
obligation hereunder which may be reasonably necessary, after having given
Landlord such notice, if any, as may be practicable under the circumstances.
Notwithstanding anything to the contrary set forth hereinabove, Tenant shall not
be required to perform any repairs which would otherwise be Landlord's
obligation hereunder.
7. ACCESS
7.1 Landlord's Access. Landlord, Landlord's Agent, and their agents and
------------------
employees, shall have the right to enter the Demised Premises at all reasonable
times and upon reasonable advance written notice to Tenant, except in the event
of emergency when notice shall not be required prior to entry (a) to make
inspections or to make such repairs and maintenance to the Demised Premises or
repairs and maintenance to other premises as Landlord may deem necessary; (b) to
exhibit the Demised Premises to prospective tenants during the last six (6)
months of the Lease Term; and (c) for any purpose whatsoever relating to the
safety, protection or preservation of the persons or property of the other
tenants, the public, the Demised Premises, the Building, the Complex or other
surrounding properties.
7.2 Restricted Access. No additional locks, other devices or systems which
------------------
would restrict access to the Demised Premises shall be placed upon any doors
without the prior consent of Landlord. Landlord's consent to installation of
anti-crime warning devices or security systems shall not be unreasonably
withheld delayed or conditioned; provided Landlord shall not be required to give
such consent unless Tenant provides Landlord with a means of access to the
Demised Premises for the purposes outlined in Section 7.1 above. Unless access
to the Demised Premises is provided during the hours when cleaning service is
normally rendered, Landlord shall not be responsible for providing such service
to the Demised Premises or to those portions thereof which are inaccessible
during said hours. Such inability by Landlord to provide cleaning services to
inaccessible areas shall not entitle Tenant to any adjustment in Base Annual
Rent, Additional Rent or other sums due hereunder.
7.3 Tenant's Access. Subject to the provisions of Sections 5.2 and 5.5,
----------------
Tenant, its employees and agents shall have access to the Demised Premises
twenty-four (24) hours per day, 365 days per year, and, for the purpose of
access to the Demised Premises only, shall have the right in common with all
other tenants, Landlord and Landlord's agents and employees to use public
corridors, elevators and lobbies. Landlord may at any time and from time to
time during the Lease Term exclude and restrain any person from access, use or
occupancy of any or all mechanical and auxiliary spaces, roofs, public
corridors, elevators and lobbies, excepting, however, Tenant and other tenants
of Landlord and bona fide invitees of either who make use of said public
facilities in accordance with the rules and regulations established by Landlord
from time to time with respect thereto. Landlord may at any time and from time
to time close all or any portion of said public facilities to make repairs or
changes, to prevent a dedication to any person or the public, and to do and
perform such other acts in and to said public facilities as in the exercise of
good business judgment Landlord shall determine to be advisable. It shall be
the duty of Tenant to keep all of said public facilities free and clear of any
obstructions created or permitted by Tenant or resulting from Tenant's
operation. In order to protect the integrity of telephone service in the
Building, Landlord may, at its option, supervise or restrict Tenant's access to
any or all equipment rooms, inside wire space and/or conduits or the demarcation
point.
8. LIABILITY
8.1 Tenant's Property. All of Tenant's Property, the Leasehold
------------------
Improvements and the personal property of Tenant's employees, agents,
contractors, visitors and invitees in the Demised Premises or in the Building
shall be at their sole risk. Landlord, Landlord's Agent, and their respective
agents and employees shall not be liable for any damage to Tenant's Property,
the Leasehold Improvements or the property of Tenant's employees, agents,
contractors, visitors and invitees unless resulting from acts or omissions of
Landlord, its agents, contractors or employees or any third party, including but
not limited to, cleaning, maintenance, repair and other contractors who do work
in the Building or the Demised Premises or render services to Landlord,
Landlord's Agent, and their
<PAGE>
respective agents and employees or other tenants. Tenant hereby expressly
releases Landlord, Landlord's Agent and their respective agents and employees
from any liability incurred or claimed by reasonable damage to Tenant's Property
and the Leasehold Improvements with respect to any claims for damage or loss to
Tenant's Property and/or the Leasehold Improvements, other than those claims
which result by reason of any negligent or willful act or omission of Landlord,
its agents, contractors or employees (such negligent or willful acts being
herein referred to as the "Excluded Claims"). Tenant hereby indemnifies and
holds harmless Landlord, Landlord's Agents and their respective agents and
employees form any liability or claims by reason of damage to the property of
Tenant's employees, agents, contractors, visitors or invitees with the exception
of the Excluded Claims.
8.2 Criminal Acts of Third Parties. Landlord, Landlord's Agent and their
-------------------------------
respective agents and employees shall not be liable in any manner to Tenant, its
agents, employees, invitees or visitors for any injury or damage to Tenant,
Tenant's agents, employees, invitees or visitors, or their property, caused by
the criminal or intentional misconduct of third parties or of Tenant, Tenant's
employees, agents, invitees or visitors on or about the Demised Premises,
Building and/or Complex (including any parking garages and parking areas). With
the exception of the Excluded Claims, all claims against Landlord, Landlord's
Agent and their respective agents and employees for any such damage or injury
are hereby expressly waived by Tenant, and Tenant hereby agrees to hold
harmless, defend and indemnify Landlord, Landlord's Agents, their respective
agents and employee from all such claims (other than the Excluded Claims) and/or
damages and the expenses of defending all claims (other than the Excluded
Claims) made by Tenant's employees, agents, invitees or visitors arising out of
such acts.
8.3 Public Liability. With the exception of the Excluded Claims, Landlord,
-----------------
Landlord's Agent and their respective agents and employees assume no liability
or responsibility whatsoever with respect to the conduct and operation of the
business to be conducted upon the Demised Premises. Landlord, Landlord's Agent
and their respective agents and employees shall not be liable for any accident
or injury to any person or persons or property in or about the Demised Premises
which are caused by the conduct and operation of said business or by virtue of
equipment or property of Tenant in said Demised Premises. Tenant agrees to hold
Landlord, Landlord's Agent and their respective agents and employees harmless
against all such claims (other than the Excluded Claims), and indemnify and
defend Landlord, Landlord's Agent and their respective agents and employees from
all injuries and damages and the reasonable expenses of defending such claims
(other than the Excluded Claims).
8.4 Construction on Contiguous Property. Landlord, Landlord's Agent and
------------------------------------
their respective agents and employees shall not be liable for damages, nor shall
this Lease or any Base Annual Rent, Additional Rent or other sums due hereunder
be affected, for conditions arising or resulting from construction by third
parties within or around the Demised Premises or Building or on contiguous or
neighboring properties and which affect the Building and/or the Demised
Premises.
8.5 Tenant Insurance.
-----------------
(a) Liability Insurance. During the Lease Term, Tenant at its sole cost
--------------------
shall maintain public liability and property damage insurance which includes
coverage for personal injury and death, property damage, advertising injury,
completed operations and products coverage, and shall further maintain
comprehensive automobile liability insurance covering automobiles owned by
Tenant, with at least a single combined liability and property damage limit of
$3,000,000.00 insuring against all liability of Tenant and its authorized
representatives arising out of or in connection with Tenant's use or occupancy
of the Demised Premises and the business conducted therein. Landlord and
Landlord's Agent shall be named as additional insureds. All public liability
insurance and property damage insurance shall insure Landlord and Landlord's
Agent with coverage no less in scope than that necessary to meet Tenant's
obligations outlined in Sections 8.1, 8.2 and 8.3 and elsewhere in this Lease.
The policy shall contain an assumed contractual liability endorsement that
refers expressly to this Lease.
(b) Fire and Casualty Insurance. During the Lease Term, Tenant at its cost
----------------------------
shall maintain fire and extended coverage insurance on all special or above
building standard work (as defined in Exhibit B, if applicable), all alterations
and all other contents of the Demised Premises, including any Leasehold
Improvements and Tenant's Property, in an amount sufficient so that no
coinsurance penalty will be applied in case of loss.
(c) Increases in Coverage. Tenant shall increase its insurance coverage as
----------------------
required if in the reasonable opinion of the mortgagee on the Building, Landlord
or Landlord's insurance agent such insurance coverage at that time is not
adequate.
(d) Policy Requirements. All insurance required under this Lease shall be
-------------------
issued by insurance companies authorized to do business in the jurisdiction
where the Building is located. Such companies shall have a policyholder rating
of at least "A" and assigned a financial size category of at least "Class X" as
rated in the most recent edition of "Best's Key Rating Guide" for insurance
companies. If at any time during the Lease Term the rating of any of Tenant's
insurance carriers is reduced below the rating required pursuant to the terms
hereof, Tenant shall promptly replace the insurance coverage(s) maintained with
such carrier with coverage(s) from a carrier whose rating complies with the
foregoing requirements. If the Best's Key Rating Guide is discontinued or
revised without substitution of a comparable rating system, Landlord shall
reasonably determine its satisfaction with the insurance company issuing
Tenant's policies. Each policy shall contain an endorsement requiring thirty
(30) days written notice from the insurance company to Landlord before
cancellation or any change decreasing coverage, scope or amount of such policy
and an endorsement naming Landlord and Landlord's Agent as additional insureds.
Each policy, or a certified copy of the policy, and a certificate showing it is
in effect, together with evidence of payment of premiums, shall be deposited
with Landlord at the commencement of the Lease Term and thereafter upon any
policy changes or substitutions, and renewal certificates and copies of renewal
policies shall be delivered to Landlord at least thirty (30) days prior to the
expiration date of any policy.
<PAGE>
(e) No Limitation of Liability. Notwithstanding the fact that any
---------------------------
liability of Tenant to Landlord may be covered by Tenant's insurance, Tenant's
liability shall in no way be limited by the amount of its insurance recovery or
the amount of insurance in force or required by any provisions of this Lease.
(f) Waiver of Subrogation. Notwithstanding anything to the contrary
----------------------
contained herein, Landlord and Tenant hereby mutually waive and release their
respective rights of recovery against each other for any loss of its property
(in excess of a reasonable deductible amount) capable of being insured against
by fire and extended coverage insurance or any insurance policy providing
property damage coverage, whether carried or not. Each party shall apply to its
insurer to obtain said waiver and obtain any special endorsement, if required by
its insurer to evidence compliance with the aforementioned waiver, and shall
bear the cost therefor.
(g) Business Interruption. Landlord, Landlord's Agent and their
----------------------
respective agents and employees shall have no liability or responsibility for
any loss, cost, damage or expense arising out of or due to any interruption of
business regardless of the cause therefor), increased or additional cost of
operation of their business or other costs or expenses, whether similar or
dissimilar, which are capable of being insured against under business
interruption insurance, whether or not carried by Tenant.
8.6 Incident Reports. Tenant shall promptly report to Landlord's Agent all
-----------------
accidents and incidents actually known by officers of Tenant occurring on or
about the Demised Premises which involve or relate to the security and safety of
persons and/or property. Tenant also agrees that it shall use reasonable
efforts to notify Landlord of any other similar incidents actually known by
Tenant's President affecting portions of the Building beyond the Demised
Premises, but Tenant shall have no liability or responsibility to either
Landlord or any third party by reason of Tenant's failure to notify Landlord of
any such incident.
9. DAMAGE
9.1 Damages Caused by Tenant. Subject to the provisions of Sections 8.5(f)
-------------------------
and 9.2, in the event of damage to the Demised Premises or other portions of the
Building caused by the acts or omissions of Tenant, its agents or employees,
Landlord may, but shall not be obligated to, repair such damage at the expense
of Tenant, or, at Landlord's option, such damages shall be repaired by Tenant,
at Tenant's expense, with Landlord's approval in accordance with Section 6.4.
At Landlord's option, Tenant shall either (a) pay to Landlord the estimated cost
of such repairs and/or maintenance within ten (10) days of Tenant's receipt of
Landlord's estimate, or (b) upon completion of such repairs and/or maintenance
by Landlord, pay to Landlord the actual cost of such repairs and/or maintenance
(or the difference between the actual cost and the estimated costs previously
paid by Tenant) within ten (10) days of receipt of invoice from Landlord.
Landlord's recovery shall not be limited to the diminution in the value of the
Demised Premises or leasehold notwithstanding that such repairs and maintenance
may occur prior to the expiration of the Lease Term. All such costs shall be
deemed Additional Rent. This provision shall be construed as an additional
remedy granted to Landlord and not in limitation of any other rights and
remedies which Landlord has or may have in said circumstances.
9.2 Fire or Casualty Damage. In the event of damage or destruction of
------------------------
the Demised Premises or a portion thereof by fire or any other casualty not due
to the acts or omissions of Tenant, its agents, employees, invitees or visitors,
then, except as otherwise provided in Section 9.3, this Lease shall not be
terminated, but structural damage to the Demised Premises, including demising
partitions and doors, shall be promptly and fully repaired and restored as the
case may be by Landlord at its own cost and expense. Due allowance, however,
shall be given for reasonable time required for adjustment and settlement of
insurance claims, for such other delays as may result from government
restrictions and controls on construction, if any, and for strikes, national
emergencies and other conditions beyond the control of Landlord. Restoration
by Landlord shall not include replacement of Tenant's Property but shall include
restoration of the Demised Premises including also all Construction
Improvements. Tenant shall, at its expense, repair, restore and replace Tenant
Property and all elements of the Demised Premises excluded from the scope of
Landlord's duty to restore pursuant to this Section 9.2. Tenant's restoration,
replacement and repair work shall comply with Section 6 hereof and Tenant shall
maintain adequate insurance on all such replacements, restoration and property
pursuant to Section 8.5 hereof. In the event of fire or casualty damage to the
Demised Premises caused by the fault, act or omission or neglect of Tenant, its
agents, employees, invitees or visitors, Landlord may, but shall not be
obligated to, restore all or any portion of the damage described herein (which
may or may not include the Demised Premises). It is agreed that in any of the
aforesaid events, this Lease shall continue in full force and effect.
9.3 Untenantability.
----------------
(a) Restoration Requirements.
-------------------------
(i) If the condition referred to in Section 9.2 is such that the Demised
Premises are partially damaged or destroyed and provided that the condition was
not due to the acts or omissions of Tenant, its agents, employees, invitees or
visitors, then during the period that Tenant is deprived of the use of the
damaged portion of the Demised Premises, Tenant shall be required to pay Base
Annual Rent and Additional Rent covering only that part of the Demised Premises
that Tenant is able to occupy, based on the ratio between the square foot area
remaining that can be occupied for the conduct of business in Tenants'
reasonable discretion and the total square foot area of the entire Demised
Premises covered by this Lease. Any unpaid or prepaid installment of Base
Annual Rent and Additional Rent for the month in which the condition referred to
in Section 9.2 occurs shall be prorated.
<PAGE>
(ii) (1) If the condition referred to in Section 9.2 is such so as to
make the entire Demised Premises untenantable and provided that the condition
was not due to the acts or omissions of Tenant, its agents, employees, invitees
or visitors, then, subject to the rights set forth in Section 9.3(a)(ii)(2)
below, the installment(s) of Base Annual Rent and Additional Rent which Tenant
is obligated to pay hereunder shall abate as of the date of the occurrence until
the first to occur of either (x) expiration of thirty days following the date
that the restoration of the Demised Premises has been substantially completed by
Landlord to the extent of Landlord's obligations as described in Section 9.1 or
(y) commencement by Tenant of beneficial use and occupancy for conduct of
business within the damaged portion. Any unpaid or prepaid installment of Base
Annual Rent and Additional Rent for the month in which the condition referred to
in Section 9.2 occurs shall be prorated.
(2) In the event (x) the Demised Premises are substantially or totally
destroyed by fire or other casualty so as to be entirely untenantable, (y) a
substantial portion of the Building is destroyed or damaged to such an extent
that, in the sole judgment of Landlord, the Building cannot be operated as a
functional unit or an economically viable unit, or (z) the damage to the Demised
Premises and/or the Building is due to an uninsured risk or insurance proceeds
are otherwise unavailable to cover the expenses of restoration or repair of the
damage (less any applicable deductible), then Landlord or Tenant shall have the
unconditional right to cancel this Lease in its sole discretion, in which case
Base Annual Rent and Additional Rent shall be apportioned and paid to the date
of said fire or other casualty. If Landlord elects not to cancel this Lease,
then Landlord shall determine and notify Tenant in writing, within sixty (60)
days following the fire or other casualty, provided that Landlord shall also
cancel the Leases of all similarly situated tenants in the Building, of the date
by which the Demised Premises can be restored by Landlord in accordance with the
provisions of Section 9.1. If the date determined by Landlord as aforesaid for
completion of restoration of the Demised Premises is more than one hundred
twenty (120) days after such fire or other casualty, then Tenant shall have the
right, to be exercised by giving written notice to Landlord within ten (10) days
following receipt of such notice from Landlord, to cancel and terminate this
Lease. In the event the date by which Landlord determines it can complete
restoration of the Demised Premises as herein provided is less than 120 days
following such fire or other casualty, or Tenant fails to terminate this Lease
as herein provided following notification from Landlord that completion of
restoration will require more than 120 days, then this Lease shall remain in
full force and effect and Landlord shall commence restoration of the Demised
Premises to the extent of Landlord's obligations as described in Section 9.2.
Due allowance, however, shall be given for reasonable time required for
adjustment and settlement of insurance claims, for Landlord to reasonably be
able to determine the time necessary for completion of the restoration and for
other such delays as may result from government restrictions and controls on
construction, if any, and for strikes, national emergencies and other conditions
beyond the control of Landlord. Any delays as a result of the foregoing shall
operate to postpone Landlord's obligation to complete restoration of the Demised
Premises by one day for each day of any such delay. Tenant shall commence any
restoration to be performed by Tenant as required in Section 9.2 and Tenant
shall reoccupy the Demised Premises when restored.
(iii) Except as expressly provided in this Section 9.3, no
compensation, or claim, or diminution of Base Annual Rent or Additional Rent
will be allowed or paid by Landlord, by reason of inconvenience, annoyance, or
injury to business, arising from any fire or other casualty suffered by Tenant
or the necessity of repairing or restoring the Demised Premises or any portion
of the Building.
(b) Casualty Near Expiration of Lease Term. In addition to any other right
---------------------------------------
of Landlord or Tenant to terminate this Lease pursuant to the provisions of this
Section 9, in the event the Demised Premises are damaged in whole or in part by
fire or other casualty during the last twelve (12) months of the Lease Term,
then Landlord or Tenant, upon ten (10) days prior written notice to the other
given within sixty (60) days of the date of the fire or casualty, may terminate
this Lease, in which case the Base Annual Rent and Additional Rent shall be
apportioned and paid to the date of said fire or other casualty.
10. CONDEMNATION
10.1 Landlord's Right to Award. Tenant agrees that if any of the Demised
--------------------------
Premises or the Building shall be taken or condemned for public or quasi-public
use or purpose by any competent authority, Tenant shall have no claim against
Landlord and shall not have any claim or right to any portion of the amount that
may be awarded as damages or paid as a result of any such condemnation. All
rights of Tenant to damages therefor, if any, are hereby assigned by Tenant to
Landlord. Upon such condemnation or taking, the Lease Term shall cease and
terminate from the date of such governmental taking or condemnation. If (a) the
whole or a substantial part of the Demised Premises of the Building is taken or
condemned or if (b) less than a substantial portion of the Building or the
Demised Premises is taken or condemned and the remainder of either in Landlord's
opinion can not be operated as a functional unit or as an economically viable
unit, Landlord shall notify Tenant of the termination of this Lease effective as
of the date of such governmental taking or condemnation. In the event of any
termination of this Lease by reason of any taking or condemnation, Tenant shall
have no claim against Landlord or Landlord's Agent for the value of any
unexpired portion of the Lease Term. If less than a substantial part of the
Demised Premises or of the Building is taken or condemned by any governmental
authority for public or quasi-public use or purpose and the remainder of both,
in Landlord's opinion, can be operated as a functional unit or as an
economically viable unit, the rent shall be equitably adjusted on the date when
title vests in such governmental authority and the Lease shall otherwise
continue in full force and effect. For the purposes of this Section 10, a
substantial part of the Demised Premises shall be considered to have been taken
if more than fifty percent (50%) of the Demised Premises are unusable by Tenant.
10.2 Tenant's Right to File Claim. Nothing in Section 10.1 shall preclude
-----------------------------
Tenant from filing a separate claim against the condemning authority for the
value of its Leasehold Improvements not then depreciated (excluding those
<PAGE>
Leasehold Improvements paid for by Landlord) and relocation expenses, provided
that any award to Tenant will not result in a diminution of any award to
Landlord.
11. BANKRUPTCY
11.1 Events of Bankruptcy. The following shall be Events of Bankruptcy
---------------------
under this Lease:
(a) Tenant's becoming insolvent, as that term is defined in Title 11 of the
United States Code, entitled Bankruptcy, 11 U.S.C. Sec. 101 et seq. (the
"Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for any or all of Tenant's
Property or assets, or the institution of a foreclosure action upon any of
Tenant's real or personal property;
(c) The filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
(d) The filing of an involuntary petition against Tenant as the subject
debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within sixty (60) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is earlier; or
(e) Tenant's making or consenting to an assignment for the benefit of
creditors or a common law composition of creditors.
11.2 Landlord's Remedies.
--------------------
(a) Termination of Lease. Upon occurrence of an Event of Bankruptcy,
---------------------
Landlord shall have the right to terminate this Lease by giving written notice
to Tenant; provided, however, that this right to terminate shall have no effect
while a case in which Tenant is the subject debtor under the Bankruptcy Code is
pending, unless Tenant or its Trustee is unable to comply with the provisions of
Sections 11.2(d) and (e) below. At all other times this Lease shall
automatically cease and terminate, and Tenant shall be immediately obligated to
quit the Demised Premises upon the giving of notice pursuant to this Section
11.2(a). Any other notice to quit, or notice of Landlord's intention to re-
enter is hereby expressly waived. If Landlord elects to terminate this Lease,
everything contained in this Lease on the part of Landlord to be done and
performed shall cease without prejudice, subject, however, to the rights of
Landlord to recover from Tenant all Base Annual Rent and Additional Rent and any
other sums accrued up to the time of termination or recovery of possession by
Landlord, whichever is later, and any other monetary damages sustained by
Landlord.
(b) Suit for Possession. Upon termination of this Lease pursuant to
--------------------
Section 11.2(a), Landlord may proceed to recover possession of the Demised
Premises under and by virtue of the provisions of the laws of any applicable
jurisdiction, or by such other proceedings, including reentry and possession, as
may be applicable, or by direct order from any Court having jurisdiction over
Tenant/Debtor, including any Bankruptcy Court.
(c) Non-Exclusive Remedies. Without regard to any action by Landlord as
-----------------------
authorized by Sections 11.2(a) and (b) above, Landlord may at its discretion
exercise all the additional provisions set forth below in Section 12.
(d) Assumption or Assignment by Trustee. In the event Tenant becomes the
------------------------------------
subject debtor in a case pending under the Bankruptcy Code, Landlord's right to
terminate this Lease pursuant to Section 11.2(a) shall be subject to the rights
of the Trustee in Bankruptcy to assume or assign this Lease. In addition to all
other objections Landlord may raise to assumption and/or assignment, and in
addition to all other requirements of any Bankruptcy Court and the Bankruptcy
Code, the Trustee shall not have the right to assume or assign this Lease unless
the Trustee (i) has timely performed all Lease obligations of the Tenant/Debtor
arising from and after the filing of any voluntary bankruptcy petition by Tenant
or, in the case of an involuntary petition, the date of entry of the Order for
Relief, (ii) promptly cures all defaults under this Lease, (iii) promptly
compensates Landlord for monetary damages incurred as a result of such default,
and (iv) provides adequate assurance of future performance on the part of Tenant
or on the part of the assignee of Tenant or the Trustee.
(e) Adequate Assurance of Future Performance. Landlord and Tenant hereby
-----------------------------------------
agree in advance that adequate assurance of future performance, as that term is
used in Section 11.2(d) above, shall mean that all of the following minimum
criteria must be met: (i) Tenant's gross revenues in the ordinary course of
business during the thirty (30) day period immediately preceding the initiation
of the case under the Bankruptcy Code must be at least two (2) times greater
than the next installment of Base Annual Rent and Additional Rent due under this
Lease; (ii) both the average and median of Tenant's gross revenues in the
ordinary course of business during the six (6) month period immediately
preceding the initiation of the case under the Bankruptcy Code must be at least
two (2) times greater than the next six (6) installments of Base Annual Rent and
Additional Rent due under this Lease; (iii) Tenant must pay (and continue to pay
on a timely basis throughout the Lease Term) Base Annual Rent, Additional Rent
and all other sums payable by Tenant hereunder in advance and as a condition
precedent to the performance of Landlord's obligations hereunder; (iv) the
Trustee must agree that Tenant's business shall be conducted in a first class
manner, and that no liquidating sales, auctions, or other non-first class
business operations shall be conducted on or about the Demised Premises,
Building and/or Complex; (v) the Trustee must agree that the use of the Demised
Premises as stated in this Lease will remain unchanged and that no prohibited
use shall be permitted; and
<PAGE>
(vi) the Trustee must agree that the assumption or assignment of this Lease will
not violate or affect the rights of other tenants in the Building and/or
Complex.
(f) Failure to Provide Adequate Assurance. In the event the Trustee or
--------------------------------------
Tenant is unable to (i) comply with the requirements of Section 11.2(d) above,
or (ii) meet the criteria and obligations imposed by Section 11.2(e) above,
Tenant agrees in advance that it has not met its burden to provide adequate
assurance of future performance, and this Lease may be terminated by Landlord in
accordance with Section 11.2(a) above.
11.3 Guarantors. For purposes of this Section 11, any action or
-----------
adjudication by or on behalf of, or against, or with respect to the property or
affairs of, any guarantor or guarantors (if any) of this Lease, or any of them,
which, if taken by, against or with respect to Tenant, Tenant's Property or
affairs, would entitle Landlord to exercise any remedy specified herein, may be
treated, at Landlord's sole option and discretion, as though it were taken by,
against or with respect to the Tenant.
11.4 Damages. In the event of cancellation and termination of this Lease
--------
pursuant to Section 11.2 above, Landlord shall, notwithstanding any other
provisions of this Lease to the contrary, be entitled to promptly recover
damages from Tenant determined in accordance with the provisions set forth in
Section 12.2 of this Lease as provided for in the case of default by Tenant.
12. DEFAULTS AND REMEDIES
12.1 Default. Subject to the provisions of Section 12.1(i) below, if any
--------
one or more of the following events occur, said event shall be deemed a material
default of this Lease:
(a) Tenant's failure to complete, within the time periods required by this
Lease, any tasks required for the preparation or approval of plans for the
construction and/or completion of the Demised Premises prior to the Commencement
Date;
(b) Tenant's failure to accept possession of the Demised Premises when
tendered by Landlord;
(c) Tenant's failure to pay any installment of Base Annual Rent, Additional
Rent or other sum required to be paid by Tenant when the same shall be due and
payable, all without demand unless demand is necessary under the express terms
of this Lease (in which case a material default shall be deemed to occur if such
payment is not made strictly within the time period provided for such payment
following the demand);
(d) Tenant's failure to perform or observe any other term, covenant or
condition of this Lease;
(e) Any event expressly designated or deemed a default elsewhere in this
Lease;
(f) Any execution, levy, attachment or other legal process of law shall
occur upon Tenant's Property, Tenant's interest in this Lease or the Demised
Premises;
(g) Tenant's abandonment or surrender of the Demised Premises prior to the
expiration of the Lease Term and the suspension of rent payments as the same may
become due and payable; and/or
(h) Tenant's committing or permitting waste to occur to the Demised
Premises.
(i) Notwithstanding any provision contained in the Lease to the contrary,
in no event shall Tenant be deemed to be in default under the Lease, nor shall a
material default be deemed to have occurred in the absence of either (A)
Tenant's failure to cure a monetary default following the giving of written
notice to Tenant and the expiration of ten (10) days thereafter, or (B) in the
case of a non-monetary default, Tenant's failure to cure following the giving of
written notice to Tenant and the expiration of thirty (30) days thereafter,
provided, however that the aforesaid thirty (30) days period shall be deemed
extended to include such additional time as may reasonably be required to cure
same, provided Tenant has commenced in good faith its cure within such thirty
(30) day period and Tenant diligently prosecutes its cure to completion.
12.2 Remedies. In each and every such event set forth in Section 12.1
---------
above, from the date of such default and at all times thereafter, at the option
of Landlord, Tenant's right of possession shall thereupon cease and terminate.
Landlord shall be entitled to all rights and remedies now or later allowed at
law or in equity, all of which shall be cumulative to the extent that the
exercise of any one or more rights or remedies shall not be deemed to constitute
a waiver of the Landlord's right to exercise any one or more other rights and
remedies herein provided or provided at law or in equity. Landlord shall be
entitled to obtain possession of the Demised Premises whether or not Landlord
elects to terminate this Lease, and to re-enter the same without demand of rent
or demand of possession of the Demised Premises and may forthwith proceed to
recover possession of the Demised Premises by any lawful means or process of law
whether or not Landlord elects to terminate this Lease, any notice to quit being
hereby expressly waived by Tenant. In the event of such re-entry by process of
law or otherwise, Tenant nevertheless agrees to remain liable for all Base
Annual Rent, Additional Rent and other sums due under this Lease, and shall pay
the same as and when it accrues and is payable hereunder. Landlord may (but
shall not be obligated to) declare the entire balance (or any portion thereof)
of Base Annual Rent, Additional Rent and all other sums payable by Tenant
hereunder for the remainder of the Lease Term to be immediately due and payable
in full, which shall be
<PAGE>
recoverable and determined pursuant to Section 12.4 below. Tenant further agrees
to remain liable for any and all damage, deficiency, and loss of Base Annual
Rent, Additional Rent and other sums herein specified, and all other damages
which Landlord may sustain by such re-entry, including reasonable attorneys'
fees and costs. If under the provisions hereof, a seven (7) days summons or
other applicable summary process shall be served, and a compromise or settlement
thereof shall be made, such action shall not constitute a waiver of any breach
of any covenant, term, condition or agreement herein contained.
12.3 Landlord's Right to Relet. Should this Lease be terminated before the
--------------------------
expiration of the Lease Term, by reason of Tenant's default as provided in
Sections 11 or 12, or if Tenant shall abandon the Demised Premises before the
expiration or termination of the Lease Term and without paying the rent due as
the same may become due and payable (whether or not Landlord elects to terminate
this Lease), the Demised Premises may be relet by Landlord, on Tenant's behalf
or for the account of Landlord, as Landlord so chooses, for such rent and upon
such terms as are reasonable under the circumstances. If the full rent reserved
under this Lease (and any of the costs, expenses or damages indicated below)
shall not be realized by Landlord, Tenant shall be liable for all damages
sustained by Landlord, including, without limitation, deficiency in Base Annual
Rent, Additional Rent, reasonable attorneys' fees, other collection costs,
brokerage fees attributable to the unexpired portion of the Term hereof,
expenses incurred by Landlord to remove Tenant's Property and (at Landlord's
option) Leasehold Improvements, and expenses of placing the Demised Premises in
first-class rentable condition. Landlord, in putting the Demised Premises in
good order or preparing the same for reletting may, at Landlord's option, make
such alterations, repairs or replacements in or relating to the Demised Premises
as Landlord, in Landlord's sole judgment, considers advisable and necessary for
the purpose of reletting the Demised Premises, and the making of such
alterations, repairs or replacements shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall use
commercially reasonable efforts to mitigate its damages nor shall Landlord be
liable in any way whatsoever for failure to relet the Demised Premises, or in
the event that the Demised Premises are relet, for failure to collect the rent
thereof under such reletting. For the purpose of calculating Landlord's damages
as set forth in Section 12.4 below, if the Building has other available space at
the time of such Lease termination or Tenant's abandonment or vacating of the
Demised Premises, or anytime thereafter, the Demised Premises shall be deemed
the last space rented int he Building even though the Demised Premises may be
re-rented by Landlord prior to such other vacant space. In no event shall
Tenant be entitled to receive any excess, if any, of rent (if any) collected
over the sums payable by Tenant to Landlord hereunder.
12.4 Recovery of Damages.
--------------------
(a) Quantification of Damages. Any damage, deficiency, loss of Base Annual
--------------------------
Rent, Additional Rent or other sums payable by Tenant hereunder, unamortized
Landlord Concessions as described hereinafter, and all other damages may be
recovered by Landlord, at Landlord's option, upon default by Tenant, in separate
actions, from time to time, as said damage shall have periodically accrued, or,
at Landlord's option, may be deferred until the expiration of the Lease Term (in
which event Tenant hereby agrees that the cause of action shall not be deemed to
have accrued until the date of expiration of said Lease Term), or, at Landlord's
option, in a single action in the event Landlord shall have declared the entire
balance of Base Annual Rent, Additional Rent and other sums due under this Lease
immediately due and payable pursuant to Section 12.2. In the event Landlord
shall have declared the entire balance of Base Annual Rent, Additional Rent and
other sums due under this Lease immediately due and payable, then in lieu of the
Base Annual Rent and Additional Rent which would have been payable for the
period after the date of any judgment obtained in any action by Landlord against
Tenant to recover damages, Tenant shall pay a sum representing liquidated
damages, and not penalty, in an amount equal to the excess of (i) the sum of the
Base Annual Rent and Additional Rent provided for in this Lease for the
unexpired portion of the Lease Term after the date of judgment discounted at a
rate of three percent (3%) per annum to present value, over (ii) the rental
value of the Leased Premises, at the time of termination of this Lease, for the
unexpired portion of the Lease Term, discounted at a rate of three percent (3%)
per annum to present value. In determining the rental value of the Leased
Premises, the rent realized by any reletting accomplished or accepted by
Landlord within a reasonable time after termination of this Lease, shall be
deemed, prima facie, to be the rental value.
(b) Non-Exclusive Rights. The provisions contained in this Section 12.4
---------------------
shall be in addition to and shall not prevent the enforcement of any claim
Landlord may have against Tenant for anticipatory breach of the unexpired Lease
Term. All rights and remedies of Landlord under this Lease shall be cumulative
and shall not be exclusive of any other rights and remedies provided to Landlord
under applicable law. In the event Tenant becomes the subject debtor in a case
under the Bankruptcy Code, the provisions of this Section 12.4 may be limited by
the limitations of damage provisions of the Bankruptcy Code.
12.5 Waiver. If under the provisions hereof Landlord shall institute
-------
proceedings and a compromise or settlement thereof shall be made, the same shall
not constitute a waiver of any agreement, covenant, condition, rule or
regulation herein contained nor of any of Landlord's rights hereunder. No
waiver by Landlord or Tenant of any breach of any agreement, covenant,
condition, rule or regulation herein contained, on one or more occasions, shall
operate as a waiver of such agreement, covenant, condition, rule or regulation
itself, or of any subsequent breach thereof. No provision of this Lease shall
be deemed to have been waived by Landlord or Tenant unless such waiver shall be
in writing signed by Landlord or Tenant, as the case may be. Receipt and
acceptance by Landlord of any Base Annual Rent, Additional Rent or other
charges, or the performance of any obligation by Tenant hereunder, with
knowledge of the breach of any agreement, covenant, condition, rule or
regulation of this Lease by Tenant shall not be deemed a waiver of such breach.
Failure of Landlord to enforce any of the rules and regulations against Tenant
or any other tenant in the Building shall not be deemed a waiver of any such
rule or regulation. No payment by Tenant or receipt by Landlord of a lesser
amount than the Base Annual Rent and Additional Rent herein stipulated shall be
binding upon Landlord or Tenant, nor shall the same be deemed to be other than
on account of the stipulated Base Annual Rent and Additional Rent. No
endorsement or statement on any check, letter or other transmittal accompanying
any check or payment of Base Annual Rent, Additional Rent or other sum due from
<PAGE>
Tenant shall be deemed a settlement of a legal dispute or an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Base Annual Rent, Additional
Rent and other sums or to pursue any other remedy provided in this Lease.
Landlord's consent to, or approval of, any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render unnecessary
Landlord's consent to or approval of any subsequent act by Tenant.
12.6 Anticipatory Repudiation.
-------------------------
(a) Repudiation Prior to Commencement Date. If, prior to the Commencement
---------------------------------------
Date or the first day of any extension or renewal period set forth in an
extension or renewal option validly exercised by Tenant hereunder, Tenant
notifies Landlord of or otherwise unequivocally demonstrates an intention to
repudiate this Lease or breach any obligation of Tenant hereunder, Landlord may,
at its option, consider such anticipatory repudiation a breach and material
default of this Lease. In addition to any other remedies available to it
hereunder or at law or in equity, Landlord may retain all Base Annual Rent,
Additional Rent and other sums paid by Tenant hereunder, including any security
deposit, if any, to be applied to damages of Landlord incurred as a result of
such repudiation, including, without limitation, all damages and remedies
reserved to Landlord in this Section 12 or elsewhere in this Lease, as
applicable. It is agreed between the parties that for the purpose of
calculating Landlord's damages, if the Building has other available space at the
time of or subsequent to Tenant's breach, the Demised Premises covered by this
Lease shall be deemed the last space rented in the Building even though the
Demised Premises may be re-rented prior to such other vacant space. In the
event a default occurs prior to the Commencement Date, Tenant shall, in addition
to all other damages to which Landlord is entitled under this Lease, pay in full
for all Leasehold Improvements constructed or installed within the Demised
Premises through the date of the default, and for material ordered at Tenant's
request for the Demised Premises (whether at Tenant's request or upon Landlord's
anticipation of Tenant's needs hereunder) or for such material restocking
charges.
(b) Repudiation of Any Obligation of Tenant During Lease Term. If during
----------------------------------------------------------
the Lease Term Tenant notifies Landlord of or otherwise unequivocally
demonstrates an intention to repudiate this Lease or breach any obligation of
Tenant hereunder, Landlord may, at its option, consider such anticipatory
repudiation a breach and material default of this Lease. In addition to any
other remedies available to it hereunder or at law or in equity, Landlord may
retain all Base Annual Rent, Additional Rent and other sums paid by Tenant
hereunder, including any security deposit, if any, to be applied to damages of
Landlord incurred as a result of such repudiation, including, without
limitation, all damages and remedies reserved to Landlord in this Section 12 or
elsewhere in this Lease, as applicable.
12.7 Tenant Abandonment of Demised Premises.
---------------------------------------
(a) Abandonment. If the Demised Premises or a substantial portion thereof
------------
shall be deserted or vacated by Tenant for thirty (30) consecutive days or more
and Tenant shall be delinquent in the payment of any Base Annual Rent,
Additional Rent or other sums due under this Lease, or in the performance of any
of Tenant's other obligations hereunder beyond the expiration of applicable
notice and cure periods, Landlord may deem the Tenant to have abandoned the
Demised Premises, notwithstanding the fact that Tenant may have left all or some
part of Tenant's Property thereon. In such event Landlord may consider Tenant
in default under this Lease and may pursue all remedies available to it under
this Lease or otherwise as may be available in equity or at law.
(b) Landlord Right to Enter and to Relet. If Tenant abandons the Demised
-------------------------------------
Premises as set forth in subsection (a) above, Landlord may, at its option,
enter into the Demised Premises without being liable for any prosecution
therefor or for damages by reason thereof. In addition to any other remedy
elsewhere provided in this Section 12 or at law or in equity, Landlord, as agent
of Tenant, may relet the whole or any part of the Demised Premises for the whole
or any part of the then unexpired Lease Term. For the purposes of such
reletting, Landlord may make any alterations or modifications of the Demised
Premises considered desirable in its sole judgment.
12.8 Tenant's Property. Tenant shall not remove any of Tenant's Property
------------------
from the Demised Premises without the prior written consent of Landlord, other
than in the ordinary course of Tenant's business. In the event of a default
under this Lease, Tenant shall not, under any circumstances, remove Tenant's
Property from the Demised Premises and Landlord may (but shall not be obligated
to) keep Tenant's Property in place (and require Tenant to return or replace
Tenant's Property to the extent Tenant removes same in violation of the terms of
this Lease) and use, or permit another occupant of the Demised Premises,
Building and/or Complex to use, Tenant's Property during the remainder of the
Least Term (whether or not Landlord elects to terminate this Lease for such
default) at no cost, expense or liability to Landlord or such occupant. If
Tenant abandons the Demised Premises as defined in Section 12.7(a) above or
otherwise vacates the Demised Premises or otherwise defaults under this Lease,
any property that Tenant leaves within or related to the Demised Premises shall
be deemed to have been abandoned and, without liability to Tenant, may be
disposed of in the trash or retained by Landlord as the property of Landlord or
disposed of at public or private sale, or placed at the use of another occupant
in the Building or the Complex or any subsequent occupant in the Demised
Premises, as Landlord sees fit in its sole discretion, all at no cost or expense
to Landlord or such other person permitted to use all or a portion of Tenant's
Property hereunder, or Landlord may store Tenant's Property at a location
selected by Landlord in its sole discretion at Tenant's sole cost and expense.
The proceeds of any public or private sale of Tenant's Property shall be applied
by Landlord against (i) the expenses of Landlord for removal, storage or sale of
the property; (ii) the arrears of Base Annual Rent, Additional Rent or other
sums then or thereafter payable under this Lease; and (iii) any other damages to
which Landlord may be entitled hereunder. At Landlord's option, at any time
during the Lease Term after default by Tenant, Landlord may require Tenant to
forthwith remove Tenant's Property from the Demised Premises. If Tenant vacates
or abandons the Demised Premises, as defined above, Landlord may transfer any of
Tenant's Property to creditors of Tenant, on presentation of evidence of a claim
valid on its face of ownership or of a security
<PAGE>
interest in any of Tenant's Property abandoned in the Demised Premises or the
Building, and Landlord may recover any costs incurred by Landlord in doing so,
all without incurring any liability to Tenant.
12.9 Landlord's Lien.
----------------
(a) Rights of Distress/Landlord's Lien. To secure the payment of all
-----------------------------------
Base Annual Rent, Additional Rent and all other charges and sums that may become
due to Landlord under the terms of this Lease, Landlord shall have and is hereby
granted by Tenant a right of distress for rent, and a contractual first lien and
security interest upon the all Leasehold Improvements, and also upon all
proceeds from the sale, transfer or other disposition of any such property, and
any replacements and substitutions thereof, and proceeds thereof, and all
proceeds of any insurance which may accrue to Tenant by reason of damage to or
destruction of any such property. All exemption laws are hereby waived by
Tenant. This lien is given in addition to Landlord's statutory and common law
liens and shall be cumulative thereto. "Leasehold Improvements" shall be
defined to mean all improvements installed or constructed within the Demised
Premises whether by or on behalf of either Landlord or Tenant (exclusive of
Tenant's trade fixtures and any of Tenant's Property, as below defined), and as
repaired, replaced, altered or improved from time to time during the Lease Term,
including without limitation, any partitions, wall coverings, floors, floor
coverings, ceilings, lighting fixtures other improvements. "Tenant's
Property" shall be defined to mean all of Tenant's trade fixtures and all of
Tenant's personal property, including but not limited to, all goods, wares,
merchandise, inventory, furniture, machinery, equipment, telecommunications and
data transmission systems (and all their components exclusive of wiring),
business records, accounts receivables and other personal property of Tenant in
or about the Demised Premises or that may be placed or kept therein during the
Lease Term.
12.10 Injunctive Relief. In the event of a breach by Tenant of any of the
------------------
covenants or provisions hereof, Landlord shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided; and in such
event Landlord shall be entitled to recover from Tenant, payable as Additional
Rent hereunder, any and all reasonable expenses as Landlord may incur in
connection with its efforts to secure such injunctive relief or other remedy at
law or in equity, including all costs and reasonable attorneys' fees.
12.11 Independent Covenants. If Landlord shall commence any proceeding
----------------------
based upon non-payment of Base Annual Rent, Additional Rent or any other sums of
any kind to which Landlord may be entitled or which it may claim hereunder,
Tenant will not interpose any counterclaim, set-off, recoupment or other defense
of any nature or description in any such proceeding absent mandatory
counterclaims or defenses. The parties hereto specifically agree that Tenant's
covenants to pay Base Annual Rent, Additional Rent and any other sums required
hereunder are independent of all other covenants and agreements of Landlord
herein contained; provided, however, that this shall not be construed as a
waiver of Tenant's right to assert such a claim in any separate action brought
by Tenant. Tenant further waives any right or defense which it may have to
claim a merger.
12.12 Waiver of Redemption. Tenant hereby expressly waives any and all
---------------------
rights of redemption granted by or under any present or future laws in the event
of Tenant being evicted or dispossessed for any cause, or in the event of
Landlord obtaining possession or a judgment for or other right to possession of
the Demised Premises and/or Tenant's Property by reason of the violation by
Tenant of any of the covenants and conditions of this Lease, or otherwise.
12.13 Attorneys' Fees. The parties hereto agree that wherever in this
----------------
Lease the Landlord is entitled to collect its "attorneys' fees", Landlord shall
be entitled to collect reasonable attorneys' fees actually incurred in enforcing
its rights hereunder in the event Landlord is the prevailing party. Similarly,
Tenant shall be entitled to collect its reasonable attorneys' fees actually
incurred in enforcing its rights hereunder in the event Tenant is the prevailing
party.
13. SUBORDINATION
13.1 Subordination. This Lease is subject and subordinate to all ground or
--------------
underlying leases and to all mortgages and/or deeds of trust and/or other
security interests (individually and collectively "mortgage") which may now or
hereafter affect the real property of which the Demised Premises form a part,
including all renewals, modifications, consolidations, replacements and
extensions thereof. This clause shall be self-operative and no further
instrument of subordination shall be required to effect this subordination.
Notwithstanding the foregoing, in confirmation of such subordination, Tenant
shall at Landlord's request execute and deliver to Landlord within ten (10)
business days after Landlord's request, any requisite or appropriate
certificate, subordination agreement or other document that may be reasonably
requested by Landlord or any other party requiring such certificate,
subordination agreement or document. If Tenant fails to execute such
certificate, subordination agreement or other document requested by Landlord or
other party within said ten (10) day period, Tenant by such failure, irrevocably
constitutes and appoints Landlord as its special attorney-in-fact to execute
such certificate, subordination agreement or other document on Tenant's behalf,
the foregoing power of attorney being deemed coupled with an interest.
Notwithstanding the foregoing, any lessor under any ground or underlying lease
and the party secured by any mortgage affecting the real property of which the
Demised Premises are a part, or any renewal, modification, consolidation,
replacement or extension thereof, shall have the right to recognize this Lease
and, in the event of any cancellation or termination of such ground or
underlying lease, or any foreclosure under any mortgage, or any sale of the real
property at foreclosure sale, or any transfer of the real property by a deed in
lieu of foreclosure, this Lease shall continue in full force and effect at the
option of the lessor under such ground or underlying lease or, as applicable,
the party secured by such mortgage, or the purchaser at any foreclosure sale, or
the party taking the real property under a deed in lieu of foreclosure, such
party being hereby authorized by Tenant to exercise such option to cancel or
continue this Lease in such party's reasonable or unreasonable discretion.
Tenant hereby consents to
<PAGE>
the right of such party to effect the survival of this
Lease. Tenant agrees that neither the cancellation nor termination of any
ground or underlying lease, nor the foreclosure under any mortgage, nor the sale
at foreclosure, nor the transfer by a deed in lieu of foreclosure, shall, by
operation of law or otherwise, result in cancellation or termination of this
Lease or the obligations of Tenant hereunder, except in the sole option of the
party herein granted such option, which option may be exercised in said party's
reasonable or unreasonable discretion.
13.2 Estoppel Certificates. Tenant shall execute and return within ten
----------------------
(10) business days any certificate that Landlord may request from time to time,
stating that this Lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modification. The certificate
also shall state (a) the amount of the monthly installment of Base Annual Rent
and Additional Rent and the dates to which such rent has been paid in advance;
(b) the amount of any security deposit or prepaid rent; (c) is not aware of any
default on the part of Landlord nor is there in existence any condition, event,
act or omission which with the giving of notice and/or the passage of time will
constitute a default on the part of Landlord, or attach a memorandum stating in
detail the factual circumstances of such default and/or the basis under the
Lease for such default; (d) that Tenant is not aware of any right to set-off or
recoupment and no defense or counterclaim against enforcement of its obligations
under this Lease; (e) that Tenant has no other notice of any sale, transfer or
assignment of this Lease or of the rentals; (f) that all Construction
Improvements and other work and improvements required of Landlord has been
completed and that the Construction Improvements and other work and improvements
are complete and satisfactory; (g) that Tenant is in full and complete
possession of the Demised Premises; (h) the date on which Tenant's rental
obligations commenced (excluding any periods of abatement) and the date to which
such rent has been paid; (i) that Tenant has not advanced any amounts to or on
behalf of Landlord which have not been reimbursed; (j) that Tenant understands
that this Lease has been collaterally assigned to Landlord's mortgagee as
security for a loan to Landlord; (k) that Base Annual Rent and Additional Rent
may not be prepaid more than one (1) month in advance without the prior written
approval of Landlord's mortgagee; and (l) such other items as Landlord may
reasonably request. Failure to deliver the certificate within the aforesaid ten
(10) business day period shall be conclusive upon Tenant for the benefit of
Landlord and any successor to or mortgagee or assignee of Landlord that this
Lease is in full force and effect and has not been modified except as may be
represented by the party requesting the certificate. If Tenant fails to deliver
the certificate within the aforesaid ten (10) business day period, Tenant by
such failure irrevocably constitutes and appoints Landlord as its special
attorney-in-fact to execute and deliver the certificate to any third party, the
foregoing power of attorney being deemed to be coupled with an interest.
13.3 Attornment. Tenant covenants and agrees that, in the event any ground
-----------
lessor, lessor of any underlying lease or subsequent purchaser of the Building
so requests or in the event of any foreclosure under any mortgage, or any
renewal, modification, consolidation, replacement or extension thereof, or in
the event of a sale at foreclosure, or in the event of any acceptance of any
deed in lieu of foreclosure, which may now or hereafter affect the real property
of which the Demised Premises are a part, Tenant shall attorn to any ground
lessor, lessor of any underlying lease or subsequent purchaser of the Building
or to the party secured by such mortgage, or any renewal, modification,
consolidation, replacement or extension thereof, and to any purchaser at any
foreclosure sale or party taking a deed in lieu of foreclosure, and at the sole
option of such party, which option may be exercised in said party's reasonable
or unreasonable discretion, this Lease shall continue as a direct lease between
Tenant herein and such landlord or its successor. In any case, such landlord or
successor under such ground or underlying lease or such secured party or
purchaser at foreclosure sale or party taking a deed in lieu of foreclosure
shall not be bound by any prepayment on the part of Tenant of the Base Annual
Rent or Additional Rent for more than one month in advance, so that Base Annual
Rent and Additional Rent shall be payable under this Lease in accordance with
its terms, from the date of the termination or transfer of the ground or
underlying lease or the foreclosure under such mortgage, or the date of
foreclosure sale or transfer by deed in lieu of foreclosure, as if such
prepayment had not been made. Further, such landlord or successor in interest
shall not be liable for damages for any act or omission of Landlord or any prior
landlord or be subject to any recoupments, offsets, counterclaims or defenses
which Tenant may have against Landlord or any prior landlord. Tenant shall,
upon request of such landlord or successor landlord, execute and deliver an
instrument or instruments confirming Tenant's attornment.
13.4 Mortgagee Rights.
-----------------
(a) Mortgagee Requirements. Tenant shall, at its own expense, comply with
-----------------------
all reasonable notices of Landlord's mortgagee or other financial institution
providing funds which are secured by a mortgage placed on the whole or any part
of the real property of which the Demised Premises are a part, respecting all
matters of occupancy, use, condition or maintenance of the Demised Premises,
provided the same shall not unreasonably interfere with the conduct of Tenant's
business materially limit or affect the rights of the parties under this Lease.
Tenant shall, if so directed by Landlord's mortgagee or such other financial
institution in writing, pay all Base Annual Rent, Additional Rent and other sums
owed to Landlord directly to such mortgagee or other financial institution.
Notwithstanding acceptance and execution of this Lease by the parties hereto,
the terms hereof shall be automatically deemed modified, if so required, for the
purpose of complying with or fulfilling the reasonable requirements of any
mortgagee or trustee named or secured by a mortgage that may now or hereafter be
placed upon or secured by the real property of which the Demised Premises are a
part or any part thereof, or any other financial institution providing funds to
finance or refinance the real property of which the Demised Premises are a part;
provided, however, that such modification(s) shall not be in material derogation
or diminution of any of the rights of the parties hereunder, nor materially
increase any of the obligations or liabilities of the parties hereunder.
(b) Notices to Mortgagee. Tenant agrees to give Landlord's mortgagee and
---------------------
any trustee named or secured by a mortgage a copy of any notice of default
served upon Landlord by Tenant, provided that prior to such notice Tenant has
been notified in writing (by way of Notice of Assignment of Rents and Leases, or
otherwise) of the names and addresses of such mortgagees and trustees. Notice
shall be provided to the mortgagees and trustees in the manner prescribed in
Section 24. Tenant further agrees that if Landlord shall have failed to cure
such default within
<PAGE>
the cure period provided in this Lease, if any, then the mortgagees and trustees
shall have an additional thirty (30) days within which to cure such default, or
if such default cannot be cured within that time, then such additional time as
may be necessary if within such thirty (30) days such mortgagee or trustee has
commenced and is diligently pursuing the remedies necessary to cure such default
(including, but not limited to, commencement of foreclosure proceedings if
necessary to effect such cure), in which event Tenant shall not pursue its
remedies while such cure is being diligently pursued.
13.5 Non-disturbance. As a condition to Tenant's subordination of this Lease
---------------
as provided in the Lease, Landlord agrees to provide Tenant with evidence that
Landlord's mortgagee or ground lessor will recognize this Lease, notwithstanding
any foreclosure or termination of its mortgage or ground lease. Landlord shall
deliver to Tenant a non-disturbance agreement evidencing same within thirty (30)
days after execution hereof, and similar agreements from any future mortgagees
or ground lessor.
14. TENANT'S HOLDOVER
14.1 With Landlord Consent. If Tenant continues, with the knowledge and
----------------------
written consent of Landlord obtained at least thirty (30) days prior to the
expiration of the Lease Term, to remain in the Demised Premises after the
expiration of the Lease Term, then Tenant shall, by virtue of said holdover
agreement, become a tenant from month-to-month at the rent stipulated by
Landlord in said consent, or if none is stipulated, at the monthly rate of Base
Annual Rent and Additional Rent last payable under this Lease (adjusted in
accordance with the provisions of this Lease as if the holdover period were
originally included herein), commencing said monthly tenancy with the first day
next following the end of the Lease Term. All other terms and conditions of
this Lease shall apply to any holdover period(s). Tenant shall give to Landlord
at least thirty (30) days written notice of any intention to quit the Demised
Premises. Tenant shall be entitled to thirty (30) days written notice from
Landlord to quit the Demised Premises, except in the event of nonpayment of the
monthly installment of Base Annual Rent and/or Additional Rent in advance or of
the breach of any other covenant, term or condition of this Lease by Tenant, in
which event Tenant shall not be entitled to any notice to quit, the usual thirty
(30) days notice to quit being hereby expressly waived by Tenant.
14.2 Without Landlord Consent. In the event that Tenant, without the
-------------------------
written consent of Landlord, shall hold over beyond the expiration of the Lease
Term, then Tenant hereby waives all notice to quit and agrees to pay to Landlord
for the period that Tenant is in possession after the expiration of this Lease,
a monthly charge which is one and one-half times the total monthly installment
of Base Annual Rent and Additional Rent in effect during the last month of the
Lease Term. Tenant expressly agrees to reimburse, defend, indemnify and hold
Landlord and Landlord's Agent harmless from all loss and damages which Landlord
or Landlord's Agent may incur in connection with or in defense of claims by
other persons or entities against Landlord, Landlord's Agent or otherwise
arising out of the holding over by Tenant, including without limitation
reasonable attorneys' fees which may be incurred by Landlord or Landlord's Agent
in defense of such claims. Acceptance of Base Annual Rent, Additional Rent or
any other sums due from Tenant hereunder or the performance by Tenant of its
obligations hereunder subsequent to the expiration of the Lease Term, shall not
constitute consent to any holding over. Landlord shall have the right to apply
all payments received after the expiration date of the Lease Term toward payment
for use and occupancy of the Demised Premises subsequent to the expiration of
the Lease Term and toward any other sums owed by Tenant to Landlord, regardless
of how such payment(s) may be designated by Tenant. Landlord, at its option,
may forthwith re-enter and take possession of the Demised Premises in accordance
with legal process. Notwithstanding the foregoing, if Tenant holds over, without
Landlord's written consent, due to acts of God, riot, or war, then such holdover
shall be at the total monthly installment of Base Annual Rent and Additional
Rent applicable to the last month of the Lease Term (adjusted in accordance with
the provisions of this Lease as if the holdover period were originally included
herein), for the duration of the condition (but not to exceed ten (10) days),
but such continued occupancy shall not create any renewal of the term of this
Lease nor shall it create a tenancy from year-to-year, month-to-month, or
otherwise, and Tenant shall be liable for and shall indemnify, defend and hold
harmless Landlord and Landlord's Agent against any loss and damages suffered by
Landlord or Landlord's Agent as described above. Any holdover period during
which the Landlord and Tenant are negotiating the terms and conditions of any
holdover tenancy, new lease or other matter, and/or for which Landlord and
Tenant have failed to reach an agreement as to the rent to be paid during such
holdover period, shall conclusively be deemed to be a holdover without the
consent of Landlord for the purpose of determining the rental to be paid and the
obligations to be performed by Tenant during such period.
15. SECURITY DEPOSIT - Intentionally Omitted
16. QUIET ENJOYMENT
So long as Tenant shall observe and perform the covenants and agreements
binding on Tenant hereunder, Tenant shall at all times during the term herein
granted, peacefully and quietly have and enjoy possession of the Demised
Premises without any encumbrance or hindrance by, from or through Landlord,
except as provided for elsewhere under this Lease. Nothing in this Section
shall prevent Landlord from performing alterations, improvements or repairs on
other portions of the Building not leased to Tenant or from performing
alterations, improvements or repairs within the Demised Premises in accordance
with the provisions of this Lease, nor shall performance of alterations,
improvements or repairs by Landlord, Landlord's Agent or any other Tenant of the
Building be construed as a breach of this covenant by Landlord.
17. SUCCESSORS
<PAGE>
All rights, remedies and liabilities herein given to or imposed upon either
of the parties hereto, shall extend to their respective heirs, executors,
administrators, personal representatives, successors and assigns. This
provision shall not be deemed to grant Tenant any right to assign this Lease or
to sublet the Demised Premises.
18. WAIVER OF JURY TRIAL AND STATUTE OF LIMITATIONS
Landlord and Tenant (and any guarantors and other parties with liability
for the performance of any or all of Tenant's obligations hereunder, as well as
any subtenants, assignees and licensees of Tenant) hereby waive trial by jury in
any action, proceeding or counterclaim brought by either of the parties hereto
against the other or in respect of any matter whatsoever arising out of or in
any way connected with this Lease, the relationship of Landlord and Tenant
hereunder, Tenant's use or occupancy of the Demised Premises, and/or any claim
of injury or damage. Tenant (and any guarantors and other parties with
liability for the performance of any or all of Tenant's obligations hereunder,
as well as any subtenants, assignees and licensees of Tenant) hereby agrees to
submit to the personal jurisdiction of any court of competent jurisdiction
within the state, or the District of Columbia if applicable, in which the
Demised Premises and/or Landlord's principal place of business is located.
19. LIMITATION OF LANDLORD'S LIABILITY; NOTICE
19.1 Landlord's Consent. Notwithstanding anything to the contrary
-------------------
contained in this Lease, if any provision of this Lease expressly or impliedly
obligates Landlord not to unreasonably withhold its consent or approval,
Landlord agrees that it shall comply with such provisions in accordance with
standards used by other Landlord's of comparable office buildings within
Washington, D.C.
19.2 Individual Liability. Tenant acknowledges and agrees that the
---------------------
liability of Landlord with respect to any claim arising out of, related to, or
under this Lease shall be limited solely to its interest in the Building. No
personal judgment shall lie against the Landlord nor any partner of a
partnership constituting Landlord (if Landlord is a partnership) nor any
shareholder of Landlord (if Landlord is a corporation), and none of the same
will be personally liable with respect to any claim arising out of or related to
this Lease. If the Landlord is a partnership, any deficit capital account of
any partner and any partner's obligation to contribute capital shall not be
deemed an asset of the partnership. In the event of sale or other transfer of
the Landlord's interest in the Demised Premises and/or Building, Landlord shall
thereupon and without further act by either party be deemed released from all
liability and obligations hereunder arising out of any act or omission relating
to the Demised Premises, the Building or this Lease, occurring subsequent to the
sale or other transfer. The provisions hereof shall inure to the benefit of
Landlord's successors and assigns, including any mortgagee or trustee under a
deed of trust. The foregoing provisions are not intended to relieve Landlord
from the performance of any of Landlord's obligations under this Lease, but only
to limit the personal liability of Landlord, and its partners or shareholders,
as the case may be; nor shall the foregoing be deemed to limit Tenant's rights
pursuant to this Lease to obtain injunctive relief or specific performance with
respect to any obligations of Landlord hereunder. Notwithstanding any
provisions to the contrary, in no event shall Landlord be released from any
liability, debt or obligation pertaining to periods during which the particular
Landlord owned the Building, nor shall Tenant's right to recover sums from
Landlord's policies of insurance maintained with respect to the Building be
adversely affected by reason of any limitation of Landlord's liability or
similar provisions contained in the Lease.
19.3 Notice in Event of Landlord's Default. Notwithstanding anything to
--------------------------------------
the contrary in this Lease, in no event shall Landlord be deemed to be in
default in the performance of any covenant, condition or agreement herein
contained unless Tenant shall have given Landlord written notice of such
default, and Landlord shall have failed to cure such default within thirty (30)
days after such notice (or if such default is of such nature that it cannot be
completely cured within said thirty (30) days, if Landlord fails to commence to
cure within said thirty (30) days and thereafter proceed with reasonable
diligence and in good faith to effect such cure).
20. AUTHORITY
Landlord and Tenant hereby covenant each for itself, that each has the full
right, power and authority to enter into this Lease upon the terms and
conditions herein set forth. If Tenant signs as a corporation, each of the
persons executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is and shall be throughout the Lease Term, a duly authorized
and existing corporation, qualified to do business in the jurisdiction in which
the Demised Premises are located and is in good standing, that the corporation
has full right and authority to enter into this Lease, and that each of the
persons signing on behalf of the corporation were authorized to do so. If
Tenant signs as a partnership, each of the persons executing this Lease on
behalf of Tenant does hereby covenant and warrant that Tenant is a duly formed
and validly existing partnership, qualified to do business in the jurisdiction
in which the Demised Premises are located, and is in good standing, that the
partnership has full right and authority to enter into this Lease, and that each
of the persons signing on behalf of the partnership were authorized to do so.
21. TENANT'S RESPONSIBILITY REGARDING HAZARDOUS SUBSTANCES
21.1 Hazardous Substances. The term "Hazardous Substances", as used in
---------------------
this Lease, shall include, without limitation, (a) "hazardous wastes", as
defined by the Resource Conservation and Recovery Act of 1976 as amended from
time to time, (b) "hazardous substances", as defined by the Comprehensive
Environmental Response
<PAGE>
Compensation and Liability Act of 1980, as amended from
time to time, (c) "toxic substances", as defined by the Toxic Substances Control
Act, as amended from time to time, (d) "hazardous materials", as defined by the
Hazardous Materials Transportation Act, as amended from time to time, (e) oil or
other petroleum products, (f) any substance whose presence could be detrimental
to the Building, its occupants or visitors, or the environment, (g) substances
requiring special handling, (h) flammables, explosives, radioactive materials,
asbestos, polychlorinated biphenlys (PCBs), chlorofluorocarbons, chemicals known
to cause cancer or reproductive toxicity, pollutants and contaminants, (i) any
infectious and/or hazardous medical waste as the same may be determined from
time to time, and (j) any other substances declared to be hazardous or toxic
under Laws (hereinafter defined) now or hereafter enacted or promulgated by any
Authorities (hereinafter defined).
21.2 Tenant's Restrictions. Tenant's shall not cause or permit to occur:
----------------------
(a) Violations. Any violation of any federal, state and local laws,
-----------
ordinances, regulations, directives, orders, notices and requirements now or
hereafter enacted or promulgated regulating the use, generation, storage,
handling, transportation, or disposal of Hazardous Substances ("Laws"), now or
hereafter enacted, related to environmental conditions on, under, or about the
Demised Premises, the Building and/or the Complex, or arising from Tenant's use
or occupancy of the Demised Premises, Tenant's Property, or Leasehold
Improvements, including, but not limited to, soil and ground water conditions;
and/or
(b) Use. The use, generation, release, manufacture, refining, production,
----
processing, storage, or disposal of any Hazardous Substances on, under, or about
the Demised Premises, the Building and/or the Complex, or the transportation to
or from the Demised Premises of any Hazardous Substances, without the prior
written consent of Landlord, such consent to be granted or withheld in
Landlord's sole and absolute discretion, and, if granted, Tenant's activities
shall be in strict compliance with all Laws. Notwithstanding the foregoing,
Tenant shall be permitted to use normal office products in the course of normal
business operations in compliance with all laws.
21.3 Affirmative Obligations.
------------------------
(a) Compliance with Laws. Tenant shall, at Tenant's own expense, comply
---------------------
with all Laws. Tenant shall, at Tenant's own expense, make all submissions to,
provide all information required by, and comply with all requirements of all
federal, state and local governmental and regulatory authorities (the
"Authorities") under the Laws. Tenant shall promptly provide Landlord with a
copy of all such submissions and information requests.
(b) Clean-Up Plans. Should any Authority or any third party demand that a
---------------
removal or clean-up plan be prepared and that a removal or clean-up be
undertaken because of any deposit, spill, discharge, release, misuse,
prohibition on continued use, act or failure to act with respect to any
Hazardous Substances relating to, occurring on or arising out of Tenant's use or
occupancy of the Demised Premises, Tenant's Property or Leasehold Improvements,
then Tenant shall, at Tenant's own expense, prepare and submit the required
plans and all related bonds and other financial assurances, and Tenant shall
carry out all such removal and clean-up plans within the time limits set by any
Authority or other party. Tenant shall promptly provide Landlord with copies of
notices received from any Authority or third party, and of all removal and
clean-up plans, bonds, and related matters.
(c) Information Requests. Tenant shall promptly provide all information
---------------------
regarding the use, generation, storage, transportation or disposal of Hazardous
Substances that is required hereunder or is requested by Landlord. If Tenant
fails to fulfill any duty imposed under this Section 21 within a reasonable time
(or any shorter period of time if so required by any Authority), Landlord may
(but shall not be obligated to) do so and all costs associated therewith shall
constitute Additional Rent hereunder and shall be immediately due and payable to
Landlord, together with interest thereon calculated at the rate of prime rate
of interest charged by Citibank, N.A. plus 600 basis points per annum. In such
case, Tenant shall cooperate with Landlord in order to prepare all documents
Landlord deems necessary or appropriate to determine the applicability of the
Laws to the Demised Premises, Tenant's use thereof and Tenant's Property and
Leasehold Improvements, and for compliance therewith, and Tenant shall execute
all documents promptly upon Landlord's request. No such action by Landlord and
no attempt made by Landlord to mitigate damages under any Laws shall constitute
a waiver of any of Tenant's obligations under this Section 21.
21.4 Tenant's Indemnity. Tenant shall indemnify, defend and hold
-------------------
harmless Landlord, Landlord's Agent and their respective officers, directors,
beneficiaries, shareholders, partners, agents and employees from all fines,
suits, procedures, claims and actions of very kind, and all costs associated
therewith (including reasonable attorneys' fees and consultants' fees) arising
out of or in any way connected with any deposit, spill, discharge, release,
misuse, prohibition or continued use, act or failure to act, with respect to any
Hazardous Substances or other failure to comply with the Laws which arise at any
time from Tenant's use or occupancy of the Demised Premises or Tenant's Property
or the Leasehold Improvements, or from Tenant's failure to provide all
information, make all submissions and take all steps required by all Authorities
under the Laws and all other related laws.
21.5 Survival of Obligations. Tenant's obligations and liabilities under
------------------------
this Section 21, and the obligations of all guarantors and other parties with
liability for the performance of any or all of Tenant's obligations hereunder,
shall survive the expiration or earlier termination of this Lease.
21.6 Hazardous Substances. Tenant shall have no liability, debt or
---------------------
obligation under this Lease by reason of any use, generation, manufacture,
refining, processing, storage, disposal or release of a Hazardous Substance
unless same was caused by Tenant, or any agent, employee or contractor of
Tenant. Landlord shall be deemed the owner of any such Hazardous Substance, the
existence, use, generation, release, manufacture, refining, processing, storage,
disposal or release of which was not caused by Tenant, or any agent, employee or
contractor of Tenant.
<PAGE>
22. JOINT AND SEVERAL LIABILITY
In the event that two or more individuals, corporations, partnerships or
other business associations (or any combination of two or more thereof) shall
sign this Lease as Tenant or guarantee this Lease as guarantors or are otherwise
liable for the performance of any or all of Tenant's or any guarantor's
obligations, the liability of each such individual, corporation, partnership or
other business association to pay Base Annual Rent, Additional Rent and any
other sums due hereunder and to perform all or any other obligations hereunder
shall be deemed to be joint and several. In like manner, in the event that the
Tenant named in this Lease shall be a partnership or other business association,
the members of which are by virtue of statute or general law subject to personal
liability, then, and in that event, the liability of each such member shall be
deemed to be joint and several. Notwithstanding any other provisions hereof, or
of any rule or provisions of law, the failure or refusal by Landlord to proceed,
in the event of a breach or default by Tenant, against all the individuals,
corporations, partnerships or other business associations comprising the Tenant
(or any combination of two or more thereof) or against Tenant or against one or
more of the guarantors or other parties with liability for the performance of
any or all of Tenant's or any guarantor's obligations, shall not be deemed to be
a release or waiver of any rights which Landlord may possess against such other
individuals, corporations, partnerships or other business associations not so
proceeded against, nor shall the granting by Landlord of a release of, or
execution of a covenant not to sue, any one or more of the individuals,
corporations, partnerships, or other business associations comprising the Tenant
(or any combination of two or more thereof) or the guarantors or other parties
with liability for the performance of any or all of Tenant's or any guarantor's
obligations, constitute a release or waiver, in whole or in part, of any rights
which Landlord may possess against such other individuals, corporations,
partnerships, or associations not so released or granted a covenant not to sue.
23. DEFINITIONS
23.1 Pronouns. Feminine or neuter pronouns shall be substituted for those
---------
of the masculine form, and the plural shall be substituted for the singular
number, in any place or places herein in which the context may require such
substitution or substitutions. Landlord and Tenant herein for convenience have
been referred to in the neuter form.
23.2 Demised Premise. Wherever the word "premises" or the phrase "demised
----------------
premises" is used in this Lease, it shall refer to the Demised Premises
described in Section 1.1, unless the context clearly requires otherwise.
23.3 Lease Term. Wherever the phrase "Lease Term" or the phrase "term of
-----------
this Lease" is used in this Lease, it shall refer to the Lease Term described in
Section 1.2(a) and any extensions and renewals thereof validly and timely
exercised by Tenant, unless the context clearly requires otherwise.
23.4 Tenant's Property. Wherever the phrase "Tenant's Property" is used in
------------------
this Lease, it shall refer to the Tenant's Property described in Section 12.8,
unless the context clearly requires otherwise.
23.5 Leasehold Improvements. Wherever the phrase "Leasehold Improvements"
-----------------------
is used in this Lease, it shall refer to the Leasehold Improvements described in
Section 12.9(a), unless the context clearly requires otherwise.
24. NOTICE TO PARTIES
24.1 Addresses for Notices. All notices required or desired to be given
----------------------
hereunder by either party to the other shall be in writing and personally
delivered or given by overnight express delivery service or by certified or
registered mail (delivery and/or postage charges prepaid) and addressed as
specified in Section 1.9. Either party may, by like written notice, designate a
new address to which such notices shall be directed.
24.2 Effective Date of Notice. Notices personally delivered shall be
-------------------------
deemed effective upon delivery; notices sent by certified or registered mail
shall be deemed effective upon the earlier of (i) the date of receipt or
rejection by the addressee, or (ii) three (3) days following the date of mailing
(excluding Sundays and holidays on which mail is not delivered by the United
States Postal Service). Notwithstanding the foregoing, any notice pertaining to
a change of address of a party shall be deemed effective only upon receipt or
rejection by the party to whom such notice is sent.
25. NOTICE TO MORTGAGEES
In addition to any notices required by Section 13.4, if any mortgagee shall
notify Tenant that it is the holder of a mortgage affecting the Demised premises
and that it is requesting Tenant to provide the mortgagee with copies of notices
sent by Tenant to Landlord, no notice, request or demand thereafter sent by
Tenant to Landlord shall be
<PAGE>
effective unless and until a copy of the same shall also be sent to such
mortgagee in the manner prescribed in Section 24 and to such address as such
mortgagee or trustee shall designate.
26. SPECIAL PROVISIONS; EXHIBITS
26.1 Incorporation in Lease. It is agreed and understood that any Special
-----------------------
Provisions and Exhibits referred to in Sections 1.10 and 1.11, respectively, and
attached hereto, form an integral part of this Lease and are hereby incorporated
by reference.
26.2 Conflicts. If there is a conflict between a Special Provision hereto
----------
and the Exhibits, Specific Provisions or General Provisions of this Lease, the
Special Provision shall govern. If there is a conflict between a Specific
Provision and the Exhibits or General Provisions of this Lease, the Specific
Provision shall govern. If there is a conflict between the Exhibits and the
General Provisions, the Exhibits shall govern.
27. CAPTIONS
All section and paragraph captions herein are for the convenience of the
parties only, and neither limit nor amplify the provisions of this Lease.
<PAGE>
28. ENTIRE AGREEMENT; MODIFICATION
This Lease, all Exhibits, and the Specific and Special Provisions
incorporated herein by reference are intended by the parties as a final
expression of their agreement and a complete and exclusive statement of the
terms thereof, all negotiations, considerations and representations between the
parties having been incorporated herein. No course of prior dealings between
the parties or their officers, partners, employees, agents or affiliates shall
be relevant or admissible to supplement, explain or vary any of the terms of
this Lease, the Exhibits and the Specific and Special Provisions. Acceptance
of, or acquiescence in, a course of performance rendered under this or any prior
agreement between the parties, their agents or their affiliates shall not be
relevant or admissible to determine the meaning of any of the terms of this
Lease, the Exhibits and the Specific and Special Provisions. Tenant hereby
acknowledges that Landlord, Landlord's Agent and their respective agents and
employees made no representations, warranties, understandings or agreements
pertaining to the condition of the Building or the Demised Premises, or
otherwise, which have induced Tenant to execute, or have been relied upon by
Tenant in the execution of this Lease, other than those specifically set forth
herein. This Lease can be modified only by a writing signed by both parties
hereto. The language of this Lease shall in all cases be construed as a whole
and according to its fair meaning, and not strictly for or against either
Landlord or Tenant. The interpretation or construction of this Lease shall be
unaffected by any argument or claim, whether or not justified, that this Lease
has been prepared, wholly or in substantial part, by or on behalf of Landlord or
Tenant. Tenant acknowledges that it has had, or has had the opportunity to
have, legal counsel of Tenant's choice to negotiate on behalf of (and/or explain
to) Tenant the provisions of this Lease. Any consent or approval required or
desired of Landlord, or any decision under this Lease committed to the
discretion of Landlord hereunder, may be withheld, delayed, conditioned or
exercised by Landlord in its sole, absolute and arbitrary discretion unless the
provision of this Lease requiring such consent or approval, or decision under
this Lease committed to the discretion of Landlord, expressly states that
Landlord shall not withhold, delay, condition or exercise such consent, approval
or discretion unreasonably.
29. SEVERABILITY
The unenforceability, invalidity, or illegality of any provision herein
shall not render any other provision herein unenforceable, invalid, or illegal.
30. BINDING EFFECT OF LEASE
The submission of an unsigned copy of this document to Tenant for
examination or signature shall not constitute an option, reservation or offer to
lease space in the Building. This Lease shall become effective and binding only
upon execution and delivery by both Landlord and Tenant, and shall be
enforceable in accordance with its terms from and after the date this Lease is
fully executed and delivered by Landlord and Tenant.
31. FORCE MAJEURE
If Landlord or Tenant is in any way delayed or prevented from performing
any obligation due to fire, act of God, governmental act or failure to act,
labor dispute, inability to procure materials or any cause beyond Landlord's or
Tenant's reasonable control (whether similar or dissimilar to the foregoing
named events), then the time for performance of such obligation shall be excused
for the period of such delay or prevention and extended for a period equal to
the period of such delay or prevention.
32. RECORDATION
Neither this Lease nor a memorandum hereof shall be recorded by Tenant.
Any violation of this Section shall be a default hereunder and Tenant agrees to
pay all costs and expenses, including attorneys' fees, necessary to remove this
Lease or any memorandum hereof from record. Tenant irrevocably constitutes and
appoints Landlord as its special attorney-in-fact to prepare, execute and record
such instrument(s), the foregoing power of attorney being deemed to be coupled
with an interest.
33. TIME OF ESSENCE
Tenant acknowledges that time is of the essence in its performance of any
and all obligations, terms and provisions of this Lease.
34. BROKERS
Tenant represents and warrants that it did not retain, nor consult with,
any broker or real estate salesperson (other than Grubb & Ellis) with respect to
this Lease. Tenant agrees to indemnify and hold Landlord and Landlord's Agent
harmless from and against any claims for brokerage or other commissions arising
by reason of a breach by Tenant of the foregoing representation and warranty.
Tenant agrees to pay, or upon demand reimburse
<PAGE>
Landlord and Landlord's Agent, for all costs and expense, including attorneys'
fees, necessary to remove from record any lien filed against the rents payable
pursuant to this Lease and/or against the Demised Premises and/or the Building,
by reason of a breach by Tenant of the foregoing representation and warranty.
35. RELATIONSHIP OF LANDLORD AND TENANT
Nothing in this Lease shall be interpreted or construed as creating any
partnership, joint venture, agency or any other relationship between the
parties, other than that of landlord and Tenant.
36. TERMINATION RIGHT
Provided that Tenant is not in Default, Tenant shall have five options to
terminate the lease after the fifth lease year. Such options will be effective,
if exercised properly, at the beginning of the sixth, seventh, eighth, ninth and
tenth lease years. In order to properly exercise one of these options, Tenant
must: (i) provide written notice to Landlord no later than eight (8) months
prior to the proposed termination date; and (ii) pay to Landlord no later than
thirty (30) days prior to the effective termination date, an amount equal to the
then-unamortized costs (based upon a ten (10) year period and computed as of the
effective date of the termination and not the notice date and using a 9% per
---
annum assumed interest rate) incurred by Landlord for the following items:
(i) the $25.00 per square foot allowance provided by Landlord, to the
extent incurred by Landlord or used by Tenant against its rental obligations
hereunder;
(ii) the construction management fee incurred by Landlord with respect to
the Construction Improvements, not to exceed $12,187.50;
(iii) brokerage commissions paid to Grubb & Ellis with respect to this
Lease; and
(iv) to the extent documented to Tenant by written notice from Landlord
within the first sixty (60) days of the Lease Term, those reasonable supervisory
out-of-pocket fees actually paid by Landlord to its independent architects or
engineers in reviewing Tenant's proposed plans and specifications for the
Construction Improvements.
<PAGE>
EXHIBIT C
BUILDING RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights of other tenants of
the Building or the Complex, or of persons having business in the Building
or the Complex, or in any way injure or annoy such tenants or persons.
Tenant will not conduct any activity within the Demised Premises which will
create excessive traffic or noise anywhere in the Building or the Complex.
Tenant shall not bring or keep within the Building any animal, bicycle,
motorcycle, or type of vehicle except as required by law.
2. Tenant shall promptly report to Landlord's Agent all accidents and incidents
occurring on or about the Demised Premises, the Building and/or the Complex
which involve or relate to the security and safety of persons and/or
property.
3. Tenant shall use and occupy the Demised Premises only for the purposes
specified in Section 1.8 of the Lease and for no other purpose whatsoever,
and shall comply, and cause its employees, agents, contractors, invitees and
other users of the Demised Premises to comply, with applicable zoning and
other municipal regulations, including but not limited to smoking
regulations. Canvassing, soliciting and peddling in the Building or anywhere
in the Complex are prohibited, and Tenant shall cooperate to prevent such
activities.
4. All office equipment and any other device of any electrical or mechanical
nature shall be placed by Tenant in the Demised Premises in settings
approved by Landlord, so as to absorb or prevent any vibration, noise, or
annoyance. Tenant shall not construct, maintain, use or operate within the
Demised Premises or elsewhere in the Building or outside of the Building any
equipment or machinery which produces music, sound or noise, which is
audible beyond the Demised Premises. Tenant shall not cause objectionable
noises, vibrations or odors within the Building.
5. Tenant shall not deposit any trash, refuse, cigarettes, or other substances
of any kind within or out of the Building, except in the refuse containers
provided therefor. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed
of in the ordinary and customary manner of removing and disposing of office
building trash and garbage without being in violation of the Lease or any
law or ordinance governing such disposal. Tenant shall be charged the cost
of removal for any items left by Tenant that cannot be so removed. All
garbage and refuse disposal shall be made only through entry ways and
elevators provided for such purposes and at such times as Landlord shall
designate. Tenant shall not introduce into the Building any substance which
might add an undue burden to the cleaning or maintenance of the Demised
Premises or the Building. Tenant shall exercise its best efforts to keep the
sidewalks, entrances, passages, courts, lobby areas, garages or parking
areas, elevators, escalators, stairways, vestibules, public corridors and
halls in and about the Building (hereinafter "Common Areas") clean and free
from rubbish. Tenant shall not cause any unnecessary labor by reason of
Tenant's carelessness or indifference in the preservation of good order and
cleanliness.
6. Tenant shall use the Common Areas only as a means of ingress and egress, and
Tenant shall permit no loitering by Tenant's agents, employees, visitors or
invitees upon Common Areas or elsewhere within the Building. Tenant shall
comply, and cause its employees, agents, contractors, invitees and other
users of the Demised Premises to comply, with all rules and regulations
adopted by Landlord governing the use of the Common Areas. The Common Areas
and roof of the Building are not for the use of the general public, and
Landlord shall in all cases retain the right to control or prevent access
thereto by all persons whose presence, in the judgment of Landlord, shall be
prejudicial to the safety, character, reputation or interests of the
Building and its tenants. Tenant shall not enter or install equipment in the
mechanical rooms, air conditioning rooms, electrical closets, janitorial
closets, or similar areas or go upon the roof of the Building without the
prior written consent of Landlord. Tenant shall not install any radio or
television antenna, loudspeaker, or other device on the roof or exterior
walls of the Building. Tenant shall not, nor shall Tenant's agents,
employees or contractors, enter or install equipment in or at the equipment
room(s) or closet(s), inside telecommunications and/or data transmission
wire space and/or conduits or the telephone wire demarcation point in the
Building without Landlord's prior consent.
7. Without limitation upon any of the provisions of the Lease, Tenant shall not
mark, paint, drill into, cut, string wires within, or in any way deface any
part of the Building, without the prior written consent of Landlord, and as
Landlord may direct. Upon removal of any wall decorations or installations
or floor coverings by Tenant, any damage to the walls or floors shall be
repaired by Tenant at Tenant's sole cost and expense. Tenant shall not lay
linoleum or similar floor coverings so that the same shall come into direct
contact with the floor of the Demised Premises and, if linoleum or other
similar floor covering is to be used, an interlining of builder's deadening
felt shall be first affixed to the floor, by a paste or other materials
soluble in water. The use of cement or other similar adhesive material is
expressly prohibited. Floor distribution boxes for electric and telephone
wires must remain accessible at all times.
8. Tenant shall not install or permit the installation of any awnings, shades,
mylar films or sunfilters on windows. Tenant shall cooperate with Landlord
in obtaining maximum effectiveness of the cooling system of the Building by
closing drapes and other window coverings when the sun's rays fall upon
windows of the Demised Premises. Tenant shall not obstruct, alter or in any
way impair the efficient operation of the Systems, nor shall Tenant tamper
with or change the setting of any thermostat or temperature control valves
in the Building (this is not applicable in VAV buildings). Tenant shall not
cover induction units.
<PAGE>
9. Tenant shall not use the washrooms, restrooms and plumbing fixtures of the
Building, and appurtenances thereto, for any purpose other than the purpose
for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags, or toxic or flammable products, or other improper
substances, therein. Tenant shall not waste water by interfering or
tampering with the faucets or otherwise. If Tenant or Tenant's employees,
agents, contractors, jobbers, licensees, invitees, guests or visitors cause
any damage to such washrooms, restrooms, plumbing fixtures or
appurtenances, such damage shall be repaired at Tenant's expense, and
Landlord shall not be responsible therefor.
10. Subject to applicable fire or other safety regulations, all doors opening
onto Common Areas and all doors upon the perimeter of the Demised Premises
shall be kept closed and, during non-business hours, locked, except when in
use for ingress or egress. If Tenant uses the Demised Premises after
regular business hours or on non-business days, Tenant shall lock any
entrance doors to the Building or to the Demised Premises used by Tenant
immediately after using such doors. Tenant shall cooperate with energy
conservation by limiting use of lights to areas occupied during non-
business hours.
11. Employees of Landlord shall not receive or carry messages for or to Tenant
or any other person, nor contract with nor render free or paid services to
Tenant or Tenant's employees, contractors, jobbers, agents, invitees,
licensees, guests or visitors. In the event that any of Landlord's
employees perform any such services, such employees shall be deemed to be
the agents of Tenant regardless of whether or how payment is arranged for
such services, and Tenant hereby indemnifies and holds Landlord harmless
from any and all liability in connection with any such services and any
associated injury or damage to property or injury or death to persons
resulting therefrom.
12. All keys to the exterior doors of the Demised Premises shall be obtained by
Tenant from Landlord, and Tenant shall pay to Landlord a reasonable deposit
determined by Landlord from time to time for such keys. Tenant shall not
make duplicate copies of such keys. Tenant shall, upon the termination of
its tenancy, provide Landlord with the combinations to all combination
locks on safes, safe cabinets, and other key-controlled mechanisms therein,
whether or not such keys were furnished to Tenant by Landlord. In the event
of the loss of any key furnished to Tenant by Landlord, Tenant shall pay to
Landlord the cost of replacing the same or of changing the lock or locks
opened by such lost key if Landlord shall deem it necessary to make such a
change. The word "key" as used herein shall refer to keys, keycards, and
all such means of obtaining access through restricted access systems.
13. No signs, advertisements or notes shall be painted or affixed on or to any
windows, doors or other parts of the Building visible from the exterior
(other than as expressly permitted by the terms of the Lease), or to any
Common Area or public area of the Building.
14. Landlord will provide and maintain a directory board for the Building, in
the main lobby of the Building, and no other directories shall be allowed.
15. All contractors, contractors' representatives and installation technicians
tendering any service to Tenant shall be referred by Tenant to Landlord for
Landlord's supervision, approval and control before the performance of any
contractual service. This provision shall apply to all work performed in
the Building.
16. After initial occupancy, movement in or out of the Building of furniture or
office equipment, or dispatch or receipt by Tenant of any bulky material,
merchandise or material which requires use of elevators shall be restricted
to the use of freight elevators only. Absolutely no carts or dollies are
allowed through the main entrances or on passenger elevators. All items not
hand carried must be delivered via the appropriate loading dock and freight
elevator, if any.
17. No portion of the Demised Premises shall at any time be used or occupied as
sleeping or lodging quarters.
18. Landlord shall have the power to prescribe the weight and position of safes
and other heavy equipment, which shall in all cases, to distribute weight,
stand on supporting devices approved by Landlord. All damages done to the
Building by taking in or putting out any property of Tenant, or done by
Tenant's Property while in the Building, shall be repaired at the expense
of Tenant.
19. For purposes hereof, the terms "Landlord", "Landlord's Agent", "Tenant",
"Complex", "Building", "Demised Premises", "Tenant's Property" and
"Systems" are defined in the Lease to which these rules and regulations are
attached. Wherever these terms appear in the rules and regulations they
shall have the same meaning as defined in the Lease.
20. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the agreements,
covenants, conditions and provisions of any lease of any premises in the
Building except to the extent the Lease expressly reflects the right of
Tenant to do otherwise.
Exhibit C - Page 2
<PAGE>
Exhibit C - Page 3
<PAGE>
EXHIBIT F
CONSTRUCTION OF PREMISES
1.2 (a) Notwithstanding any provision in the Lease to the contrary, Tenant
will cause its contractor, Salameh Construction or such other contractor
reasonably acceptable to Landlord to construct the "Construction Improvements"
(as such term is defined in the Lease) to the demised premises. The Construction
Improvements are referred to herein as the "Tenant Improvement". Both parties
recognize that in order to have the demised premises substantially completed as
soon as practicable, it is essential that the procedures set forth herein be
expeditiously implemented and adhered to, and that plans and specifications for
Tenant's Improvements be prepared as early as reasonably practicable so as to
enable the mutually agreed upon contractor to complete such work promptly and at
the lowest possible cost to Landlord and Tenant. Accordingly, Tenant agrees to
furnish Landlord with its space plan ("Space Plan") prepared by Dennis Burns of
Burns & Associates (the "Architect") including final partition and other layout
requirements, telephone and electrical requirements, lighting, finish
selections, equipment specifications, and any special items for the demised
premises on or before December 16, 1998. The Space Plan shall be subject to
approval by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed and shall be given within five (5) business days. If
Landlord does not respond within said five (5) business day period, Tenant shall
send Landlord a second written request for approval and if Landlord fails to
respond within three (3) business days following the second request, it shall be
deemed that Landlord has approved the Space Plan. Upon approval of the Space
Plan by Landlord, Tenant shall cause the Architect to prepare and submit to
Landlord for approval detailed plans, specifications and working drawings (the
"Plans") for the construction of Tenant's Improvements to the demised premises.
Such Plans shall be delivered to Landlord for its approval by Tenant on or
before January 12, 1999. Such Plans shall be full permit ready Plans complete
with pricing notes. Landlord acknowledges that Tenant shall use the Plans to
obtain all permits and approvals which are necessary to construct Tenant's
Improvements. Tenant shall apply for the required Building permit(s) as soon as
practicable following approval of the plans and specifications by Landlord and
thereafter diligently process such application. After approval of the Plans by
Landlord, which approval shall not be unreasonably withheld, delayed or
conditioned, no further changes to the Plans shall be made without the prior
written approval by the Landlord unless expressly below set forth in the case of
re-pricing changes. As used herein, the term "Tenant's Improvements" shall
include all work to be done in the demised premises pursuant to the Plans
including, but not limited to: partitioning, doors, ceiling, floor covering,
wall finishes (including paint and wall coverings), window coverings, electrical
(excluding plumbing), heating ventilating and air conditioning, fire protection,
cabinets and other millwork. Tenant acknowledges that Landlord's review and
approval of the Plans is not conducted for the purposes of determining the
accuracy and completeness of the Plans, or compliance with applicable codes and
governmental regulations including the Americans With Disabilities Act ("ADA")
or their sufficiency for purposes of obtaining a building permit, all of which
remain the responsibility of Tenant and Architect. Accordingly, except as
otherwise provided herein, Landlord shall not be responsible for any delays in
obtaining a building permit, all of which remain the responsibility of Tenant
and Architect. Accordingly, except as otherwise provided herein, Landlord shall
not be responsible for any delays in obtaining the building permit due to the
insufficiency of the Plans or any delays due to changes in the Plans required by
the applicable government or regulatory agencies reviewing the Plans which such
delay shall be deemed Tenant delay. Upon approval of the Plans, Tenant shall
have the final approved Plans competitively priced. However, by reason of the
time frames involved, Tenant may not necessarily select the lowest bidder. Said
contractors shall provide Landlord and Tenant with final estimated bids (the
"Cost Breakdown") for completion of the Tenant Improvements which such bids
shall include, without limitation, construction cost of the Improvements, sales
and use taxes, testing and inspection costs and construction fees. The Cost
Breakdown shall identify potential long-lead items, if any. Within five (5)
business days after receipt by Tenant of the Cost Breakdown, Tenant shall either
approve the same in writing or shall provide Landlord with a detailed list of
revisions to the approved Plans acceptable for repricing, including any
necessary modifications to the Plans to enable such repricing. Any time delay
incurred in the approval of the Cost Breakdown due to Tenant's failure to
approve the same in writing or to submit its revisions within such five (5)
business day period shall constitute Tenant delay. Tenant shall incorporate the
suggested revisions and deliver such revisions or modifications to Tenant within
five (5) business days. Within five (5) days following receipt by Tenant of such
revisions or modifications, Tenant shall give its written approval with respect
thereto or shall request other revisions or modifications therein, and any time
delay incurred with the approval of the Cost Breakdown from the date of the
second notice of this approval shall constitute Tenant delay.
(b) Construction will be performed by the contractor designated by Tenant.
Landlord will provide Tenant with a construction allowance of Twenty-Four and
62.5/100 Dollars ($24.625) per rentable square feet of space on the Fourth and
Sixth Floor (them "Construction Allowance") (i.e $25.00 less a $.375 per square
foot construction management fee). The Construction Allowance may be used for
all phases of Tenant's Improvement, including for Tenant's space planning,
design and construction plans provided that at least $17.625 of the $24.625 per
square foot Construction Allowance is devoted to hard and soft costs of
construction and/or provision of the supplemental HVAC and/or supplemental
sprinkler system, as well as costs not in excess of $3.00 per square foot to
bring fiber optic cable to the Premises and Building). Tenant shall be entitled
to be reimbursed any portion or portions of the $17.625 per square foot portion
at anytime during the Lease Term, and to the extent the $17.625 per square foot
portion is not expended by Tenant with respect to the Tenant Improvements,
Tenant shall be free to use such portion towards construction costs incurred
with respect to any subsequent alterations or installations made at the Premises
by Tenant. Any unused portion of the Construction Allowance, not in excess of
$7.00 per square foot, can be used by Tenant against the first rentals otherwise
payable under this Lease at anytime from and after the Commencement Date and/or
costs to obtain Wiring and Cabling, fiber optic cable, or electric to or at the
Premises, and/or Tenant's generator. Landlord agrees to disburse the
Construction Allowance on a monthly basis directly to the general contractor or
others as directed by Tenant on
Exhibit F Page 1
<PAGE>
account of work performed, or in the event Tenant has paid the requested amount
itself directly to such contractor or other party, Landlord shall reimburse
Tenant the portion of the Construction Allowance to which Tenant is then
entitled, based upon paid receipts submitted to Landlord. Tenant shall provide a
proposed monthly requisition no later than the twenty-fifth (25th) day of the
calendar month preceding the month in which Tenant requests such disbursement in
order to permit Landlord to process Tenant's request by the tenth (10th) day of
the following month.
(c) The Lease Commencement Date shall be determined in Paragraph 1.2 (a) of
this Lease, except that if the demised premises are not substantially completed
through no fault or delay occasioned by Tenant the same shall not be considered
a default by Landlord and, the sole remedy shall be that the Lease Commencement
Date shall be delayed until the earlier of (i) the date identified in written
notice to Tenant as the date that the demised premises was or will be
substantially completed or (ii) the date which is identified in written notice
to Tenant as the date that the demised premises would have been substantially
completed if not for the delays set forth below in subsection (e). The
assumption of possession of the demised premises by Tenant shall constitute an
acknowledgment by Tenant that the demised premises are in good condition and the
work done by Landlord therein is satisfactory and accepted in their then "as is"
condition subject to punchlist items. For purposes herein, "substantially
completed" shall be in Section 3.1 (c).
(d) Landlord and Tenant each acknowledge that any delays on its part in
submitting requirements and reviewing and approving plans or prices and any
changes requests made by Tenant may affect the timely completion of the demised
premises. In the event of any Tenant delay beyond the time periods called for in
this Exhibit, any resulting delay in the completion of construction of the
demised premises shall be at Tenant's sole cost and expense, and Tenant shall
pay to Landlord an amount equal to one thirtieth (1/30th) of the Base Annual
Rent due for the first full calendar month of the Term for each day of Tenant
delay if the demised premises would have been substantially completed by such
date but for the Tenant delay. In the event of any Landlord delay beyond the
time periods called for in this Exhibit, the Lease Commencement Date shall be
postponed on a one and one-half (1.5) days for each day of delay. The Lease
Commencement Date shall not be extended due to Tenant delay. Punchlist items
shall not affect the Lease Commencement Date.
(e) Landlord and Tenant expressly agree that possession of the Demised Premises
shall be tendered promptly following execution of this Lease to commence
construction, subject to Tenant's compliance with the Landlord's approval rights
above. Possession shall be delivered to Tenant in "as-is" condition, with any
supplemental equipment (electric, mechanical, HVAC, generators, etc.) presently
located in the Demised Premises being tendered to Tenant.
Notwithstanding any provision either in the Lease or this Exhibit to the
contrary, Landlord and Tenant further expressly agree that Tenant will occupy at
least one-half of the Premises following substantial completion of the initial
portion of the demised premises occupied by Tenant (i.e the "Initial Substantial
Completion Date"), and to defer completion (and rent commencement) on the
remaining portion (the "Remaining Portion") for a period not in excess of one
and one-half (1.5) months. However, within one month from the Initial
Substantial Completion Date, Tenant shall commence payment of rent on no less
than 75% of the entire demised premises, with Tenant to pay rent on the entire
Premises no later than expiration of one and one-half months following the
Initial Substantial Completion Date. Tenant shall be permitted the right to
commence beneficial use and occupancy (i.e. place personnel within conducting
business operations therein as opposed to placement of furniture, fixtures or
equipment) of any part or parts of the Remaining Portion as Tenant determines,
and rent shall not commence on any particular part of the Remaining Portion
until such beneficial use shall occur (prior to expiration of the aforesaid one
and one-half month period). Nothing contained herein shall be deemed to limit
the rights of Tenant to defer rent commencement on the portion of the fourth
floor presently occupied by GSA should GSA fail to surrender such premises by
December 15, 1998.
Exhibit F - Page 2
<PAGE>
EXHIBIT 10.32
SETTLEMENT AGREEMENT
--------------------
SETTLEMENT AGREEMENT dated as of January 24, 1999, by and among Inline
Connection Corporation (hereinafter "Inline), a corporation existing under the
Laws of the State of Virginia, having its principal place of business at 730 N.
Danville Street, Arlington, Virginia 22201; CAIS, Inc. (hereinafter "CAIS") a
corporation existing under the laws of the State of Virginia, having its
principal place of business at 6861 Elm Street, McLean, Virginia 22101; and Terk
Technologies,Corp. (hereinafter "Terk"), a New York Corporation, having its
principal place of business at 63 Mall Drive, Commack, New York 11725.
WHEREAS, Inline is the owner and/or assignee of all right, title and
interest in and to certain patents, patent applications and technology for
products which transmit one or more signals onto twisted pair wires at
frequencies above 3KhZ, and products that receive one or more signals at
frequencies above 3KhZ, by connection to twisted pair wires; and
WHEREAS, Inline and Terk entered into an exclusive license agreement
within a specified field of use, dated as of December 17, 1994 entitled
Licensing Agreement Terk Technologies ----- Inline Connection (the " Inline/Terk
Agreement"); and
WHEREAS, Inline and CAIS entered into an agreement dated November 5,
1996 entitled "Agreement for Cooperative Use of Communication Patents" (the
"Inline/CAIS Agreement"); and
WHEREAS, a dispute has arisen in connection with the Inline/Terk
Agreement, which dispute is currently pending before the American Arbitration
Association and entitled "In the Matter of the Arbitration between Inline
Connection Corporation and Terk Technologies, Inc.", Claim No.: 13 133 0078397
("the Arbitration"); and
1
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WHEREAS, a dispute has arisen concerning the patents, patent
applications and technology owned and/or assigned by Inline and/or David D.
Goodman, which dispute is currently the subject of a patent infringement and
related claims lawsuit pending in the United States District Court, Eastern
District of New York, entitled "Terk Technologies Corp. v. CAIS, Inc., Ulysses
G. Auger II, Inline Connection Corp., and David Goodman", Civil Action No.: CV
98 5942 (Wexler, J.) (hereinafter "the District Court Action"); and
WHEREAS, the parties to this Agreement desire to settle the disputes
pending, or which could have been raised, in the Arbitration and the District
Court Action and, modify, amend and clarify the respective rights of the parties
concerning the Inline/Terk Agreement.
NOW, THEREFORE, in consideration of the above premises and such other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties do hereby agree as follows:
1. Dismissal of Actions.
--------------------
The Arbitration and the District Court Action, referenced above, shall
be dismissed with prejudice, and the parties to those proceeding shall each
execute Stipulated Dismissals in the forms annexed hereto as Exhibits "A" and
"B", respectively (hereinafter collectively the "Stipulated Dismissals").
Counsel shall promptly sign and file the Stipulated Dismissals. Each party to
the Arbitration and District Court Action shall bear its/his own costs, expenses
and fees, including but not limited to expert witness and attorneys fees.
2. Amendment of Inline/Terk Agreement.
-----------------------------------
(a) Scope of License - Subject to and pursuant to the terms and
----------------
conditions of this Agreement, the Inline/Terk Agreement shall be amended as
follows:
2
<PAGE>
(i) the second grammatical paragraph appearing in page 1 shall be
amended to read as follows:
"As part of this agreement, Inline hereby grants to Terk a non-
exclusive license, under the intellectual property defined below, to build, use,
manufacture, have manufactured, market, distribute, sell and to otherwise
commercialize products utilizing or incorporating the technology, as defined
below, in the field of use, as defined below".
(ii) the third grammatical paragraph on page 2 of the Inline/Terk
Agreement is hereby amended to read as follows:
"Terk shall not have the right to sublicense its rights to the
technology, and may use the technology within the field of use permitted by this
Agreement only in conjunction with (a) products manufactured by or for Terk or
(b) for the purpose of OEM and private label sales by Terk of products utilizing
the technology."
(iii) the "Field of Use" Section appearing on page 2 of the
Inline/Terk Agreement is hereby amended to read as follows:
"The Field of Use is strictly confined to residential settings,
specifically single-family dwellings and inside apartment and other multi-family
residential units, and bars, restaurants, coffee shops, and other business
establishments earning at least 90% of their revenues from the sale of food and
beverages consumed on premises. Specifically excluded from the Field of Use are
non-residential sites including specifically, but not exclusively, hotels,
hospitals, schools, all commercial sites (other than those listed in the first
sentence of this "Field of Use" section), and office buildings.
With respect to apartment and other multi-family residential
buildings, the only use permitted in the Field of Use is the transmission of
signals internal within the residential unit.
3
<PAGE>
Use of the technology to transmit signals to the building and from the
"telephone wiring closet", commonly found on the ground floor of apartment
buildings, or a similar point of convergence of wires leading to terminations in
different apartment or different residential units, is specifically excluded
from the Field of Use.
Terk shall adhere to the foregoing Field of Use limitations, and Terk
has no license rights outside the Field of Use prescribed herein. Terk agrees
to affix the following label on all products sold under this agreement: "For
Residential Use Only". Terk further agrees to place the foregoing Field of Use
limitation in all sales contracts or other agreements relating to the licensed
products with the proviso: "This limitation is the only agreement on its
subject and shall supersede all contradictory agreements. It may be enforced by
Inline Connection Corporation." Terk shall be released from any claims for any
violation of the terms of this section if this Field of Use limitation was
included in the contract to sell the violating products or is contained in the
user's manual.
(b) Royalties - Subject to and pursuant to the terms and conditions of this
---------
Agreement, the Inline/Terk Agreement is hereby amended as follows:
(i) the portion of the Inline/Terk Agreement entitled "Royalty
Rate" beginning on page 3 of the Inline/Terk Agreement and ending on page 4 of
the Inline/Terk Agreement is hereby amended by the addition of the following
paragraph at the end of such section:
-
"Nothing contained herein to the contrary notwithstanding, any
royalties, commissions or other payments of any kind or nature payable by CAIS
or its parents, subsidiaries or affiliates to Terk, whether pursuant to the
terms of this Agreement or otherwise, shall not be subject to the payment of
royalties to Inline pursuant to this Agreement or included in any way in the
calculation of royalties due to Inline pursuant to this Agreement."
4
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(ii) the first paragraph of the portion of the Inline/Terk
Agreement entitled "Minimum Annual Royalties" beginning on page 4 of the
Inline/Terk Agreement and ending on page 5 of the Inline/Terk Agreement is
hereby amended to read as follows:
"MINIMUM ANNUAL ROYALTIES
Terk is required to pay Inline the following minimum royalties:
- $25,000 payable no later than December 31, 1995
- $25,000 payable no later than December 31, 1996
Thereafter, no minimum royalties shall be payable by Terk. Inline
acknowledges the above royalties have been paid in full."
(c) Deletions - Subject to and pursuant to the terms and conditions of
---------
this Agreement, the Inline/Terk Agreement is hereby amended by deleting the
following provisions:
(i) the Section entitled "Best Efforts" appearing on page 5 of the
Inline/Terk Agreement is hereby deleted in its entirety and shall no longer
have any force and effect;
(ii) the Section entitled "Enforcement of Intellectual Property
Rights" appearing on page 5 of the Inline/Terk Agreement is hereby deleted
in its entirety and shall no longer have any force and effect;
(iii) the Section of the Inline/Terk Agreement entitled "Exchange of
Intellectual Property Rights" beginning at the bottom of page 5 and
carrying over to the top of page 6 of the Inline/Terk Agreement is deleted
in its entirety and shall no longer have any force and effect; and
(iv) the Section of the Inline/Terk Agreement entitled
"Consultation and Commercial Development" appearing on page 6 of the
Inline/Terk Agreement is deleted in its entirety and shall no longer have
any force and effect.
5
<PAGE>
(d) Construction and Jurisdiction - Subject to and pursuant to the terms
-----------------------------
of this Agreement, the "Construction and Jurisdiction" section, appearing on
page 8 of the Inline/Terk Agreement, shall be amended as follows:
"This Agreement shall be construed, interpreted and applied in
accordance with the laws of the State of New York applying to contracts fully
executed and performed in New York. In the event of any dispute in connection
with this Agreement, or the provisions thereof, the parties agree and consent
that any lawsuit filed by Inline shall be filed in the United States District
Court for the Eastern District of New York , and any lawsuit filed by Terk shall
be filed in the United States District Court for the District of Columbia.. The
parties further agree and consent that the trial of such action by either
District Court shall be without a jury."
(e) Assignability - Subject to and pursuant to the terms of this
-------------
Agreement, the "Assignment" section appearing at the top of page 8 of the
Inline/Terk Agreement shall be amended as follows:
(i) The first grammatical paragraph appearing on page 8 shall be
amended to read as follows: "The rights and obligations set forth in this
Agreement are not severable by any party hereto. Inline shall have the right to
assign its rights and obligations under this Agreement on the condition that the
assignee assume, in writing, all of Inline's obligations under the Inline/Terk
Agreement, and upon receiving the written consent of Terk, which consent shall
not be unreasonably withheld. It is understood and agreed between the parties
hereto that the license granted to Terk is personal and indivisible. The rights
and obligations of Terk under this Agreement, and the license granted herein,
cannot be assigned or transferred by Terk, and cannot otherwise pass from Terk
as a matter of law, except as part of the sale of the entire business or
division of Terk to which this Agreement relates and on the
6
<PAGE>
condition that the assignee assume, in writing, all of Terk's obligations under
the Inline/Terk Agreement."
(ii) The second grammatical paragraph appearing on page 8 shall be
deleted in its entirety and shall no longer have any force and effect.
(f) Except as expressly set forth herein, the terms and conditions of the
Inline/Terk Agreement shall remain in full force and effect.
7
<PAGE>
3. Payments by CAIS to Terk
------------------------
(a) Subject to the Terms and Conditions of this Section 3, CAIS shall pay
to Terk the aggregate amount of $500,000, payable as follows:
(i) $250,000 upon the execution and delivery of this Agreement,
which shall be paid by delivering to Stephen M. Rosenberg, Esquire (hereinafter
"Rosenberg"), Attorney for Terk, two (2) post-dated checks each in the amount of
One Hundred Twenty-five Thousand Dollars ($125,000.00) and payable to Terk. The
checks will be post-dated five (5) business days after CAIS receives the
Stipulated Dismissals properly executed by Terk's counsel. Rosenberg is
authorized to release one check to Terk on the post-dated date appearing on the
check and the other check in accordance with the terms set forth in Section 3(c)
below,
(ii) $150,000 on or before July 1, 1999; and
(iii) $100,000 on or before July 1, 2000.
(b) Simultaneously with the execution of this Agreement,
(i) the parties are executing and delivering to CAIS the fully
executed Stipulated Dismissal in the form of Exhibits A and B, dismissing with
prejudice Inline's claims and Terk's counterclaims in the Arbitration and
dismissing with prejudice the District Court Action; and
(ii) the parties hereto are executing and delivering General
Releases in the form of Exhibits C and D.
(c) The parties hereto agree to promptly execute and deliver such
additional documents and instruments as may be reasonably necessary to
effectuate the dismissal of the Arbitration and the District Court Action with
prejudice. The second $125,000 check held by Rosenberg paid pursuant to Section
3(a)(i) above, shall be released to Terk upon confirmation that both the
Arbitration and the District Court Action have been dismissed with prejudice.
8
<PAGE>
4. Sales and Sub-Licensing
-----------------------
(a) Terk's license being nonexclusive, Inline and CAIS shall have the
right to build, use, manufacture, have manufactured, market, distribute, sell,
and to otherwise commercialize products utilizing or incorporating the
technology of the Inline/Terk Agreement within Terk's Field of Use without any
payment to Terk.
(b) Inline and CAIS each agree not to sub-license to manufacturers of
consumer electronic products for sale or resale through retail stores,
catalogues, infomercials, direct response marketing or Internet sites, rights to
sell products utilizing the Licensed Technology, or any enhancements,
modifications or improvements, in Terk's Field of Use.
5. Failure of Payments to Terk
----------------------------
(a) Upon the failure of CAIS to pay any amounts due to Terk pursuant to
Section 3(a) hereof and such default continues for five (5) business days after
written notice is received by CAIS, then the amendments to the Inline/Terk
Agreement provided by Sections 2(a), 2(c), 2(d) and 2(e) hereof and the
provisions in Section 4(a) hereof shall, at Terk's election, be subject to
termination by written notice to Inline and CAIS and, upon Terk giving such
notice, will thereafter be void and without further force or effect and the
Inline/Terk Agreement shall continue in full force on the terms and conditions
contained therein prior to the effective date of such amendments. If Terk
elects to exercise its rights to rescind such amendments and Section 4(a), such
election shall not relieve CAIS of any obligations it may have to Terk pursuant
to this Agreement. Upon the failure of CAIS to make any payment when due under
Section 3(a), the entire unpaid amount due under Section 3(a) shall become due
and payable.
(b) If any amounts payable to Terk under Section 3(a) of this Agreement
are not paid when due and Terk engages legal counsel to collect such amounts due
pursuant to this
9
<PAGE>
Agreement, then CAIS shall pay to Terk all of Terk's costs and expenses,
including reasonable legal fees, incurred by Terk in connection with the
collection of such amounts or the enforcement of Terk's rights.
6. Common Stock
-------------
(a) Upon dismissal of the Arbitration and District Court Action with
prejudice, CAIS shall deliver to Terk one or more certificates representing
twenty-five thousand (25,000) shares of the common stock of CAIS Internet Inc.
("CAIS Internet"), currently known as CGX Communications, Inc. In the event
there is an initial public offering of common shares or other equity securities
of CAIS Internet pursuant to a registration statement filed on Form S-1, or such
other form as may then be applicable, which becomes effective under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "IPO") at a price less than Ten Dollars ($10.00) per share, CAIS shall
deliver to Terk, at no cost to Terk, a further certificate or certificates
representing additional shares of CAIS Internet common stock such that the total
shares delivered to Terk under this subsection multiplied by the IPO share price
equals Two Hundred Fifty Thousand Dollars ($250,000.00). If the IPO consists of
units of securities which include equity securities of CAIS Internet, then the
foregoing calculation shall be made with respect to the offering price of such
units of securities, each unit being considered one (1) share. The shares of
CAIS Internet common stock delivered to Terk under this subsection are hereafter
referred to as "Terk Shares".
(b) CAIS shall cause Terk's Shares to be registered on Form S-1 or such
applicable form promulgated by the Securities and Exchange Commission ("SEC") as
may then be available when requested by Terk in writing after the effective date
of CAIS Internet's IPO; provided, however, that, at the written request of CAIS
Internet's underwriter, such registration of Terk's
10
<PAGE>
Shares may be delayed for the shortest period accorded to any of CAIS Internet's
other shareholders. CAIS agrees to take such steps as may be required from time
to time for the registration of Terk's Shares to remain effective. Terk shall
reimburse CAIS for the pro rata cost of the SEC registration fees associated
with registering the Terk Shares and any underwriter's discounts if the Terk
Shares are offered through an underwriter.
(c) Terk understands and agrees that the Terk Shares are not currently
registered and are subject to Rule 144 restrictions and any other applicable
restrictions of the SEC. Terk also understands and agrees that the Terk Shares
may be subject to the most favorable restrictions imposed on the sales of shares
by CAIS Internet's underwriters in the future on any of the other shareholders
of CAIS Internet, but not to exceed one year and one day from the effective date
of CAIS Internet's IPO.
(d) In the event any monies to be paid to Terk under Section 3(a) have
not been paid sixty (60) days after the CAIS Internet IPO becomes effective,
CAIS agrees to pay such monies to Terk within sixty (60) days following said
effective date.
(e) Upon its initial filing of a registration statement with the SEC, CAIS
shall promptly notify Terk of its intent to conduct an initial public offering
and the terms then contemplated. CAIS shall promptly furnish Terk with a "red
herring" prospectus when available and, when such registration becomes
effective, a final prospectus.
7. Additional Common Stock
-----------------------
In the event an IPO of CAIS Internet occurs, twenty-five thousand (25,000)
shares of the common stock of CAIS Internet will be set aside to be purchased by
Terk at such IPO. Terk shall purchase such additional shares at the same price
and upon the same terms as any other member of the public.
11
<PAGE>
8. Enforcement of Intellectual Property Rights.
--------------------------------------------
In the event that Terk becomes aware of a product or service made, used,
sold or offered for sale in Terk's Field of Use, which Terk believes to infringe
an issued patent within the intellectual property as defined in the Inline/Terk
Agreement, Terk shall promptly advise Inline and CAIS of all the relevant facts
and circumstances known by Terk in connection with such infringement. Inline
and/or CAIS shall have the first right to enforce such patent against such
infringement, at its own expense. In the event that Inline and/or CAIS shall
fail, within ninety (90) days after receiving notice from Terk of the
infringement, either (i) to terminate such infringement or (ii) to institute an
action for patent infringement, then Terk shall have the right to do so at its
own expense, and Inline and/or CAIS agree to be joined as parties plaintiff to
such action. Any damages or costs recovered by Inline and/or CAIS (collectively
"Inline/CAIS") in connection with any action filed by one or both hereunder,
after first reimbursing them for out-of-pocket costs and expenses of litigation,
including expert witness and attorneys fees, shall be divided seventy-five
percent (75%) to Inline/CAIS and twenty-five percent (25%) to Terk. Any damages
or costs recovered in connection with any action filed by Terk hereunder, after
first reimbursing Terk for its out-of-pocket costs and expenses of litigation,
including expert witness and attorneys fees, shall be equally divided seventy-
five percent (75%) to Terk and twenty-five percent (25%) to Inline/CAIS.
9. Distribution of CAIS Products.
-----------------------------
Simultaneous with the execution of this Agreement, CAIS and Terk shall
enter into a non-exclusive distribution agreement by which Terk shall have the
non-exclusive right to distribute, market, sell and commercialize in the United
States and throughout the world, products manufactured by or for CAIS which
utilize the technology, but solely for installation
12
<PAGE>
within residential dwelling units including, single family homes and inside
residential units of multifamily dwellings.
10. Representations.
---------------
(a) Terk represents, warrants and agrees that Terk has full right, power
and authority to enter into this Agreement and carry out the transactions
contemplated hereby; that the execution and delivery of this Agreement by Terk
and the transactions contemplated hereby have been duly authorized; and that
this Agreement is a valid and binding obligation of Terk enforceable against it
in accordance with its terms.
(b) CAIS represents and warrants that CAIS has full right, power and
authority to enter into this Agreement and carry out the transactions
contemplated hereby; that the execution and delivery of this Agreement by CAIS
and the transactions contemplated hereby have been duly authorized; and that
this Agreement is a valid and binding obligation of CAIS enforceable against it
in accordance with its terms.
(c) Inline represents and warrants that Inline has full right, power and
authority to enter into this Agreement and carry out the transactions
contemplated hereby; that the execution and delivery of this Agreement by Inline
and the transactions contemplated hereby have been duly authorized; and that
this Agreement is a valid and binding obligation of Inline enforceable against
it in accordance with its terms
11. Notices.
--------
All notices, demands or other communications which are required or may be
given hereunder, shall be sent by Overnight Courier, Certified Mail, Return
Receipt Requested, or by hand delivery to the officials of the respective
parties as set forth below:
-
13
<PAGE>
For Inline:
David Goodman
Inline Connection Corp.
730 N. Danville Street
Arlington, Virginia 22201
For CAIS (through February 14, 1999): For CAIS (after February 14, 1999):
Ulysses G. Auger II Ulysses G. Auger II
CAIS, Inc. CAIS, Inc.
1232 22nd Street, N.W. 1255 22nd Street, N.W.
Washington, D.C. 20037 Washington, D.C. 20037
14
<PAGE>
with a copy to:
Michael G. Plantamura Michael G. Plantamura
CAIS, Inc. CAIS, Inc.
1232 22/nd/ Street, N.W. 1255 22/nd/ Street, N.W.
Washington, D.C. 20037 Washington, D.C. 20037
For Terk:
Neil Terk
Terk Technologies Corp.
63 Mall Drive
Commack, New York 11725
with a copy to:
Stephen M. Rosenberg, Esquire
Cowan, Liebowitz & Latman
1133 Avenue of the Americas
New York, New York 10036
Each party reserves the right to change its official(s) and address(es) by
written notice to the other parties from time-to-time by notice properly given.
Any notice tendered and refused will serve as notice received as of the date of
such refusal.
12. Term.
-----
The term of this Agreement shall be for the duration of the patents issued
with respect to the technology or any extensions thereof.
13. Force Majeure
-------------
Anything contained in this Agreement to the contrary notwithstanding, no
party shall be held responsible or liable for any delay or failure in the
performance of its obligations hereunder caused by the elements, acts of God,
acts of civil or military authority, fires, floods, epidemics, quarantine
restrictions, wars, riots, strikes, lockouts, industrial disturbances, delays in
transportation or similar forces beyond the control of the parties hereto.
15
<PAGE>
14. Independent Contractors
-----------------------
Terk, CAIS and Inline each agree that it is an independent contractor and
not an agent of the others. Nothing contained in this Agreement shall be
construed to create a partnership, joint venture or similar entity nor shall
Terk, CAIS or Inline have the power or authority to legally bind or obligate the
others in any manner.
15. Miscellaneous.
-------------
This Agreement (a) constitutes the entire agreement and understanding of
the parties hereto and supercedes and replaces all prior agreements and
understandings with respect to its subject matter, (b) may not be changed or
terminated orally, (c) shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, (d) shall
not inure to the benefit of, or be deemed to create rights for the benefit of,
any third party, and (e) shall be governed by and construed in accordance with
the laws of the State of New York. The rights and obligations of CAIS and Terk
under this Agreement are not severable and may
16
<PAGE>
be assigned only to an Affiliate of a party, or as part of the sale of the
entire business or division of CAIS or Terk to which this Agreement relates.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
TERK TECHNOLOGIES CORP.
By: /s/ Neil Terk
--------------------------------------
Neil Terk, President
CAIS, INC.
By: /s/ William M. Caldwell, IV
--------------------------------------
William M. Caldwell, IV, Vice Chairman
INLINE CONNECTION CORP.
By: /s/ David Goodman
--------------------------------------
David Goodman, President
17
<PAGE>
EXHIBIT 10.33
CGX COMMUNICATIONS, INC.
AMENDED AND RESTATED
1998 EQUITY INCENTIVE PLAN
(S) 1. Purpose
-------
The purpose of the CGX Communications, Inc. Amended and Restated 1998
Equity Incentive Plan (this "Plan") is to attract and retain key employees and
consultants of CGX Communications, Inc., a Delaware corporation (the "Company")
and its Affiliates, to provide an incentive for them to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company by granting Awards with respect to the Company's Common Stock.
Certain capitalized terms used herein are defined in Section 9 below.
(S) 2. Administration
--------------
This Plan shall be administered by the Committee. The Committee shall
select the Participants to receive Awards and shall determine the terms and
conditions of the Awards. The Committee shall have authority to adopt, alter
and repeal such administrative rules, guidelines and practices governing the
operation of this Plan as it shall from time to time consider advisable, and to
interpret the provisions of this Plan. The Committee's decisions shall be final
and binding. To the extent permitted by applicable law, the Committee may
delegate to one or more executive officers of the Company the power to make
Awards to Participants who are not Reporting Persons or Covered Employees and
all determinations under this Plan with respect thereto, provided that the
Committee shall fix the maximum amount of such Awards for all such Participants
and a maximum for any one Participant.
(S) 3. Eligibility
-----------
All employees and consultants of the Company or any Affiliate of the
Company, except for consultants residing in any state in which an exemption from
registration under such state's securities laws would not be available for this
Plan, capable of contributing significantly to the successful performance of the
Company, other than a person who has irrevocably elected not to be eligible, are
eligible to be Participants in this Plan. Incentive Stock Options may be
granted only to persons eligible to receive such Options under the Code.
(S) 4. Stock Available for Awards
--------------------------
(a) Amount. Subject to adjustment under Subsection (b), Awards
------
may be made under this Plan for up to an aggregate total of 1,500,000 shares of
Common Stock. If any Award expires or is terminated unexercised or is forfeited
or settled in a manner that results in fewer shares outstanding than were
awarded, the shares subject to such Award, to the extent of such expiration,
termination, forfeiture or decrease, shall again be available for award under
this Plan. Common Stock issued through the assumption or substitution of
outstanding grants from an acquired company
<PAGE>
shall not reduce the shares available for Awards under this Plan. Shares issued
under this Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
(b) Adjustment. In the event that the Committee in its sole
----------
discretion determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares or other transaction affects the Common Stock
such that an adjustment is required in order to preserve the benefits intended
to be provided by this Plan, then the Committee (subject in the case of
Incentive Stock Options to any limitation required under the Code) may equitably
adjust any or all of (i) the number and kind of shares in respect of which
Awards may be made under this Plan, (ii) the number and kind of shares subject
to outstanding Awards and (iii) the exercise price with respect to any of the
foregoing, provided that the number of shares subject to any Award shall always
be a whole number, and if considered appropriate, the Committee may make
provision for a cash payment with respect to an outstanding Award. The issuance
of shares of the Company's Common Stock or options, warrants, or debt
instruments (convertible or otherwise), not in connection with a
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, or exchange of shares (e.g., to raise additional capital) shall not
be an event for which an adjustment under this Section 4(b) shall apply.
(c) Restricted Stock; Restrictions Prior to Public Offering. All
-------------------------------------------------------
shares of Common Stock issued upon the exercise of any options issued under this
Plan shall be subject to the restrictions set forth in Section 7 below.
(S) 5. Stock Options
-------------
(a) Grant of Options. Subject to the provisions of this Plan, the
----------------
Committee may grant options ("Options") to purchase shares of Common Stock (i)
complying with the requirements of Section 422 of the Code or any successor
provision and any regulations thereunder ("Incentive Stock Options") and (ii)
not intended to comply with such requirements ("Nonstatutory Stock Options").
Options granted under this Plan shall be evidenced by stock option agreements
authorized by the Board and executed by a duly authorized officer of the
Company. Such stock option agreements shall provide that options shall be
exercisable at such times and subject to such terms and conditions as the Board
may specify in such agreements and the Board may impose such conditions with
respect to the exercise of Options, including conditions relating to applicable
federal or state securities laws, as it considers necessary or advisable;
subject to the following limitations and requirements:
(1) Option Price. The option price per common share shall be
------------
not less than 100 % of the Fair Market Value of the common shares on the date of
grant of such option; provided, however, that the option price of any Options
granted to any person that owns more than 10% of the outstanding Common Stock
shall not be less than 110% of such Fair Market Value.
(2) Period Within Which Option May Be Exercised. Each Option
-------------------------------------------
granted under this Plan shall terminate (become non-exercisable) after the
expiration of ten years from the date of grant of such Option; provided,
however, the Incentive Stock Options granted to any person
2
<PAGE>
who owns, at the time of grant, more than 10% of the outstanding Common Stock,
shall terminate after the expiration of five years from the date of grant of
such Option. Regardless of the immediately preceding sentence, the Board shall
have the discretion to set a shorter termination period.
(b) Termination of Employment, Etc. The Board may, in its sole
-------------------------------
discretion, impose more restrictive conditions on the exercise of an Option
granted under this Plan, including, without limitation, providing for no
exercise of any Option after termination of a Participant's status as an
employee, director or consultant of (i) the Company, (ii) Cleartel
Communications, Inc. and/or Cleartel Communications Limited Partnership
(collectively, "Cleartel"), (iii) an Affiliate of either the Company or
Cleartel, or (iv) a corporation (or parent or subsidiary corporation of such
corporation) issuing or assuming an Option in a transaction to which Section
424(a) of the Code applies; provided, however, that any and all such conditions
shall be specified in the stock option agreement limiting and defining such
Option. The Board may provide that the Company offer to repurchase some or all
unexercised and vested Options, or Common Stock issued upon the exercise of such
Options, upon such terms and conditions as are set forth in the applicable stock
option agreement. Whether time spent on leave of absence granted by the
Company, Cleartel or any Affiliate of either of them shall constitute continued
employment for purposes of this Plan, shall be determined by the Board in its
sole discretion.
(c) More Than One Option Granted to a Participant. More than one
---------------------------------------------
Option, and more than one form of Option, may be granted to a Participant under
this Plan.
(d) Partial Exercise. Unless otherwise provided in the stock
----------------
option agreement, any exercise of an Option granted under this Plan may be made
in whole or in part.
(e) Limitation on Amount of Incentive Stock Options. To the
-----------------------------------------------
extent that the aggregate Fair Market Value of Common Stock with respect to
which Incentive Stock Options (determined without regard to this subsection)
become exercisable by a Participant for the first time during any calendar year
(including for purposes of such calculations all Incentive Stock Options granted
pursuant to all stock plans of the Company and its Subsidiaries) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this subsection, the Fair Market Value of Common Stock shall be
determined at the time the Option is granted.
(f) Payment. No shares shall be delivered pursuant to any
-------
exercise of an Option until payment in full of the exercise price therefor is
received by the Company. Such payment may be made in whole or in part in cash
or, to the extent permitted by the Board at or after the grant of the Option, by
delivery of a fully-recourse note or other commitment satisfactory to the Board
or shares of Common Stock owned by the optionee, including Restricted Stock, or
by retaining shares otherwise issuable pursuant to the Option, in each case
valued at their Fair Market Value on the date of delivery or retention, or such
other lawful consideration, including a payment commitment of a financial or
brokerage institution, as the Board may determine.
(S) 6. Stock Appreciation Rights
-------------------------
3
<PAGE>
(a) Grant of SARs. Subject to the provisions of this Plan, the
-------------
Committee may grant rights to receive any excess in value of shares of Common
Stock over the exercise price ("Stock Appreciation Rights" or "SARs") in tandem
with an Option (at or after the award of the Option). SARs shall terminate to
the extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. The Committee shall
determine at the time of grant or thereafter whether SARs are settled in cash,
Common Stock or other securities of the Company, Awards or other property, and
may define the manner of determining the excess in value of the shares of Common
Stock.
(b) SAR Agreement. SARs shall be evidenced by written agreements
-------------
in such form as the Board may from time to time determine, which agreements may
be in the form of an appropriate provision in any related stock option
agreement.
(c) Exercise. A Participant who has been granted SARs may, form
--------
time to time, in lieu of the exercise of an equal number of options, elect to
exercise one or more SARs and thereby become entitled to receive from the
Company payment in the form previously determined by the Committee. SARs shall
be exercisable only to the same extent and subject to the same conditions as the
options related thereto are exercisable, as provided in this Plan. The Committee
may, in its discretion, prescribe additional conditions to the exercise of any
SARs.
(d) Amount of Payment. The amount of payment to which a
-----------------
Participant shall be entitled upon the exercise of each SAR shall be equal to
100% of the amount, if any, by which the Fair Market Value of a share of Common
Stock on the exercise date exceeds the Fair Market Value of a share of Common
Stock on the date the Option related to the SAR was granted or became effective,
as the case may be.
(S) 7. Restricted Stock; Restrictions Prior to Public Offering.
-------------------------------------------------------
(a) Grant of Restricted Stock. Subject to the provisions of this
-------------------------
Plan, the Committee may grant shares, or Options for shares, of Common Stock
subject to forfeiture ("Restricted Stock") and determine the duration of the
period (the "Restricted Period") during which, and the conditions under which,
the shares may be forfeited to the Company and the other terms and conditions of
such Awards. Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock may be issued for no cash
consideration, such minimum consideration as may be required by applicable law
or such other consideration as the Committee may determine.
(b) Restrictions Prior to Public Offering. In addition to any
-------------------------------------
restrictions imposed by the Committee, until such time as the Company has issued
stock in an offering to the public pursuant to a registration statement filed
with the Securities Exchange Commission, all Options and all shares issued upon
the exercise of Options ("Option Stock"), shall be subject to the restrictions
set forth in this Subsection 7(b).
4
<PAGE>
(1) Option Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered except with the express written consent of the
Company, which the Company shall have no obligation to grant. Any attempted
sale, assignment, transfer, pledge or other encumbrance in violation of the
terms of this Subsection 7(b)(1) shall be void.
(2) A person acquiring any Option Stock (an "Option Plan
Stockholder"), or his personal representative, as the case may be, shall sell to
the Company and the Company shall have the option, but not the obligation, to
purchase, all but not less than all shares of Option Stock owned by such Option
Plan Stockholder, upon the occurrence of any of the following events:
(i) the death of the Option Plan Stockholder; or
(ii) the termination of the Option Plan Stockholder's
employment with the Company or Cleartel, with or without cause, or the decision
of the Company or Cleartel to terminate such Option Plan Stockholder's
employment.
(3) In the event the Company exercises its option under
Section 7(b)(2) to purchase Option Stock, the per share purchase price of the
Option Stock shall be equal to the most recently determined per share Fair
Market Value of the Company's Common Stock, or, at the Company's sole option,
the per share Fair Market Value of the Company's Common Stock determined as of
the date of the event causing the required sale. The Company may exercise its
option under Subsection 7(b)(2) at any time within 90 days after the later of
(i) the date of the Option Plan Stockholder's death or termination of employment
with the Company or (ii) the date of the Option Plan Stockholder's (or personal
representative's) acquisition of the Option Stock, by delivery of a written
notice to the Option Plan Stockholder. If the Company does not exercise its
option under Subsection 7(b)(2) within 90 days after the later of (i) the date
of the Option Plan Stockholder's death or termination of employment with the
Company or (ii) the date of the Option Plan Stockholder's (or personal
representative's) acquisition of the Option Stock, then such option will
terminate.
(4) The purchase price shall be paid, at the option of the
Company, either (i) in cash, (ii) by the Company's delivery of the Company's
promissory note, payable in equal semi-annual installments (beginning six months
after settlement) of principal plus accrued interest over a period not to exceed
five (5) years from the date of settlement, or (iii) by any combination of the
foregoing. The note shall bear interest on its unpaid principal balance at the
variable per annum rate equal to the "Prime Rate" as published from time to time
in the money rates column of The Wall Street Journal (the "Prime Rate").
-----------------------
(5) Settlement of the purchase of any Option Stock by the
Company pursuant to the terms of this Subsection 7(b)(2) shall be made within 90
days after the date of the Company's notice of its election to exercise its
option.
(6) Following any sale under this Subsection 7(b)(2), all
shares acquired by the Company shall become available for reissue under this
Plan, or at the Company's option, may be canceled.
5
<PAGE>
(7) The restrictions in this Subsection 7(b) and the
Company's option to purchase Option Stock hereunder shall automatically
terminate and be of no further force and effect upon the Company's issuance of
Common Stock in an offering to the public pursuant to a registration statement
filed with the Securities and Exchange Commission.
(c) Certificates. Shares of Restricted Stock shall be evidenced
------------
in such manner as the Committee may determine. Any certificates issued in
respect of shares of Restricted Stock shall be registered in the name of the
Participant and unless otherwise determined by the Committee, deposited by the
Participant, together with a stock power endorsed in blank, with the Company. At
the expiration of the Restricted Period, the Company shall deliver such
certificates to the Participant or if the Participant has died, to the
Participant's Designated Beneficiary.
(S) 8. General Provisions Applicable to Awards
---------------------------------------
(a) Documentation. Each Award under this Plan shall be evidenced
-------------
by a writing delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with the
provisions of this Plan as the Committee considers necessary or advisable to
achieve the purposes of this Plan or to comply with applicable tax and
regulatory laws and accounting principles.
(b) Committee Discretion. Each type of Award may be made alone,
--------------------
in addition to or in relation to any other Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by this Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of grant or at any time thereafter.
(c) Dividends and Cash Awards. In the discretion of the
-------------------------
Committee, any Award under this Plan may provide the Participant with (i)
dividends or dividend equivalents payable (in cash or in the form of Awards
under this Plan) currently or deferred with or without interest and (ii) cash
payments in lieu of or in addition to an Award.
(d) Termination of Employment. The Committee shall determine the
-------------------------
effect on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(e) Change in Control. In order to preserve a Participant's
-----------------
rights under an Award in the event of a change in control of the Company (as
defined by the Committee), the Committee in its discretion may, at the time an
Award is made or at any time thereafter, take one or more of the following
actions: (i) provide for the acceleration of any time period relating to the
exercise or payment of the Award, (ii) provide for payment to the Participant of
cash or other property with a Fair Market Value equal to the amount that would
have been received upon the exercise or payment of the Award had the Award been
exercised or paid upon the change in control, (iii) adjust the terms of the
Award in a manner determined by the Committee to reflect the change in control,
(iv) cause the Award to be assumed, or new rights substituted therefor, by
another entity or (v) make such other
6
<PAGE>
provision as the Committee may consider equitable to Participants and in the
best interests of the Company.
(f) Transferability. In the discretion of the Committee, any
---------------
Award may be made transferable upon such terms and conditions and to such extent
as the Committee determines, provided that Incentive Stock Options may be
transferable only to the extent permitted by the Code. The Committee may in its
discretion waive any restriction on transferability.
(g) Loans. The Committee may authorize the making of loans or
-----
cash payments to Participants in connection with the grant or exercise of any
Award under this Plan, which loans may be secured by any security, including
Common Stock, underlying or related to such Award (provided that the loan shall
not exceed the Fair Market Value of the security subject to such Award), and
which may be forgiven upon such terms and conditions as the Committee may
establish at the time of such loan or at any time thereafter.
(h) Withholding Taxes. The Participant shall pay to the Company,
-----------------
or make provision satisfactory to the Committee for payment of, any taxes
required by law to be withheld in respect of Awards under this Plan no later
than the date of the event creating the tax liability. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Participant. In the
Committee's discretion, such tax obligations may be paid in whole or in part in
shares of Common Stock, including shares retained from the Award creating the
tax obligation, valued at their Fair Market Value on the date of delivery.
(i) Foreign Nationals. Awards may be made to Participants who are
-----------------
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in this Plan as the Committee
considers necessary or advisable to achieve the purposes of this Plan or to
comply with applicable laws.
(j) Amendment of Award. The Committee may amend, modify or
------------------
terminate any outstanding Award, including substituting therefor another Award
of the same or a different type, changing the date of exercise or realization
and converting an Incentive Stock Option to a Nonstatutory Stock Option,
provided that the Participant's consent to such action shall be required unless
the Committee determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(S) 9. Certain Definitions
-------------------
(a) "Affiliate" means, with respect to any person, any business
entity in which such person owns directly or indirectly 50% or more of the total
voting power or has a significant financial interest as determined by the
Committee.
(b) "Award" means any Option, Stock Appreciation Right or
Restricted Stock granted under this Plan.
(c) "Board" means the Board of Directors of the Company.
7
<PAGE>
(d) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor law.
(e) "Committee" means any committee of not less than two
directors of the company who shall be appointed by the pleasure of the Board,
none of whom shall (i) be eligible to participate in this plan while a member of
the Committee nor (ii) have been eligible to participate in this Plan for a
period of one year prior to appointment. The Board may appoint an existing
committee to act as the "Stock Option Committee," provided that its members
satisfy the eligibility provisions of this subsection 9(e). The Committee shall
be governed by the provisions in the Company's Bylaws regarding the activities
of the committees and shall be required to report to the Board, if the committee
is authorized to grant Awards to a Reporting Person or a Covered Employee, each
member shall be a "none-employee director" within the meaning of applicable Rule
16b-3 under the Exchange Act or an "outside director" within the meaning of
Section 162(m) of the Code, respectively.
(f) "Common Stock" or "Stock" means the Common Stock, $0.01 par
value, of the Company.
(g) "Company" means CGX Communications, Inc., a Delaware
corporation.
(h) "Covered Employee" means a "covered employee" within the
meaning of Section 162(m) of the Code.
(i) "Designated Beneficiary" means the beneficiary designated by
a Participant, in a manner determined by the Committee, to receive amounts due
or exercise rights of the Participant in the event of the Participant's death.
In the absence of an effective designation by a Participant, "Designated
Beneficiary" means the Participant's estate.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor law.
(k) "Fair Market Value" means, with respect to Common Stock or
any other property, the fair market value of such property as determined by the
Committee in good faith or in the manner established by the Committee from time
to time.
(l) "Participant" means a person selected by the Committee to
receive an Award under this Plan.
(m) "Reporting Person" means a person subject to Section 16 of
the Exchange Act.
(S) 10. Miscellaneous
-------------
(a) No Right to Employment. No person shall have any claim or
----------------------
right to be granted an Award. Neither this Plan nor any Award hereunder shall be
deemed to give any employee
8
<PAGE>
the right to continued employment or to limit the right of the Company to
discharge any employee at any time.
(b) No Rights as Stockholder. Subject to the provisions of the
------------------------
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under this Plan until he or she becomes the holder thereof. A Participant to
whom Common Stock is awarded shall be considered the holder of the Stock at the
time of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the stockholders
--------------
of the Company, this Plan, as amended and restated hereby, shall be effective as
of February 12, 1999.
(d) Amendment of Plan. The Board may amend, suspend or terminate
-----------------
this Plan or any portion thereof at any time, subject to such stockholder
approval as the Board determines to be necessary or advisable to comply with any
tax or regulatory requirement.
(e) Governing Law. The provisions of this Plan shall be governed
-------------
by and interpreted in accordance with the laws of the State of Delaware.
This Plan, as amended and restated hereby, was approved by the Board of
Directors as of February 12, 1999.
This Plan, as amended and restated hereby, was approved by the stockholders as
of February 12, 1999.
9
