<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number: 000-26103
---------------------------------------------------------
CAIS INTERNET, INC.
(Exact name of registrant as specified in it charter)
---------------------------------------------------------
Delaware 52-2066769
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1255 22nd Street, N.W., Fourth Floor, Washington, D.C. 20037
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 715-1300
Former name, former address, and former
year, if changed since last report: Not applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |_| No |X|
(Company has been public for less than 90 days)
Indicate the number of outstanding shares of each of the registrant's
classes of Common Stock, as of the latest practicable date.
Title of each class
- -------------------
Common Stock, $.01 par value
19,808,219 shares outstanding on June 30, 1999
<PAGE>
CAIS INTERNET, INC.
FORM 10-Q
For the Quarterly Period Ended June 30, 1999
INDEX
Page
PART I - FINANCIAL INFORMATION Number
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of June 30, 1999 and
December 31, 1998. 4
Consolidated Condensed Statements of Operations for the Three
Months and for the Six Months Ended June 30, 1999 and 1998. 5
Consolidated Condensed Statements of Changes
in Stockholders' Equity (Deficit) for the Six Months Ended
June 30, 1999. 6
Consolidated Condensed Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 1998. 7
Notes to Consolidated Condensed Financial Statements. 8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations. 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 27
Item 2. Changes in Securities and Use of Proceeds. 27
Item 6. Exhibits. 29
Signatures 30
2
<PAGE>
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. The important
factors discussed below under the caption "Risks and Other Important Factors,"
among others, and in the Company's Prospectus dated May 20, 1999 under the
caption "Risk Factors," could cause actual results to differ materially from
those indicated by forward-looking statements made herein and presented
elsewhere by management from time to time. Such forward-looking statements
represent management's current expectations and are inherently uncertain.
Investors are warned that actual results may differ from management's
expectations.
CAIS Internet, Inc.'s trademarks and pending trademark applications
include "OVERVOICE," "CAIS," "LANJACK," "MEET JACK" and "DESKJACK." All other
trademarks referred to herein are the property of their respective owners.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CAIS INTERNET, INC.
Consolidated Condensed Balance Sheets
(in thousands except share and per share data)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents........................................ $ 104,416 $ 95
Accounts receivable, net of allowance for doubtful accounts
of $212 and $137, respectively................................. 1,133 648
Prepaid expenses and other current assets........................ 1,543 228
Current assets of discontinued operations........................ -- 8,170
--------- ---------
Total current assets........................................... 107,092 9,141
--------- ---------
Property and equipment, net........................................ 7,736 2,638
Deferred offering costs............................................ -- 237
Deferred debt financing costs, net................................. 1,389 292
Intangible assets, net............................................. 1,370 277
Receivable from officer............................................ 400 --
Noncurrent assets of discontinued operations....................... -- 1,936
--------- ---------
Total noncurrent assets........................................ 10,895 5,380
--------- ---------
Total assets................................................... $ 117,987 $ 14,521
========= =========
Current liabilities
Accounts payable and accrued expenses............................ $ 8,935 $ 4,396
Payable to discontinued operations............................... -- 5,342
Unearned revenues................................................ 619 572
Current liabilities of discontinued operations................... -- 8,205
--------- ---------
Total current liabilities...................................... 9,554 18,515
--------- ---------
Loan, net of unamortized debt discount of
$0 and $817, respectively...................................... -- 6,183
Notes payable to related parties, net of current portion........... -- 1,983
Deferred rent, net of current portion.............................. 694 --
Long-term liabilities of discontinued operations................... -- 2,601
--------- ---------
Total liabilities.............................................. 10,248 29,282
--------- ---------
Put warrants....................................................... 1,267 --
--------- ---------
Commitments and contingencies (Note 8)
Stockholders' equity (deficit)
Common stock, $0.01 par value; 100,000,000 shares
authorized; 19,808,219 and 9,965,505 shares issued and
outstanding, respectively...................................... 198 100
Additional paid-in capital....................................... 145,716 7,794
Warrants outstanding............................................. 9,382 1,226
Deferred compensation............................................ (4,444) (2,888)
Accumulated deficit.............................................. (44,380) (20,993)
--------- ---------
Total stockholders' equity (deficit)........................... 106,472 (14,761)
--------- ---------
Total liabilities and stockholders' equity (deficit)........... $ 117,987 $ 14,521
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
balance sheets.
4
<PAGE>
CAIS INTERNET, INC.
Consolidated Condensed Statements of Operations
(in thousands except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues................................................ $ 1,811 $ 1,325 $ 3,420 $ 2,567
Cost of services............................................ 1,518 750 2,568 1,467
Operating expenses:
Selling, general and administrative....................... 5,689 2,176 9,480 4,241
Depreciation and amortization............................. 397 287 747 570
Fair value of stock issued to third party for services.... 723 -- 723 --
Non-cash compensation..................................... 2,729 356 3,121 712
-------- -------- -------- --------
Total operating expenses................................ 9,538 2,819 14,071 5,523
-------- -------- -------- --------
Loss from operations........................................ (9,245) (2,244) (13,219) (4,423)
Interest and other (income) expense:
Interest income........................................... (540) -- (540) --
Interest expense.......................................... 454 93 1,122 175
Other expense, net........................................ 1 (1) 10 (1)
-------- -------- -------- --------
Total interest and other (income) expense............... (85) 92 592 174
-------- -------- -------- --------
Loss from continuing operations before income taxes......... (9,160) (2,336) (13,811) (4,597)
Provision for income taxes................................ -- -- -- --
-------- -------- -------- --------
Loss from continuing operations............................. (9,160) (2,336) (13,811) (4,597)
Income (loss) from discontinued operations of Cleartel.... -- 211 (340) 365
-------- -------- -------- --------
Loss before extraordinary item.............................. (9,160) (2,125) (14,151) (4,232)
Extraordinary item -- early extinguishment of debt........ 551 -- 551 --
-------- -------- -------- --------
Net loss.................................................... (9,711) (2,125) (14,702) (4,232)
Dividends on preferred stock.............................. 179 -- 350 --
-------- -------- -------- --------
Net loss attributable to common stockholders................ $ (9,890) $ (2,125) $(15,052) $ (4,232)
======== ======== ======== ========
Basic and diluted earnings (loss) per share:
Continuing operations..................................... $ (0.65) $ (0.23) $ (1.17) $ (0.47)
Discontinued operations................................... -- 0.02 (0.03) 0.04
Extraordinary item........................................ (0.04) -- (0.04) --
-------- -------- -------- --------
Total................................................... $ (0.69) $ (0.21) $ (1.24) $ (0.43)
======== ======== ======== ========
Weighted-average common shares outstanding --
basic and diluted......................................... 14,307 9,888 12,139 9,768
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
statements.
5
<PAGE>
CAIS INTERNET, INC.
Consolidated Condensed Statements of Changes in Stockholders' Equity (Deficit)
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Redeemable Convertible Preferred Put
Stock Warrants
------------------------------------------------- ---------
Series A Series B
---------------------- ----------------------
Shares Amount Shares Amount
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1998............................. -- $ -- -- $ -- $ --
Issuance of common stock and options in
connection with litigation settlement..... -- -- -- -- --
Issuance of Series A and Series B Preferred
Stock, net of offering costs of $135 and
amounts allocated to warrants............. 2,827 3,209 1,120 4,557 --
Capital contribution........................ -- -- -- -- --
Distribution of Cleartel net assets......... -- -- -- -- --
Initial public offering proceeds, net of
underwriting discounts and commissions and
other IPO fees and expenses............... -- -- -- -- --
Accrued dividends on preferred shares
and accretion of discount................. -- 246 -- 104 --
Accretion of Series A Preferred Stock warrant
and issuance costs........................ -- 8,292 -- -- --
Conversion of Series A and Series B
Preferred Stock and accrued dividend
to common stock........................... (2,827) (11,747) (374) (1,557) --
Redemption of Series B Preferred Stock...... -- -- (746) (3,104) --
Issuance of common stock to third party..... -- -- -- -- --
Issuance of put warrants.................... -- -- -- -- 1,267
Unearned compensation pursuant to
issuance of stock options................. -- -- -- -- --
Amortization of unearned compensation....... -- -- -- -- --
Net loss.................................... -- -- -- -- --
--------- --------- --------- --------- ---------
June 30, 1999................................. -- $ -- -- $ -- $ 1,267
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
-------------------------------------------------------------------------------------
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, 1998............................ 9,965 $ 100 $ 7,794 $ 1,226 $ (2,888) $(20,993) $(14,761)
Issuance of common stock and options in
connection with litigation settlement.... 25 -- 60 -- -- -- 60
Issuance of Series A and Series B Preferred
Stock, net of offering costs of $135 and
amounts allocated to warrants............ -- -- -- 8,156 -- -- 8,156
Capital contribution....................... -- -- 1,083 -- -- -- 1,083
Distribution of Cleartel net assets........ -- -- -- -- -- (43) (43)
Initial public offering proceeds, net
of underwriting discounts and commissions
and other IPO fees and expenses.......... 6,842 68 118,165 -- -- -- 118,233
Accrued dividends on preferred shares
and accretion of discount................ -- -- -- -- -- (350) (350)
Accretion of Series A Preferred Stock warrant
and issuance costs....................... -- -- -- -- -- (8,292) (8,292)
Conversion of Series A and Series B
Preferred Stock and accrued dividend to
common stock............................. 2,909 29 13,275 -- -- -- 13,304
Redemption of Series B Preferred Stock..... -- -- -- -- -- -- --
Issuance of common stock to
third party.............................. 67 1 722 -- -- -- 723
Issuance of put warrants................... -- -- -- -- -- -- --
Unearned compensation pursuant to
issuance of stock options................ -- -- 4,617 -- (4,617) -- --
Amortization of unearned compensation...... -- -- -- -- 3,061 -- 3,061
Net loss................................... -- -- -- -- -- (14,702) (14,702)
-------- --------- --------- --------- --------- --------- ---------
June 30, 1999........................... 19,808 $ 198 $ 145,716 $ 9,382 $ (4,444) $ (44,380) $ 106,472
======== ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
statements.
6
<PAGE>
CAIS INTERNET, INC.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................................... $ (14,702) (4,232)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Compensation pursuant to stock options....................................... 3,121 712
Amortization of debt discount and deferred financing costs................... 778 --
Extraordinary item -- early extinguishment of debt........................... 551 --
Fair value of shares issued to third party for services...................... 723 --
Depreciation and amortization................................................ 747 570
Depreciation and amortization of discontinued operations....................... 58 303
Changes in operating assets and liabilities:
Accounts receivable, net................................................... (485) (88)
Prepaid expenses and other current assets.................................. (1,315) 30
Accounts payable and accrued liabilities................................... 3,166 912
Payable to discontinued operations......................................... (3,892) 1,226
Unearned revenues.......................................................... 47 184
Deferred rent, net......................................................... 694 --
Changes in operating assets and liabilities of discontinued operations..... (73) 606
--------- ---------
Net cash (used in) provided by operating activities...................... (10,582) 223
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment.............................................. (5,191) (247)
Purchases of property and equipment of discontinued operations................... (14) (178)
Payment of contract fee.......................................................... (146) --
Net payments advanced on notes receivable........................................ (332) (91)
Net payments advanced on related party accounts receivable....................... -- (423)
--------- ---------
Net cash used in investing activities.................................... (5,683) (939)
--------- ---------
Cash flows from financing activities:
Net borrowings (repayments) under receivables-based credit facility of
discontinued operations........................................................ 313 (582)
Repayments under loan............................................................ (7,000) (200)
Borrowings under notes payable - related parties................................. 1,000 500
Repayments under notes payable - related parties................................. -- (91)
Principal payments under capital lease obligations............................... (11) (60)
Net proceeds from issuance of Series A Preferred Stock........................... 11,365 --
Redemption of Series B Preferred Stock........................................... (3,104) --
Net proceeds from initial public offering........................................ 118,233 --
Payment of debt financing costs.................................................. (210) --
Proceeds from issuance of common stock........................................... -- 1,000
--------- ---------
Net cash provided by financing activities................................ 120,586 567
--------- ---------
Net increase (decrease) in cash and cash equivalents............................... 104,321 (149)
Cash and cash equivalents, beginning of period..................................... 95 149
--------- ---------
Cash and cash equivalents, end of period........................................... $ 104,416 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
statements.
7
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
1. Business Description:
Overview
CAIS Internet, Inc. (the "Company") is an Internet service provider
("ISP"), delivering end-to-end high-speed Internet access solutions. The Company
operates two business segments: OverVoice high-speed Internet access to multi-
user environments (hotels and apartment communities); and high-speed Internet
access solutions for businesses and consumers, including digital subscriber
line ("DSL") services using HyperDSL lines, always-on access solutions for ISPs
and businesses, and web hosting and other Internet services.
Organization
CAIS Internet, Inc. 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., a Virginia "S"
Corporation, and Cleartel Communications Limited Partnership ("Cleartel"), a
District of Columbia limited partnership. The Company completed a reorganization
in October 1998 such that CAIS and Cleartel became wholly owned subsidiaries of
the Company. In February 1999, the Company spun-off Cleartel to the Company's
stockholders (see Note 5) and changed its name from CGX Communications, Inc. to
CAIS Internet, Inc.
Initial Public Offering
In May 1999, the Company completed an initial public offering of its
common stock (the "IPO"). The Company sold 6,842,100 shares (including the over-
allotment option), yielding net proceeds to the Company of approximately $118.2
million, after deducting underwriting discounts and commissions and other fees
and expenses of approximately $11.8 million. The Company used approximately $12
million of the net proceeds in the second quarter of 1999 to repay indebtedness
and redeem shares of Series B cumulative mandatory redeemable convertible
preferred stock.
8
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
Risks and Other Important Factors
The Company historically has experienced losses and negative cash flows
due to the development and deployment of its Internet and OverVoice services.
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 were approximately $136,000 and $155,000 for the three and six month
periods ended June 30, 1999, respectively. 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.
2. Summary of Significant Accounting Policies:
Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. All significant intercompany accounts and
transactions have been eliminated in consolidation. Operating results for the
six month period ended June 30, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial
9
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
statements and footnotes thereto included in the Company's registration
statement on Form S-1.
In February 1999, the Company spun-off its operator and long-distance
services subsidiary, Cleartel, to its stockholders as a non-cash distribution
(See Note 5). 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 who
continued with the Company are included within loss from continuing operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets 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.
Net Loss Per Share
Basic and diluted loss per share is based on the weighted-average number
of shares of common stock outstanding during the period. Stock options and
warrants are not reflected since their effect would be antidilutive. As of June
30, 1999, there were approximately 5,116,000 options and warrants that would
have been included in this calculation had the effect not been antidilutive.
Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130 "Reporting of
Comprehensive Income", requires "comprehensive income" and the components of
"other comprehensive income" to be reported in the financial statements and/or
notes thereto. Since the Company does not have any components of "other
comprehensive income", reported net income is the same as "comprehensive income"
for the three and six months ended June 30, 1999 and 1998.
Recently Adopted Accounting Pronouncements
In July 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is effective for fiscal years beginning after December 31, 2000,
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.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." 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 adopted this standard which had no impact on its
financial statements.
Excess of Cost over Net Assets Acquired (Goodwill)
Goodwill was recorded as a result of the acquisition of Capital Area
Internet Service, Inc. ("Capital Area") by the Company in May 1996, and was
fully amortized in May 1999. Amortization of goodwill was approximately $85,000
and $277,000 for the three and six months ended June 30, 1999, respectively.
3. Third Party Warrants and Shares
On April 23, 1999, in connection with an amendment to the Company's master
agreement with an OverVoice customer (the "Customer") to provide the Company
with exclusive rights and to extend the contract term, the Company issued
warrants to the Customer to purchase 66,667 shares of common stock at an
exercise price of $0.01 per share, as an additional contribution by the Company
in support of the Customer's marketing of OverVoice. The warrants have been
valued at their estimated fair value of $19.00 per share (or approximately
$1,267,000 in the aggregate) based upon a Black-Scholes
10
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
valuation model. The fair value of the warrants has been recorded as an
intangible asset and will be amortized over the expected benefit life of the
five year contract term. In connection with the warrants, the Customer received
certain demand and incidental registration rights. The warrants expire on April
23, 2004. The Customer has a put option to sell all of the warrants (or shares
of the Company issued pursuant to the exercise of the warrants) back to the
Company at $19.00 per share. The put option expires ninety days following
the earlier of: (1) the effective date of the first registration statement that
includes any warrant shares for resale and (2) the date on which the Customer
may sell all of the warrant shares within a three-month period pursuant to the
1933 Securities Act Rule 144. Due to the existence of the put rights, the value
ascribed to the warrants will not be included within stockholders' equity until
the put option expires.
In addition, on April 23, 1999, the Company entered into a letter
agreement with the Customer to jointly pursue the development of future hotel
guest and meeting room digital entertainment solutions. The letter agreement
provides for the companies to jointly develop new applications for the use of
OverVoice in the Customer's hotels which would enable the Company to offer
services other than high-speed Internet access, such as video and audio services
to be defined by the parties at a later date. The Company issued 66,500 shares
in June 1999 to the Customer to evidence its commitment to the program, and
recognized an expense of approximately $723,000 in the three and six month
periods ended June 30, 1999 for the fair value of the shares.
4. Executive Stock Options and Loan:
In April 1999, the Company issued stock options to a new member of
executive management as part of his three-year employment contract. The Company
granted the executive non-qualified options to acquire 200,000 shares of common
stock at an exercise price of $4.31 per share and options to acquire 140,000
shares of common stock at an exercise price of $12.00 per share. The options
expire ten years after the grant date. As defined in the stock option agreement,
the options will accelerate and fully vest one day prior to a change in control.
One-third of the options will vest six months after the effective date of the
IPO, and then one-third after each of the second and third years of employment.
In April 1999, as part of another employment agreement, the Company issued
incentive stock options to another new member of executive management to acquire
45,000 shares of common stock at an exercise price of $12.00 per share. The
options vest at a rate of 20,000 options after one year of employment, and
12,500 options after each of the second and third employment years, and expire
ten years after the grant date. As defined in the stock option certificate, the
options will fully vest one day prior to a change in control.
In June 1999, the Company advanced a $400,000 unsecured loan to one of its
executives. The loan bears interest at a rate of 7% per annum, with the interest
payable quarterly, and the principal amount due 3 years from the date of the
loan.
The Company recorded deferred compensation of approximately $2,693,000 for
options granted in April 1999 at exercise prices less than the estimated fair
market value at the dates of grant ($15.00 per share). The non-cash compensation
expense will be recognized over the respective vesting periods. The Company
recorded non-cash compensation expense of approximately $2,729,000 for the three
months ended June 30, 1999, which included accelerated vesting on options
granted in 1998.
11
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
5. Spin-off/Discontinued Operations:
Through the date of the spin-off, profits and cash flows from Cleartel
were used to finance operating losses at the Company. 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 obligation and additional transactions after the spin-off date were
paid to Cleartel in May 1999.
During the six months ended June 30, 1999 and 1998, the Company and
Cleartel shared certain support services such as bookkeeping, information
systems, and advertising and marketing support. After the spin-off, the Company
has been providing 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 is as
follows (in thousands):
Six Months Ended
June 30,
------------------
1999 1998
---- ----
(Unaudited) (Unaudited)
Bookkeeping, MIS, advertising, and marketing support.. $120 $105
Office lease.......................................... $ 40 $ 81
12
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
6. Extinguishment of Debt:
In September 1998, the Company entered into a $7 million loan facility
(the "Loan") with an investment banking firm. In connection with the Loan, the
Company issued the investment banking firm warrants to acquire 3 percent of the
fully diluted outstanding shares of common stock of the Company or 390,000
shares at September 4, 1998. The $7 million loan was repaid in full from net
proceeds from the IPO.
The Company recorded debt discount costs of $1,226,000 attributable to the
redeemable warrants issued and other direct financing costs in connection with
the Loan. The unamortized debt discount and deferred debt financing costs were
approximately $817,000 and $292,000, respectively, as of December 31, 1998. Upon
the early extinguishment of the Loan in May 1999, the Company recognized an
extraordinary charge of $551,000 related to the write-off of the unamortized
debt discount and deferred financing costs.
7. Convertible Preferred Stock:
Following the completion of the IPO, the Company converted 2,827,168
shares of Series A convertible preferred stock into an equal number of common
shares. In addition, the Company redeemed 745,645 Series B shares for cash
totaling $3,000,000 (plus accrued dividends of $104,000), and converted the
remaining Series B Shares into 81,946 shares of common stock.
8. Commitments and Contingencies:
Litigation
On March 25, 1999, the Company filed a patent infringement lawsuit against
LodgeNet Entertainment Corp. ("LodgeNet") in Maryland U.S. District Court. The
complaint charges LodgeNet with infringement of one of the OverVoice patents,
which is directed to the delivery of high-speed audio and video signals over
active telephone wiring. The Company and Inline Connection Corporation
("Inline") jointly own the patent. The Company is in discussions with LodgeNet
in an attempt to resolve the matter.
The Company is not a party to any lawsuit or proceeding which, in the
opinion of its management, is likely to have a material adverse effect on its
business, financial condition or results of operation.
13
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
Equipment Financing
The Company and Nortel Networks, Inc. ("Nortel Networks") entered into a
five-year, $30 million equipment financing line of credit, dated as of June 4,
1999. As of June 30, 1999, the Company had not yet borrowed under this credit
facility. In addition, the Company entered into a purchase agreement with Nortel
Networks, dated as of April 1, 1999, and committed to purchase $10 million of
Nortel equipment by April 1, 2000. In addition, the Company will be subject to a
reduction in its purchase discount percentages after that date if its annual
purchases do not exceed $10 million for the year ended April 1, 2001 and $9.9
million for the year ended April 1, 2002.
The Company and Cisco Systems Capital Corporation entered into a
three-year, $50 million equipment financing line of credit, dated as of June 30,
1999. Under the facility, $25 million is available during the first year of the
facility and an additional $25 million is available during the second year of
the facility, provided the Company meets certain financial performance
requirements. As of June 30, 1999, the Company had not yet borrowed under this
credit facility.
The Company accrued debt financing costs of approximately $1.4 million as
of June 30, 1999 in connection with completing the Nortel and Cisco lines of
credit.
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.
9. Subsequent Events - Atcom
On August 4, 1999, the Company and Atcom, Inc. (a California corporation
("Atcom"), entered into an Agreement and Plan of Merger (the "Merger Agreement")
with Atcom surviving as a wholly-owned subsidiary of the Company (the "Merger").
In the Merger, each outstanding share of Atcom common stock will be converted
into the right to receive 0.3568 shares, or a total of approximately 2,510,000
shares, of the Company's common stock. The Company will also convert Atcom
employee stock options into options to purchase a total of approximately 870,000
shares of the Company's common stock, a portion of which options are vested. If,
by November 21, 1999, the Company issues at least $10 million of capital stock
to one or more agreed upon strategic partners, the Company will issue additional
shares of the Company's common stock, having a value of approximately $13
million, to former holders of Atcom common stock. In addition, the Company will
adjust the number of shares of the Company's common stock issuable upon the
exercise of the converted Atcom options and the exercise price thereof, to
reflect the issuance of such additional consideration. The acquisition will be
accounted for under the purchase method of accounting. The transaction is
expected to close by the end of the third quarter 1999.
14
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
10. Segment Reporting
The Company has two reportable segments: "Internet Services" and
"OverVoice." During the periods 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
trials of dedicated high-speed Internet access to hotels and apartment
communities using OverVoice.
The accounting principles of the segments are the same as those applied in
the consolidated condensed financial statements. 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, unaudited):
Three Months Ended June 30, 1999
--------------------------------------
Internet
Services OverVoice Consolidated
-------- --------- ------------
Revenues $ 1,675 $ 136 $ 1,811
Depreciation and amortization 333 64 397
Interest (income) expense, net (67) (18) (85)
Segment losses (7,268) (1,892) (9,160)
Segment assets 5,113 5,126 10,239
Expenditures for segment assets 1,779 2,721 4,500
Three Months Ended June 30, 1998
--------------------------------------
Internet
Services OverVoice Consolidated
-------- --------- ------------
Revenues $ 1,321 $ 4 $ 1,325
Depreciation and amortization 287 -- 287
Interest (income) expense, net 87 5 92
Segment losses (1,813) (528) (2,336)
Segment assets 1,844 -- 1,844
Expenditures for segment assets 123 224 347
Six Months Ended June 30, 1999
--------------------------------------
Internet
Services OverVoice Consolidated
-------- --------- ------------
Revenues $ 3,265 $ 155 $ 3,420
Depreciation and amortization 675 72 747
Interest (income) expense, net 476 116 592
Segment losses (10,987) (2,824) (13,811)
Segment assets 5,113 5,126 10,239
Expenditures for segment assets 3,288 2,942 6,230
Six Months Ended June 30, 1998
--------------------------------------
Internet
Services OverVoice Consolidated
-------- --------- ------------
Revenues $ 2,562 $ 5 $ 2,567
Depreciation and amortization 570 -- 570
Interest (income) expense, net 159 15 174
Segment losses (3,558) (1,039) (4,597)
Segment assets 1,844 -- 1,844
Expenditures for segment assets 170 224 394
<PAGE>
The following is a reconciliation of the reportable segments' losses and
assets to the Company's consolidated totals (in thousands, unaudited):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Losses
Total losses for reportable segments $ (9,160) $ (2,336) $(13,811) $ (4,597)
Income (loss) from discontinued operations -- 211 (340) 365
Early extinguishment of debt (551) -- (551) --
-------- -------- -------- --------
Consolidated net loss $ (9,711) $ (2,125) $(14,702) $ (4,232)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
-------- --------
<S> <C> <C>
Assets
Total assets for reportable segments $ 10,239 $ 1,844
Total current assets, excluding reportable segment assets 105,959 9,696
Deferred financing and offering costs, net 1,389 --
Intangible assets, net -- 696
Receivable from officer 400 --
Noncurrent assets of discontinued operations -- 2,315
-------- --------
Consolidated total assets $117,987 $ 14,551
======== ========
</TABLE>
15
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Condensed Financial Statements and the Notes thereto contained
herein under Item 1.
The cautionary statements set forth below and elsewhere in this Report
identify important risks and uncertainties that could materially adversely
affect our business, financial condition, results of operations or prospects.
Overview
The Company is an ISP, delivering end-to-end high-speed Internet access
solutions. The Company operates two business segments: OverVoice high-speed
Internet access services for multi-user environments (hotels and apartment
communities); and high-speed Internet access solutions for businesses and
consumers, including DSL services using HyperDSL lines, always-on access
solutions for ISPs and businesses, and web hosting and other Internet services.
The Company operates a nationwide, clear-channel DS3/OC3 and ATM network, and
currently peers with public and private partners, and at national exchange
points MAE East, MAE East ATM, MAE West, and AADS.
Prior to the second quarter 1999, the Company derived most of its revenue
from the sale of various Internet services, including always-on Internet access
services, web hosting and domain registration services and, to a lesser extent,
dial-up Internet access. The Company incurred significant costs and devoted
substantial resources associated with the research, development and deployment
of its OverVoice technology, all of which had been expensed as incurred. The
costs included OverVoice equipment, contract labor for surveys and the actual
property installation, and Internet bandwidth and local loop connection charges.
During the second quarter, the Company began to generate OverVoice
revenues, as it began to install the technology in various hotels. The Company
also began to capitalize the costs of such installations, including equipment
and labor.
The Company intends to make significant investments in its nationwide
network infrastructure in conjunction with OverVoice and its other always-on,
high-speed Internet services. The Company also plans to devote considerable
sales and marketing resources to the sale of always-on, high-speed Internet
access using its OverVoice technology in hotels and multiple dwelling units and
digital subscriber line 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 its ability to successfully expand its customer
base for OverVoice and other services and achieve further operating
efficiencies. The Company might not be able to achieve or sustain revenue
growth, positive cash flow or profitability in the future.
16
<PAGE>
Key Developments in the Three Months Ended June 30, 1999
Initial Public Offering. In May 1999, the Company sold approximately
6.8 million shares of common stock, and raised gross proceeds of approximately
$130 million.
Nortel Networks Partnership and Financing. On June 4, 1999, the Company
entered into a $30 million credit facility with Nortel Networks, and agreed to
utilize certain Nortel equipment in the Company's OverVoice hotel contracts.
The two companies are also working together to develop new technology solutions
to leverage the Company's patented OverVoice technology.
Cisco Systems Partnership and Financing. On June 30, 1999, the Company
entered into a $50 million credit facility with Cisco Systems Capital
Corporation, and agreed to utilize certain Cisco equipment in the Company's
Internet backbone and OverVoice apartment community contracts. The two companies
are also working together to develop new technology solutions to leverage the
Company's patented OverVoice technology, including the development of a standard
Ethernet home networking solution.
Overnet Partnership. On June 10, 1999, the Company entered into a
strategic relationship with Overnet, a privately held company looking to develop
opportunities using the Company's OverVoice technology in Korea. Overnet has
entered into partnership agreements with three major Korean telecommunications
companies: Korea Informatics Telesis (a subsidiary of Korea Telecom); S1
Corporation (a subsidiary of Samsung); and Dreamline Corporation.
New Long Term OverVoice Contracts. In the second quarter, the Company
entered into contracts for the roll-out of high-speed Internet access for John
Q. Hammons (approximately 50 hotels), Haverford Hotels (7 hotels), and Town &
Country Trust (approximately 40 apartment buildings). Additionally, the Company
entered into trial agreements with several other hotel and apartment
owner/operators.
17
<PAGE>
Business Segments
OverVoice. The Company's patented OverVoice solution delivers high-speed
Internet connections in hotels and apartment communities on top of the
property's existing telephone system at speeds up to 175 times faster than 56K
dial-up modems. OverVoice's point-to-multipoint technology enables the Company
to create an Ethernet local area network within a building and provide a single
high-speed Internet connection which can be shared simultaneously among many
users. As of June 30, 1999, the Company had master contracts to roll-out
OverVoice service in Hilton Hotels, John Q. Hammons hotels, Haverford Hotels,
Town & Country Trust apartment communities, and trial agreements with several
other hotel and apartment owner/operators.
Internet Services. The primary services in the Company's Internet Services
segment include HyperDSL, always-on access and web hosting:
HyperDSL Services: The Company has initiated its roll-out of a new
always-on, high-speed Internet access service using digital
subscriber line technology ("DSL") under the name HyperDSL. The
Company partners with Covad Communications Group to provide
HyperLAN DSL services to small and medium-sized businesses, and
Bell Atlantic to provide HyperLINK DSL services to the residential
and SOHO (small office, home office) markets. As of June 30, 1999,
the Company provided HyperDSL services in the Washington, D.C.,
Baltimore, and New York City metro areas. The Company intends to
enter additional markets in 1999, including Philadelphia, Chicago,
San Francisco, Boston, Atlanta, Seattle, Miami and Los Angeles.
High-Speed Always-On Access and Other Services: The Company
provides dedicated Internet access to businesses and other Internet
providers, including T-1, fractional T-1, DS-3 and fractional DS-3
services. The Company also provides web hosting and collocation
services. In addition, the Company provides dial-up and other
narrowband connectivity services which are not marketed generally.
Statements of Operations
The Company records revenues for all services, including installation
fees, when the services are provided to customers. Amounts for services billed
in advance of the service period and cash received in advance of revenues earned
are recorded as unearned revenues and recognized as revenue when earned.
Customer contracts for Internet access and web hosting services are typically
for periods ranging from one month to three years. Internet access services
typically require the customer to purchase equipment and incur the related
installation fees. Revenues from equipment sales are recorded when the related
equipment is shipped to the customer. Dial-up access customers typically
subscribe to service contracts on a monthly or annual basis.
18
<PAGE>
The Company's costs include:
o cost of services;
o selling, general and administrative expenses;
o research and development;
o depreciation and amortization, including the amortization of
goodwill recorded as a result of the acquisition of Capital Area in
May 1996 which was fully amortized in May 1999;
o non-cash compensation attributable to the grant of options to key
executives; and
o 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. Cost of services also
includes charges for installation and customer equipment.
Selling, general and administrative expenses are incurred in the areas of
sales and marketing, customer support, network operations and maintenance,
engineering, accounting and administration. Selling, general and administrative
expenses 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 hotel
guests and apartment residents to a significant enough size in a particular
building or market. Any such increased marketing efforts may have a negative
effect on earnings.
Operating results for any period are not necessarily indicative of results
for any future period. Also, the operating results for interim periods are not
necessarily indicative of the results that might be expected for the entire
year.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net revenues. Net revenues for the three months ended June 30, 1999
increased 37% to approximately $1,811,000, from approximately $1,325,000 for the
three months ended June 30, 1998. Net revenues increased primarily due to an
increase of $156,000 in DSL revenues, $132,000 in OverVoice revenues, $131,000
in Internet access services, and $67,000 in web hosting services. The increases
were due to an increase in the number of customers for these services.
Cost of services. Cost of services for the three months ended June 30,
1999 totaled approximately $1,518,000 or 84% of net revenues, compared to
approximately $750,000 or 57% of net revenues for the three months ended June
30, 1998. This increase resulted primarily due to an increase of $397,000 in
additional nationwide bandwidth, $167,000 in OverVoice charges for equipment,
bandwidth and network installation, and $204,000 in DSL charges for customer
connectivity, equipment and installation.
19
<PAGE>
Selling, general and administrative. Selling, general and administrative
expenses for the three months ended June 30, 1999 totaled approximately
$5,689,000 or 314% of net revenues, compared to approximately $2,176,000 or 164%
of net revenues for the three months ended June 30, 1998. This increase resulted
primarily from an increase of $1,295,000 related to Internet services payroll,
$368,000 related to OverVoice payroll, $178,000 related to OverVoice costs (e.g.
marketing and professional fees and expenses), and $1,672,000 in advertising and
other sales, marketing and administrative expenses.
Depreciation and amortization. Depreciation and amortization totaled
approximately $397,000 for the three months ended June 30, 1999, compared to
approximately $287,000 for the three months ended June 30, 1998. This increase
resulted from an increase of $183,000 in depreciation of capital assets to
support the expansion of the Company's network, an increase of $42,000 in
amortization related to warrants issued to a third party, offset by a decrease
of $116,000 in goodwill amortization related to the completion of amortization
during the second quarter of 1999 of the May 1996 purchase of Capital Area.
Fair value of stock issued to a third party for services. Fair value of
stock issued to a third party for services totaled approximately $723,000 for
the three months ended June 30, 1999. This expense was for 66,500 shares of the
Company's common stock issued to an OverVoice hotel customer in connection with
the development of future hotel guest and meeting room digital entertainment
solutions. There was no comparable expense for the three months ended June 30,
1998.
Non-cash compensation. Non-cash compensation totaled approximately
$2,729,000 for the three months ended June 30, 1999, compared to approximately
$356,000 for the three months ended June 30, 1998. This increase resulted from
the acceleration of deferred compensation charges that occurred as a result of
the IPO, and from the amortization of deferred compensation related to
additional stock options granted in 1999.
Interest and other (income) expense. Interest and other (income) expense
totaled income of approximately $85,000 for the three months ended June 30,
1999, compared to expense of approximately $92,000 for the three months ended
June 30, 1998. This income total was attributable primarily to interest income
earned from the proceeds of the IPO, offset by an increase in interest on
indebtedness incurred, including amortization of financing costs relating to the
Company's credit agreement with an investment banking firm.
Loss from continuing operations. Loss from continuing operations totaled
approximately $9,160,000 for the three months ended June 30, 1999, compared to
approximately $2,336,000 for the three months ended June 30, 1998, due to the
foregoing factors.
Income (loss) from discontinued operations of Cleartel. There was no
income or loss from discontinued operations for the three months ended June 30,
1999 due to the spinoff of Cleartel in February 1999. Income from discontinued
operations of Cleartel totaled approximately $211,000 for the three months ended
June 30, 1998.
Extraordinary item - early extinguishment of debt. Extraordinary item -
early extinguishment of debt totaled approximately $551,000 for the three months
ended June 30, 1999. This charge was related to the write-off of unamortized
debt discount and deferred financing fees associated with the repayment of the
$7 million loan from an investment banking firm. There were no extraordinary
items for the three months ended June 30, 1998.
20
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net revenues. Net revenues for the six months ended June 30, 1999
increased 33% to approximately $3,420,000, from approximately $2,567,000 for the
six months ended June 30, 1998. Net revenues increased primarily due to
an increase of $188,000 in DSL revenues, $150,000 in OverVoice revenues,
$375,000 in Internet access services, and $140,000 in web hosting services. The
increases were due to an increase in the number of customers for these services.
Cost of services. Cost of services for the six months ended June 30, 1999
totaled approximately $2,568,000 or 75% of net revenues, compared to
approximately $1,467,000 or 57% of net revenues for the six months ended June
30, 1998. This increase resulted primarily from an increase of $698,000 in
additional nationwide bandwidth, $179,000 in OverVoice charges for equipment,
bandwidth and network installation, and $224,000 in DSL charges for customer
connectivity, equipment and installation.
Selling, general and administrative. Selling, general and administrative
expenses for the six months ended June 30, 1999 totaled approximately $9,480,000
or 277% of net revenues, compared to approximately $4,241,000 or 165% of net
revenues for the six months ended June 30, 1998. This increase resulted
primarily from increases of $2,233,000 related to Internet services payroll,
$615,000 related to OverVoice payroll, $237,000 related to OverVoice costs (e.g.
marketing and professional fees and expenses) and $2,154,000 in advertising and
other sales, marketing and administrative expenses.
Depreciation and amortization. Depreciation and amortization totaled
approximately $747,000 for the six months ended June 30, 1999, compared to
approximately $570,000 for the six months ended June 30, 1998. This increase
resulted from an increase of $260,000 in depreciation of capital assets to
support the expansion of the Company's network, an increase of $42,000 in
amortization related to warrants issued to a third party, offset by a decrease
of $125,000 in goodwill amortization related to the completion of amortization
during the second quarter of 1999 of the May 1996 purchase of Capital Area.
Fair value of stock issued to third party for services. Fair value of
stock issued to a third party for services totaled approximately $723,000 for
the six months ended June 30, 1999. This expense was for 66,500 shares of the
Company's common stock issued to an OverVoice hotel customer in connection with
the development of future hotel guest and meeting room digital entertainment
solutions. There was no comparable expense for the six months ended June 30,
1998.
Non-cash compensation. Non-cash compensation totaled approximately
$3,121,000 for the six months ended June 30, 1999, compared to approximately
$712,000 for the six months ended June 30, 1998. This increase resulted from the
acceleration of deferred compensation charges that occurred as a result of the
IPO, and from the amortization of deferred compensation related to additional
stock options granted in 1999.
Interest and other (income) expense. Interest and other (income) expense
totaled expense of approximately $592,000 for the six months ended June 30,
1999, compared to expense of approximately $174,000 for the six months ended
June 30, 1998. This increase was attributable primarily to interest on
indebtedness incurred, including amortization of financing costs relating to the
Company's credit agreement with an investment banking firm, offset by interest
income earned from the proceeds of the IPO.
Loss from continuing operations. Loss from continuing operations totaled
approximately $13,811,000 for the six months ended June 30, 1999, compared to
approximately $4,597,000 for the six months ended June 30, 1998, due to the
foregoing factors.
21
<PAGE>
Income (loss) from discontinued operations of Cleartel. Loss from
discontinued operations of Cleartel totaled approximately $340,000 for the six
months ended June 30, 1999, compared to income of approximately $365,000 for the
six months ended June 30, 1998. This decrease in income from discontinued
operations of Cleartel resulted primarily from a reduction in net revenues
generated from operator assisted telephone calls.
Extraordinary item - early extinguishment of debt. Extraordinary item -
early extinguishment of debt totaled approximately $551,000 for the six months
ended June 30, 1999. This charge was related to the write-off of unamortized
debt discount and deferred financing fees associated with the repayment of the
$7 million loan from an investment banking firm. There were no extraordinary
items for the six months ended June 30, 1998.
Liquidity and Capital Resources
Prior to the IPO, the Company financed its operations with various debt
and private equity placements. During the six months ended June 30, 1998, the
Company's continuing operations were also financed in part from operating
profits and cash flows generated from its now discontinued operation (Cleartel).
Net cash (used in) provided by operating activities for the six month periods
ended June 30, 1999 and June 30, 1998 was approximately $(10,582,000) and
$223,000, 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 and sales and marketing
activities for its Internet-related businesses.
In September 1998, the Company entered into a $7 million loan facility
(the "Loan") with an investment banking firm. In connection with the Loan, the
Company issued the investment banking firm warrants to acquire 3 percent of the
fully diluted outstanding shares of common stock of the Company or 390,000
shares at September 4, 1998. The $7 million loan was repaid from net proceeds
from the IPO.
In May 1999, the Company completed the IPO of its common stock. The
Company sold 6,842,100 shares (including the over-allotment option) of common
stock for approximately $130 million, yielding net proceeds to the Company of
approximately $118.2 million after deducting underwriting discounts and
commissions and other fees and expenses. The Company used approximately $12
million of the net proceeds to repay indebtedness and redeem shares of Series B
cumulative mandatory redeemable convertible preferred stock. Of the remaining
$106.2 million net proceeds, the Company estimates that it will use
approximately $25 million for capital expenditures, $34 million for sales and
marketing, $23 million for network infrastructure build out, $13 million for
research and development, and $11.2 million for general corporate purposes. The
Company also from time to time considers the acquisition of, or investments in,
complementary businesses, customer bases, products or technologies, and may use
some of the proceeds of the offering to make such acquisitions or investments.
See "Subsequent Events -Atcom."
The Company currently intends 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 its business, the competitive climate in which the Company operates
and the emergence of future opportunities.
Following the completion of the IPO, the Company converted 2,827,168
shares of Series A convertible preferred stock into an equal number of common
shares. In addition, the Company redeemed 745,645 Series B Shares for cash
totaling $3,000,000 (plus accrued interest of $104,000), and converted the
remaining Series B Shares into 81,946 shares of common stock.
In June 1999, the Company advanced a $400,000 unsecured loan to one of its
executives. The loan bears interest at a rate of 7% per annum, with the interest
payable quarterly, and the principal amount due 3 years from the date of the
loan.
The Company and Nortel Networks entered into a five-year, $30 million
equipment financing line of credit, dated as of June 4, 1999. The line of credit
bears interest at an annual rate of a commercial prime rate plus 3.75%. The
financing requires the Company to meet certain financial covenants including
EBITDA targets, revenue targets and leverage and debt service ratios. Borrowings
under the financing are secured by a first priority lien on all Nortel Networks
products purchased using the financing. As of June 30, 1999, the Company had not
yet borrowed under this credit facility. In addition, the Company entered into a
purchase agreement with Nortel Networks,
22
<PAGE>
dated as April 1, 1999, and committed to purchase $10 million of Nortel
equipment by April 1, 2000. The Company will be subject to a reduction in its
purchase discount percentages after that date if its annual purchases do not
exceed $10 million for the year ended April 1, 2001 and $9.9 million for the
year ended April 1, 2002.
The Company and Cisco Systems Capital Corporation entered into a
three-year, $50 million equipment financing line of credit, dated as of June 30,
1999. Under the facility, $25 million is available during the first year of the
facility and an additional $25 million is available during the second year of
the facility, provided the Company meets certain financial performance
requirements. The line of credit bears interest at an annual rate equal to the
three-month LIBOR plus 6.0%. The facility requires the Company to meet certain
financial covenants including EBITDA targets, revenue targets and leverage and
debt service ratios. Borrowings under the facility are secured by a first
priority lien in all assets of the Company, other than its property securing the
Nortel facility, in which assets Cisco will have a second priority lien. As of
June 30, 1999, the Company had not yet borrowed under this credit facility.
As of June 30, 1999, the Company had cash on hand of approximately $104.4
million. The Company expects that its cash and financing needs for the next
twelve months can be met by cash on hand and additional capital financing
arrangements, including its equipment financing agreements. 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.
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. On August 4, 1999, the Company and Atcom entered into a
Merger Agreement. See "Subsequent Events - Atcom."
Impact of the Year 2000 Issue
Many computer programs have been written using two digits rather than four
to define the applicable year. This poses a problem at the end of the century
because these computer programs may recognize a date using "00" as the year 1900
rather than the year 2000. This, in turn, could result in major system failures
or miscalculations, and is generally referred to as the "Year 2000 issue." The
Company's failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, the Company's normal business activities and
operations. The Company has formulated and, to a large extent, effected a plan
to address Year 2000 issues.
During 1998, the Company established a Year 2000 compliance program to
coordinate appropriate activity and report to its Board of Directors with regard
to Year 2000 issues. The Company is addressing the Year 2000 issue through a
comprehensive assessment and resolution of both its internal systems and the
systems of its external partners and suppliers.
23
<PAGE>
The Company's internal systems assessment and review consists of
four-phases:
o assessment;
o analysis and planning;
o conversion and testing; and
o implementation.
The Company's assessment of the Year 2000 problem has focused on
conducting an inventory of existing systems, performing risk assessment,
prioritizing systems, and determining resource needs and is substantially
complete. The analysis and planning phase of the Company's Year 2000 compliance
program has involved selecting corrective methods, developing certain standards,
determining conversion sequences, and establishing a detailed time line for
correcting Year 2000 issues and is substantially complete. The Company's
conversion and testing phase which has included developing codes and purchasing
known fixes, documenting the effort made, conducting unit and system tests, and
scheduling data migration is substantially complete. As part of the
implementation of its Year 2000 solution, the Company has moved various systems
into production, installed third party solutions, updated operational
procedures, and trained users. This implementation phase is substantially
complete. The Company expects completion of this internal systems assessment and
corrective action prior to the end of the third quarter of 1999.
The Company likewise has conducted a four-phase review of the systems of
its partners, suppliers, and other third parties (including equipment providers
and other telecommunications service providers) to monitor both the
vulnerability of such parties to the Year 2000 problem and any potential impact
on the Company. First, the Company identified its critical partners, suppliers,
and vendors. This phase involved requesting information from employees,
analyzing responses, performing risk assessments, prioritizing systems, and
determining resource needs and is fully complete. Secondly, the Company
developed Year 2000 contact standards. This phase, which has involved developing
questionnaires, drafting request letters, and gathering contact addresses and
e-mails is substantially complete. Thirdly, the Company has begun receiving
information through responses to its request letters, researching web sites,
making phone contacts, and summarizing the results of the information received.
Finally, the Company has begun to focus on evaluating different systems,
reviewing such information with senior management, and identifying any
additional resources needed. The Company is commencing work to develop a
contingency plan associated with its findings in this area. The Company believes
these latter phases will be completed prior to the end of the third quarter of
1999.
During the six months ended June 30, 1999, the Company spent approximately
$5.2 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. The Company expects to incur
additional costs in 1999 in connection with our Year 2000 program, which the
Company believes will not be material. In addition, the Company expects to
acquire a new billing and customer care system as part of its business strategy,
which the Company believes will also be Year 2000 compliant. These additional
costs are based on the Company's best estimates and, in management's opinion,
will not have a material adverse effect on its business, financial condition
and results of operations. If the actual costs of implementing the Company's
24
<PAGE>
Year 2000 program significantly exceed the Company's estimates, it may have a
material adverse effect on the Company's business, financial condition or
results of operations.
The Company currently believes that its most likely, worst case scenario
related to the Year 2000 issue is associated with potential concerns with its
partners' and suppliers' Internet operations. To the extent that one or more of
these third parties experience Year 2000 problems, which would lead to decreased
Internet usage and the delay or inability to obtain necessary data communication
and telecommunication capacity, the Company's network and services could be
adversely affected.
The Company cannot guarantee that it will be able to timely and
successfully modify its products, services and systems to comply with Year 2000
requirements. Any failure to do so could have a material adverse effect on the
Company's operating results. Furthermore, despite the aforementioned testing
performed by the Company and its vendors, the Company's products, services and
systems may contain undetected errors or defects associated with Year 2000 date
functions. In the event any material errors or defects are not detected and
fixed, or third parties cannot timely provide the Company with products,
services or systems that meet the Year 2000 requirements, the Company's
operating results could be materially adversely affected. Known or unknown
errors or defects that affect the operation of the Company's products, services
or systems could result in delay or loss of revenue, interruption of network
services, cancellation of customer contracts, diversion of development
resources, damage to the Company's reputation and litigation costs. The Company
cannot guarantee that these or other factors relating to Year 2000 compliance
issues will not have a material adverse effect on the Company's business.
Subsequent Events
Unisys:
On August 3, 1999, the Company and Unisys Corporation announced an
alliance that will accelerate a full range of Unisys installation, maintenance,
and end-user and network support services for the Company's OverVoice solution
in hotels and apartments worldwide. The alliance, which mobilizes a global
workforce of Unisys field operations, project managers and installers,
aggressively expands the Company's business plans to deploy the OverVoice
solution. Unisys provides the Company's Field Operations and Implementations
Teams with significant resources, including the Unisys portfolio of network and
end-user support services, installation, maintenance, and ongoing project and
program management. Unisys will help the Company meet the demand to deliver
OverVoice, and provides a full-service infrastructure to bolster the Company's
established field operations framework. In the U.S. alone, Unisys will equip the
Company with the capabilities to install in more than 200 hotel and apartment
properties, or 60,000 units, per month.
Atcom:
On August 4, 1999, the Company and Atcom entered into a Merger Agreement
with Atcom surviving as a wholly-owned subsidiary of the Company. In the Merger,
each outstanding share of Atcom common stock will be converted into the right to
receive 0.3568 shares, or a total of approximately 2,510,000 shares, of the
Company's common stock. The Company will also convert Atcom employee stock
options into options to purchase a total of approximately 870,000 shares of the
Company's common stock, a portion of which options are vested. If, by November
21, 1999, the Company issues at least $10 million of capital stock to one or
more agreed upon strategic partners, the Company will issue additional shares of
the Company's common stock, having a value of approximately $13 million, to
former holders of Atcom common stock. In addition, the Company will adjust the
number of shares of the Company's common stock issuable upon the exercise of the
converted Atcom options and the exercise price thereof, to reflect the issuance
of such additional consideration. The acquisition will be accounted for under
the purchase method of accounting. The transaction is expected to close by the
end of the third quarter 1999.
Atcom is a leading provider of software solutions in multiple user
Internet environments. The Merger will combine the Company's OverVoice hardware
technology with Atcom's IPORT server software and kiosk products to create a
cost effective and robust solution to deliver high-speed Internet access
solutions to hotels, apartment communities and public areas.
25
<PAGE>
VirtuaLINC:
On August 4, 1999, the Company announced that it had been selected by
VirtuaLINC to deploy VirtuaLINC's high-speed Internet solutions to Carlson
Hospitality Worldwide, using the Company's OverVoice technology. VirtuaLINC,
which offers interactive communications to hotels through the use of its
V2PN (Virtual Video Private Network), has chosen the Company's OverVoice
technology as the preferred multi-point high-speed Internet access platform in
guest and meeting rooms chain-wide. The agreement with VirtuaLINC will enable
the Company's OverVoice technology to be installed in up to 450 Carlson hotels
with approximately 3,000 meeting rooms and 80,000 guest rooms in North America.
26
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any lawsuit or proceeding which, in the
opinion of its management, is likely to have a material adverse effect on its
business, financial condition or results of operation.
On March 25, 1999, the Company filed a patent infringement lawsuit against
LodgeNet Entertainment Corp. ("LodgeNet") in Maryland U.S. District Court. The
complaint charges LodgeNet with infringement of one of the OverVoice patents,
which is directed to the delivery of high-speed audio and video signals over
active telephone wiring. The Company and Inline jointly own the patent. The
Company is in discussions with LodgeNet in an attempt to resolve the matter.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
SALES OF UNREGISTERED SECURITIES
All matters discussed in the Registration Statement are hereby
incorporated by reference. The reader is directed to read the entire
Registration Statement, but with regard to this item the reader should read:
Amended and Restated Stock Option Plan, Certain Relationships and Related
Transactions, Description of Capital Stock and Shares Eligible for Future Sale.
The following is a description of the unregistered securities sold by the
Company during the period from May 20, 1999 through June 30, 1999:
From May 20, 1999 through June 30, 1999, the Company granted stock options
to employees to purchase an aggregate of 240,500 shares of common stock at an
exercise price of $11.50 per share.
On June 3, 1999, the Company issued 66,500 shares of common stock to
Hilton Hotels Corporation in connection with the companies' agreement on a
digital entertainment fund to jointly pursue the development of future guest and
meeting room digital entertainment solutions in Hilton properties.
The securities issued in the foregoing transactions were either (i)
offered and sold in reliance upon exemptions from registration set forth in
Sections 3(b) and 4(2) of the Securities Act of 1933, or regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering, or
(ii) in the case of certain options to purchase shares of Common Stock and
shares of common stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters or placement agents were involved in the
foregoing issuances and sales.
27
<PAGE>
INITIAL PUBLIC OFFERING
The effective date of the Company's first registration statement, filed on
Form S-1 under the Securities Act of 1933 (No. 333-72769), relating to the
Company's initial public offering of its common stock was May 19, 1999. A total
of 6,842,100 shares of the Company's common stock (including 842,100 shares
pursuant to the exercise of the underwriters' over-allotment option) were sold
to the public. The lead investment manager of the IPO was Bear, Stearns & Co.
Inc. The IPO was completed on May 20, 1999 at a price of $19.00 per share. The
IPO and the exercise of the underwriters' over-allotment option resulted in
gross proceeds of approximately $130,000,000. Underwriting discounts and
commissions totaled approximately $9,100,000, and other expenses and fees
related to the IPO totaled approximately $2,667,000. The amount of net proceeds
to the Company from the IPO was approximately $118,233,000.
The following table sets forth the underwriting discounts and commissions
and other expenses incurred by the Company through June 30, 1999 in connection
with the issuance and distribution of such securities. All amounts shown are
estimates:
Underwriting discounts and commissions $ 9,100,000
Nasdaq National Market Listing Fee 94,000
Transfer Agent and Registrar fees 42,000
Accounting fees and expenses 635,000
Legal fees and expenses 813,000
Printing and mailing expenses 992,000
Miscellaneous 91,000
------------
Total Expenses
$ 11,767,000
============
Net Proceeds $118,233,000
============
None of such expenses involved direct or indirect payments to directors or
officers of the Company or their associates, 10% stockholders of the Company or
affiliates of the Company.
From May 20, 1999 to June 30, 1999, the Company invested the net proceeds
from the IPO in investment grade interest-bearing accounts.
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See Exhibit Index.
B. REPORTS ON FORM 8-K
None.
29
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, D.C., on
August 16, 1999.
CAIS Internet, Inc.
/s/ Ulysses G. Auger, II
--------------------------------------------
Ulysses G. Auger, II, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
/s/ Barton R. Groh
--------------------------------------------
Barton R. Groh, Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
30
<PAGE>
CAIS INTERNET, INC.
EXHIBIT INDEX
Exhibit
No. Description
- -------- -----------
3.1 Certificate of Incorporation: Restated Certificate of
Incorporation of the Company incorporated by reference to
Exhibit 3.1 to the Registration Statement.
3.2 By-Laws: Amended and Restated By-Laws of the Company
incorporated by reference to Exhibit 3.2 to the Registration
Statement.
10.1 Global Purchase Agreement between CAIS, Inc. and Nortel
Networks, Inc., dated April 1, 1999.
10.2 Credit Agreement by and among CAIS, Inc. and Nortel Networks
Inc., dated June 4, 1999.
10.3 Guaranty Agreement by the Company in favor of Nortel Networks
Inc., dated June 4, 1999.
10.4 Security Agreement by and among CAIS, Inc. and Nortel Networks
Inc., dated June 4, 1999.
10.5 Credit Agreement by and among CAIS, Inc. and Cisco Systems
Capital Corporation, dated June 30, 1999.
10.6 Guaranty Agreement by the Company in favor of Cisco Systems
Capital Corporation, dated June 30, 1999.
10.7 Security Agreement by and among the Company and Cisco Systems
Capital Corporation, dated June 30, 1999.
10.8 Security Agreement by and among CAIS, Inc. and Cisco Systems
Capital Corporation, dated June 30, 1999.
27.1 Financial Data Schedule.
<PAGE>
Exhibit 10.1
GLOBAL PURCHASE AGREEMENT
BETWEEN
CAIS, INC.
AND
NORTHERN TELECOM INC.
1
<PAGE>
TABLE OF CONTENTS
Articles:
Article 1 - Definitions
Article 2 - Scope of Agreement
Article 3 - Placement of Orders
Article 4 - Price and Payment
Article 5 - Shipment, Title and Risk of Loss
Article 6 - Testing, Turnover and Acceptance
Article 7 - Order Cancellation
Article 8 - Warranty
Article 9 - Nortel Networks' Additional Obligations
Article 10 - Software License
Article 11 - Homologation and Certification
Article 12 - Liability for Bodily Injury, Property Damage and Patent
Infringement
Article 13 - Remedies and Limitation of Liability
Article 14 - Continuing Availability
Article 15 - Term and Termination
Article 16 - Confidentiality Miscellaneous
Article 17 - Miscellaneous
Exhibits:
Exhibit A - Product Annexes including Lists of Product and Prices
Exhibit B - CAIS Committed Products
Exhibit C - List of Affiliates
2
<PAGE>
GLOBAL PURCHASE AGREEMENT
This Global Purchase Agreement ("Agreement"), effective as of the 1st day of
April, 1999, is entered into by and between CAIS, Inc. (hereinafter "Company"),
a Virginia corporation with its principal place of business located at 1255 22nd
Street, Washington, DC 20037 and Northern Telecom Inc. (hereinafter "Nortel
Networks"), a Delaware corporation with offices located at 4001 East Chapel Hill
- - Nelson Highway, Research Triangle Park, North Carolina 27709.
WHEREAS, Company is engaged in providing communication services and products,
and providing and maintaining public and private communication and data
networks; and
WHEREAS, Nortel Networks, in conjunction with Nortel Networks Affiliates, is
engaged in the design, development, manufacture and sale of various products and
offers services associated with such products, which can be used in connection
with the communication services, products and networks of Company; and
WHEREAS, Company and Company Affiliates wish to be able to purchase and/or
license various products and services from Nortel Networks and Nortel Networks
Affiliates, which Company and Company Affiliates will use for their own internal
use and not for resale or as stock in trade, and Nortel Networks is willing to
sell and/or license such products to Company, subject to the terms and
conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein set forth, the parties agree as follows:
ARTICLE 1. DEFINITIONS
The following words shall have the meanings set forth below. Words in the
singular shall be held to include the plural and vice versa, and words of gender
shall be held to include the other gender as the context requires.
1.1 "Acceptance" shall mean that either (i) Company has indicated
that an ordered Product is operating substantially in accordance with the
applicable Specification; or (ii) an ordered Product has been deemed to be
accepted pursuant to criteria set forth in Article 6.
1.2 "Affiliate" shall mean any entity listed in Exhibit C in which
either Nortel Networks or Company directly or indirectly owns and controls, and
continues to own or control, more than fifty percent (50%) of the shares
entitled to elect the board of directors of such entity. Each party agrees that
the other party may add to Exhibit C any entity in which the party directly or
indirectly owns and controls, and continues to own or control, more than fifty
percent (50%) of the shares entitled to elect the board of directors of such
entity. Any other entity shall only be added upon mutual consent of the parties
in writing. The Affiliates of Nortel Networks are referred to herein as "Nortel
Networks Affiliates", and the Affiliates of Company are referred to herein as
"Company Affiliates". Nortel Networks Dasa GmbH of Germany and Matra Nortel
Networks Communications S.A.S., for purposes of this Agreement, shall be treated
as Affiliates of Nortel Networks.
1.3 "Applications" shall mean any program, product, service,
development or invention developed by a party using the Building Blocks,
including any modified or created Building Blocks, created by Company.
3
<PAGE>
1.4 "Building Block(s)" shall mean those Software files provided by
Nortel Networks with Modifiable Software that are manipulatable or which may be
created by Company with such Modifiable Software and which can be used, created
or manipulated by Company to create Applications.
1.5 "Confidential Information" shall mean all information,
including, without limitation, specifications, drawings, documentation, know-how
and pricing information, of every kind or description which may be disclosed by
one party to the other party in connection with this Agreement; provided that,
the disclosing party shall clearly mark all such information disclosed in
writing as the confidential or proprietary property of the disclosing party and,
in the case of oral disclosure, the disclosing party shall identify the
confidential or proprietary nature of any such information at the time of such
oral disclosure and shall provide a written summary (labeled as confidential or
proprietary) of the orally disclosed information to the recipient within fifteen
(15) business days following such disclosure. Notwithstanding the above, the
parties understand that all information disclosed by Company concerning its
OverVoice product shall be treated as Confidential Information.
1.6 "Contract" shall mean an agreement for the supply of Products
and/or Services between (i) a Company Affiliate and (ii) Nortel Networks or a
Nortel Networks Affiliate, which comes into effect by the acceptance of an Order
pursuant to the provisions of this Agreement, and which Contract shall be
governed solely by the terms and conditions of this Agreement; and each
reference to "Company" in this Agreement shall for such Contract mean the
ordering Company Affiliate.
1.7 "Customer" shall mean entities to whom Company provides
communications services as a result of Company's internal use of the Products.
1.8 "Customer Information" or "CI" shall mean the information
provided by Company to Nortel Networks in order for Nortel Networks to engineer
and/or provide the components of Systems.
1.9 "Documentation" shall mean the documents which Nortel Networks
generally makes available to its customers containing descriptive, operating,
installation, engineering and maintenance information for Products, including
Specifications, as such documents may be amended from time to time.
1.10 "Effective Date" shall mean the date this Agreement becomes
effective, which shall be the date first identified above.
1.11 "Extension" shall mean Hardware and/or Software which is
engineered by Nortel Networks and added to an Initial System after the Turnover
Date of the Initial System.
1.12 "Ex Works" shall have the meaning ascribed to it in Incoterms
1990.
1.13 "Hardware" shall mean, individually and collectively, the
Nortel Networks equipment listed in the Product Annexes of Exhibit A, and shall
be deemed to include any equipment which Nortel Networks adds to its generally
available Hardware price lists or so identifies to Company in a Quotation.
1.14 "Hazardous Material" shall mean any pollutants or dangerous,
toxic or hazardous substances (including without limitation, asbestos) as
defined in, or pursuant to
4
<PAGE>
the OSHA Hazard Communication Standard (29 C.F.R. Part 1910, Subpart Z), the
Resource Conservation and Recovery Act (15 U.S.C. Section 6901, et seq.), the
Toxic Substances Control Act (15 U.S.C. Global Section 2601, et seq.), the
Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C.
Section 9601, et seq.), and any other federal, state or local environmental law,
ordinance, rule or regulation or equivalent law or regulation in the location to
which the Product is shipped by Nortel Networks.
1.15 "Initial System" shall mean Hardware and Software, inclusive of
a central processor unit, included in a configuration which Nortel Networks
identifies as a System and which is initially engineered by Nortel Networks and
installed at a specific Installation Site.
1.16 "Installation Site" shall mean the location or facility
identified in an Order at which the applicable Products will be installed.
1.17 "Licensed Software" shall mean the Software which Company has
licensed pursuant to this Agreement.
1.18 "Merchandise" shall mean any Hardware or other parts or
components which are not ordered as part of a System and with respect to which
no engineering, installation or other Services are provided by Nortel Networks.
1.19 "Modifiable Software" shall mean Software, or a portion of
Software that is identified as such by Nortel Networks in its applicable
Documentation, which Company may have certain rights to modify and potentially
create Applications or Building Blocks in accordance with the applicable
Documentation.
1.20 "Non-Licensed Software" shall mean Software for which Company
has not yet obtained a license nor paid applicable right to use fees, but which
Software may be included with Software loads delivered to Company hereunder.
1.21 "Object Code" shall mean Software either written directly, or
translated from, Source Code, which when presented on a suitable medium may be
directly executed by and through computer hardware and/or firmware and which
Software may be stored on any storage medium whatsoever.
1.22 "Order" shall mean a numerically controlled purchase
authorization document issued by Company or a Company Affiliate to Nortel
Networks or a Nortel Networks Affiliate, specifying the types and quantities of
Products and Services to be furnished by Nortel Networks.
1.23 "Product(s)" shall mean, individually and collectively, the
Hardware, Software, and Documentation.
1.24 "Product Annex" shall mean, with respect to a specific Product,
additional or modified terms and conditions as set forth in Exhibit A, inclusive
of but not limited to those that may apply to any Third Party Hardware or Third
Party Software, unique to such Product.
1.25 "Quotation" shall mean a written budgetary or firm price
quotation issued by Nortel Networks to Company or a Company Affiliate for the
supply of any Products or Services pursuant to this Agreement.
5
<PAGE>
1.26 "Service(s)" shall mean, individually and collectively, any of
the services set forth in this Agreement that Company may acquire from Nortel
Networks, such as but not limited to maintenance, engineering, installation,
training, data management, program management, project management,
commissioning, testing, technical assistance Service with respect to Products
and installation, and consulting.
1.27 "Services Software" shall mean that Software and related
documentation made available by Nortel Networks which may be used by Company for
estimation, planning or information purposes.
1.28 "Ship Date" shall mean the date as agreed to by the parties on
which a Product ordered by Company is scheduled to be shipped from Nortel
Networks' facility, or in the case of Software which is downloaded, the date
upon which such Software is to be downloaded to the System; however, Ship Date
shall not mean the date on which Non-Licensed Software is activated.
1.29 "Software" shall mean (i) computer programs in Object Code form
or firmware which (a) are owned by, or licensed to, Nortel Networks or Nortel
Networks Affiliates, (b) reside in Product memories, tapes, disks or other
media, and (c) provide basic logic operating instructions and user-related
application instructions; and (ii) documentation associated with such computer
programs, which may be furnished by Nortel Networks to Company from time to
time, including both Licensed Software and Non-Licensed Software, but in no
event shall Software include Source Code.
1.30 "Software Release" shall mean Software or revisions to Software
containing problem fixes, new features and/or enhancements.
1.31 "Source Code" shall mean Software in assembly language or any
higher-level source language and all available appropriate documentation.
1.32 "Specifications" shall mean with respect to any Product the
specifications and/or practices set forth in Northern Telecom Practices ("NTPs")
or similar documents published by Nortel Networks which Nortel Networks
identifies as the standard performance specifications and practices for such
Product.
1.33 "System" shall mean a configuration of Hardware and Software
providing a specified functionality and includes an Initial System and its
Extensions, if any.
1.34 "Third Party Hardware" shall mean any hardware not of Nortel
Networks' manufacture, which shall be deemed to include any such hardware which
Nortel Networks adds to its generally available Third Party Hardware price lists
or so identifies to Company in a Quotation.
1.35 "Third Party Software" shall mean any Software not owned by
Nortel Networks which is included within Licensed Software or Non-Licensed
Software.
1.36 "Turnover" shall mean, with respect to any System installed by
Nortel Networks, that Nortel Networks has completed its standard manufacturing
test procedures, as applicable, and that the System is ready for acceptance
testing by Company.
1.37 "Turnover Date" shall mean, with respect to any Product
installed by Nortel Networks hereunder, the date on which Nortel Networks
provides a notice of Turnover to Company.
6
<PAGE>
ARTICLE 2. SCOPE OF AGREEMENT
2.1 This Agreement sets forth the terms and conditions under which
Company or Company Affiliates may order Products and/or Services from Nortel
Networks and Nortel Networks Affiliates. Any Order placed by a Company
Affiliate, under this Agreement, shall be subject to the terms and conditions of
this Agreement, as if such Company Affiliate is the party that executed this
Agreement; provided, however, that Nortel Networks has the right to reject any
Order as specified in Section 3.2 and from any Company Affiliate which is
otherwise engaged with Nortel Networks or a Nortel Networks Affiliate in an
agreement for the purchase and/or supply of any of the Products or Services
provided under this Agreement. Company may use the Products itself, including
use to provide services to others, subject to the terms and conditions of this
Agreement. Company expressly represents that it is not its intent to buy Product
for resale.
2.2 To the extent any terms and conditions set forth in this
Agreement are inapplicable to a Product, the applicable terms and conditions and
any additional terms and conditions for such Product shall be set forth in a
Product Annex. No Product Annex shall be added to this Agreement without the
mutual written consent of both parties.
2.3 If specified in a Product Annex as a requirement, Company shall,
fifteen (15) days prior to each calendar quarter, submit to Nortel Networks a
consolidated non-binding forecast of Products by geographic region, that Company
anticipates purchasing or licensing over the next four (4) calendar quarters. In
addition to the type, quantity and cumulative dollar amount of Products, the
parties may agree upon additional information to be included in such forecast.
2.4 All references to prices, charges, fees or other amounts herein
shall be in U.S. dollars and all documentation, correspondence and communication
shall be in the English language. Unless otherwise set forth herein, any
reference in this Agreement to Company shall be deemed to include Company
Affiliates and any reference to Nortel Networks shall be deemed to include
Nortel Networks Affiliates.
2.5 Company commits to purchase Products as identified in Exhibit B,
to be shipped ("Committed Products") prior to April 1, 2002. Such Committed
Products and any Optional Equipment, identified in the pricing section of
Exhibit B, shall be purchased under the terms and conditions of this Agreement,
or under the superseding provisions of a lease or loan agreement ("Financing
Agreement") to be negotiated prior to shipment of those Committed Products or
Optional Equipment. Any Committed Products or Optional Equipment for which
Company chooses to use funds from the Financing Agreement shall hereinafter be
referred to as "Financed Product." Company shall purchase ten million dollars
($10,000,000) worth of Committed Products by April 1, 2000 ("1st Purchase
Date"), another ten million dollars ($10,000,000) worth of Committed Products by
April 1, 2001 ("2nd Purchase Date") and the final nine million nine hundred
thousand dollars ($9,900,000) worth of Committed Products by April 1, 2002 ("3rd
Purchase Date"). The total purchase of the Committed Products shall be for an
amount of twenty-nine million nine hundred thousand dollars ($29,900,000)
("Commitment"). In the event that Company does not submit Order(s) for the total
amount of the Commitment due by the 1st Purchase Date, then Nortel Networks
shall, on or about the 1st Purchase Date invoice Company for an amount equal to
the difference between the aggregate amount of the Commitment then due and the
amount of the Order(s) submitted against the Commitment by the 1st Purchase
Date. In the event that Company does not submit Order(s) for the total amount of
the Commitment due by the 2nd Purchase Date or the 3rd Purchase Date,
7
<PAGE>
then Nortel Networks shall, on or about the 2nd Purchase Date or 3rd Purchase
Date, respectively, invoice Company, with respect to the Nortel/Bay Networks
Products, for an amount equal to the Adjusted Rate derived from the scale below
times the amount of the Order(s) submitted against the Commitment by such
Purchase Date and, with respect to the EtherLoop Products, for an amount equal
to the Adjusted Price times the number of Products.
Nortel/Bay Networks Products:
Actual Volume Purchased Effective Discount Adjusted Rate
of all Committed Products
--------------------------------------------------------------------
$0-4,999,999 40% 14%
$5-9,999,999 48% 6%
$10,000,000 and up 54% 0%
EtherLoop Products:
<TABLE>
<CAPTION>
Actual Volume Purchased
of all Committed Products Product Effective Price Adjusted Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
$0-4,999,999 Elite 8 Package $4,250 $442
$0-4,999,999 eLAN 128 Package $5,500 $500
$0-4,999,999 VBN (10 users) $5,600 $0
$0-4,999,999 VBN (25 users) $7,600 $350
$0-4,999,999 VBN (50 users) $11,000 $800
$0-4,999,999 VBN (capacity) $17,500 $3,190
$5-9,999,999 Elite 8 Package $4,000 $192
$5-9,999,999 eLAN 128 Package $5,200 $200
$5-9,999,999 VBN (10 users) $5,600 $0
$5-9,999,999 VBN (25 users) $7,400 $150
$5-9,999,999 VBN (50 users) $10,600 $400
$5-9,999,999 VBN (capacity) $15,900 $1,590
$10,000,000 and up Elite 8 Package $3,808 $0
$10,000,000 and up eLAN 128 Package $5,000 $0
$10,000,000 and up VBN (10 users) $5,600 $0
$10,000,000 and up VBN (25 users) $7,250 $0
$10,000,000 and up VBN (50 users) $10,200 $0
$10,000,000 and up VBN (capacity) $14,310 $0
</TABLE>
Note: No adjusted pricing applies to miscellaneous equipment, including
but not limited to, cables, power, power shelves, and mounting brackets
ARTICLE 3. PLACEMENT OF ORDERS
3.1 To order Products and/or Services, Company shall submit to such
person as Nortel Networks shall designate, an Order which shall at a minimum
specify the following, if applicable:
(i) the name of the Company Affiliate placing the Order, which
shall be a Company Affiliate set forth in Exhibit C for the
country in which the Product is to be placed;
(ii) the types and quantities of Products and Services to be
furnished by Nortel Networks;
8
<PAGE>
(iii) the name and address, as set forth in Exhibit C, of the
Nortel Networks Affiliate that will be providing the Products
and/or Services being ordered in the country in which the
Products and/or Services are to be placed and/or performed, as
appropriate;
(iv) the applicable prices, charges and fees with respect to
such Products and Services;
(v) the location or facility to which the Products are to be
delivered;
(vi) the incorporation by reference of this Agreement;
(vii) the Installation Site, if known;
(viii) the requested Ship Date and Turnover Date of the
System; and
(ix) any other information required under this Agreement to be
included in an Order.
3.2 In the first Order for Financed Product, Company shall specify
the type of financing arrangement, by way of example, an operating or capital
lease, permitted under the Financing Agreement. All Orders for Financed Product
placed thereafter shall be governed by the same financing arrangement as
specified in such first Order.
3.3.1 All purchases pursuant to this Agreement shall be made by
means of Orders issued from time to time by Company or Company's Affiliate
addressed to Nortel Networks or Nortel Networks' Affiliate and accepted by
Nortel Networks or Nortel Networks' Affiliate in writing within fifteen (15)
days after receipt of the Order. An Order submitted by a Company Affiliate
pursuant to the terms and conditions of this Agreement, and which Nortel
Networks has accepted, constitutes a Contract between the Company Affiliate
ordering and Nortel Networks or the applicable Nortel Networks Affiliate. In the
event that Nortel Networks fails to provide its acceptance of an Order in
writing within such fifteen (15) day period, such Order shall be deemed to be
accepted, subject to Section 3.4. Nortel Networks shall have the right to reject
any Order, or the applicable portion of such Order, placed hereunder where
Company or the Company Affiliate placing the Order has a separate agreement with
Nortel Networks for the provision of the Products or Services requested in such
Order or the Order is otherwise not in accordance with this Agreement.
3.3.2 Nortel Networks reserves the right to amend Exhibit C from
time to time to add or remove Nortel Networks Affiliates and shall provide ten
(10) days prior written notice of such amendment to Company. Exhibit C may be
subject to change in relation to Company's or a Company Affiliate's purchases of
different Products from Nortel Networks or a Nortel Networks Affiliate. Subject
to the terms and conditions of this Agreement, Company or a Company Affiliate
may place an Order for a Product with the appropriate Nortel Networks Affiliate
in the territory where the Product will be delivered as set forth in Exhibit C.
3.4 All Orders issued by Company pursuant to this Agreement shall
refer to and specifically incorporate this Agreement by reference and the terms
and conditions herein shall govern the transaction resulting from such Order;
provided that such Order is accepted or deemed accepted by Nortel Networks.
Additionally, all Orders issued for, in whole or in part, Financed Products
shall specifically incorporate the Financing Agreement by reference and the
applicable terms and conditions therein shall also apply
9
<PAGE>
to such Order. Additional or conflicting terms and conditions set forth in
Orders issued by Company, or in any prior Quotations, acknowledgments or other
related documentation issued by any party, shall be considered null and void and
shall have no force or effect. Notwithstanding the foregoing, any additional or
conflicting terms and conditions written on the face of or otherwise
incorporated into an Order shall, upon express acceptance in writing by Nortel
Networks, and for such Order only, supersede the specific terms and conditions
contained in this Agreement, including all Exhibits attached hereto, which are
in conflict, but only to the extent of such conflict.
3.5 Company may at any time request additions, alterations,
deductions or deviations to an Order, subject to the condition that such changes
and any adjustments resulting from such changes, including, but not limited to,
schedules and prices, shall be mutually agreed upon and, if so agreed,
subsequently detailed in a written revision to the applicable Order ("Change
Order"). Company acknowledges that a premium charge may be applied by Nortel
Networks should Nortel Networks agree to process a Change Order outside of its
standard Order processing cycle for a Product and in the event that a Change
Order requires an additional amount of work (such as engineering) to be
undertaken to comply with such changes.
3.6 If Company desires to receive a budgetary or firm Quotation from
Nortel Networks for a Product or Service, Company shall submit such request in
writing to Nortel Networks' Director, Commercial Marketing, or such other person
as designated by Nortel Networks. The request for Quotation shall include the
information listed in Section 3.1, as applicable.
3.7 Nortel Networks shall respond in writing within fifteen (15)
business days to requests for budgetary Quotations and requests for firm
Quotations. Unless otherwise specified in the firm Quotation, such firm
Quotation shall be valid for ninety (90) days from the date of such Quotation.
Budgetary Quotations shall be provided for information and planning purposes
only and shall not be considered to be a final or firm statement binding on
either party. All prices will be quoted in U.S. dollars, unless otherwise
agreed. The Quotations shall include the following information:
(i) Budgetary Quotations
(a) preliminary Hardware and Software lists;
(b) the estimated charges for the Products;
(c) the estimated charges for Services requested; and
(d) any other information requested by Company.
(ii) Firm Quotations
(a) the price to be paid by Company for the Products, after
applying the applicable discounts, if any;
(b) fixed charges for Services requested;
(c) complete Hardware and Software lists and project schedules;
and
(d) any other information requested by Company.
3.8 The Ship Date shall be based on Nortel Networks' standard
intervals, as specified in Exhibit A, for the applicable Product; however, the
parties shall always mutually agree on the Ship Date and take into consideration
any unique aspect of the applicable project.
10
<PAGE>
3.9 Orders may be issued either electronically, such as through
electronic data interchange, or via traditional manual methods, as mutually
agreed to by the parties. The parties reasonably agree to develop such
electronic data interchange.
3.10 Company absolutely, irrevocably and unconditionally guarantees
the performance of every Company Affiliate issuing Orders and/or otherwise
acting under this Agreement and any Contract created thereby. Company hereby
expressly waives any other diligence, protest or notice as well as any
requirement that Nortel Networks exhaust any remedy or right against such
Company Affiliate.
ARTICLE 4. PRICE AND PAYMENT
4.1 Nortel Networks shall charge Company for each Product and/or
Service ordered by Company in accordance with the prices set forth in each
accepted Order, which prices shall be based upon prices identified in one of (i)
a Product Annex; (ii) a Firm Quotation; (iii) Nortel Networks' then current
prices after applicable discounts; or (iv) as specified elsewhere in this
Agreement or as otherwise mutually agreed in writing.
4.2.1 All Products for delivery within the European Union shall be
priced and delivered in accordance with Delivery Duty Paid ("D.D.P."), European
Union site terms and for other European countries in accordance with Carriage
Insurance Paid ("CIP") specified port/airport of entry. The terms D.D.P. and CIP
shall be interpreted in accordance with Incoterms 1990. In all cases, prices are
exclusive of Sales Tax or Value Added Taxes ("VAT") which will be payable by the
Company in addition to the purchase price at the rate applicable as of the date
of invoice.
4.2.2 All Products for delivery within Australia shall be priced and
delivered in accordance with D.D.P., Australian site terms, as applicable.
Prices are subject to changes in statutory charges such as duties and taxes.
4.2.3 All Products for delivery within New Zealand shall be priced
and delivered in accordance with Delivered Duty Paid ("D.D.U."), New Zealand
site terms, as applicable. Prices are subject to duties and General Sales Tax.
4.2.4 All Products for delivery within Japan shall be priced and
delivered in accordance with D.D.P., Japanese site terms. In all cases, prices
are exclusive of Sales Tax which will be payable by the Company in addition to
the purchase price at the rate applicable as of the date of invoice.
4.2.5 All Products for delivery within countries not otherwise
specified above shall be priced and delivered in accordance with Ex Works,
Nortel Networks' applicable facility.
4.3 Nortel Networks' prices, if set forth in Exhibit A, may be
revised by Nortel Networks no more than once each calendar year, by providing
sixty (60) days prior written notice to Company, however, the discounts in
Exhibit A shall not be reduced during the Term. Such notice shall specify the
effective date of the price change and shall apply to all Orders received by
Nortel Networks on or after the effective date of the price change. However, in
the event that there is a recognized industry-wide shortage of a component that
is incorporated in a Product, Nortel Networks may increase the price of such
Product, following the provision of written notice to Company fifteen (15) days
prior to the effective date of such increase or such shorter date as is mutually
agreed in view of the shortage. The price increase of such Product due to a
component shortage shall be limited to a reasonable amount under the
then-current circumstances having
11
<PAGE>
regard for industry conditions for the period of time during which such
recognized shortage exists. Following the implementation of a price increase due
to a component shortage, the parties shall jointly review every three (3) months
or at such other time as is mutually agreed, in good faith, whether such
component shortage still exists. If the component shortage has abated, the
parties shall jointly determine whether there still is a need for such price
increase. In addition, in the event that worldwide hyperinflation occurs, the
parties shall work together in good faith to determine any applicable increase
in prices of affected Products to cover Nortel Networks' additional costs.
4.4 Other than with respect to Committed Products, Nortel Networks
shall promptly extend to Company any price reductions made by Nortel Networks in
its generally available, then current list prices for Products and/or Services.
Such price reduction shall apply to all Orders received on or after the
effective date of such price reduction.
4.5 For all Orders, Nortel Networks shall invoice Company for
Products and Services as follows, unless otherwise agreed to in writing:
(i) for Systems, whether or not installation has been ordered
from Nortel Networks, one hundred percent (100%) of the price
of the Products on the Ship Date, one hundred percent (100%)
of the price of any Services upon the date of completion of
such Services, except with respect to installation Services,
if any, which shall be invoiced one hundred percent (100%)
upon Turnover. Except for installation Services, for Services
that have a duration of more than one (1) month to complete,
Nortel Networks may invoice Company monthly for that portion
of such Services which have been performed as of such
invoicing date;
(ii) for Merchandise or Documentation provided on a
furnish-only basis, one hundred percent (100%) of the price on
the Ship Date; and
(iii) for Orders covering Services only, one hundred percent
(100%) of the price for such Services following completion of
performance, except for recurring support Services which shall
be billed quarterly in advance unless otherwise agreed. Some
Services may be subject to monthly invoicing as set out in a
Product Annex or separate Services agreement. To the extent
such Services are to be invoiced differently than set out in
this paragraph (iii), such differences shall be set forth in
the applicable Product Annex or separate Services agreement
and such provisions shall take precedence.
4.6 Each invoice shall be paid in full within thirty (30) days after
the date of such invoice, unless otherwise determined by a Financing Agreement.
In the event that Company does not pay an invoice in full within such thirty
(30) day period, then Nortel Networks may charge Company interest on the
outstanding portion of such invoice from day thirty one (31) forward, at the
rate of one and one half percent (1.5%) simple compound interest per month, or
such lesser amount as may be the maximum permissible rate under applicable law,
until such time as the outstanding invoice is paid. In addition, Company agrees
to pay all collection costs and reasonable legal fees incurred by Nortel
Networks as a result of late payment or non-payment by Company.
ARTICLE 5. SHIPMENT, TITLE AND RISK OF LOSS
12
<PAGE>
5.1 Prior to the Ship Date, Company shall have the right to
reschedule any pending Orders; provided that (i) a minimum period of notice
prior to such Ship Date is given to Nortel Networks by Company in accordance
with the applicable Product Annex; and (ii) the new Ship Date is within ninety
(90) days of the original Ship Date. However, each Order may only be rescheduled
once. Company shall reimburse Nortel Networks for any storage fees, insurance
and demurrage costs incurred with respect to such rescheduled Orders.
5.2.1 All Products for delivery within the European Union shall be
delivered in accordance with D.D.P., European Union site terms and for other
European countries in accordance with CIP specified port/airport of entry. All
Products for delivery within Australia or Japan shall be priced and delivered in
accordance with D.D.P., Australian or Japanese site terms, as applicable. All
Products for delivery within New Zealand shall be priced and delivered in
accordance with D.D.U., New Zealand site terms, as applicable. Products to be
delivered in all other countries not specifically mentioned in this Section 5.2
shall be delivered in accordance with Ex Works, Nortel Networks' applicable
facility, and risk of loss and damage to Products shall be as provided therein.
Company shall keep such Products fully insured for the total amount then due
Nortel Networks for such Products.
5.2.2 Risk of loss and damage to Products for delivery in the United
States and Canada shall pass to Company upon delivery to the loading dock at the
Installation Site or other delivery location specified by Company in an Order.
Company shall keep such Products fully insured for the total amount then due
Nortel Networks for such Products. Company shall pay transportation charges,
including insurance, associated with the shipment of Products; provided however,
that if the parties agree, Nortel Networks shall prepay transportation charges,
and insurance for delivery of Products to the Installation Site or other
delivery location or other designated receiving point as specified in an Order.
The charges therefor shall be invoiced by Nortel Networks and paid by Company to
Nortel Networks in accordance with Article 4 above.
5.3 Good title to Hardware furnished hereunder, free and clear of
all liens and encumbrances, shall vest in Company upon full payment to Nortel
Networks of the total amount payable by Company for such Hardware and any
related Licensed Software or Services ("Total Fee") furnished by Nortel Networks
in connection with such Hardware. Prior to payment of the Total Fee for the
Products and Services in an Order, Company shall not sell or lease the Hardware,
or allow any liens or encumbrances to attach to the Hardware or Software, or
remove the Hardware or Software from the Installation Site without the prior
written consent of Nortel Networks, such consent not to be unreasonably
withheld.
5.4 Notwithstanding the above, good title to any Hardware that is
Financed Product shall vest in Company only at such time as when Company has
fulfilled all financial and other requirements associated with the passage of
title under the Financing Agreement.
5.5 If Company notifies Nortel Networks prior to a Ship Date that
Company does not wish to receive such Products on the Ship Date, or the
Installation Site or other delivery location is not prepared in sufficient time
for Nortel Networks to make delivery in accordance with such date, or Company
fails to take delivery of any portion of the Products in an Order when shipped,
Nortel Networks may place the applicable Products in storage. In that event,
Company shall be liable for all additional costs thereby incurred by Nortel
Networks. Delivery by Nortel Networks of any Products to a storage location as
provided above shall be deemed to constitute delivery of the Products to Company
for
13
<PAGE>
purposes of this Agreement, including, without limitation, provisions for
payment, invoicing, passage of risk of loss, and commencement of the warranty
period.
5.6 Until the Total Fee is paid, Company grants to Nortel Networks
and/or its agents a purchase money security interest in the Products in an Order
and their proceeds or such other similar protection as may be available in the
applicable jurisdiction. Company shall cooperate with Nortel Networks in
preserving and perfecting Nortel Networks' security interest in the Products and
Company shall promptly (i) execute and deliver to Nortel Networks such financing
statements as Nortel Networks may require and (ii) execute and deliver to Nortel
Networks such other agreements, documents and instruments as Nortel Networks may
require to perfect and maintain the validity, effectiveness and priority of the
security interest created or intended to be created by this Agreement.
Company authorizes Nortel Networks to file one or more
financing or continuation statements and amendments thereto, relating to all or
any part of the Products in an Order without signature of the Company where
permitted by law. A carbon, photographic or other or of any financing statement
covering the Products or any part thereof shall be sufficient as a financing
statement and may be filed as a financing statement.
5.7.1 Company shall provide Nortel Networks or its subcontractors
with access to its Installation Sites or other Company facilities during the
times specified by Nortel Networks and as are reasonably necessary for Nortel
Networks to perform its obligations hereunder. Nortel Networks shall comply with
Company's reasonable site and security regulations of which Nortel Networks is
informed by Company.
5.7.2 All sites at which the Products shall be installed by Nortel
Networks shall be prepared by Company in accordance with Nortel Networks'
standards, including, without limitation, environmental requirements. Prior to
and during installation, Company shall ensure the timely and adequate delivery,
installation and functioning of the electrical and communications connections
and other environmental requirements, including but not limited to, HVAC
systems, specified in Nortel Networks' instructions, Specifications,
Documentation or in a Product Annex.
5.7.3 Company shall provide reasonable working space and facilities,
including heat, light, ventilation, telephones, electrical current, waste
removal and other necessary utilities, for use by Nortel Networks personnel
performing installation or other Services, and adequate secure storage space, if
required by Nortel Networks, for Products and materials. Company shall also
provide adequate security against theft, damage or other loss for the Products
while on Company's Installation Site or other delivery location specified by
Company.
5.7.4 Company shall obtain all necessary governmental permits
applicable to Company in connection with the installation, operation, and
maintenance of Products furnished hereunder, excluding any applicable permits
required in the normal course of Nortel Networks' doing business. Any
information which Nortel Networks reasonably requests from Company and which is
necessary for Nortel Networks to properly install or maintain the Products shall
be provided by Company to Nortel Networks in a timely fashion and in a form
reasonably specified by Nortel Networks.
14
<PAGE>
ARTICLE 6. TESTING, TURNOVER AND ACCEPTANCE
6.1 If installation Services are ordered by Company, Nortel Networks
shall, upon completion of such installation, test the Products in accordance
with Nortel Networks' Turnover procedures to verify that such Products function
substantially in accordance with the applicable Specifications. Upon completion
of such verification, Nortel Networks shall provide to Company a written notice
of Turnover. Company shall be permitted an opportunity to have an appropriately
qualified individual in attendance to observe the performance of such tests,
however, the absence of such Company individual for any reason shall not
invalidate the tests nor be a reason for Company to withhold Acceptance.
6.2 Within ten (10) business days after the Turnover Date, Company
shall either accept the Product in writing by execution of a notice of
Acceptance, or notify Nortel Networks in writing, specifying in reasonable
detail those particulars in which, in Company's opinion, the Product is not in
material conformance with the Specifications. If Acceptance does not occur
within such ten (10) days after the Turnover Date and Company has not indicated
to Nortel Networks in writing its basis for not accepting such Product, then
Acceptance shall be deemed to have occurred.
6.3 If Nortel Networks does not install Products furnished
hereunder, Nortel Networks shall, prior to delivery of the Products, perform
such factory tests as Nortel Networks determines to be appropriate in order to
confirm that such Products perform substantially in accordance with the
applicable Specifications. Company shall be deemed to have accepted the Products
based upon such tests and Acceptance shall be deemed to have occurred upon the
Ship Date. In the event that Company or any other entity intends to perform
installation of Products, (except for installation of Products which are not
permitted to be installed other than by Nortel Networks, as specified in the
applicable Product Annex or Documentation) Company or such entity may be
required to complete prerequisite training or certification prior to Company
being allowed to install such Products.
6.4 In the event that Company is utilizing any Product in a
revenue-generating capacity, Acceptance shall be deemed to have occurred without
limitation or restriction, on the fifth day following the placement of such
Product into revenue-generating service.
6.5 Products, such as Merchandise, which are purchased separately
from a System, shall be deemed accepted upon the Ship Date. Services which are
purchased separately from a Product shall be deemed to be accepted upon
completion of such Services or upon specific milestones as may be identified in
a Product Annex.
6.6 Company shall not unreasonably withhold Acceptance. Nortel
Networks shall correct any deficiencies identified by Company in the manner
described in this Article whereby such Products do not materially conform to the
Specifications. When Nortel Networks has corrected such deficiencies, Company
shall accept the Products in writing. Company's failure to either accept or
provide notice of non-conformance within the timeframe from the Turnover Date,
as prescribed in Section 6.2, shall constitute Acceptance of the Products.
6.7 Following Acceptance of Products, Company shall execute Nortel
Networks' Acceptance notice, confirming Acceptance without any conditions,
restrictions, or limitations of any nature whatsoever.
6.8 Acceptance shall not be withheld or postponed due to:
15
<PAGE>
(i) Deficiencies of such Products resulting from causes not
attributable to Nortel Networks, such as, but not limited to
(a) material change or inaccuracy of Customer Information, (b)
inadequacy or deficiencies of any materials, information,
facilities or services provided directly or indirectly by
Company and tested in conjunction with the applicable
Products, or spurious outputs from adjacent material, or (c)
other conditions external to the Products which are beyond the
limits specified by Nortel Networks in the Specifications for
the Products; or
(ii) Minor deficiencies or shortages with respect to such
Products which are attributable to Nortel Networks, but of a
nature that do not prevent full operation of the Products in
normal revenue generating service.
6.9 With respect to any deficiencies of the type described in
Section 6.8(i), Nortel Networks shall at Company's request and expense assist
Company in the elimination or minimization of any such deficiencies. With
respect to any deficiencies or shortages as described in Section 6.8(ii), Nortel
Networks shall, at Nortel Networks' expense, correct any such deficiencies or
shortages within thirty (30) days of the date of Acceptance or as otherwise
agreed by the parties.
6.10 In the event that Company notifies Nortel Networks of
non-acceptance of a Product and Nortel Networks personnel travel to the
Installation Site to remedy such non-acceptance and determine that
non-acceptance is due to a deficiency of the type described in Section 6.8(i),
Nortel Networks will invoice Company for Nortel Networks' investigation of the
matter, consisting of the standard labor rate for Nortel Networks' personnel who
travel to the Installation Site and the reasonable travel and living expenses
incurred by such personnel.
ARTICLE 7. ORDER CANCELLATION
7.1 If, prior to the Ship Date, Company cancels all or any part of
an Order, Company shall pay to Nortel Networks a cancellation charge for the
Products or each item of Third Party Hardware or Third Party Software that has
been canceled in accordance with the schedule set forth in the applicable
Product Annex.
7.2 Orders for Products that have been shipped may not be canceled.
Furthermore, Orders for Products which Nortel Networks customizes in accordance
with a specific Company request may not be canceled.
ARTICLE 8. WARRANTY
8.1 Nortel Networks warrants that for a period of fourteen (14)
months from the Ship Date of a System, the Hardware contained in such System
under normal use and service will be free from defective material and faulty
workmanship and shall comply with the applicable Specifications. The warranty
period for Merchandise shall be ninety (90) days from the Ship Date of such
Merchandise. The foregoing warranties shall not apply to items normally consumed
during operation of a System such as, but not limited to, lamps and fuses.
8.2 Nortel Networks warrants that any installation Services
performed by Nortel Networks with respect to a System will be free from defects
in workmanship for a period of twelve (12) months from the completion date of
such Services.
16
<PAGE>
8.3 Nortel Networks warrants that any Licensed Software shall
function during the warranty period of the Hardware with respect to which such
Licensed Software is furnished without any material, service-affecting,
non-conformance to the applicable Specifications. Licensed Software that is
delivered separately from Hardware is warranted for a period of twelve (12)
months from the applicable Ship Date. If the Licensed Software fails to so
function, Company's exclusive remedy and Nortel Networks' sole obligation under
this warranty is for Nortel Networks to correct such failure through, at Nortel
Networks' option, the replacement or modification of the Licensed Software or
such other actions as Nortel Networks reasonably determines to be appropriate,
all within a reasonable time having regard to all of the circumstances and
failing which the parties agree to negotiate a commercially reasonable solution.
Any modification to the Software not performed by Nortel Networks, other than
with respect to Modifiable Software, shall void this warranty.
8.4 If Hardware is not free from defects in material or workmanship
and fails to comply with the applicable Specifications during the warranty
period, Nortel Networks will repair, replace or modify at its sole option the
defective Hardware so that it substantially complies with the applicable
Specifications. The warranty service shall be performed at the Installation Site
or Nortel Networks' facility as determined by Nortel Networks. If Nortel
Networks is unable to repair or modify the defective Hardware within a
reasonable period of time so that such Hardware conforms to the applicable
Specification, Nortel Networks shall replace the defective Hardware with
Hardware that conforms to such Specifications. Replacement Hardware may be new
or reconditioned at Nortel Networks' option. Nortel Networks' sole obligation
and Company's exclusive remedy under the warranty provisions of this Article
with respect to Hardware and installation Services shall be limited to repair,
modification or replacement of the defective Hardware or correction of the
defective installation Services.
8.5 Notwithstanding the foregoing, the warranty period of Hardware
which has been subject to repair or replacement by Nortel Networks shall
commence upon the Ship Date of the repaired or replacement Hardware to Company
and shall expire on the later of ninety (90) days or the last day of the
original warranty period with respect to the Hardware which was repaired or
replaced. The warranty period of Licensed Software which has been corrected, due
to a material, service-affecting non-conformance found in such Licensed
Software, shall expire on the later of ninety (90) days from the Ship Date of
the corrected Licensed Software to Company or the last day of the original
warranty period with respect to such Licensed Software.
8.6 Nortel Networks warrants that its Products shall comply in all
material aspects with all applicable laws and regulations known to Nortel
Networks, which are in force on the date of acceptance of the applicable Order
therefor, which laws or regulations directly impose obligations upon any
manufacturer, seller or, if applicable, installer of such Products. Upon request
therefor, Nortel Networks may implement such changes as are necessary to comply
with any applicable law and/or regulation which becomes effective after the date
of acceptance of the applicable Order; provided that the parties have reached
mutual agreement concerning the cost of such changes and which party will bear
them.
8.7 The performance by Nortel Networks of any of its obligations
described in this Article 8 shall not extend the applicable warranty period.
8.8 The warranties set forth in this Article shall not apply to any
Products where the defect or non-conformance is due to (i) accident, fire,
explosion, power failure,
17
<PAGE>
power surge or other power irregularity, lightning, alteration, abuse, misuse or
repair not performed by Nortel Networks; (ii) improper storage; (iii) failure to
materially comply with all applicable environmental requirements for the
Products as specified by Nortel Networks or any other applicable supplier, such
as but not limited to temperature or humidity ranges; (iv) improper performance
of installation, maintenance, operation or other service in connection with the
Products, provided that such service was not performed by Nortel Networks or on
Nortel Networks' behalf; (v) use in conjunction with an incompatible product not
purchased under this Agreement; (vi) any error, act or omission by anyone other
than Nortel Networks; or (vii) where written notice of the defect has not been
given to Nortel Networks within the applicable warranty period. The warranties
set forth in this Article shall not apply to (i) Non-Licensed Software for which
the applicable right to use fees have not been paid; or (ii) Third Party
Software or Third Party Hardware, provided however that Nortel Networks shall
assign to Company (to the extent of Nortel Networks' right to do so) the
warranty rights granted to Nortel Networks by the appropriate vendor of such
Third Party Software or Third Party Hardware.
8.9 Unless Nortel Networks elects to repair or replace defective
Hardware at Company's facility, all Hardware to be repaired or replaced, whether
in or out of warranty, shall be de-installed and packed by Company in accordance
with Nortel Networks' instructions. With respect to Hardware found to be
defective within thirty (30) days of receipt by Company ("DOA Hardware"), Nortel
Networks shall use reasonable efforts to ship replacement Hardware within three
(3) days of Nortel's receipt of the returned DOA Hardware. With respect to
non-DOA Hardware, Nortel Networks shall use reasonable efforts to ship repaired
or replacement Hardware within thirty (30) days of receipt of the defective
Hardware. To facilitate the processing of the defective Hardware returned
hereunder, Nortel Networks may ship replacement Hardware prior to Nortel
Networks receiving the defective Hardware. In the event that Company fails to
return defective Hardware and Nortel Networks has shipped such replacement
Hardware, Nortel Networks shall invoice Company at Nortel Networks' applicable
then-current prices for such replacement Hardware, thirty (30) days after the
Ship Date of such replacement Hardware. If mutually agreed, Nortel Networks will
make repairs on-site at Nortel Networks' then-current charge for such repairs.
8.10 If the Hardware returned to Nortel Networks pursuant to Section
8.9 is determined by Nortel Networks to be beyond repair and is outside the
warranty period, Nortel Networks shall notify Company and if requested Nortel
Networks shall sell Company replacement Hardware at Nortel Networks'
then-current prices for such replacement Hardware less the applicable discount.
8.11 Company shall bear risk of loss or damage and shall pay for all
transportation charges for Hardware returned to Nortel Networks and Nortel
Networks shall bear risk of loss or damage and pay for transportation charges
for repaired or replacement Hardware shipped to Company. Title to returned
Hardware shall pass to Nortel Networks upon receipt. Title to replacement
Hardware shall pass to Company upon receipt.
8.12 Nortel Networks and Nortel Networks' vendors of Third Party
Hardware and Third Party Software, as appropriate, shall not have any
responsibility to Customers for warranties offered by Company to such Customers
and Company hereby indemnifies and holds harmless Nortel Networks and Nortel
Networks' vendors, as appropriate, from any claims, damages or liabilities
arising out of, or relating to, any warranties offered by Company to such
Customers.
18
<PAGE>
8.13 If Company discloses to Nortel Networks that Company has
purchased Equipment from a party other than Nortel Networks or an authorized
Nortel Networks distributor for installation upon a Product or if Nortel
Networks determines in its sole discretion that any Equipment installed upon a
Product was not purchased by Company from Nortel Networks or an authorized
Nortel Networks distributor, Nortel Networks shall have the right to immediately
discontinue all of its obligations, services and responsibilities with respect
to such Product pursuant to this Agreement until such time as such Product has
successfully completed Nortel Networks' certification process (the
"Certification"), and provide Company with written notice thereof. Company
shall, upon receipt of Nortel Networks' written notice, (i) issue an Order for
Nortel Networks' Certification of such Product at the purchase price to be
determined pursuant to Section 4.1; (ii) ensure that such Product successfully
completes Nortel Networks' Certification process, including, but not limited to,
purchasing additional Equipment from Nortel Networks as required in order to
successfully complete the Certification process; and (iii) pay the prices,
charges and fees for such Certification within thirty (30) days after the date
of invoice. Upon the successful completion of the Certification process for such
Product, Nortel Networks shall resume its obligations, services and
responsibilities with respect to such Product pursuant to this Agreement.
8.14 THE WARRANTIES, CONDITIONS AND REMEDIES SET FORTH HEREIN
CONSTITUTE THE ONLY WARRANTIES, OBLIGATIONS OR CONDITIONS OF NORTEL NETWORKS
WITH RESPECT TO THE PRODUCTS AND SERVICES AND ARE COMPANY'S SOLE AND EXCLUSIVE
REMEDIES IN THE EVENT THAT SUCH WARRANTIES OR CONDITIONS ARE BREACHED. THEY ARE
IN LIEU OF ALL OTHER WARRANTIES OR CONDITIONS, WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. NORTEL NETWORKS SHALL NOT
BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL
DAMAGES, INCLUDING WITHOUT LIMITATION, LOST REVENUES OR PROFITS OR OTHER
ECONOMIC LOSS, OF ANY NATURE WHATSOEVER ARISING OUT OF NORTEL NETWORKS' BREACH
OF WARRANTY OR CONDITION.
ARTICLE 9. NORTEL NETWORKS' ADDITIONAL OBLIGATIONS
9.1 Nortel Networks shall make training available to representatives
of Company with respect to the operation, configuration, installation, service,
maintenance and support of the Products at Nortel Networks' then current prices
and at Nortel Networks' facilities, subject to course and class availability.
The training provided under this Section 9.1 may be provided at a Nortel
Networks facility or other location, at Nortel Networks' discretion. Nortel
Networks shall provide Company with twelve hundred (1,200) training credits
valued at one hundred fifty dollars ($150) per credit ("Training Credit") to be
used by Company in any of Nortel Networks' training courses related to the
Products Company has purchased. Six hundred and twenty-five (625) Training
Credits shall be earned upon execution of this Agreement, five hundred (500)
additional Training Credits shall be earned one (1) year later, and the final
seventy-five (75) Training Credits shall be earned one (1) year later.
Furthermore, the Training Credits must be used within one (1) year from the date
such Training Credits were earned or within the Original Term of this Agreement,
whichever occurs first, after which time such Training Credits will be forfeited
by Company.
9.2 Upon request, Nortel Networks shall provide Company with copies
of its then current training catalogue. Company shall provide Nortel Networks
with a
19
<PAGE>
reasonable number of names and addresses of people to whom this catalogue should
be sent. Upon the request of Company, Nortel Networks shall provide to Company
such additional training as Company requests, at a time and place mutually
agreed upon and at the prices to be quoted for such training. The cancellation
fees set forth in the training catalogues shall apply.
9.3 Nortel Networks shall include its standard Documentation
package, if any, with each shipment of Products. Nortel Networks shall make the
Documentation available on its choice of media, which may include CD-ROM or
other electronic media. Nortel Networks shall provide Company with any other
Documentation that is ordered at its then-current prices therefor. Documentation
provided via Nortel Networks' CD-ROM media may be printed and copied and
Documentation provided in paper format may be copied, to the extent such
Documentation so provides, and only to the extent such printing or copying is
necessary for the operation and maintenance of the Products to which the
Documentation pertains. However, Company may not press or burn any copies of
CD-ROM discs.
9.4 During the Term of this Agreement, Company may acquire various
support Services from Nortel Networks in connection with the Products that
Company acquires from Nortel Networks under this Agreement. These Services may
include, but are not limited to the following: technical assistance Services,
installation Services, Hardware maintenance Services, Software maintenance
Services, and parts repair and replacement Services. Unless otherwise stated
herein, descriptions and pricing for such support Services will be provided on
an as-quoted basis.
ARTICLE 10. SOFTWARE LICENSE
10.1 Company acknowledges that the Software may contain programs
which have been supplied by, and are proprietary to, Third Party Software
vendors. In addition to the terms and conditions herein, Company shall abide by
any additional terms and conditions specified in a Product Annex with respect to
any Software provided by any Third Party Software vendor.
10.2 Upon Company's payment to Nortel Networks of the applicable
fees with respect to any Software furnished to Company pursuant to this
Agreement, Nortel Networks hereby grants to Company, subject to the applicable
terms and conditions of this Article 10, a personal, non-exclusive, right and
license to use the Object Code version of the Licensed Software furnished to
Company, but only in conjunction with Company's use of the Hardware or the
Documentation with respect to which such Licensed Software was furnished. The
duration of such right to use shall last (i) with respect to Licensed Software
furnished in connection with Hardware, for the life of that Hardware as it may
be repaired or modified, and (ii) with respect to Licensed Software furnished in
connection with Documentation, for the duration of Company's right to use the
Documentation. Company shall be granted no title or ownership rights to the
Software, which rights shall remain in Nortel Networks or its suppliers.
10.3 As a condition precedent to this license and to the supply of
Software by Nortel Networks pursuant to this Agreement, Nortel Networks requires
Company to give proper assurances to Nortel Networks for the protection of the
Software. Accordingly, all Software supplied by Nortel Networks under or in
implementation of this Agreement shall be treated by Company as the exclusive
property, and as proprietary and a trade secret, of Nortel Networks and/or its
suppliers, as appropriate, and Company shall: i) hold the Software, including,
without limitation, any methods or concepts utilized therein in confidence for
the benefit of Nortel Networks and/or its suppliers, as appropriate; ii) not
20
<PAGE>
provide or make the Software available to any person except to its employees on
a 'need to know' basis and then only under confidentiality obligations; iii) not
reproduce, copy, or modify the Software in whole or in part except as authorized
by Nortel Networks; iv) except as provided for under the Council of the European
Communities Directive on the legal protection of Computer Programs dated the
14th of May, 1991 (91/250/EEC), not attempt to decompile, reverse engineer,
disassemble, reverse translate, or in any other manner decode the Software; v)
issue adequate instructions to all persons, and take all actions reasonably
necessary to satisfy Company's obligations under this license; and vi) forthwith
return to Nortel Networks, or with Nortel Networks' consent destroy a) upon
termination of the license for any reason, or b) upon receipt of replacement,
modified, or updated Software, any magnetic tape, disc, semiconductor device or
other memory device or system memory and/or Documentation or other material
regarding such Software, including, but not limited to all printed material
furnished by Nortel Networks to Company.
10.4 The obligations of Company hereunder shall not extend to any
information or data relating to the Software which is now available to the
general public or becomes available by reason of acts or failures to act not
attributable to Company.
10.5 Nortel Networks may issue updates to the Software from time to
time, and, upon Company's payment of applicable right to use fees, if any, shall
license such updates to Company. The right to use fees for such updates do not
include the price of any associated Hardware that may be required to use such
updates.
10.6 Neither Company nor any successor to Company's title in the
applicable Hardware shall have the right to (i) assign this license as to the
applicable Licensed Software to any other person who acquires legal title to
such Hardware; or (ii) sublicense the rights herein granted as to such Licensed
Software to any other person who subsequently acquires the right to use such
Hardware, unless agreed to in writing by both Nortel Networks and Company. Such
consent shall not be unreasonably withheld.
10.7 Company shall indemnify and hold Nortel Networks and its
suppliers, as appropriate, harmless from any loss or damage resulting from a
breach of this Article 10. The obligations of Company under this Article 10
shall survive the termination of the Agreement and shall continue if the
Software is removed from service.
Non-Licensed Software
10.8 Certain Software delivered by Nortel Networks may include
Non-Licensed Software. Non-Licensed Software includes (i) any Software for which
the applicable right to use fees have not been paid; and (ii) Software for which
a periodic right to use fee has expired and the applicable additional periodic
right to use fees have not been paid. Company shall submit to Nortel Networks an
Order for any Non-Licensed Software that Company desires to license or renew.
10.9 When Non-Licensed Software is placed into service, the
applicable right to use fees shall be payable. Company shall also have the
option to pay the applicable right to use fees for any Non-Licensed Software
upon installation of a Software load containing such Non-Licensed Software.
10.10 To ensure Company's proper activation and/or usage of only the
appropriate Software, Company shall complete the appropriate form designated by
Nortel Networks prior to the activation and/or usage by Company of any
Non-Licensed Software. Company shall identify all Software desired to be
activated and/or used
21
<PAGE>
(including the number of lines or other units activated, if applicable) in each
System and shall transmit such form to Nortel Networks.
10.11 Nortel Networks shall promptly review any form submitted
pursuant to Section 10.10 and respond in writing, identifying whether (i) any
applicable prerequisite Hardware or Software is required by Company prior to
activation and/or usage of the applicable Software; or (ii) whether the use of
such Software requires Nortel Networks to determine whether the current System
configuration will require additional elements, such as Hardware, other hardware
and/or System memory, prior to activation and/or usage; or (iii) whether Company
can use such Software without the addition of any additional Hardware or
Software.
10.12 Nortel Networks reserves the right to access by remote polling
any site in which Software has been installed to determine which Software has
been activated. Such polling shall be done so as not to unreasonably interfere
with Company's use of the Products. Information obtained from such remote
polling shall be held in confidence in accordance with Section 16. On request by
Company, Nortel Networks shall disclose to Company methods and techniques of
such polling, including needs justification for all collected data and
processes. Nortel Networks shall not collect data that is not clearly required
for the purposes of this polling as outlined in this section.
10.13 Nortel Networks shall issue invoices to Company, in addition
to those amounts previously invoiced, for amounts found to be payable as a
result of Company's activation and/or usage of any Software which Nortel
Networks determines as a result of the remote polling of a site and for which
Company has not previously paid the appropriate right to use fees.
10.14 The warranty period for Software activated later than the
original Ship Date of the Software load shall be for the same period as such
original Software load and shall not be extended to provide for an additional
period of warranty based upon the date individual features or units are
activated and/or utilized by Company or the date Company pays any applicable
right to use fees.
10.15 Nortel Networks shall provide the Software support Services
specified in Article 9 or in a separate Services agreement, provided that
Company operates the Software at Nortel Networks' current Software release level
or within at least two previous Software release levels, or as otherwise
specified in the Services agreement or in a Product Annex.
Modifiable Software
10.16.1 Notwithstanding anything to the contrary above, upon payment
to Nortel Networks of the applicable fees, Nortel Networks hereby grants to
Company, subject to the applicable terms and conditions of this Article 10, a
personal, non-transferable, non-assignable and non-exclusive right and license
to modify Licensed Software which Nortel Networks identifies as Modifiable
Software. Upon the modification or creation of any Applications, or the
modification or creation of any Building Blocks, Nortel Networks shall have no
obligations with regard to warranty under Article 8 or indemnity under Article
12 for such Applications or Building Blocks.
10.16.2 Nothing contained in Sections 10.16.1 through 10.16.5 shall
transfer, or be deemed to transfer, or contemplate the transfer of, any rights
in or to the Software other than those rights specifically granted herein, and
in particular but without restricting the generality of the foregoing, Nortel
Networks does not in any way transfer
22
<PAGE>
any right, title or interest in or to the Software or any element constituting a
portion thereof to Company, other than the right of Company to modify or create
Building Blocks and Applications.
10.16.3 For any Building Blocks and Applications created solely by
Company, and for all Company-modified portions of the Nortel Networks-provided
Building Blocks with respect to such modified portion only, Company shall own
all forms of intellectual property rights (including but not limited to patent,
trade secret, copyright and mask rights) pertaining to such Applications,
Building Blocks or portions thereof and shall have the right to file for or
otherwise secure and protect such rights. For all such Company created
Applications or Building Blocks, or modified portions of Building Blocks, the
parties shall, on a case by case basis, negotiate in good faith to determine
whether Company may desire to license any such Applications or Building Blocks
to Nortel Networks.
10.16.4 For any Applications created solely by Nortel Networks and
for the Nortel Networks- provided Building Blocks, Nortel Networks shall own all
forms of intellectual property rights (including but not limited to patent,
trade secret, copyright and mask rights) pertaining to such Applications or
Building Blocks and shall have the right to file for or otherwise secure and
protect such rights. For all such Nortel Networks Applications or Building
Blocks, Company may license any such additional Nortel Networks Products upon
Nortel Networks making such software generally available to its customers.
10.16.5 In the event that Company and Nortel Networks intend to
jointly create Applications or Building Blocks, the parties shall mutually agree
as to applicable terms and conditions.
Services Software
10.17.1 With respect to Services Software, Company shall: (i)
utilize such Services Software and the results thereof solely for the purposes
described in Section 1.27; and (ii) comply with additional terms, if any,
applicable to such Services Software as specified in a Product Annex. Nortel
Networks may, at any time and without liability or obligation to Company, modify
the Services Software, any computer equipment of Nortel Networks or suppliers
used in connection with such Services Software, and identification codes,
manuals or other information or Documentation used in connection with the
Services Software.
10.17.2 SERVICES SOFTWARE IS PROVIDED AS IS AND WITHOUT WARRANTY OR
CONDITION OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
NORTEL NETWORKS DOES NOT AND CANNOT WARRANT THE PERFORMANCE OR RESULTS THAT MAY
BE OBTAINED BY USING SERVICES SOFTWARE. COMPANY ASSUMES SOLE RESPONSIBILITY FOR
THE SELECTION OF THE SERVICES SOFTWARE TO ACHIEVE COMPANY'S INTENDED RESULTS,
AND FOR THE INSTALLATION, USE, AND RESULTS OBTAINED FROM THE SERVICES SOFTWARE.
IN NO EVENT SHALL NORTEL NETWORKS BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES, INCLUDING WITHOUT LIMITATION, LOST
REVENUES OR PROFITS OR OTHER ECONOMIC LOSS, OF ANY NATURE WHATSOEVER ARISING OUT
OF COMPANY'S USE OF SERVICES SOFTWARE.
23
<PAGE>
ARTICLE 11. HOMOLOGATION AND CERTIFICATION
11.1 Company shall notify Nortel Networks of its desire to purchase
Products in a country other than the United States prior to placing an Order. At
such time, Nortel Networks shall inform Company as to whether or not Nortel
Networks complies with the homologation requirements for a Product in the
requested country.
11.2 In the event that Nortel or a Nortel Affiliate has complied or
complies in the future with the homologation requirements for a Product in a
requested country, Nortel shall, to the extent of its legal right to do so,
grant Company the right to use the results of such homologation. Any costs
arising from such grant shall be subject to agreement by the parties prior to
such grant being made.
ARTICLE 12. LIABILITY FOR BODILY INJURY, PROPERTY DAMAGE AND PATENT INFRINGEMENT
12.1 A party hereto shall defend the other party against any suit,
claim, or proceeding brought against the other party for direct damages due to
bodily injuries (including death) or damage to tangible property which allegedly
result from the negligence or willful misconduct of the defending party in the
performance of this Agreement. The defending party shall pay all litigation
costs, reasonable attorney's fees, settlement payments and such direct damages
awarded or resulting from any such suit, claim or proceeding. Nortel Networks'
responsibility in respect of each Contract, except in respect of death or
personal injury, whether in contract or tort or resulting from Nortel Networks'
proven negligent acts or omissions, shall not exceed One Million Dollars
($1,000,000.00) for any one or more separate claims having the same cause or
attributable to the same event or occurrence. Nortel Networks shall at all times
during the continuance of this Contract maintain insurance against such
liabilities.
12.2 Nortel Networks indemnify an hold Company harmless and shall
defend Company against any suit, claim or proceeding brought against Company
alleging that the sale to, or use by Company of, any Products, excluding Third
Party Hardware or Third Party Software, furnished hereunder infringes any
patent, copyright, tradesecret or other proprietary right ("Infringement
Claim"). Nortel Networks shall pay, subject to Section 12.3 below, all
litigation costs, reasonable attorney's fees, settlement payments and damages
awarded or resulting from any such suit, claim or proceeding. With respect to
Third Party Hardware or Third Party Software, Nortel Networks shall assign any
rights with respect to infringement of patents granted to Nortel Networks by the
supplier of such items to the extent of Nortel Networks' right to do so.
12.3 Except as provided for in Section 12.1, Nortel Networks'
cumulative liability, pursuant to this Article 12 and including its costs and
expenses incurred in satisfying its obligations set forth below, shall not
exceed one hundred percent (100%) of the purchase price of the Products giving
rise to the Infringement Claim.
12.4 Nortel Networks shall have no liability, in respect of any
Infringement Claim based on the use of a Product in the event that such Product:
(i) is manufactured, designed or supplied by Nortel Networks in accordance with
any design or any special instruction furnished by Company; (ii) is used by
Company in a manner or for a purpose not contemplated or authorized by this
Agreement; (iii) is used by Company in combination with other products not
provided by Nortel Networks, including, without limitation, any software
developed solely by Company through the permitted use of Products furnished
hereunder, provided that the Infringement Claim arises from such combination or
the use thereof; (iv) is modified by Company where such modification is
24
<PAGE>
not authorized by Nortel Networks; or (v) is used or located by Company in a
location other than the location in which and for which it was supplied by
Nortel Networks. In the excepted cases stated above, Company shall indemnify and
hold Nortel Networks harmless against any loss, cost, expense, damage,
settlement or other liability, including, but not limited to, attorneys' fees,
which may be incurred by Nortel Networks with respect to any suit, claim, or
proceeding described in this Section 12.4.
12.5 Nortel Networks shall not be liable for, and Company shall
indemnify Nortel Networks in respect of, any damages awarded based on Company's
willful, knowing or deliberate infringement of a patent, copyright, trade
secret, trademark or other proprietary right where such infringement results in
a pecuniary damage award.
12.6 Nortel Networks may provide Company with notice of an actual or
potential Infringement Claim. Nortel Networks shall consult with Company
regarding the Infringement Claim and the course of action to be pursued as a
result thereof. In the event that the parties fail to agree on a satisfactory
course of action for dealing with the matter, Company may either:
(i) return to Nortel Networks the affected portion of the
Product(s) in return for a refund of the depreciated
value (as carried on the books of Company) of the
Product(s) so returned; or
(ii) continue to use the Product(s) at Company's own risk.
12.7 Nortel Networks shall not be liable for, and Company shall
indemnify Nortel Networks in respect of any Infringement Claim(s) where Nortel
Networks has provided notice to Company of the Infringement Claim(s) and Company
elects to continue its use of the Product(s) covered by the Infringement Claim.
12.8 If as a result of an Infringement Claim, other than those
contemplated in Section 12.6(i) and 12.6(ii) above, an injunction is obtained
against Company's use of any Product, Nortel Networks shall, at Nortel Networks'
option:
(i) procure for Company the right to continue using the
alleged infringing Product(s);
(ii) replace or modify the same with equivalent or better
Product(s) so that Company's use is non-infringing; or
(iii) accept return of the affected portion of the Product(s)
and refund to Company the depreciated value (as carried on the
books of Company) of the Product(s) so returned.
12.9 The defense of any claim which is predominantly covered by the
provisions of this Agreement shall be controlled by the party upon whom the
majority of the ultimate liability is likely to be imposed. Such controlling
party shall give the other party a reasonable opportunity to participate in
negotiation or defense of the claim so that such other Party may reasonably
protect its own interests. Neither Party shall be liable for any settlement
obligation incurred without its written consent.
12.10 Company shall waive any and all claims that Company may have
against Nortel Networks that Company may have due to any use by Company of
Modifiable Software and any modification Company may have made to a Product as a
result of such
25
<PAGE>
use. Further, Company shall be responsible for any additional hardware, software
or services required as a result of such use.
12.11 THE REMEDIES SET FORTH IN THIS ARTICLE 12 ESTABLISH THE ENTIRE
OBLIGATION OF THE PARTIES IN REGARD TO CLAIMS RELATING TO INTELLECTUAL PROPERTY
RIGHTS INCLUDING CLAIMS DIRECTED TO THE INFRINGEMENT OF PATENTS, COPYRIGHT,
TRADE SECRETS AND OTHER PROPRIETARY RIGHTS. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
INCLUDING WITHOUT LIMITATION, LOST REVENUES OR PROFITS OR OTHER ECONOMIC LOSS OF
ANY NATURE WHATSOEVER, ARISING FROM SUCH INFRINGEMENT CLAIMS AND/OR RELATED
MATTERS, OTHER THAN AS SPECIFICALLY SET FORTH HEREIN.
ARTICLE 13. REMEDIES AND LIMITATION OF LIABILITY
13.1 Nortel Networks shall have the right to suspend its
performance, upon written notice to Company, and forthwith remove and take
possession of all Products that shall have been delivered to Company, if, prior
to payment to Nortel Networks of any amounts due pursuant to this Agreement with
respect to such Products, Company shall (i) become insolvent or bankrupt or
cease, be unable, or admit in writing its inability, to pay all debts as they
mature, or make a general assignment for the benefit of, or enter into any
arrangement with, creditors; (ii) authorize, apply for, or consent to the
appointment of, a receiver, trustee, or liquidator of all or a substantial part
of its assets or have proceedings seeking such appointment commenced against it
which are not terminated within sixty (60) days of such commencement; or (iii)
file a voluntary petition under any bankruptcy or insolvency law or under the
reorganization or arrangement provisions of the United States Bankruptcy Code or
any similar law of any jurisdiction or have proceedings under any such law
instituted against it which are not terminated within sixty (60) days of such
commencement.
13.2 In the event of any material breach of this Agreement which
shall continue for thirty (30) or more days after written notice of such breach
(including a reasonably detailed statement of the nature of such breach) shall
have been given to the breaching party by the aggrieved party, the aggrieved
party shall be entitled at its option to avail itself of any and all remedies
available at law or equity, except as otherwise limited in this Agreement;
provided however, that nothing contained in Section 13.2 or elsewhere in this
Agreement shall make either party liable for any indirect, incidental, punitive,
special or consequential damages of any nature whatsoever for any breach of this
Agreement whether the claims for such damages arise in tort (including
negligence regardless of degree of fault), contract, or otherwise, except that
Company shall be liable for such damages with respect to a breach of Article
10..
13.3 Neither party shall be liable for any additional costs,
expenses, losses or damages resulting from errors, acts or omissions of the
other party, including, but not limited to, inaccuracy, incompleteness or
untimeliness in the provision of information or fulfillment of any obligations
under this Agreement. Such party shall pay the other party the amount of any
such costs, expenses, losses or damage incurred by such other party.
13.4 Any action for breach of this Agreement or to enforce any right
hereunder shall be commenced within two (2) years after the cause of action
accrues or it shall be deemed waived and barred, except any action for
nonpayment by Company of any prices, charges, fees or other amounts payable
hereunder may be brought by Nortel Networks at
26
<PAGE>
any time permitted by applicable law, and Nortel Networks may suspend
performance of any of its obligations hereunder until all such payments are
made.
ARTICLE 14. CONTINUING AVAILABILITY
14.1 For the period following the Ship Date of a System as specified
in the applicable Product Annex, Nortel Networks shall make replacement parts,
or their functional equivalent, available for purchase by Company. Nortel
Networks shall also make available to Company such information as is reasonably
required in order to allow functionally equivalent spare parts to perform with
Products previously delivered to Company. The prices charged for the spare parts
shall be Nortel Networks' then current published list price or its then current
policy, less applicable discounts
14.2 In the event Nortel Networks intends to discontinue the
availability of, or support Service for, a major module of a Product, Nortel
Networks shall provide Company with at least ninety (90) days prior written
notice of such event and the applicable Product shall be considered manufacture
discontinued or discontinued, respectively, after such ninety (90) day period.
Nortel Networks shall have no obligation to provide notice of manufacture
discontinue if only components and individual circuit packs of a Product are
being discontinued or replaced. Should Nortel Networks discontinue a major
module of any of the Committed Products during the Initial Term, Nortel Networks
shall, during the Initial Term only, provide functionally equivalent replacement
products at the same price.
ARTICLE 15. TERM AND TERMINATION
15.1 This Agreement will be in effect from the Effective Date for a
period of thirty three (33) months (the "Original Term"). Thereafter, this
Agreement shall automatically renew for one (1) year terms (each, a "Renewal
Period" and collectively and together with the Original Term, the "Term"),
unless either party provides the other party with written notice of its intent
not to renew at least sixty (60) days prior to the end of the Original Term or
any Renewal Period. Unless the parties agree in writing to the contrary, there
shall be no minimum commitment associated with any renewal term.
15.2 Either party may delay performance under this Agreement or
terminate this Agreement, in whole or in part, in the event of a default by the
other, provided that the non-defaulting party so advises the defaulting party in
writing of the event of alleged default and the defaulting party does not remedy
the alleged default within thirty (30) days after written notice thereof. If the
alleged default is not capable of being remedied within thirty (30) days, the
defaulting party must commence to remedy the alleged default within such thirty
(30) day period and provide to the non-defaulting party a plan for timely
remedying the alleged default in order to avoid termination. A default shall
include:
(i) a party's insolvency or initiation of bankruptcy or
receivership proceedings by or against a party or the
execution of an assignment for the benefit of creditors; or
(ii) either party's material breach of any of the terms or
conditions hereof including the failure to make any payment
when due.
(iii) a default of Company under the Financing Agreement and
such default has not been cured within the applicable cure
period provided therein.
27
<PAGE>
15.3 The expiration or termination of this Agreement for any cause
shall not release either party from:
(i) any obligations and duties remaining under any Order
accepted by Nortel Networks prior to such expiration or
termination;
(ii) any liability which at the time of expiration or
termination has already accrued to the other party, or, which
thereafter may accrue in respect to any event prior to
expiration or termination; or
(iii) any liability from any obligation specified in Section
17.18 below to survive expiration or termination.
ARTICLE 16. CONFIDENTIALITY
16.1 Each party which receives the other party's Confidential
Information shall use reasonable care to hold such Confidential Information in
confidence and not disclose such Confidential Information to anyone other than
to its employees and employees of a Company Affiliate or a Nortel Networks
Affiliate, as applicable, with a need to know. A party that receives the other
party's Confidential Information shall not reproduce such Confidential
Information, except to the extent reasonably required for the performance of its
obligations pursuant to this Agreement and in connection with any permitted use
of such Confidential Information.
16.2 Company shall take reasonable care to use Nortel Networks'
Confidential Information only for study, operating, or maintenance purposes in
connection with Company's use of Products furnished by Nortel Networks pursuant
to this Agreement.
16.3 Notwithstanding the foregoing, either party shall be free to
use that portion of the Confidential Information which may be retained in
intangible form by those employees who have had access to the Confidential
Information, for any purpose, including use in the development, manufacture,
marketing and maintenance of its products and services. The marketing of any
product or service, including the dissemination of supporting documentation,
which inherently discloses the disclosing party's Confidential Information shall
not be deemed a breach by the recipient of such obligations; provided however,
that ownership of the Confidential Information and all intellectual property
rights to such Confidential Information remain with the disclosing party. The
foregoing paragraph shall in no way exempt either party from any licensing
requirement associated with the other party's Confidential Information.
16.4 The obligations of either party pursuant to this Article 16
shall not extend to any Confidential Information which a recipient can
demonstrate through written documentation was already known to the recipient
prior to its disclosure to the recipient and without confidential obligations
was known or generally available to the public at the time of disclosure to the
recipient, becomes known or generally available to the public (other than by act
of the recipient) subsequent to its disclosure to the recipient, is disclosed or
made available in writing to the recipient by a third party having a bona fide
right to do so and without similar confidentiality obligations, is independently
developed by recipient, or is required to be disclosed by subpoena or other
process of law, provided that the recipient shall notify the disclosing party
promptly of any such subpoena or other process of law requiring disclosure.
28
<PAGE>
ARTICLE 17. MISCELLANEOUS
17.1 Publicity - A party shall not release any advertising or other
publicity relating to this Agreement or the contents hereof wherein such other
party may reasonably be identified without the prior written approval of the
other party. In addition, each party shall take reasonable precautions to keep
the existence and the contents of this Agreement confidential so long as this
Agreement remains in effect and for a period of five (5) years thereafter,
except as may be otherwise expressly provided in this Agreement or as may be
reasonably required to enforce this Agreement by law.
17.2 Applicable Law - The validity, construction and performance of
this Agreement shall be governed by and interpreted in accordance with the laws
of the State of New York, without giving effect to the principles of conflict of
laws thereof except to the extent that any mandatory provisions of local law in
any country take precedence over the provisions of this Agreement and New York
law. The United Nations convention on Contracts for the International Sale of
Goods shall not apply to this Agreement. The parties agree that when a Contract
is executed and performed by their respective Affiliates in the same country
outside the United States, the law for that country shall apply to such
Contract.
17.3 Effects of Headings - All headings used herein are for index
and reference purposes only, and shall not be given any substantive effect. This
Agreement has been created jointly by the parties and no rule of construction
requiring interpretation against the drafter of this Agreement shall apply in
its interpretation.
17.4.1 Assignment - Other than as explicitly stated below, neither
party may assign or transfer this Agreement or any of its rights hereunder
without the prior written consent of the other party, such consent not to be
unreasonably withheld. A change in control of Company shall be deemed an
assignment hereunder. A change in control shall occur if ownership or control of
more than fifty percent (50%) of the shares of the Company entitled to elect the
board of directors changes during the Term of this Agreement. Company's consent
shall not be required for any assignment or transfer by Nortel Networks (i) to
any Nortel Networks Affiliate of all or any part of this Agreement or of Nortel
Networks' rights hereunder; or (ii) to any third party of Nortel Networks' right
to receive any monies ("Receivables") which may become due to Nortel Networks
pursuant to this Agreement. An initial public offering by Company's parent
company shall not be considered a change in control for the purposes of Section
17.4.1.
17.4.2 Company hereby consents to the sale of Receivables by Nortel
Networks without the necessity for any further notice and without any
qualification on such consent. Company grants permission for Nortel Networks to
disclose the provisions of this Agreement to purchasers and prospective
purchasers of Receivables, or their affiliates and others with a present or
prospective financial interest in such Receivables, and their respective agents,
attorneys, auditors, rating agencies and other advisors.
17.5 Subcontracting - Nortel Networks may subcontract any of its
obligations under this Agreement, but no such subcontract shall relieve Nortel
Networks of primary responsibility for performance of its obligations.
17.6 Non-Waiver - The failure by either party hereto at any time to
require performance by the other party or to claim a breach of any provision of
this Agreement shall not be construed as affecting any subsequent breach or the
right to require the performance with respect thereto or to claim a breach with
respect thereto.
29
<PAGE>
17.7 Relationship of the Parties - The provisions of this Agreement
shall not be construed to establish any form of partnership, agency or joint
venture of any kind between Nortel Networks and Company, nor to constitute
either party as the agent, employee or legal representative of the other. All
persons furnished by either party to accomplish the intent of this Agreement
shall be considered solely as the furnishing party's employees or agents and the
furnishing party shall be solely responsible for compliance with respect to its
employees with all laws, rules and regulations involving, but not limited to,
employment of labor, hours of labor, working conditions, workers' compensation,
payment of wages, and withholding and payment of applicable taxes, including,
but not limited to income taxes, unemployment taxes, and social security taxes.
17.8 Force Majeure - If the performance by a party of any of its
obligations under this Agreement shall be interfered with by reason of any
circumstances beyond the reasonable control of that party, including without
limitation, fire, explosion, acts of God, war, revolution, civil commotion,
unavailability of supplies or sources of energy, power failure, breakdown of
machinery, delays regarding zoning, easements or deed restrictions, any legal
proceedings between parties unrelated to the parties hereto or labor
difficulties, including without limitation, strikes, slowdowns, picketing or
boycotts, then that party shall be excused from such performance for a period
equal to the delay resulting from the applicable circumstances and such
additional period as may be reasonably necessary to allow that party to resume
its performance. With respect to labor difficulties as described above, a party
shall not be obligated to accede to any demands being made by employees or other
personnel.
17.9 Taxes - Company shall at Nortel Networks' direction promptly
reimburse Nortel Networks or pay directly to the applicable government or taxing
authority all taxes and charges arising hereunder, including, without
limitation, penalties and interest, except for taxes computed upon the net
income of Nortel Networks. If Company provides Nortel Networks with a
certificate of exemption for the applicable taxes, in a timely manner, then
Nortel Networks shall not invoice Company for such taxes.
17.10.1 Hazardous Materials - Prior to issuing any Order for
Services to be performed at Company's facilities, Company shall identify and
notify Nortel Networks in writing of the existence of all Hazardous Materials
which Nortel Networks may encounter during the performance of such Services,
including without limitation, any Hazardous Materials contained within any
equipment to be removed by Nortel Networks.
17.10.2 If Company breaches its obligations pursuant to Section
17.10.1, (i) Nortel Networks may discontinue the performance of the applicable
Services until all the Hazardous Materials have been removed or abated to Nortel
Networks' satisfaction by Company at Company's sole expense; and (ii) Company
shall defend, indemnify and hold Nortel Networks harmless from any and all
damages, claims, losses, liabilities and expenses, including without limitation,
attorney's fees, which arise out of Company's breach of such obligations.
17.11 Notice - All notices required or permitted to be given
hereunder shall be in writing and shall be deemed given when delivered (i) by
hand; or (ii) by facsimile, transmission (confirming the same by mail); or (iii)
by certified or next-day mail addressed as follows:
30
<PAGE>
If to Company:
CAIS, Inc.
1255 22nd Street
Washington, DC 20037
Attention: William M. Caldwell, IV, President
Facsimile: (202) 463-7190
If to Nortel Networks:
Northern Telecom Inc.
2520 Meridian Parkway
Durham, NC 27713
Attention: VP, Contracts Management & Negotiations
Dept: 3216, MS 49D300
Facsimile: (919) 997-4495
Either party hereto may change its address by a notice given to the other party
hereto in the manner set forth above.
17.12 Information and Documentation - Company shall provide any
information and/or documentation that Nortel Networks reasonably requests from
Company and that is necessary for Nortel Networks to properly perform any of its
obligations hereunder. Such information shall be provided in a form reasonably
specified by Nortel Networks by the dates specified by Nortel Networks.
17.13.1 Export - Company shall not export any Products or technical
data received from Nortel Networks pursuant to this Agreement, or release any
such Products or technical data with the knowledge or intent that such Products
or technical data will be exported or transmitted to any country or to foreign
nationals of any country, except in accordance with applicable laws and
regulations concerning the exporting of such items arising in the U.S. or Canada
with Nortel Networks' prior written consent for these countries or other such
jurisdiction affecting the Products without Nortel Networks' prior written
consent. Company shall obtain all appropriate government authorizations in
accordance with applicable law prior to exporting or transmitting any such
Products or technical data. Nortel Networks will provide such assistance as
Company reasonably requests to obtain such authorizations.
17.13.2 Nortel Networks acknowledges that the transfer of Systems or
components thereof, and associated documentation outside of the United States
may be subject to the specific approval of the applicable Software suppliers and
other suppliers. All such approvals, if applicable, shall be conditions
precedent to any of the obligations of Nortel Networks hereunder respecting such
Systems or component thereof and associated documentation. To the extent any
such conditions exist, they shall be listed in the applicable Product Annex.
17.13.3 Nortel Networks hereby agrees that its shareholders,
directors, officers, employees, agents or contractors of Nortel Networks will
not make, authorize or offer, or cause to be made or offered, any payment, loan
or gift of money or anything of value directly or indirectly to: (i) any
official or employee of any government, or agency or instrumentality thereof;
(ii) any political Party or official thereof or any candidate for political
office; or (iii) any person; under circumstances in which the shareholders,
directors, officers, employees, agents or contractors of Nortel Networks know,
or have reason to know, that all or any portion of such money or thing of value
will be offered or
31
<PAGE>
given, directly or indirectly, to any person named in clauses (i) and (ii) above
to influence a decision or to gain any advantage to Nortel Networks or its
shareholders, directors, officers, employees, agents or subcontractors, or to
retain business for or with, or directing business to, Nortel Networks, or in
connection with any transaction relating to this Agreement which could result in
a violation of the Foreign Corrupt Practices Act, as amended and any other law,
regulation, order, decree or directive having the force of law and relating to
bribery, kick-backs, or similar business practices. For purposes of this
Agreement, the term "official" shall mean and include any employee or officer in
public service or in the private sector, any employee of official of any
governmental or quasi-governmental department, agency or instrumentality
thereof, or any person or entity acting in an official capacity for on behalf of
any such government or department, agency or instrumentality.
17.13.4 Each Party shall take all required or advisable steps to
insure that, for the duration of this Agreement, it remains a company in good
standing, duly organized, registered and existing under the laws of each country
in which it is undertaking its obligations hereunder, as well as any other
applicable regional and local jurisdiction.
17.14 Severability - If any provision of this Agreement is declared
or determined to be invalid or unenforceable under applicable law, the remaining
provisions shall continue in full force and effect and the parties shall
substitute for the invalid provision a valid provision which most closely
approximates the economic effect and intent of the invalid provision.
17.15 Modification of Agreement - No addition to or modification of
this Agreement shall be effective or binding on either of the parties hereto
unless reduced to writing and executed by the respective duly authorized
representatives of each of the parties hereto.
17.16 Regulatory Compliance - In the event of any change in the
Specifications or Nortel Networks' manufacturing or delivery processes for any
Products as a result of the imposition of requirements by any government, Nortel
Networks may upon notice to Company, increase its prices, charges and fees to
cover the added costs and expenses directly and indirectly incurred by Nortel
Networks as a result of such change.
17.17 Entire Agreement - This Agreement, including the Exhibits and
Annexes which are attached hereto and incorporated herein, comprises all the
terms, conditions and agreements of the parties hereto with respect to the
subject matter hereof and supersedes all previous negotiations, proposals,
commitments, writings, publications and understandings of any nature whatsoever.
No Exhibits or Annexes modified or created subsequent to the execution of this
Agreement shall be deemed to be incorporated into this Agreement unless mutually
agreed in a writing and executed by a duly authorized representative of each
party. Company hereby acknowledges and agrees that it has not relied on any
representations or warranties other than those expressly set forth in this
Agreement.
17.18 Survivorship - Any terms of this Agreement which by their
nature are intended to survive including, but not limited to, Articles 8, 10,
12, 13, 16 and 17 and Sections 4.6, 9.3, 10.15 and 14.3 shall survive the
termination or expiration of this Agreement.
32
<PAGE>
17.19 Credit Facility Contingency - Company and Nortel Networks agree that this
Agreement is contingent on the consummation by Company and Nortel Networks of a
multiple-advance term loan facility (the "CAIS Credit Facility") on the terms
and conditions set forth in the Proposed Terms and Conditions attached to the
Letter of Intent, dates April 21, 1999, by and between Company and Nortel
Networks. In the event the CAIS Credit Facility is not consummated by May 15,
1999, this Agreement shall be null and void without further obligation of the
parties.
IN WITNESS WHEREOF, the parties have executed this Agreement.
NORTHERN TELECOM INC. CAIS, INC.
By: /s/ Steve Schillisc By: /s/ Ulysses G. Auger
-------------------------------- --------------------------
Name: Steve Schillisc Name: Ulysses G. Auger
-------------------------------- --------------------------
Title: Sr. V. P. Sales & Mktg. Title: CEO
-------------------------------- --------------------------
Date: 4/26/99 Date: April 21, 1999
-------------------------------- --------------------------
33
<PAGE>
EXHIBIT A
PRODUCT ANNEX A.1
ETHERLOOP PRODUCTS
The supplemental terms and conditions provided below take precedence over any
conflicting terms and conditions specified in the Sections noted below or
elsewhere in the Agreement, as such terms and conditions apply to the EtherLoop
products (collectively, "EtherLoop Products").
Article 2, Section 2.3
With regard to the subject of forecasts, the following shall apply:
Company shall submit a non-binding forecast to Nortel Networks, in
accordance with Section 2.3 of the Agreement describing the specific types
and quantities of EtherLoop Products required.
Article 3, Section 3.8
The standard interval between Order acceptance and Ship Date for forecasted
EtherLoop Product is four (4) weeks. Nortel Networks may change the standard
interval at its sole discretion and without notice to Company.
Article 5, Section 5.1
With regard to the subject of reschedule of an Order, the following shall apply:
A minimum of thirty (30) days notice must be provided to Nortel Networks
prior to the scheduled Ship Date.
Article 7, Section 7.1
With regard to the subject of Company's cancellation of an Order, the following
shall apply:
In the event Company cancels all or any part of an Order, Company shall
pay to Nortel Networks a cancellation charge for each Product that has
been canceled in accordance with the following schedule:
[greater than or equal to] 100% of engineering charges plus
15 days prior to Ship Date 10% of the Product price
0 - 14 days prior to Ship Date 100% of engineering charges plus
15% of the Product price
Article 10, Section 10.1
As of the Effective Date, there are no additional terms regarding Third
Party Hardware and Third Party Software.
Article 10, Section 10.5
With regard to the subject of Software updates, the following shall apply:
Nortel Networks shall classify such updates as either (i) incremental
Software upgrades ("ISUs"), designed to correct any nonconformance to the
applicable Software specifications; or (ii) enhancements which will
provide additional features or functionality ("Enhancements"). Updates
classified as ISUs by Nortel Networks will be provided at no cost to
Company during the warranty period for such Licensed Software. Updates
classified as Enhancements by Nortel Networks will be made available to
Company at Nortel Networks' applicable right to use fees. In the event
that Nortel Networks determines that an update includes both ISUs and
Enhancements, such update shall be made available to Company. If Company
elects to receive the update, Nortel Networks shall invoice Company only
for the right to use fees applicable to the Enhancements contained in such
update. Notwithstanding anything to the contrary, all ISUs and
Enhancements for the InterProxy IP proxy manager, billing manager and port
manager applications shall be provided to Company at no charge during the
warranty period for such Software and at any time Company has purchased a
Software maintenance plan for such Software.
1
<PAGE>
PRODUCT ANNEX A.1
ATTACHMENT 1
ETHERLOOP PRICING
A. ETHERLOOP PRICING
I. ETHERLOOP EQUIPMENT
Engineering, installation & testing charges are not included since these charges
vary greatly depending upon how many systems are being deployed at one time at a
location. Engineering, installation and testing charges can be quoted upon
request.
I.1 eLAN 128 8-Line Package
The eLAN 128 8-line package combines a fully filled ELMo8 shelf, complete
with common equipment cards, eight CO modems, and eight eLAN 128 CPE
modems. The eLAN 128 CPE modems can support up to 128 MAC addresses.
The components making up the eLAN 128 8-line package are described below.
o ELMo8 shelf and backplane
o ELMo8 Power card
o ELMo8 Filter Card
o ELMo8 Hub Card
o 8 ELMo8 Modem cards
o 8 eLAN 128 CPE modems
--------------------------------------------------------------------------
Description Price
--------------------------------------------------------------------------
eLAN 128 8-line package $ 5,000
--------------------------------------------------------------------------
I.2 Elite 8-Line Package - NTEW01AA
The Elite 8-line package combines a fully filled ELMo8 shelf, complete
with common equipment cards, 8 CO modems, and 8 Elite CPE modems. The
Elite CPE modems can support up to 8 MAC addresses.
The components making up the eLAN 128 8-line package are described below.
o ELMo8 shelf and backplane
o ELMo8 Power card
o ELMo8 Filter Card
o ELMo8 Hub Card
o 8 ELMo8 Modem cards, 2 Mbps License
o 8 Elite CPE modems
--------------------------------------------------------------------------
Description Price
--------------------------------------------------------------------------
Elite 8-line package $ 3,808
--------------------------------------------------------------------------
I.3 ELMo8 Cable Assembly - NTEW50GA
The ELMO8 cable assembly includes all power, VF, and ethernet cables
required to wire up three ELMo shelves.
--------------------------------------------------------------------------
Description Price
--------------------------------------------------------------------------
ELMo8 Cable Assembly $ 380
--------------------------------------------------------------------------
2
<PAGE>
I.4 ELMo8 Power Supply Shelf- NTEW56GA
The ELMo8 Power Supply Shelf fits standard 19" racks and can accommodate
up to three ELMo8 power supplies. It comes complete with AC cord. When
fully filled, the ELM8 Power Supply shelf can support 9 ELMo8 shelves.
--------------------------------------------------------------------------
Description Price
--------------------------------------------------------------------------
ELMo8 Power Supply Shelf - NTEW56GA $ 210
--------------------------------------------------------------------------
I.5 ELMo8 Power Supply - NTEW56AA
The ELMo8 Power Supply plugs into the ELMo8 Power Supply Shelf and can
support up to 3 ELMo8 shelves
--------------------------------------------------------------------------
Description Price
--------------------------------------------------------------------------
ELMo8 Power Supply - NTEW56AA $ 600
--------------------------------------------------------------------------
I.6 110 VAC Rack Kit - NTEW55AA
The 110 VAC Rack Kit is a seven foot tall, 19" wide rack, pre-wired for 9
ELMo8 shelves. It includes an ethernet hub, power rectifiers, air baffles,
and all necessary cabling. With this kit, no additional cabling or power
rectifiers need to be ordered.
The components making up the 110 VAC Rack Kit are described below.
o Power supply rack with 3 power supplies (each supporting three ELMo8
shelves)
o 6 Outlet, 3 Prong AC Power Strip Shelf
o 10BT Baystack 101 Hub, 12 Port - AC Powered
o 2 Air Baffle Assemblies
o 3 Elmo8 Cable Assembly (Up to 3 Shelves for each cable assembly)
o CABLE Assembly, RJ45, ORANGE, CAT5, 4 PAIR, 8 POS/8 CONT, 4' CROSSOVER
o 7' Rack Assembly
o 19" Rack Base Skirt
o 7' Rack Miscellaneous Hardware Kit
o EtherLoop Documentation Package
--------------------------------------------------------------------------
Description Price
--------------------------------------------------------------------------
110 VAC Rack Kit - NTEW55AA $ 4,500
--------------------------------------------------------------------------
I.7 Etherloop Spares Kit - CAIS-Spares-1 This kit includes all necessary
hardware spares.
The components making up the spares kit are described below.
o ELMo8 Hub Card
o ELMo8 Power Card
o ELMo8 Filter Card
o ELMo8 Modem Card [1 port, 4 Mbps License]
o Power Supply (Up to 3 Shelves)
o Elite CPE Modem
o eLAN 128 CPE Modem
3
<PAGE>
--------------------------------------------------------------------------
Description Price
--------------------------------------------------------------------------
Spares Kit - Model CAIS-Spares-1 $ 2,360
--------------------------------------------------------------------------
II. VBN Server
The VBN Server includes a rack mount PC, operating system license,
management system license, and the following features:
o InterProxy IP proxy manager to enable IP mobility
o Billing management capability allowing multiple billing policies
o Billing system interface to interwork with hotel property management
systems
o System management capability
The VBN server Right to Use (RTU) pricing includes all features in Release
1 and Release 2. Right to Use fees are based on the number of simultaneous
users.
VBN Server Pricing
--------------------------------------------------------------------
Price
Description $ 10 M Commitment by 4/1/2002
--------------------------------------------------------------------
10 User RTU $ 5,600
--------------------------------------------------------------------
25 User RTU $ 7,250
--------------------------------------------------------------------
50 User RTU $10,200
--------------------------------------------------------------------
System Capacity RTU
(Current Capacity is 400 users) $14,310
--------------------------------------------------------------------
4
<PAGE>
EXHIBIT A
PRODUCT ANNEX A.2
BAY NETWORKS PRODUCTS
The supplemental terms and conditions provided below shall apply to Products
provided by the Bay Networks line of business of Nortel Networks ("Bay
Networks"), and shall take precedence over any conflicting terms and conditions
specified, in the Sections noted below or elsewhere, in the Agreement.
Article 1, Section 1.5
"Diagnostics, Software and Software Documentation" shall be added to and
included within the definition of "Confidential Information".
Article 3, Section 3.5
The following shall apply with respect to Bay Networks Products.
Company may cancel or reschedule any order, without charge, by delivering
written notice to Nortel Networks at least thirty (30) days prior to the
Ship Date. Orders canceled by Company by delivery of written notice within
thirty (30) days of their Ship Dates may be subject to a fifteen percent
restocking charge by Nortel Networks. Company may not cancel or reschedule
any Order, in whole or in part, less than fifteen (15) days prior to the
corresponding Ship Date.
Article 3, Section 3.8
The standard interval between Order acceptance and Ship Date for forecasted Bay
Networks Product is four (4) weeks. The Ship Date with respect to Bay Networks
Product shall be based upon standard intervals for the applicable Product, and
shall be established and confirmed in the Order acknowledgement issued to
Company.
Article 4, Section 4.3
Section 4.3 of the Agreement shall be replaced with the following:
Nortel Networks' prices for Bay Networks Products and Services are those
set out in Bay Networks' then-current standard price list ("Price List"),
less the applicable discount specified in Attachment 1 to this Product
Annex A.2.
Article 4, Section 4.5, Paragraph (i)
Annual maintenance Services provided by Nortel Networks with respect to Bay
Networks Products are subject to invoice and payment at the beginning of the
annual maintenance term.
Article 5, Section 5.1 This section shall be deleted.
Article 5, Section 5.2.2
The first sentence of this section shall be deleted and replaced with the
following:
All Bay Networks Product prices are F.O.B. Nortel Networks' point of
shipment. Title to the Hardware passes to Company when presented to Nortel
Networks or its agent to the carrier, from which point Company is
responsible for risk of all loss, damage to, or theft of all Products.
Article 5, Section 5.3
This section does not apply to Bay Networks Products.
Article 6
For the purposes of Article 6, Bay Networks Products shall be considered
"Merchandise".
5
<PAGE>
Article 8, Section 8.3
This section shall be deleted and replaced with the following:
Nortel Networks warrants that each item of Bay Networks Software, as
delivered or updated by Nortel Networks and properly installed and
operated on the Hardware or other equipment it is originally licensed for,
will function substantially as described in its then-current user
documentation during its respective warranty period which begins on the
date of shipment to the Company. If any item of Bay Networks Software
fails to so perform during its warranty period, as the sole remedy of
Nortel Networks, Nortel Networks will at its discretion provide a suitable
fix, patch or workaround for the problem which may be included in a future
revision of the Bay Networks Software. For specific Third Party Software
included on the Price List which is distributed by Nortel Networks as a
licensee of third parties, additional warranty terms offered by such third
parties to end-users may apply.
Article 8, Section 8.8
Third Party Software or Third Party Hardware shall be covered under the warranty
for Bay Networks Products, provided that the Products are included in the Price
List. Products specified on the Price List as being sold "AS IS" shall have no
warranty. Nortel Networks does not warrant that any item of Bay Networks
Software is error-free or that its use will be uninterrupted. Nortel Networks is
not obligated to remedy any Bay Networks Software defect which cannot be
reproduced with the latest revision of such Software.
Article 10
Article 10 shall be replaced in its entirety with the following:
10.1 Company may purchase for its internal use licenses to Bay Networks
Software and accompanying documentation by placing Orders under this
Agreement. Company's right to use the Bay Networks Software is
subject to the "shrink-wrap" license agreement with the Software and
in its accompanying documentation shipped by Nortel Networks to
Company ("License Agreement").
10.2 Company may not, translate, decompile, disassemble, use for any
competitive analysis, or reverse engineer the Bay Networks Software
or its documentation, in any way. Company agrees to not translate
any portion of the Software or associated documentation into any
other format or foreign language without the prior written consent
of Nortel Networks. In no event will Company grant the U.S.
Government rights in any Bay Networks Software greater than those
set out in subparagraphs (a) through (d) of the Commercial Computer
Software - Restricted Rights clause at FAR 52.227-19 and the
limitations for civilian agencies set out the License Agreement; and
subparagraph (c)(1)(ii) of the Rights in Technical Data and Computer
Software clause at DFARS 252.227-7013 for agencies of the Department
of Defense.
Article 16, Section 16.3
This Section shall be deleted with respect to Bay Networks Products.
Article 17
A new Section 17.19 shall apply with respect to Bay Networks Products, and shall
read as follows:
Nortel Networks reserves the right to change its discount practices,
discounts, policies, programs and Services descriptions at any time. For
changes which, in Nortel Networks' opinion, may adversely affect Company,
Nortel Networks will provide thirty (30) days notice, or such longer
period as Nortel Networks deems appropriate, prior to the effective date
of such change. However, prices listed in Order Acknowledgments for
Company's corresponding Orders remain firm. Notwithstanding the foregoing,
the discounts applicable to the Committed Products shall remain firm for
the Initial Term.
6
<PAGE>
PRODUCT ANNEX A.2
ATTACHMENT 1
DISCOUNT SCHEDULE AND TERMS
A. DISCOUNT SCHEDULE AND ELIGIBLE PRODUCTS
The following discount schedule applies to Bay Networks Products included on the
Price List when purchased by Company. "Product Group" refers to the "Group"
column found in the Price List.
Product Group Discount Percentage
------------- -------------------
A 54%*
B 54%*
C 54%*
D 54%*
E 54%*
F 54%*
* Cabling shall only be discounted 20%
7
<PAGE>
EXHIBIT A
PRODUCT ANNEX A.3
S/DMS TRANSPORTNODE AND S/DMS ACCESSNODE PRODUCTS
The supplemental terms and conditions provided below take precedence over any
conflicting terms and conditions specified, in the Sections noted below or
elsewhere, in the Agreement as such terms and conditions apply to Nortel
Networks' S/DMS TransportNode or S/DMS AccessNode Products.
Article 2, Section 2.3
With regard to the subject of issuing forecasts, the following shall apply:
Company shall issue a non-binding forecast in accordance with Section 2.3
describing the specific types and quantities of S/DMS TransportNode and
S/DMS AccessNode Products required.
Article 5, Section 5.1
With regard to the right to reschedule an Order, the following shall apply:
Thirty (30) days notice must be provided to Nortel Networks prior to the
scheduled Ship Date.
Article 6, Section 6.3
With regard to the subject of Company performing installation of any of the
S/DMS TransportNode or S/DMS AccessNode Products, the following shall apply:
Company shall not initially have the right to perform any installation
services but may obtain the right to install the S/DMS TransportNode or
S/DMS AccessNode Products, subject to attending the applicable Nortel
Networks training courses and obtaining the required Nortel Networks
training certifications.
Article 6, Section 6.5
With regard to the subject of acceptance of Extensions, the following shall
apply:
For Extensions, which are not installed by Nortel Networks, Acceptance
shall be deemed to occur upon the Ship Date. For Extensions, which are
installed by Nortel Networks, Acceptance shall be deemed to occur upon the
Turnover Date.
Article 7, Section 7.1
With regard to the subject of Company's cancellation of an Order, the following
shall apply:
In the event Company cancels all or any part of an Order, Company shall
pay to Nortel Networks a cancellation charge for each Product that has
been canceled in accordance with the following schedule:
[greater than or equal to] 100% of engineering charges plus
15 days prior to Ship Date 10% of the Product price
0 - 14 days prior to Ship Date 100% of engineering charges plus
15% of the Product price
Article 10, Section 10.1
At the present time, there are no additional terms regarding Third Party
Hardware and Third Party Software.
8
<PAGE>
Article 10, Section 10.5
With regard to the subject of Software updates, the following shall apply:
Nortel Networks shall classify such updates as either (i) incremental
Software upgrades ("ISUs"), designed to correct any nonconformance to the
applicable Software specifications; or (ii) enhancements which will
provide additional features or functionality ("Enhancements"). Updates
classified as ISUs by Nortel Networks will be provided at no cost to
Company during the warranty period for such Licensed Software. Updates
classified as Enhancements by Nortel Networks will be made available to
Company at Nortel Networks' applicable right to use fees. In the event
that Nortel Networks determines that an update includes both ISUs and
Enhancements, such update shall be made available to Company. If Company
elects to receive the update, Nortel Networks shall invoice Company only
for the right to use fees applicable to the Enhancements contained in such
update.
9
<PAGE>
EXHIBIT B
CAIS COMMITTED PRODUCTS
Company commits to purchase, at a minimum, the following types of Products and
Services in the following quantities:
By 1st Purchase Date Total
-------------------- -----
Nortel/Bay Networks Products $5,000,000 $16,000,000
EtherLoop Products $4,000,000 $10,000,000
INM, Optivity $0 $2,600,000
Professional Services $1,000,000 $1,300,000
- --------------------------------------------------------------------------------
TOTAL $10,000,000 $29,900,000
Notes:
1. Pricing for any new features and/or functionality will be provided via
quotations.
2. In the event that Company elects to purchase bay Products that directly
replace Company owned Cisco products, Nortel Networks, at Company's
election, shall accept any Cisco equipment owned by Company as a trade-in.
Nortel Networks shall grant Company a credit which may be applied to
future purchases of Bay Products. The amount of such credits shall be
mutually agreed upon within thirty (30) days of Nortel Networks' receipt
of notice that such Cisco equipment will be traded-in. As a condition
precedent to the granting of credit, Company shall convey good title to
the trade-in Cisco equipment, free and clear of all liens and
encumbrances, and shall ship, at its own expense, such Cisco equipment to
an address specified by Nortel Networks.
3. Company commits to test Nortel Networks' Versalar 15000 core routers using
a "Fitness for Use" functionality test program to be jointly developed and
executed by the parties. Such testing will utilize Versalar products
installed and functional in Company designated network Points of Presence.
Final success determination is the sole responsibility of Company. Company
shall not unreasonably withhold a determination of success if the Versalar
product functions and performs in such as manner as to fully support the
needs and requirements of Company. If Company determines that the Versalar
meets its needs, it can purchase Versalar 15000 core routers at the
pricing listed below and, at Company's option, such Product may be
considered Financed Product under this Agreement.
4. Actual Nortel/Bay Networks or EtherLoop Product purchase mix may vary by
25% (twenty-five percent) within each specified Committed Product group.
Any reduction in the amount of actual purchase in one category shall be
offset by an increase in the other. Actual INM, Optivity or Professional
Services purchase Commitment may decrease by 50% (fifty percent). Any
reduction in the amount of actual purchase Commitment in these categories
shall be offset by an increase in either the Nortel/Bay Networks or
EtherLoop Product Commitment. The amount of the total Commitment shall
remain the same.
5. Professional services detailed scope to be defined in detailed statement
of work.
6. Company commits to use Nortel Networks' router solution on the premises of
the hotels where Company deploys a routing solution.
7. Pricing detail and specific Product forecasts are contained in the
spreadsheet that follows.
10
<PAGE>
Product Pricing and Forecast -
Bay Products:
<TABLE>
<CAPTION>
Configuration for: AN WITH ISDN FOR T1
Model # Model Description Qty Unit Price Dsct Ext. Price
<S> <C> <C> <C> <C> <C>
24000 AN/12-port ANH ISDN BRI S/T (without NT1) Adapter 575 $500 54% $132,250
7220 15 Foot 44-pin to Male V.35 (leased or V.25bis) 575 $195 20% $89,700
AE0008070 Remote Office Suite (16M PCMCIA) 575 $1,650 54% $436,425
AE1001008 BayStack AN: 1 Ethernet x 2 Sync (16M DRAM) 575 $1,745 54% $461,553
Total for this Configuration: $1,119,928
<CAPTION>
Configuration for: ASN FOR T3
Model # Model Description Qty Unit Price Dsct Ext. Price
<S> <C> <C> <C> <C> <C>
34000 Dual Ethernet Net Module 125 $3,000 54% $172,500
7831 50 Foot HSSI Cable 125 $400 20% $40,000
AF0002?12 ASN2 Base Unit 16M AC Redundant Power* 125 $4,500 54% $258,750
AF0008058 ASN Version 13.10 WAN Suite (16M PCMCIA) 125 $2,450 54% $140,875
AF2104020 High Speed Serial Interface (HSSI) Net Module (req 125 $3,950 54% $227,125
Total for this Configuration: $839,250
<CAPTION>
Configuration for:
BAYSTACK 303 SWITCHES
Model # Model Description Qty Unit Price Dsct Ext. Price
<S> <C> <C> <C> <C> <C>
AL2001?04 BayStack 303 Ethernet Switch with 24 switched 10BA 10500 $1,625 54% $7,848,750
Total for this Configuration: $7,848,750
Spares
AN/ASN 26 $9,075 $235,950
Bay: Additional Hotels $4,975,330
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Etherloop - 700 sites (pricing as noted in Product Annex A.1)
Visitor Based Server - 100 sites (pricing as noted in Product Annex A.1)
Subtotal Etherloop and Vision Based Server (including spares): $9,530,434
Professional Services $1,300,000 $1,300,000
H/w, s/w maint. contract 10% of routers, 5% of Etherloop, first year only 1,450,359
INM $2,600,000 $2,600,000
Breakout:
Etherloop: $10,000,000
Bay: $16,000,000
Professional Services: $1,300,000
INM $2,600,000
Total: $29,900,000
Optional Equipment that may be purchased at a later date.
<CAPTION>
Configuration for: Versalar
<S> <C> <C> <C> <C> <C>
DP0002003 Versalar 15000 12 slot with one DC power supply 26 $19,995 54% $239,140.20
DP0011018 2nd DC Power Supply 26 $1,000 54% $11,960
DP0011003 System Services Processor - 128MB Ram 26 $30,000 54% $358,800
DP0011009 Ethernet Phy for SSP 26 $2,500 54% $29,900
DP0011010 Console Phy for SSP 26 $1,500 54% $17,940
DP0011001 Channelized Access Processor 26 $98,995 54% $1,183,980
DP0011016 6xT3 Interface 26 $7,000 54% $83,720
DPxxxxxx Clear Channel Access Processor 26 $98,995 54% $1,183,980
DPxxxxxx Clear Channel T3 Interface 26 $7,000 54% $83,720
DP0011005 Internet Forwarding Processor 26 $34,000 54% $406,640
DP0008001 Software, Flash, Documentation 26 $7,500 54% $89,700
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Redundancy Modules for Buildout: Versalar
<S> <C> <C> <C> <C> <C>
DP0011003 System Services Processor - 128MB Ram 26 $30,000 54% $358,800
DP0011001 Combo - Channelized Access Processor 26 $98,995 54% $1,183,980
DP0011028 ARM Phy Redundant 26 $500 54% $5,980
DP0011005 Internet Forwarding Processor 26 $34,000 54% $406,640
$5,644,881
H/w, s/w maint. contract 10% of routers, 5% of Etherloop, first year only $564,488
Spares:
Versalar 1 $1,011,970 54% $465,506
Grand Total Optional Equipment: $6,674,875
Grand Total: $36,574,875
</TABLE>
13
<PAGE>
EXHIBIT C
LIST OF AFFILIATES
Company Affiliates:
Nortel Networks Affiliates:
Northern Telecom Korea Limited
<PAGE>
---------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of June 4, 1999
by and among
CAIS, INC.
as Borrower
and
NORTEL NETWORKS INC.
as Administrative Agent
and
THE LENDERS NAMED HEREIN
$30,000,000 ADVANCING TERM LOAN FACILITY
---------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1
Definitions. . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Definitions, etc.. . . . . . . . . . . . . .1
Section 1.2 Other Definitional Provisions. . . . . . . 21
Section 1.3 Accounting Terms and Determinations. . . . 21
Section 1.4 Financial Covenants and Reporting. . . . . 22
ARTICLE 2
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.1 Commitments. . . . . . . . . . . . . . . . 22
Section 2.2 Notes. . . . . . . . . . . . . . . . . . . 22
Section 2.3 Repayment of Loans . . . . . . . . . . . . 23
Section 2.4 Interest . . . . . . . . . . . . . . . . . 24
Section 2.5 Borrowing Procedure. . . . . . . . . . . . 24
Section 2.6 Optional Prepayments, Conversions
and Continuations of Loans . . . . . . . . 25
Section 2.7 Mandatory Prepayments. . . . . . . . . . . 25
Section 2.8 Minimum Amounts. . . . . . . . . . . . . . 26
Section 2.9 Certain Notices. . . . . . . . . . . . . . 26
Section 2.10 Use of Proceeds. . . . . . . . . . . . . . 27
Section 2.11 Fees . . . . . . . . . . . . . . . . . . . 27
Section 2.12 Computations . . . . . . . . . . . . . . . 27
Section 2.13 Termination or Reduction of Commitments. . 28
ARTICLE 3
Payments . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.1 Method of Payment. . . . . . . . . . . . . 28
Section 3.2 Pro Rata Treatment . . . . . . . . . . . . 29
Section 3.3 Sharing of Payments, Etc.. . . . . . . . . 29
Section 3.4 Non-Receipt of Funds
by the Administrative Agent . . . . . . . .29
Section 3.5 Taxes. . . . . . . . . . . . . . . . . . . 30
Section 3.6 Withholding Tax Exemption. . . . . . . . . 31
Section 3.7 Reinstatement of Obligations . . . . . . . 31
Section 3.8 No Force Majeure, Disputes . . . . . . . . 31
Section 3.9 Return of Notes upon Payment in Full . . . 32
ARTICLE 4
Yield Protection and Illegality . . . . . . . . . . . . . 32
Section 4.1 Additional Costs . . . . . . . . . . . . . 32
Section 4.2 Limitation on Types of Loans . . . . . . . 34
Section 4.3 Illegality . . . . . . . . . . . . . . . . 34
Section 4.4 Treatment of Affected Loans. . . . . . . . 34
Section 4.5 Compensation . . . . . . . . . . . . . . . 35
Section 4.6 Capital Adequacy . . . . . . . . . . . . . 35
Section 4.7 Additional Interest on Eurodollar Loans. . 36
ARTICLE 5
Security . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 5.1 Collateral . . . . . . . . . . . . . . . . 36
Section 5.2 Guaranties.. . . . . . . . . . . . . . . . 37
<PAGE>
Section 5.3 New Subsidiaries.. . . . . . . . . . . . . 37
Section 5.4 Further Assurances . . . . . . . . . . . . 37
Section 5.5 Landlord Waivers.. . . . . . . . . . . . . 37
Section 5.6 Setoff.. . . . . . . . . . . . . . . . . . 37
ARTICLE 6
Conditions Precedent. . . . . . . . . . . . . . . . . . . 38
Section 6.1 Initial Extension of Credit. . . . . . . . 38
Section 6.2 All Extensions of Credit . . . . . . . . . 41
Section 6.3 Closing Certificates . . . . . . . . . . . 42
ARTICLE 7
Representations and Warranties. . . . . . . . . . . . . . 42
Section 7.1 Existence. . . . . . . . . . . . . . . . . 42
Section 7.2 Financial Statements . . . . . . . . . . . 43
Section 7.3 Corporate Action; No Breach. . . . . . . . 43
Section 7.4 Operation of Business; Licenses. . . . . . 43
Section 7.5 Intellectual Property. . . . . . . . . . . 44
Section 7.6 Litigation and Judgments . . . . . . . . . 44
Section 7.7 Rights in Properties; Liens. . . . . . . . 44
Section 7.8 Enforceability . . . . . . . . . . . . . . 44
Section 7.9 Approvals. . . . . . . . . . . . . . . . . 45
Section 7.10 Debt . . . . . . . . . . . . . . . . . . . 45
Section 7.11 Taxes. . . . . . . . . . . . . . . . . . . 45
Section 7.12 Margin Securities. . . . . . . . . . . . . 45
Section 7.13 ERISA. . . . . . . . . . . . . . . . . . . 45
Section 7.14 Disclosure . . . . . . . . . . . . . . . . 46
Section 7.15 Loan Parties . . . . . . . . . . . . . . . 46
Section 7.16 Compliance with Laws . . . . . . . . . . . 46
Section 7.17 Investment Company Act . . . . . . . . . . 46
Section 7.18 Public Utility Holding Company Act . . . . 47
Section 7.19 Environmental Matters. . . . . . . . . . . 47
Section 7.20 Year 2000 Compliance.. . . . . . . . . . . 48
Section 7.21 Acts of God. . . . . . . . . . . . . . . . 48
Section 7.22 Material Contracts . . . . . . . . . . . . 48
Section 7.23 Bank Accounts. . . . . . . . . . . . . . . 49
Section 7.24 Outstanding Securities . . . . . . . . . . 49
Section 7.25 Solvency . . . . . . . . . . . . . . . . . 49
Section 7.26 Employee Matters . . . . . . . . . . . . . 49
Section 7.27 Insurance. . . . . . . . . . . . . . . . . 49
Section 7.28 Common Enterprise. . . . . . . . . . . . . 49
ARTICLE 8
Affirmative Covenants . . . . . . . . . . . . . . . . . . 50
Section 8.1 Reporting Requirements . . . . . . . . . . 50
Section 8.2 Maintenance of Existence;
Conduct of Business . . . . . . . . . . . .53
Section 8.3 Maintenance of Properties and Permits. . . 53
Section 8.4 Taxes and Claims . . . . . . . . . . . . . 53
Section 8.5 Insurance. . . . . . . . . . . . . . . . . 53
Section 8.6 Inspection Rights. . . . . . . . . . . . . 55
Section 8.7 Keeping Books and Records. . . . . . . . . 55
Section 8.8 Compliance with Laws . . . . . . . . . . . 55
Section 8.9 Compliance with Agreements . . . . . . . . 55
Section 8.10 Further Assurances . . . . . . . . . . . . 55
Section 8.11 ERISA. . . . . . . . . . . . . . . . . . . 56
Section 8.12 Non-Consolidation. . . . . . . . . . . . . 56
<PAGE>
Section 8.13 Year 2000 Compliance.. . . . . . . . . . . 56
Section 8.14 Delivery of Certain Amendments . . . . . . 56
Section 8.15 Interest Rate Protection.. . . . . . . . . 56
Section 8.16 Ownership of Assets; Holdings to Remain a
Holding Company . . . . . . . . . . . . . .57
Section 8.17 Service Agreement Revenues . . . . . . . . 57
ARTICLE 9
Negative Covenants . . . . . . . . . . . . . . . . . . . 57
Section 9.1 Debt. . . . . . . . . . . . . . . . . . . 57
Section 9.2 Limitation on Liens. . . . . . . . . . . . 58
Section 9.3 Mergers, Etc.. . . . . . . . . . . . . . . 58
Section 9.4 Restricted Payments. . . . . . . . . . . . 58
Section 9.5 Investments. . . . . . . . . . . . . . . . 59
Section 9.6 Limitation on Operating
Leases of the Borrower . . . . . . . . . . 60
Section 9.7 Transactions with Affiliates.. . . . . . . 60
Section 9.8 Disposition of Property. . . . . . . . . . 60
Section 9.9 Sale and Leaseback.. . . . . . . . . . . . 61
Section 9.10 Lines of Business. . . . . . . . . . . . . 61
Section 9.11 Environmental Protection.. . . . . . . . . 61
Section 9.12 Intercompany Transactions. . . . . . . . . 61
Section 9.13 Management Fees. . . . . . . . . . . . . . 62
Section 9.14 Master Purchase Agreement. . . . . . . . . 62
Section 9.15 Modification of Certain Agreements.. . . . 62
Section 9.16 ERISA. . . . . . . . . . . . . . . . . . . 62
Section 9.17 No Prepayment of Debt, Etc.. . . . . . . . 62
ARTICLE 10
Financial Covenants . . . . . . . . . . . . . . . . . . . 63
Section 10.1 Total Debt to Total Capitalization.. . . . 63
Section 10.2 Total Debt to Annualized EBITDA. . . . . . 63
Section 10.3 Fixed Charge Coverage. . . . . . . . . . . 63
Section 10.4 Quarterly Minimum Revenue Levels . . . . . 64
ARTICLE 11
Default . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.1 Events of Default. . . . . . . . . . . . . 64
Section 11.2 Remedies . . . . . . . . . . . . . . . . . 66
Section 11.3 Performance by the Administrative
Agent, etc . . . . . . . . . . . . . . . . 67
ARTICLE 12
The Administrative Agent. . . . . . . . . . . . . . . . . 67
Section 12.1 Appointment, Powers and Immunities . . . . 67
Section 12.2 Rights of Administrative Agent as a Lender 68
Section 12.3 Defaults . . . . . . . . . . . . . . . . . 68
Section 12.4 INDEMNIFICATION. . . . . . . . . . . . . . 69
Section 12.5 Independent Credit Decisions . . . . . . . 70
Section 12.6 Several Commitments. . . . . . . . . . . . 70
Section 12.7 Successor Administrative Agent . . . . . . 70
<PAGE>
ARTICLE 13
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.1 Expenses . . . . . . . . . . . . . . . . . 71
Section 13.2 INDEMNIFICATION. . . . . . . . . . . . . . 71
Section 13.3 Limitation of Liability. . . . . . . . . . 72
Section 13.4 No Duty. . . . . . . . . . . . . . . . . . 73
Section 13.5 No Fiduciary Relationship. . . . . . . . . 73
Section 13.6 Equitable Relief . . . . . . . . . . . . . 73
Section 13.7 No Waiver; Cumulative Remedies . . . . . . 73
Section 13.8 Successors and Assigns . . . . . . . . . . 73
Section 13.9 Survival . . . . . . . . . . . . . . . . . 77
Section 13.10 ENTIRE AGREEMENT . . . . . . . . . . . . . 77
Section 13.11 Amendments . . . . . . . . . . . . . . . . 77
Section 13.12 Maximum Interest Rate. . . . . . . . . . . 78
Section 13.13 Notices. . . . . . . . . . . . . . . . . . 79
Section 13.14 GOVERNING LAW; SUBMISSION TO
JURISDICTION; SERVICE OF PROCESS . . . . . 79
Section 13.15 Counterparts . . . . . . . . . . . . . . . 80
Section 13.16 Severability . . . . . . . . . . . . . . . 80
Section 13.17 Headings . . . . . . . . . . . . . . . . . 80
Section 13.18 Construction . . . . . . . . . . . . . . . 80
Section 13.19 Independence of Covenants. . . . . . . . . 80
Section 13.20 Confidentiality. . . . . . . . . . . . . . 80
Section 13.21 WAIVER OF JURY TRIAL . . . . . . . . . . . 81
Section 13.22 Approvals and Consent. . . . . . . . . . . 81
Section 13.23 Service of Process.. . . . . . . . . . . . 81
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Note
Exhibit C - Form of Notice of Borrowings, Conversions, Continuations
and Prepayments
Exhibit D - Form of Compliance Certificate
INDEX TO SCHEDULES
------------------
Schedule 1.1(a) - Certain Permitted Holders
Schedule 1.1(b) - Certain Permitted Liens
Schedule 7.4 - Permits, Franchises and Authorizations required by
Governmental Requirements or issued by Governmental
Authorities
Schedule 7.5 - Intellectual Property
Schedule 7.6 - Litigation, Etc.
Schedule 7.7 - Real Property
Schedule 7.10 - Existing Debt
Schedule 7.13 - Plans
Schedule 7.15 - Subsidiaries
Schedule 7.22 - Material Contracts
Schedule 7.23 - Bank Accounts
Schedule 7.26 - Employee Matters
Schedule 7.27 - Insurance
Schedule 7.29 - Capitalization
Schedule 8.13 - Year 2000 Compliance
Schedule 8.17 - Assets Used in the Telecommunications Business of the
Borrower, Holdings and Their Subsidiaries Not Owned by
the Borrower
Schedule 9.5 - Certain Investments
Schedule 9.7 - Existing Relationships with Affiliates
Schedule 10. - Financial Covenants
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT, dated as of June 4, 1999, is by and among CAIS,
INC. (the "Borrower"), a Virginia corporation, each of the lending entities
--------
which is a party hereto (as evidenced by the signature pages of this Agreement)
or which may from time to time become a party hereto as a lender or any
successor or assignee thereof (individually, a "Lender" and, collectively,
------
the "Lenders"), and NORTEL NETWORKS INC., a Delaware corporation, as
-------
administrative agent for itself and the other Lenders (in such capacity,
together with its successors in such capacity, the "Administrative Agent").
--------------------
RECITALS:
--------
A. The Borrower desires to obtain a $30,000,000 advancing term loan
facility to finance a portion of its costs to purchase Nortel Networks Goods and
Services.
B. The Lender(s) identified on the signature pages of this Agreement desire
to provide such credit facilities with the assistance of the Administrative
Agent upon and subject to the terms and provisions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
-----------
Section 1.1 Definitions, etc. As used in this Agreement, the
-----------------
following terms shall have the following meanings:
"Additional Costs" means as specified in Section 4.1(a).
---------------- --------------
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
------------------------
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of one percent) determined by the Administrative Agent to be
equal to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest
Period divided by (b) one minus the Reserve Requirement for such Eurodollar Loan
for such Interest Period.
"Adjusted Net Income" means for any period, Consolidated Net Income
-------------------
excluding the following (without duplication) to the extent that any of the
following shall have been included in Consolidated Net Income for such period:
(a) any net gain arising from the sale of capital assets, (b) any net gain
arising from any write-up or write-down of assets, (c) earnings of any other
Person, substantially all of the assets of which have been acquired by Holdings
or a Consolidated Subsidiary of Holdings in any manner, to the extent that such
earnings were realized by such other Person prior to the date of such
acquisition, (d) earnings of any Person (other than a Consolidated
<PAGE>
Subsidiary of Holdings) in which Holdings or a Consolidated Subsidiary has an
ownership interest, unless such earnings have actually been received by Holdings
or such Consolidated Subsidiary in the form of cash distributions, and (e) any
net gain arising from the acquisition of any securities of Holdings or a
Consolidated Subsidiary of Holdings.
"Administrative Agent" means as specified in the introductory paragraph
--------------------
of this Agreement.
"Administrative Agent's Letter" means the letter agreement dated as of
-----------------------------
June 4, 1999 between the Administrative Agent and the Borrower.
"Advances" means the Loans made under this Agreement.
--------
"Affiliate" means, as to any Person, any other Person (a) that directly
---------
or indirectly through one or more intermediaries controls or is controlled by,
or is under direct or indirect common control with, such first Person, (b) that
directly or indirectly beneficially owns or holds ten percent or more of any
class of voting Capital Stock of such first Person, or (c) ten percent or more
of the voting Capital Stock of which is directly or indirectly beneficially
owned or held by such first Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the Loan Documents, neither the Administrative Agent nor any Lender
shall be deemed to be an Affiliate of the Borrower or any Loan Party.
"Agreement" means this Agreement and any and all amendments,
---------
modifications, supplements, renewals, extensions or restatements hereof.
"Amortization Commencement Date" means the last day of the calendar
------------------------------
quarter following the calendar quarter in which the Commitment Termination
Date occurs.
"Annualized EBIDTA" means EBITDA for the two most recently completed
------------------
fiscal quarters multiplied by two.
"Applicable Lending Office" means for each Lender and each Type of Loan,
-------------------------
the lending office of such Lender (or an Affiliate of such Lender) designated
for such Type of Loan below its name on the signature pages hereof (or, with
respect to a Lender that becomes a party to this Agreement pursuant to an
assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the
Administrative Agent as the office by which its Loans of such Type are to be
made and maintained.
"Applicable Margin" means the rate per annum equal to (a) with respect to
-----------------
<PAGE>
each Base Rate Loan, three and three-fourths of one percent (3.75%) and (b) with
respect to each Eurodollar Loan, four and three-fourths of one percent (4.75%).
"Asset Disposition" means the disposition of any or all of the Property
-----------------
of the Borrower or any of its Subsidiaries, whether by sale, lease, transfer,
assignment, condemnation or otherwise, but excluding (a) sales of inventory in
the ordinary course of business, (b) the grant of a Lien as security, (c) any
involuntary disposition resulting from casualty damage to Property, and (d)
dispositions of equipment if and to the extent that the equipment disposed of
is, concurrently therewith, exchanged or replaced by equipment of equal or
greater value.
"Assignee" means as specified in Section 13.8(b).
-------- ---------------
"Assigning Lender" means as specified in Section 13.8(b).
---------------- ----------------
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 13.8(e), in substantially the form of Exhibit A hereto.
--------------- ----------
"Bankruptcy Code" means as specified in Section 11.1(e).
--------------- ----------------
"Base Rate" means, at any time, the greater of (a) the rate of interest
---------
per annum then most recently announced or established by the Reference Bank at
its principal office in New York City as its highest commercial prime or base
rate then in effect, or (b) the Federal Funds Rate then in effect plus one-half
of one percent (0.50%). The Base Rate may not necessarily be the lowest rate of
interest charged by the Reference Bank to its commercial borrowers. Each change
in any interest rate provided for herein based upon the prime or base rate or
the Federal Funds Rate resulting from a change in the prime or base rate or the
Federal Funds Rate, respectively, shall take effect without notice to the
Borrower at the time of such change in the prime or base rate or the Federal
Funds Rate, respectively.
"Base Rate Loans" means Loans that bear interest at rates based upon the
---------------
Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
------------
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented and
otherwise modified and in effect from time to time, or any replacement thereof.
"Board of Directors" means the board of directors of the Borrower.
------------------
"Board Resolution" means a copy of a resolution certified by the
----------------
Secretary or an Assistant Secretary of the Borrower to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
<PAGE>
"Borrower" means as specified in the initial paragraph of this Agreement.
--------
"Business Day" means (a) any day other than a Saturday, Sunday or other
------------
day on which commercial banks are authorized or required by law to close in New
York, New York or Dallas, Texas, and (b) with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods and notices in connection
with Eurodollar Loans, any day which is a Business Day described in clause (a)
above and which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"Business Plan" means the Borrower's marketing and build-out plans,
-------------
budget and schedule, including financial projections of Holdings, the Borrower
and the Consolidated Subsidiaries for the seven year period beginning on the
Closing Date, certified as being prepared generally in accordance with GAAP
(except for the absence of footnotes), such projections giving effect to the
Debt to be incurred under this Agreement as well as the other Debt to be
incurred by Holdings, the Borrower and the Consolidated Subsidiaries during such
period.
"Capital Expenditures" means amounts paid or Debt incurred by Holdings
--------------------
and/or any of its Subsidiaries in connection with the purchase or lease by any
such Person or Persons of Property that would be required to be capitalized and
shown on the balance sheet of such Person or Persons in accordance with GAAP.
"Capital Lease Obligations" means, as to any Person, the obligations of
-------------------------
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal Property, which obligations are
classified as a capital lease on a balance sheet of such Person under GAAP. For
purposes of this Agreement, the amount of such Capital Lease Obligations shall
be the capitalized amount thereof, determined in accordance with GAAP.
"Capital Stock" means corporate stock and any and all securities, shares,
-------------
partnership interests, limited partnership interests, limited liability company
interests, membership interests, equity interests, participations, rights or
other equivalents (however designated) of corporate stock or any of the
foregoing issued by any entity (whether a corporation, a partnership or another
entity)and includes, without limitation, securities convertible into Capital
Stock and rights or options to acquire Capital Stock.
"Change in Control" means the existence or occurrence of any of the
-----------------
following: (a) any of the Capital Stock of the Borrower is owned by any Person
other than Holdings; (b) any Capital Stock of any Subsidiary of the Borrower is
owned by any Person other than the Borrower or any Wholly-Owned Subsidiary of
the Borrower, (c) any Person or two or more Persons (other than the Permitted
Holders) acting as a group (as defined in Section 13d-3 of the Exchange Act)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Exchange Act) of 35% or more of
the outstanding shares of Voting Stock of Holdings; (d) individuals who, as of
the Closing Date, constitute the Board of Directors of
<PAGE>
Holdings (the "Holdings Incumbent Board") cease for any reason to constitute
------------------------
at least a majority of the Board of Directors of Holdings; provided, however,
--------- -------
that any individual becoming a director of Holdings subsequent to the Closing
Date whose election, or nomination for election by Holdings' shareholders was
approved by a vote of at least a majority of the directors then comprising the
Holdings Incumbent Board shall be considered as though such individual were a
member of the Holdings Incumbent Board, but excluding, for this purpose, any
such individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or contest by or on behalf of a Person other
than the Board of Directors of Holdings or (e) the consummation of any
transaction the result of which is that any Person or group beneficially owns
more of the Voting Stock of Holdings than is beneficially owned, in the
aggregate, by the Permitted Holders.
"Closing Date" means June 4, 1999, the date of this Agreement.
------------
"Code" means the Internal Revenue Code of 1986, as amended, and the
----
regulations promulgated and rulings issued thereunder.
"Collateral" means all Property of any Person of any nature whatsoever
----------
upon which a Lien is created or purported to be created by any Loan Document as
security for the Obligations or any portion thereof.
"Commitment" means, as to any Lender, the obligation of such Lender to
----------
make or continue Loans hereunder in an aggregate principal amount up to but not
exceeding the amount set forth opposite the name of such Lender on the signature
pages hereto under the heading "Commitment" or, if such Lender is a party to an
Assignment and Acceptance, the amount of the "Commitment" set forth in the most
recent Assignment and Acceptance of such Lender, as the same may be reduced or
terminated pursuant to Section 2.13 or 11.2, and
------------ ----
"Commitments" means such obligations of all Lenders. As of the Closing Date,
-----------
the aggregate principal amount of the Commitments is $30,000,000.
"Commitment Percentage" means, as to any Lender and its Commitment, the
---------------------
percentage equivalent of a fraction, the numerator of which is the amount of the
outstanding Commitments of such Lender (or, if such Commitment has terminated or
expired, the outstanding principal amount of Loans of such Lender) and the
denominator of which is the aggregate amount of the outstanding Commitments of
all Lenders (or, if such Commitments have terminated or expired, the aggregate
outstanding principal amount of Loans of all Lenders), as adjusted from time to
time in accordance with Section 13.8.
------------
"Commitment Termination Date" means the earlier to occur of (a) eighteen
---------------------------
months after the Closing Date or (b) the initial date upon which the Loans have
become fully funded in an aggregate amount equal to the Commitments (as
<PAGE>
such Commitments may be reduced or terminated pursuant to Section 2.13 or
------------
11.2).
- -----
"Communications Act" means the Communications Act of 1934, and any
------------------
similar or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"Consolidated Fixed Charges" means, for any period, the sum of (a)
--------------------------
Consolidated Interest Expense for Holdings and its Consolidated Subsidiaries
paid or payable in cash during such period, plus (b) all scheduled payments (as
such scheduled payments are reduced by application of any prepayments) of
principal with respect to the Loans and other outstanding Debt during such
period, plus (c) taxes of Holdings and its Consolidated Subsidiaries paid or
payable in cash during such period, plus (d) the scheduled amount paid or
payable by Holdings and its Consolidated Subsidiaries in cash during such period
on account of Capital Expenditures.
"Consolidated Interest Expense" means, for any period, all interest on
-----------------------------
Debt of Holdings and its Consolidated Subsidiaries paid in cash during such
period, including the interest portion of payments under capital lease
obligations.
"Consolidated Net Income" means, for any period, the net income (or loss)
-----------------------
of Holdings and its Consolidated Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means, with respect to any Person, any
-----------------------
Subsidiary the financial attributes of which is or would be consolidated with
those of such Person in the consolidated financial statements of such Person in
accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan
of the same Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 13.12(a).
-------------
"Contributed Capital" means, for any period, the sum of (a) equity
-------------------
contributions during such period (including equity contributed on or before the
Closing Date), minus (b) any distributions of cash or Property (other than
Capital Stock) made during such period minus (c) all cash interest paid on
Subordinated Debt during such period.
"Convert", "Conversion" and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
<PAGE>
"Current Date" means (a) a date occurring no more than 30 days prior to
------------
the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
"Debt" means as to any Person at any time (without duplication): (a) all
----
indebtedness, liabilities and obligations of such Person for borrowed money, (b)
all indebtedness, liabilities and obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, (c) all indebtedness,
liabilities and obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable of such Person arising in
the ordinary course of business that are not past due by more than 90 days, (d)
all Capital Lease Obligations of such Person, (e) all Debt of others Guaranteed
by such Person, (f) all indebtedness, liabilities and obligations secured by a
Lien existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person or
are non-recourse to such Person, (g) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments, (h) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of Capital Stock of such Person, (i) all indebtedness, liabilities and
obligations of such Person under Interest Rate Protection Agreements, and (j)
all indebtedness, liabilities and obligations of such Person in respect of
unfunded vested benefits under any pension plans.
"Default" means an Event of Default or the occurrence of an event or
-------
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan at all
------------
times during which any Default has occurred and is continuing or in respect of
any other amount payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period of such Default or during the
period commencing on the due date of such other amount until such other amount
is paid in full equal to the lesser of (a) the sum of three percent (3.00%) plus
the Base Rate as in effect from time to time plus the Applicable Margin for Base
Rate Loans or (b) the Maximum Rate; provided,
---------
however, that if such amount in default is principal of a Eurodollar Loan and
- --------
the due date is a day other than the last day of an Interest Period therefor,
the "Default Rate" for such principal shall be, for the period from and
including the due date and to but excluding the last day of the Interest Period
therefor, the lesser of the rate per annum equal to (A) the sum of three percent
(3.00%) plus the interest rate for such Eurodollar Loan for such Interest Period
as provided in clause (ii) of Section 2.4(a) hereof or (B)
----------- --------------
the Maximum Rate and, thereafter, the rate provided for above in this
definition.
"Dollars" and "$" mean lawful money of the U.S.
-------
"EBITDA" means, for any period, without duplication, the sum of the
------
<PAGE>
following for Holdings and its Consolidated Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP: (a) Adjusted Net
Income, plus (b) Consolidated Interest Expense, plus (c) income and franchise
taxes to the extent deducted in determining Adjusted Net Income, plus (d)
depreciation and amortization expense and other non-cash, non-tax items to the
extent deducted in determining Adjusted Net Income, minus (e) non-cash income
(or losses) to the extent included in determining Adjusted Net Income.
"Eligible Assignee" means (a) any Affiliate of a Lender, (b) any
-----------------
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership or other entity) which has been approved by
the Administrative Agent as a Lender under this Agreement or (c) any other
entity approved by the Administrative Agent which is (or which is managed by a
manager which manages funds which are) primarily engaged in making, purchasing
or otherwise investing in commercial loans or extending, or investing in
extensions of, credit for its own account in the ordinary course of its
business; provided, however, that (i) Eligible Assignee shall not include any
Affiliate of the Borrower and (ii) Eligible Assignee shall not include any
business competitor of Holdings or any of its Subsidiaries except after the
occurrence and during the continuance of an Event of Default.
"Environmental Law" means any federal, state, provincial, local or
-----------------
foreign law, statute, code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction
issued, promulgated, approved or entered thereunder, relating to pollution
or the protection, cleanup or restoration of the environment or natural
resources, or to the public health or safety, or otherwise governing the
generation, use, handling, collection, treatment, storage, transportation,
recovery, recycling, discharge or disposal of Hazardous Materials, including,
without limitation as to U.S. laws, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. ss. 9601 et seq., the
Superfund Amendment and Reauthorization Act of 1986, 99-499, 100 Stat. 1613,
the Resource Conservation and Recovery Act of 1976, 42 U. S. C. ss. 6901
et seq., the Occupational Safety and Health Act, 29 U S.C. ss. 651 et seq., the
Clean Air Act, 42 U.S.C. ss. 7401 et seq., the Clean Water Act, 33 U. S. C. ss.
1251 et seq., the Emergency Planning and Community Right to Know Act, 42 U. S.
C. ss. 11001 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. ss. 136 et seq., and the Toxic Substances Control Act, 15 U.S.C. ss. 2601
et seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
-------------------------
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations and published interpretations
thereunder.
<PAGE>
"ERISA Affiliate" means any corporation or trade or business which is a
---------------
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon the
----------------
Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
---------------
therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars in the approximate amount of the
proposed Eurodollar Loan at approximately 11:00 a.m. (London time)two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If such rate ceases to be available from Telerate News
Service, the Eurodollar Rate shall be determined by the Administrative Agent in
good faith from another financial reporting service, which service shall be
reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 11.1.
----------------
"Excess Cash Flow" means for any fiscal year EBITDA for such fiscal year
----------------
minus (a) taxes payable in cash for such fiscal year, (b) all principal and cash
interest payments on Debt made during such fiscal year whether optional,
mandatory or scheduled payments, and (c) capital expenditures (but only to the
extent paid in cash and not financed) made during such fiscal year.
"Excess Proceeds Amount" means as specified in Section 2.7(a).
----------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
------------
any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"FCC" means the Federal Communications Commission and any successor
---
agency.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
------------------
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%))
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if such
rate is not so published on such next succeeding Business Day, the Federal Funds
Rate for any day shall be the average rate which would be charged to the
Reference Bank on such day on such transactions as determined by the
Administrative Agent.
"GAAP" means generally accepted accounting principles, applied on a
----
<PAGE>
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
----------------------
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance,
------------------------
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, license, authorization or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
"Gross Revenues" means, for any period, gross revenues, determined on a
--------------
consolidated basis, of Holdings and its Consolidated Subsidiaries determined in
accordance with GAAP for such period.
"Guarantee" by any Person means any obligation, contingent or otherwise,
---------
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
indebtedness, liability or obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other indebtedness,
liability or obligation as to the payment thereof or to protect the obligee
against loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum anticipated liability in respect thereof (assuming such Person is
required to perform thereunder).
"Guarantors" means Holdings, each Subsidiary of the Borrower at any time
----------
existing and each other Person which has executed a Guaranty (each individually
a "Guarantor" and collectively the "Guarantors").
"Guaranty" means a guaranty agreement guaranteeing payment and
--------
performance of the Obligations in form and substance satisfactory to the
Administrative Agent executed by a Guarantor in favor of the Administrative
Agent and the Lenders, and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof.
<PAGE>
"Hammons Contract" means that certain Master Agreement for Hotel Internet
----------------
Service dated as of May 18, 1999, by and between John Q. Hammons Hotels, LP,
John Q. Hammons Hotels Two, LP and the Borrower, as the same may have been
amended or modified prior to the Closing Date and as may thereafter be amended
or modified as permitted by this Agreement.
"Hazardous Material" means any substance, product, liquid, waste,
------------------
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro-organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is, or
is deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
a pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, including, without limitation,
asbestos, petroleum, underground storage tanks (whether empty or containing any
substance) and polychlorinated biphenyls.
"Hilton Contract" means that certain Master License Agreement dated as of
---------------
December 23, 1998, by and between Hilton Hotels Corporation and the Borrower, as
the same may have been amended or modified prior to the Closing Date and as may
thereafter be amended or modified as permitted by this Agreement.
"Holdings" means CAIS Internet, Inc., a Delaware corporation.
--------
"Inline Contract" means that certain Agreement for Cooperative Use of
---------------
Communications Patents dated as of November 5, 1996 among Inline Connection
Corporation, David D. Goodman and the Borrower, as the same may have been
amended or modified prior to the Closing Date and as may thereafter be amended
or modified as permitted by this Agreement.
"Insurance Recovery" means, with respect to any Property of the Borrower
------------------
or any of its Subsidiaries and any single occurrence or related occurrences with
respect thereto, the receipt or constructive receipt by such Loan Party, or the
payment by an insurance company to the Administrative Agent, of proceeds of any
such Property or casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
---------------------
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark and
service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
"Intercompany Subordinated Debt" means Subordinated Debt of the Borrower
------------------------------
owed to Holdings which by its terms provides that no amount of principal or
interest (other than payments in kind) shall be payable until a date subsequent
to the date the Obligations have been paid in full and which is otherwise on
terms satisfactory to the Administrative Agent.
"Interest Period" means, with respect to any Eurodollar Loan, each period
---------------
<PAGE>
commencing on the date such Loan is made or Converted from a Base Rate Loan or
(if Continued) the last day of the next preceding Interest Period with respect
to such Loan, and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the Borrower may select as
provided in Section 2.9 hereof, except that each such Interest Period which
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Maturity Date shall end on the
Maturity Date; (c) no more than five Interest Periods for Eurodollar Loans shall
be in effect at the same time; (d) no Interest Period shall have a duration of
less than one month and, if the Interest Period for any Eurodollar Loans would
otherwise be a shorter period, such Loans shall not be available hereunder; and
(e) no Interest Period for a Term Loan may commence before, and end after, any
principal payment date unless, after giving effect thereto, the aggregate
principal amount of the Eurodollar Loans having Interest Periods that end after
such principal payment date shall be equal to or less than the amount of the
applicable Loans scheduled to be outstanding hereunder after such principal
payment date.
"Interest Rate Protection Agreements" means, with respect to the
-----------------------------------
Borrower, an interest rate swap, cap or collar agreement or similar arrangement
between the Borrower and one or more counterparties rated in one of the three of
the highest rating categories of Standard & Poors Corporation or Moody's
Investors Services, Inc. and otherwise reasonably acceptable to the
Administrative Agent providing for the transfer or mitigation of interest rate
risks either generally or under specified contingencies.
"Investments" means as specified in Section 9.5.
-----------
"Lender" and "Lenders" means as specified in the initial paragraph of
------ -------
this Agreement.
"Lien" means, with respect to any Property, any mortgage or deed of
----
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, hypothecation or other
lien, charge, easement (other than any easement not materially impairing
usefulness), encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Loan Documents" means this Agreement, the Notes, the Security Documents,
--------------
the Administrative Agent's Letter and all other agreements, documents,
instruments and certificates now or hereafter executed and/or delivered pursuant
to or in connection with any of the foregoing, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
"Loan Party" means the Borrower, Holdings, any Guarantor or any Person
----------
<PAGE>
who grants a Lien on any Property to secure the payment or performance of the
Obligations or any portion thereof, and "Loan Parties" means all of such
Persons.
"Loans" means as specified in Section 2.1(a).
-----
"Master Purchase Agreement" means the that certain Global Purchase
-------------------------
Agreement dated as of April 1, 1999, by and between the Borrower and Nortel
Networks, as amended, supplemented or restated from time to time.
"Material Adverse Effect" means any event, development or circumstance
-----------------------
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, financial condition, results of operations or
prospects of Holdings and its Subsidiaries taken as a whole, (b) the business,
assets, financial condition, results of operations or prospects of the Borrower
individually or of the Borrower and its Subsidiaries, if any, taken as a whole,
(c) the validity or enforceability of any of the Loan Documents or the rights
and remedies of the Administrative Agent and the Lenders thereunder, (d) the
ability of any Loan Party to pay and perform its indebtedness, liabilities
and/or obligations under any of the Loan Documents, or (e) the value of
Collateral available to the Administrative Agent and the Lenders after giving
effect to Liens in favor of other Persons.
"Material Contracts" means, as to any Loan Party, any supply, purchase,
------------------
service, employment, tax, indemnity, shareholder or other agreement or contract
for which the aggregate amount or value of services performed or to be performed
for or by, or funds or other Property transferred or to be transferred to or by,
any Loan Party to such agreement or contract, or by which any Loan Party or any
of its Properties is otherwise bound, during any fiscal year of the Borrower
exceeds $250,000 (or the equivalent amount in any currency) and any and all
amendments, modifications, supplements, renewals or restatements thereof.
"Maturity Date" means the fifth anniversary of the Closing Date.
-------------
"Maximum Rate" means, with respect to any Lender, the maximum
------------
non-usurious interest rate or an amount computed in reference to such rate (as
applicable), if any, that any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to the particular Obligations
as to which such rate is to be determined, payable to such Lender pursuant to
this Agreement or any other Loan Document, under laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow. The Maximum
Rate shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate.
"Monthly Date" means the last day of each month of each year the first of
------------
which shall be September 30, 1999.
<PAGE>
"Multiemployer Plan" means a multiemployer plan defined as such in
------------------
Section 3(37) of ERISA to which contributions have been made by or are required
from the Borrower or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
------------
gross amount of cash received by the Borrower or any of its Subsidiaries from
such Asset Disposition, minus (b) the amount, if any, of all taxes paid or
payable by the Borrower or any of its Subsidiaries directly resulting from such
Asset Disposition (including the amount, if any, estimated by the Borrower in
good faith at the time of such Asset Disposition for taxes payable by the
Borrower or any of its Subsidiaries on or measured by net income or gain
resulting from such Asset Disposition), minus (c) the reasonable out-of-pocket
costs and expenses incurred by the Borrower or such Subsidiary in connection
with such Asset Disposition (including reasonable brokerage fees paid to a
Person other than an Affiliate of the Borrower) excluding any fees or expenses
paid to an Affiliate of the Borrower, minus (d) amounts applied to the repayment
of indebtedness (other than the Obligations) secured by any Permitted Lien (if
any) on the Property subject to the Asset Disposition. "Net Proceeds" with
respect to any Asset Disposition shall also include proceeds (after deducting
any amounts specified in clauses (b), (c) and (d) of the preceding sentence) of
insurance with respect to any actual or constructive loss of Property, an agreed
or compromised loss of Property or the taking of any Property under the power of
eminent domain and condemnation awards and awards in lieu of condemnation for
the taking of Property under the power of eminent domain.
"Nortel Networks" means Nortel Networks Inc., a Delaware corporation.
---------------
"Nortel Networks Equipment" means all equipment sold to the Borrower
-------------------------
pursuant to the Master Purchase Agreement.
"Nortel Networks Goods and Services" means sales, installation and
----------------------------------
commissioning of Nortel Networks Equipment and related software, and project
management, system design and services performed by Nortel Networks personnel.
"Nortel Networks Software" means any and all software sold or licensed by
------------------------
Nortel Networks to the Borrower, including, without limitation, all source code
and object code and all manuals and other documentation relating thereto and
each copy thereof regardless of the media in which they are stored.
"Notes" means the Notes in the form of Exhibit B hereto made by the
-----
Borrower evidencing the Loans and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof and all substitutions
therefor (including promissory notes issued by the Borrower pursuant to Section
13.8), and "Note" means any such promissory note.
"Notice of Borrowing" means as specified in Section 2.9.
-------------------
"Obligations" means any and all (a) indebtedness, liabilities and
<PAGE>
obligations of the Borrower or any other Loan Party to the Administrative Agent
and the Lenders, or any of them, evidenced by and/or arising pursuant to any of
the Loan Documents (including, without limitation, this Agreement and the
Notes), now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, including, without limitation, (i) the obligations of the Borrower
or any other Loan Party to repay the Loans, to pay interest on the Loans
(including, without limitation, interest accruing after any, if any, bankruptcy,
insolvency, reorganization or other similar filing) and to pay all fees,
indemnities, costs and expenses (including attorneys' fees) provided for in the
Loan Documents and (ii) the indebtedness constituting the Loans and such
interest, fees, indemnities, costs and expenses, and (b) indebtedness,
liabilities and obligations of the Borrower or any other Loan Party under any
and all Interest Rate Protection Agreements that it may enter into with any
Lender with the prior written consent of the Administrative Agent and the
Required Lenders.
"OverVoice System" means the patented and proprietary technology licensed
----------------
by and/or owned by the Borrower that allows delivery of high speed internet
access over copper wire, simultaneous internet and telephone usage and ethernet
local area networking, which technology the Borrower is deploying primarily in
hotels and multiple dwelling units.
"OverVoice System Properties" means properties, including hotels and
---------------------------
multiple dwelling units, at which the Borrower has installed or will install the
OverVoice System.
"Payor" means as specified in Section 3.4.
-----
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
------------
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the case
of a Multiemployer Plan, at any time since September 2, 1974, by any Borrower or
any ERISA Affiliate for employees of any Borrower or any ERISA Affiliate.
"Permit" means any permit, certificate, approval, order, license,
------
right-of-way (whether an easement, contract or agreement in any form) or other
authorization.
"Permitted Holders" means (a) the Persons identified on Schedule 1.1(a)
-----------------
hereto and (b) any spouse, parent, sibling, child or grandchild of any of the
aforesaid individuals (in each case, whether such relationship arises from
birth, adoption or through marriage) or any trust established for the benefit of
any such individuals or any spouse, parent, sibling, child or grandchild of any
such individuals (in each case whether such relationship arises from birth,
adoption or through marriage).
<PAGE>
"Permitted Liens" mean:
---------------
(a) Liens disclosed on Schedule 1.1(b) hereto;
(b) Liens securing the Obligations in favor of the Administrative
Agent (for the benefit of the Administrative Agent and the Lenders)
pursuant to the Loan Documents;
(c) Encumbrances consisting of easements, rights-of-way, zoning
restrictions or other restrictions on the use of real Property or
imperfections to title that do not (individually or in the aggregate)
materially affect the value of the Property encumbered thereby or
materially impair the ability of the Borrower or any of its Subsidiaries to
use such Property in its businesses, and none of which is violated in any
material respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments or other governmental charges
that are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the Property subject to such Liens, and for which
adequate reserves (as determined under GAAP consistently applied) have been
established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that are
not yet due and are incurred in the ordinary course of business or which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
Property subject to such Liens, and for which adequate reserves (as
determined under GAAP consistently applied) have been established;
(f) Liens resulting from good faith deposits or pledges to secure
payment of worker's compensation or other social security programs or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, contracts (other than for payment of Debt) or leases, all in
the ordinary course of business;
(g) Liens on Property other than (i) the Collateral and (ii) the
Service Agreements; and
(h) Any extension, renewal or replacement of any of the
foregoing, provided that Liens permitted hereunder shall not be extended or
spread to cover any additional indebtedness or Property.
"Person" means any individual, corporation, trust, association, company,
------
partnership, joint venture, limited liability company, joint stock company,
Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
----
ERISA established or maintained or contributed to by any Loan Party or any ERISA
Affiliate, including any Pension Plan.
"Principal Office" means the principal office of the Administrative Agent
----------------
<PAGE>
in Richardson, Texas, presently located at 2221 Lakeside Blvd., Richardson,
Texas 75082.
"Prohibited Transaction" means any transaction set forth in Section 406
----------------------
of ERISA or Section 4975 of the Code.
"Property" means property and assets of all kinds, real, personal or
--------
mixed, tangible or intangible (including, without limitation, all rights
relating thereto), whether owned or acquired on or after the Closing Date.
"Quarterly Date" means the last day of each March, June, September and
--------------
December of each year, the first of which shall be September, 1999.
"Receivables" means, as at any date of determination thereof, each and
-----------
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of the
Borrower or any of its Subsidiaries in respect of services rendered by the
Borrower or any of its Subsidiaries.
"Reference Bank" means Citibank, N.A.
--------------
"Register" means as specified in Section 13.8(d).
--------
"Registered Note" means as specified in Section 2.2(b).
---------------
"Registered Note Register" means as specified in Section 13.8(h).
------------------------
"Regulation D" means Regulation D of the Board of Governors of the
------------
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Lender, any change after
-----------------
the Closing Date in any U.S. federal or state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders including
such Lender of or under any U.S. federal or state or foreign laws or regulations
(whether or not having the force of law) by any Governmental Authority charged
with the interpretation or administration thereof.
"Release" means, as to any Person, any release, spill, emission, leaking,
-------
pumping, injection, deposit, discharge, disposal, dispersement, leaching or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of Property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water or
ground water.
<PAGE>
"Remedial Action" means all actions required to (a) cleanup, remove,
---------------
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043(b)
----------------
of ERISA other than any such event for which the 30-day notice requirement has
been waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders holding
----------------
at least two-thirds (in Dollar amount) of the sum of (a) the outstanding
principal amount of the Loans, plus (b) the principal amount of the outstanding
Commitments.
"Required Payment" means as specified in Section 3.4.
----------------
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for
-------------------
any Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate or
the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to the Borrower, the chief executive
-------------------
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution
------------------
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of the Borrower or any of its Subsidiaries
now or hereafter outstanding, except a dividend payable solely in shares of that
class of stock to the holders of that class; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of Capital
Stock of the Borrower or any of its Subsidiaries now or hereafter outstanding;
(c) any payment or prepayment of principal of, premium, if any, or interest on,
or any redemption, conversion, exchange, purchase, retirement or defeasance of,
or payment with respect to, any subordinated debt; (d) any loan, advance or
payment to any officer, director or shareholder of the Borrower or any of its
Subsidiaries (other than a shareholder consisting of the Borrower or a
Wholly-Owned Subsidiary of the Borrower),
<PAGE>
exclusive of reasonable compensation paid to officers or directors paid in the
ordinary course of business; and (e) any payment made to retire, or to obtain
the surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of Capital Stock of the Borrower or any of its Subsidiaries
now or hereafter outstanding.
"Security Agreements" means security agreements, pledge agreements,
-------------------
securities pledge agreements and other agreements, documents or instruments
evidencing or creating a Lien as security for the Obligations or any portion
thereof in form and substance satisfactory to the Administrative Agent executed
by any Loan Party, in favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lenders, and any such agreement, document or
instrument subsequently executed in accordance or connection with this Agreement
or any other Loan Document, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Security Documents" means the Security Agreements, as they may be
------------------
amended, modified, supplemented, renewed, extended or restated from time to
time, and any and all other agreements, deeds of trust, mortgages, chattel
mortgages, security agreements, pledges, guaranties, assignments of proceeds,
assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and/or delivered by any Person in
connection with or as security or assurance for the payment or performance of
the Obligations or any part thereof.
"Service Agreement" means any service agreement, license agreement or
-----------------
other agreement, including, without limitation, the Hilton Contact and the
Hammons Contract, relating to any hotel property, multiple dwelling unit
property or other property at which Nortel Networks Equipment is utilized by the
Borrower to operate an OverVoice System and/or to provide internet services.
"Service Agreement Revenues" means the revenues, payments, accounts
--------------------------
receivable, proceeds, monies or other amounts received by or payable to the
Borrower under any Service Agreement.
"Solvent" means, with respect to any Person as of the date of any
-------
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's Property would constitute unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and
<PAGE>
anticipated future business conduct and the prevailing practice in the industry
in which such Person is engaged. In computing the amount of contingent
liabilities at any time, such liabilities shall be computed at the amount which,
in light of the facts and circumstances existing at such time, represents the
amount that can reasonably be expected to become an actual or matured liability.
"Subordinated Debt" means, unsecured Debt the payment of which is
-----------------
structurally or contractually subordinated to the payment of the Loans on terms
satisfactory to the Administrative Agent and the Required Lenders and as to
which the payment of principal of (and premium, if any) and interest and other
payment obligations in respect of such Debt shall be subordinate to the prior
payment in full of the Obligations to at least the following extent: (a) no
payments of principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be permitted for so long as any Default in the payment
of principal (or premium, if any) or interest on the Obligations exists; and (b)
such Debt may not (i) provide for payments of principal of such Debt at the
stated maturity thereof or by way of a sinking fund applicable thereto or by way
of any mandatory redemption, defeasance, retirement or repurchase thereof
(including any redemption, retirement or repurchase which is contingent upon
events of circumstances but excluding any retirement required by virtue of
acceleration of such Debt upon any event of default thereunder), in each case
prior to 6 months after the final stated maturity of the Loans or (ii) permit
redemption or other retirement (including pursuant to an offer to purchase made
by the obligor thereon) of such other Debt at the option of the holder thereof
prior to the final stated maturity of the Loans, other than a redemption or
other retirement at the option of the holder of such Debt (including pursuant to
an offer to purchase made by the obligor thereon) which is conditioned upon a
change of control of the obligor thereon pursuant to provisions set forth in the
instruments evidencing such Debt.
"Subsidiary" means, with respect to any Person, any corporation or other
----------
entity of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms hereof ordinary voting power to elect a
majority of the board of directors (or Persons performing similar functions) of
such corporation or entity (irrespective of whether or not at the time, in the
case of a corporation, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries or by sch Person and one or more of
its Subsidiaries .
"Total Capitalization" means, as of any date, Total Debt of Holdings and
--------------------
its Consolidated Subsidiaries as of that date plus Contributed Capital of
Holdings as of that date.
"Total Debt" means, as of any date, the aggregate principal amount of all
----------
Debt of Holdings and its Consolidated Subsidiaries outstanding.
"Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar
----
Loan).
<PAGE>
"UCC" means the Uniform Commercial Code as in effect in the State of New
---
York and/or any other jurisdiction, the laws of which may be applicable to or in
connection with the creation, perfection or priority of any Lien on any Property
created pursuant to any Security Document.
"U.S." means the United States of America.
----
"U.S. Person" means a citizen or resident of the U.S., a corporation,
-----------
partnership or other entity created or organized in or under any laws of the
U.S. or any estate or trust that is subject to U.S. Federal income taxation
regardless of the source of its income.
"U.S. Taxes" means any present or future tax, assessment or other charge
----------
or levy imposed by or on behalf of the U.S. or any taxing authority thereof.
"Vendor" means Nortel Networks in its capacity as vendor under the Supply
------
Agreement.
"Voting Stock" of any Person means Capital Stock of such Person which
------------
ordinarily has voting power for the election of directors, managers or general
partners (or persons performing similar functions) of such Person, whether at
all times or only for so long as no senior class of securities has such voting
power by reason of any contingency.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
-----------------------
of such Person all of whose outstanding Capital Stock (other than directors'
qualifying shares, if any) shall at the time be owned by such Person and/or one
or more of its Wholly-Owned Subsidiaries .
"Year 2000 Compliant" means that (a) the services, products or other
-------------------
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (b) neither the performance nor the functionality nor the
business' provision of the services, products and other item(s) at issue will be
affected by any dates/times prior to, on, after or spanning January 1, 2000. The
design of the services, products and other item(s) at issue to ensure compliance
with the "year 2000" representations and warranties and covenants contained in
this Agreement includes proper date/time data century recognition and
recognition of 1999 and 2000, calculations that accommodate single century and
multi-century formulae and date/time values before, on, after and spanning
January 1, 2000, and date/time data interface values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that (i)
no value for current date/time will cause any error, interruption or decreased
performance in or for such services, products and other item(s), (ii) all
manipulations of date and time related data (including calculating, comparing,
sequencing processing and outputting) will produce correct results for all valid
dates and times when used independently or in combination with other services,
products and/or items, (iii) date/time elements in interfaces and data storage
will specify the century to eliminate date ambiguity without human intervention,
including leap year calculations,
<PAGE>
(iv) where any date/time element is represented without a century, the correct
century will be unambiguous for all manipulations involving that element, (v)
authorization codes, passwords and zaps (purge functions) will function normally
and in the same manner during, prior to, on and after January 1, 2000, including
the manner in which they function with respect to expiration dates and CPU
serial numbers, and (vi) the business' supply of the services, products and
other item(s) will not be interrupted, delayed, decreased or otherwise affected
by the advent of the year 2000.
Section 1.2 Other Definitional Provisions. All definitions contained
-----------------------------
in this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 13.11. Unless otherwise specified, all Article and
Section references pertain to this Agreement. Terms used herein that are defined
in the UCC, unless otherwise defined herein, shall have the meanings specified
in the UCC. All references in this Agreement to any agreement shall be deemed to
mean and refer to such agreement as it may be amended, modified or supplemented
from time to time if (but only if) such amendment, modification or supplement
has been approved by the Administrative Agent and the Required Lenders, is
expressly referred to in such reference or is otherwise expressly permitted by
the terms of this Agreement.
Section 1.3 Accounting Terms and Determinations.
-----------------------------------
(a) All accounting terms not specifically defined herein shall be construed
in accordance with GAAP (subject to year end adjustments, if applicable)
consistent with such accounting principles applied in the preparation of the
audited financial statements referred to in Section 7.2(a). All financial
information delivered to the Administrative Agent pursuant to Section 8.1 shall
be prepared in accordance with GAAP (subject to year end adjustments, if
applicable) applied on a basis consistent with such accounting principles
applied in the preparation of the audited financial statements of such Person
referred to in Section 7.2 or in accordance with Section 8.7.
(b) The Borrower shall deliver to the Administrative Agent (who shall
deliver the same to the Lenders), at the same time as the delivery of any annual
or quarterly financial statement under Section 8.1, (i) a description, in
reasonable detail, of any material variation between the application of GAAP
employed in the preparation of the next preceding annual or quarterly financial
statements as to which no objection has been made in accordance with the last
sentence of subsection (a) preceding and (ii) reasonable estimates of the
difference between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance with the
covenants set forth in this Agreement, the Borrower will not change the last day
of its fiscal year from December 31 or the last days of the first three fiscal
quarters of the Borrower in each of its fiscal years from March 31, June 30 and
September 30, respectively.
(d) Unless otherwise expressly provided herein to the contrary, all
references herein to the Closing Date shall be deemed to mean and refer to the
<PAGE>
Closing Date after giving effect to all transactions which occur on or before
such date.
Section 1.4 Financial Covenants and Reporting. All financial
----------------------------------
statements and reports required to be delivered pursuant to this Agreement and
the other Loan Documents, and all financial covenants (if any) contained in this
Agreement, shall be prepared or determined (as applicable) in accordance with
GAAP (except as may be expressly provided to the contrary herein) and, if and to
the extent that such statements, reports or covenants are to be prepared or
determined on a consolidated basis, shall be prepared or determined on a
consolidated basis for Holdings and its Subsidiaries (except as may be expressly
provided to the contrary herein).
ARTICLE 2
Loans
-----
Section 2.1 Commitments.
------------
(a) Loans. Subject to the terms and conditions of this Agreement
-----
(including, without limitation, Section 2.13(a)), each Lender severally agrees
---------------
to make one or more loans to the Borrower from time to time from and including
the Closing Date to but excluding the Commitment Termination Date up to but not
exceeding the amount of such Lender's Commitment as then in effect. (Such loans
referred to in this Section 2.1(a) now or hereafter made by the Lenders
--------------
to the Borrower, including, without limitation, such loans which remain
outstanding after the Commitment Termination Date, are hereinafter
collectively called the "Loans".) The Borrower may not reborrow the Loans
-----
which have been repaid.
(b) Continuation and Conversion of Loans. Subject to the terms and
------------------------------------
conditions of this Agreement, the Borrower may borrow the Loans as Base Rate
Loans or Eurodollar Loans and, until the Maturity Date, the Borrower may
Continue Eurodollar Loans or Convert Loans of one Type into Loans of the other
Type.
(c) Lending Offices. Loans of each Type made by each Lender shall be
----------------
made and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
Section 2.2 Notes.
------
(a) Notes. The Loans made by each Lender shall be evidenced by a single
------
promissory note of the Borrower in substantially the form of Exhibit B hereto
dated the Closing Date (or such later date on which such Lender becomes a party
to this Agreement), payable to the order of such Lender in a principal amount
equal to the sum of (i) the aggregate principal amount of Loans of such Lender
plus (ii) the aggregate principal amount of the unfunded Commitment of such
Lender as originally in effect. Each Lender is hereby authorized by the Borrower
to endorse on the schedule (or a continuation thereof) attached to
<PAGE>
the Notes of such Lender, to the extent applicable, the date, amount and Type of
and the Interest Period for each applicable Loan made by such Lender to the
Borrower and the amount of each payment or prepayment of principal of such Loan
received by such Lender, provided that any failure by such Lender to make any
such endorsement shall not affect the obligations of the Borrower under any such
Note or this Agreement in respect of any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and that
----------------
could become completely exempt from withholding of U.S. Taxes in respect of
payment of any Obligations due to such Lender hereunder relating to any of its
Loans if such Loans were in registered form for U.S. Federal income tax purposes
may request the Borrower (through the Administrative Agent), and the Borrower
agrees thereupon, to exchange such Lender's Note evidencing its Loans for a
promissory note registered as provided in Section 13.8(h) hereof (a
--------------
"Registered Note"). Registered Notes may not be exchanged for Notes that are
---------------
not in registered form.
Section 2.3 Repayment of Loans. The Borrower shall pay to the
------------------
Administrative Agent for the account of each Lender the principal of the Loans
outstanding as of the Commitment Termination Date (and the principal of such
Loans outstanding as of such date shall be due and payable) in 14 quarterly
installments, commencing on the Amortization Commencement Date, and continuing
on each Quarterly Date thereafter through and including the Maturity Date, each
of which installments shall be in an amount equal to the percentage of the
aggregate principal amount of such Loans outstanding as of such applicable date
specified opposite such installment in the following table:
<TABLE>
Principal Installment Percentage of the Aggregate Principal Amount
of each of the Loans Due and Payable
<S> <C>
1 5.00%
2 5.00%
3 5.00%
4 5.00%
5 6.50%
6 6.50%
7 6.50%
8 6.50%
9 9.00%
10 9.00%
11 9.00%
12 9.00%
13 9.00%
14 9.00%
</TABLE>
In addition, the Borrower shall pay to the Administrative Agent for the account
of each Lender all outstanding principal of the Loans (and all outstanding
principal of the Loans shall be due and payable) on the Maturity Date.
<PAGE>
Section 2.4 Interest.
--------
(a) Interest Rate. The Borrower shall pay to the Administrative Agent
-------------
for the account of each Lender interest on the unpaid principal amount of each
Loan made by such Lender (or deemed made by such Lender with respect to a Loan
assigned to such Lender after the making of such Loan) to the Borrower for the
period commencing on the date of such Loan to, but excluding, the date such Loan
shall be paid in full, at the following rates per annum:
(i) during the periods such Loan is a Base Rate Loan, the lesser
of (A) the Base Rate plus the Applicable Margin or (B) the Maximum Rate;
and
(ii) during the periods such Loan is a Eurodollar Loan, the
lesser of (A) the Adjusted Eurodollar Rate plus the Applicable Margin or
(B) the Maximum Rate.
(b) Payment Dates. Accrued interest on Loans shall be due and payable
--------------
as follows:
(i) in the case of Base Rate Loans, on each Monthly Date;
(ii) in the case of each Eurodollar Loan, on the last day of the
Interest Period with respect thereto and, in the case of an Interest
Period greater than three months, at three-month intervals after the first
day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or
optional) of any such Loan or the Conversion of any such Loan to a
Variable Rate Loan of the other Type (but only on the principal amount so
paid, prepaid or Converted); and
(iv) with respect to all such Loans, on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the Borrower shall
----------------
pay to the Administrative Agent for the account of each Lender interest at the
applicable Default Rate (i) at all times during which any Default has occurred
and is continuing, on any principal of any Loan outstanding, and (ii) to the
fullest extent permitted by law, any other amount payable by the Borrower under
this Agreement or any other Loan Document to or for the account of such Lender
which is not paid in full when due (whether at stated maturity, by acceleration
or otherwise) for the period from and including the due date thereof to but
excluding the date the same is paid in full. Interest payable at the Default
Rate shall be payable from time to time on demand by the Administrative Agent.
Section 2.5 Borrowing Procedure. The Borrower shall give the
-------------------
Administrative Agent notice of each borrowing hereunder in accordance with
Section 2.9. Not later than 1:00 p.m. (New York, New York time) on the date
specified for each borrowing hereunder, each Lender will make available the
amount of the Loan to be made by it on such date to the Administrative Agent, at
the Principal Office, in immediately available funds, for the account of the
Borrower. The amount of each borrowing hereunder so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available, for and on behalf of the Borrower, in
<PAGE>
immediately available funds by no later than 1:00 p.m. (New York, New York
time); provided, however, that the Administrative Agent may, in its discretion,
cause such amount to be made available directly to or for the benefit of the
Person who is to receive the proceeds of such Loan in accordance with Section
2.10. Notwithstanding anything to the contrary contained in this Agreement, if
and to the extent that Nortel Networks is a Lender under this Agreement, the
Borrower further hereby irrevocably agrees that each Loan to be advanced by
Nortel Networks to the Borrower in accordance with this Agreement (and only in
accordance with this Agreement and after the Administrative Agent's receipt of a
Notice of Borrowing executed by the Borrower) may (in the discretion of Nortel
Networks and if and to the extent that the proceeds of such Loan are to be paid
to Nortel Networks) be effectively disbursed on the date set forth in the Notice
of Borrowing for such disbursement to the Borrower by virtue of a credit in the
amount of such Loan given to the Borrower under the Master Purchase Agreement.
Section 2.6 Optional Prepayments, Conversions and Continuations of
--------------------------------------------------------
Loans. Subject to Section 2.7, the Borrower shall have the right from time to
- ------
time to prepay the Loans in whole or in part, to Convert all or part of a Loan
of one Type into a Loan of another Type or to Continue Eurodollar Loans;
provided that: (a) the Borrower shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section 2.9,
------------
(b) Eurodollar Loans may only be Converted on the last day of the Interest
Period and any prepayment of Eurodollar Loans on any day other than the last day
of the Interest Period shall be subject to payment of the additional
compensation specified in Section 4.5, (c) except for Conversions of
-----------
Eurodollar Loans into Base Rate Loans, no Conversions or Continuations shall be
made while a Default has occurred and is continuing, and (d) optional
prepayments of the Loans shall be applied pro rata to the principal of the Loans
in the inverse order of the maturities of the then remaining installments of
such Loans. No amounts prepaid pursuant to this Section 2.6
-----------
may be reborrowed.
Section 2.7 Mandatory Prepayments.
---------------------
(a) Asset Dispositions, etc. The Borrower shall, within two Business
------------------------
Days after it receives any Net Proceeds of any Asset Disposition of Collateral,
proceeds of any Insurance Recovery with respect to Collateral or proceeds of
condemnation awards with respect to Collateral, pay to the Administrative Agent,
as a prepayment of the Loans, the amount received by the Borrower.
(b) Excess Cash Flow. The Borrower shall, commencing on the first March
----------------
31 following the Commitment Termination Date, and on each anniversary
thereafter, pay (or cause to be paid) to the Administrative Agent, as a
prepayment of the Loans and other Obligations then outstanding, an aggregate
amount equal to fifty percent (50%) of Excess Cash Flow for the fiscal year then
most recently ended.
(c) Pro-Rata Prepayment of Debt. In the event the Borrower shall prepay
---------------------------
<PAGE>
any Debt that is permitted to be prepaid under Section 9.17 hereof, the
------------
Borrower shall, as a condition to such prepayment, prepay a "Pro Rata Amount"
---------------
of the Obligations. For purposes hereof, "Pro Rata Amount" shall mean an
---------------
amount of the Obligations determined by multiplying (i) the total outstanding
amount of the Obligations prior to such prepayment by (ii) the quotient of (y)
the amount of other Debt to be prepaid divided by (z) the total amount of such
other Debt outstanding immediately prior to such prepayment. Notwithstanding the
above, no prepayment under this Section 2.7(c) shall be required in the
--------------
event the prepayment of other Debt is a result of the Borrower's receipt of an
Insurance Recovery with respect to Property other than the Collateral or the
Borrower's receipt of Net Proceeds of any Asset Disposition of Property other
than the Collateral (which Asset Disposition is undertaken in compliance with
Section 9.8 hereof).
- -----------
(d) Application of Mandatory Prepayments. All prepayments pursuant to
-------------------------------------
Section 2.7(a), Section 2.7(b) or Section 2.7(c) shall be applied pro rata to
- -------------- ------------- --------------
the principal of the Loans in the inverse order of the maturities of the then
remaining installments of the Loans and then to the remaining outstanding
Obligations in such order as the Administrative Agent may determine.
(e) No Reborrowing. No amounts of the Loans prepaid pursuant to this
--------------
Section 2.7 may be reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
---------------
pursuant to Section 2.7 and Article 4, each borrowing, Conversion and each
------------ ---------
optional prepayment of principal of the Loans shall be in an amount at least
equal to $1,000,000 or an integral multiple of $100,000 in excess thereof
(borrowings, prepayments or Conversions of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder shall be deemed separate borrowings, prepayments and Conversions
for purposes of the foregoing, one for each Type or Interest Period).
Section 2.9 Certain Notices. Notices by the Borrower to the
---------------
Administrative Agent of terminations or reductions of Commitments, of
borrowings, Conversions, Continuations and prepayments of Loans and of the
duration of Interest Periods shall be irrevocable and shall be effective only if
received by the Administrative Agent not later than 11:00 a.m. (New York, New
York, time) on the Business Day prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or prepayment or the first day of
such Interest Period specified below:
<TABLE>
Notice Number of
Business Days Prior
<S> <C>
Terminations or Reductions of Commitments 1
Borrowings of Loans which are Base Rate Loans 2
Borrowings of Loans which are Eurodollar Loans 3
Prepayments of Loans 3
</TABLE>
<PAGE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
-----------
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of termination, reduction, borrowing,
Conversion, Continuation or prepayment shall be in the form of Exhibit C
----------
hereto, appropriately completed as applicable. Each notice of borrowing (a
"Notice of Borrowing") (a) shall certify that all proceeds of the requested
-------------------
Loans are, concurrently with the making of such Loans, being used by the
Borrower for the purpose specified in Section 2.10 and (b) shall be
------------
accompanied by such other evidence as to use of the proceeds of such borrowing,
as the Administrative Agent may reasonably request from time to time. Each
notice which includes reference to the duration of an Interest Period shall
specify the Loans to which such Interest Period is to relate. The Administrative
Agent shall promptly notify the Lenders of the contents of each such notice. In
the event the Borrower fails to select the Type of Loan, or the duration of any
Interest Period for any Eurodollar Loan, within the time period and otherwise as
provided in this Section 2.9, such Loan (if outstanding as Eurodollar Loan) will
-----------
be automatically Converted into a Base Rate Loan on the last day of preceding
Interest Period for such Loan or (if outstanding as a Base Rate Loan) will
remain as, or (if not then outstanding) will be made as, a Base Rate Loan. The
Borrower may not borrow any Eurodollar Loans, Convert any Loans into Eurodollar
Loans or Continue any Loans as Eurodollar Loans if the interest rate for such
Eurodollar Loans would exceed the Maximum Rate.
Section 2.10 Use of Proceeds.
---------------
(a) Loans. The Borrower agrees that all proceeds of the Loans shall be
-----
used to finance the purchase price for Nortel Networks Goods and Services
provided by Nortel Networks under the Master Purchase Agreement.
(b) Margin Stock. None of the proceeds of any Loan have been or will be
------------
used to acquire any security in any transaction that is subject to Section 13 or
14 of the Exchange Act or to purchase or carry any margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System).
Section 2.11 Fees.
----
(a) Subject to Section 13.12, the Borrower shall, commencing effective
-------------
January 1, 2000 and for all periods thereafter, pay to the Administrative Agent
for the account of each applicable Lender a commitment fee on the daily average
unused or unfunded amount of each of such Lender's Commitments (as the same may
be reduced or terminated pursuant to Section 2.13), for the period
------------
from and including the date on which such Lender (or its predecessor in interest
with respect to Commitments assigned to such Lender as to which a
<PAGE>
commitment fee has not previously been paid during the applicable period) became
a party hereto but excluding the Commitment Termination Date (i) in the case of
any Lender other than Nortel Networks (including any Assignee of Nortel
Networks), at one and one-quarter percent (1.25%) per annum and (ii) in the case
of Nortel Networks as a Lender, at one-half of one percent (0.50%), in each case
based on a 360 day year and the actual number of days elapsed, which accrued
commitment fees shall be payable in arrears on each Quarterly Date and on the
Commitment Termination Date.
(b) Subject to Section 13.12, the Borrower agrees to pay to the
-------------
Administrative Agent and Nortel Networks such additional fees as are specified
in the Administrative Agent's Letter, which fees shall be payable in such
amounts and on such dates as are specified therein.
Section 2.12 Computations. Interest and fees payable by the Borrower
------------
hereunder and under the other Loan Documents on all Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable unless, in the case of interest, such calculation would result in a
usurious rate, in which case interest shall be calculated on the basis of a year
of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments.
---------------------------------------
(a) Notwithstanding anything to the contrary contained in this Agreement,
each of the Commitments shall automatically terminate upon the occurrence of any
Change in Control.
(b) The Borrower shall have the right to terminate or reduce in part the
unused portion of the Commitments at any time and from time to time prior to the
Commitment Termination Date; provided, however, that no such termination
-----------------
or reduction shall be effective unless the Borrower shall have given notice of
each such termination or reduction as provided in Section 2.9 and each partial
-----------
reduction of the Commitments shall be in an aggregate amount at least equal to
$1,000,000 or an integral multiple of $100,000 in excess thereof.
(c) The Commitments may not be reinstated after they have been terminated
or increased after they have been reduced.
ARTICLE 3
Payments
--------
Section 3.1 Method of Payment. All payments of principal, interest,
-----------------
fees and other amounts to be made by the Borrower under this Agreement and the
other Loan Documents shall be made to the Administrative Agent at the Principal
Office for the account of each Lender's Applicable Lending Office in Dollars and
in immediately available funds, without setoff, deduction or counterclaim, not
later than 1:00 p.m. (New York, New York time) on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Administrative
Agent the sums payable by the Borrower under
<PAGE>
this Agreement and the other Loan Documents to which such payment is to be
applied (and in the event that the Borrower fails to so specify, or if an Event
of Default has occurred and is continuing, the Administrative Agent may apply
such payment to the Obligations in such order and manner as the Administrative
Agent may elect, subject to Section 3.2). Upon the occurrence
-----------
and during the continuation of an Event of Default, all proceeds of any
Collateral and all other funds of the Borrower in the possession of the
Administrative Agent or any Lender, may be applied by the Administrative Agent
to the Obligations in such order and manner as the Administrative Agent may
elect, subject to Section 3.2. Each payment received by the Administrative
-----------
Agent under this Agreement or any other Loan Document for the account of a
Lender shall be paid promptly to such Lender, in immediately available funds,
for the account of such Lender's Applicable Lending Office. Whenever any payment
under this Agreement or any other Loan Document shall be stated to be due on a
day that is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of the payment of interest and commitment fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise
------------------
provided in this Agreement: (a) each Loan shall be made by the Lenders under
Section 2.1, each payment of commitment fees under Section 2.11(a) shall be
- ----------- ---------------
made for the account of the Lenders, and each termination or reduction of the
Commitments under Section 2.13 shall be applied to the Commitments of the
Lenders, pro rata according to the respective unused Commitments; (b) the
making, Conversion and Continuation of Loans of a particular Type (other than
Conversions provided for by Section 4.4) shall be made pro rata among the
-----------
Lenders holding Loans of such Type according to the amounts of their respective
Commitments; (c) each payment and prepayment by the Borrower of principal of or
interest on Loans of a particular Type shall be made to the Administrative Agent
for the account of the Lenders holding Loans of such Type pro rata in accordance
with the respective unpaid principal amounts of such Loans held by such Lenders;
and (d) Interest Periods for Loans of a particular Type shall be allocated among
the Lenders holding Loans of such Type pro rata according to the respective
principal amounts held by such Lenders.
Section 3.3 Sharing of Payments, Etc. If a Lender shall obtain
-------------------------
payment of any principal of or interest on any of the Obligations due to such
Lender hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from the
other Lenders participations in the Obligations held by the other Lenders in
such amounts, and make such adjustments from time to time, as shall be equitable
to the end that all the Lenders shall share pro rata in accordance with the
unpaid principal and interest on the Obligations then due to each of them. To
such end, all of the Lenders shall make appropriate adjustments among themselves
(by the resale of participations sold or otherwise) if all or any portion of
such excess payment is thereafter rescinded or must otherwise be restored. The
Borrower agrees, to the fullest extent it may effectively do so under applicable
law, that any Lender so purchasing a participation in the Obligations by the
other Lenders may exercise all rights of setoff, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of Obligations in the amount of such participation. Nothing
contained herein shall require any Lender to exercise any such right or shall
affect the
<PAGE>
right of any Lender to exercise, and retain the benefits of exercising, any such
right with respect to any other indebtedness, liability or obligation of the
Borrower.
Section 3.4 Non-Receipt of Funds by the Administrative Agent. Unless
------------------------------------------------
the Administrative Agent shall have been notified by a Lender or the Borrower
(the "Payor") prior to the date on which such Lender is to make payment to the
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Lenders, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Administrative Agent,
the Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to the Administrative Agent, the
recipient of such payment shall, on demand, pay to the Administrative Agent the
amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
Section 3.5 Taxes.
-----
(a) All payments by the Borrower of principal of and interest on the Loans
and of all fees and other amounts payable under the Loan Documents shall be made
free and clear of, and without withholding or deduction by reason of, any
present or future taxes, levies, duties, imposts, assessments or other charges
levied or imposed by any Governmental Authority (other than franchise taxes and
taxes on the overall net income of any Lender). If any such taxes, levies,
duties, imposts, assessments or other charges are so levied or imposed, the
Borrower will (i) make additional payments in such amounts so that every net
payment of principal of and interest on the Loans and of all other amounts
payable by it under the Loan Documents, after withholding or deduction for or on
account of any such present or future taxes, levies, duties, imposts,
assessments or other charges (including any tax imposed on or measured by net
income of a Lender attributable to payments made to or on behalf of a Lender
pursuant to this Section 3.5 and any penalties or interest
-----------
attributable to such payments), will not be less than the amount provided for
herein or therein absent such withholding or deduction (provided that the
Borrower shall not have any obligation to pay such additional amounts to any
Lender to the extent that such taxes, levies, duties, imposts, assessments or
other charges are levied or imposed by reason of the failure of such Lender to
comply with the provisions of Section 3.6), (ii) make such withholding or
-----------
deduction and (iii) remit the full amount deducted or withheld to the relevant
Governmental Authority in accordance with applicable law. Without limiting the
generality of the foregoing, the Borrower will, upon written request of any
Lender delivered to the Administrative Agent and delivered by the Administrative
Agent to the Borrower, reimburse each such Lender for the amount of (A) such
taxes, levies, duties, imports, assessments or other charges so levied or
imposed by any Governmental Authority and paid by such Lender as a result of
payments made by the Borrower under or with respect to the Loans other than such
taxes, levies, duties, imports, assessments and other charges previously
withheld or deducted by the Borrower which have previously resulted in the
payment of the required additional amount
<PAGE>
to such Lender, and (B) such taxes, levies, duties, assessments and other
charges so levied or imposed with respect to any Lender reimbursement under the
foregoing clause (A), so that the net amount received by such Lender (net
----------
of payments made under or with respect to the Loans) after such reimbursement
will not be less than the net amount such Lender would have received if such
taxes, levies, duties, assessments and other charges on such reimbursement had
not been levied or imposed. The Borrower shall furnish promptly to the
Administrative Agent for distribution to each affected Lender, as the case may
be, upon request of such Lender delivered to the Administrative Agent, official
receipts evidencing any such payment, withholding or reduction.
(b) The Borrower will indemnify the Administrative Agent and each Lender
(without duplication) against, and reimburse the Administrative Agent and each
Lender for, all present and future taxes, levies, duties, imposts, assessments
or other charges (including interest and penalties) levied or collected (whether
or not legally or correctly imposed, assessed, levied or collected), excluding,
however, any taxes imposed on the overall net income of the Administrative Agent
or such Lender or any lending office of the Administrative Agent or such Lender
by any jurisdiction in which the Administrative Agent or such Lender or any such
lending office is located, on or in respect of this Agreement, any of the Loan
Documents or the Obligations or any portion thereof (the "reimbursable taxes").
------------------
Any such indemnification shall be on an after-tax basis, taking into account any
such reimbursable taxes imposed on the amounts paid as indemnity.
(c) Without prejudice to the survival of any other term or provision of
this Agreement, the obligations of the Borrower under this Section 3.5 shall
survive the payment of the Loans and the other Obligations and termination of
the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
-------------------------
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it initially becomes a party to this Agreement and if it is legally able
to do so, deliver to the Administrative Agent for further delivery to the
Borrower, two duly completed copies of U.S. Internal Revenue Service Form 1001,
4224 or W-8, as appropriate, certifying in any case that such Lender is entitled
to receive payments from the Borrower under any Loan Document without deduction
or withholding of any U.S. federal income taxes. Each Lender which so delivers a
Form 1001, 4224 or W-8 further undertakes to deliver to the Administrative Agent
for further delivery to the Borrower, two additional copies of such form (or a
successor form) on or before the date such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Administrative Agent, in
each case certifying that such Lender is entitled to receive payments from the
Borrower under any Loan Document without deduction or withholding of any U.S.
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Administrative Agent, who
shall further advise the Borrower, that such Lender is not capable of receiving
such payments without any deduction or withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding anything to
---------------------------- the contrary contained in
this Agreement or any other Loan Document, if the payment of any amount of
<PAGE>
principal of or interest with respect to the Loans or any other amount of the
Obligations, or any portion thereof, is rescinded, voided or must otherwise be
refunded by the Administrative Agent or any Lender upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise for any reason
whatsoever, then each of (a) the Obligations, (b) the Loan Documents (including,
without limitation, this Agreement, the Notes and the Security Documents), (c)
the indebtedness, liabilities and obligations of the Borrower and any other Loan
Parties and (d) all Liens for the benefit of the Administrative Agent and the
Lenders created under or evidenced by the Loan Documents, will be automatically
reinstated and become automatically effective and in full force and effect, all
to the extent that and as though such payment so rescinded, voided or otherwise
refunded had never been made.
Section 3.8 No Force Majeure, Disputes. The Borrower's obligation to
--------------------------
pay all amounts due under the Loans and the other Obligations shall not be
affected by (a) any set-off, counterclaim, recoupment, deduction, abatement,
suspension, diminution, reduction, defense or other right which the Borrower may
have against the Vendor for any reason whatsoever arising under or pursuant to
the Master Purchase Agreement or otherwise relating to the purchase of goods or
services from the Vendor, (b) any defect in the condition, design, operation or
fitness for use of, or any damage to or loss or destruction of, any equipment or
material or service provided by the Vendor, (c) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Borrower or affecting
any of its Properties, (d) any action of any Governmental Authority or any
damage to or destruction of or any taking of the Borrower's Property or any part
thereof, (e) any change, waiver, extension, indulgence or failure to perform or
comply with, or other action or omission herein or in the other Loan Documents
(except for express written modifications to this Agreement or other Loan
Documents as and in the manner permitted under this Agreement or the other Loan
Documents), (f) any dissolution of the Borrower, (g) any inability or illegality
with respect to the use or ownership of the Borrower's Property, (h) any failure
to obtain, or expiration, suspension or other termination of, or interruption
to, any required licenses, permits, consents, authorizations, approvals or other
legal requirements, (i) the invalidity or unenforceability of any of the Loan
Documents or any other infirmity therein or any lack of power or authority of
the Administrative Agent or any Lender or the Borrower, or (j) any other event
or circumstance whatsoever, whether or not similar to any of the foregoing and
whether or not the Borrower shall have notice or knowledge of any of the
foregoing, it being the intention of the Administrative Agent and the Lenders
and the Borrower that the Obligations of the Borrower shall be absolute and
unconditional and shall be separate and independent covenants and agreements and
shall continue unaffected unless the requirements to pay or perform the same
shall have been terminated pursuant to an express provision thereof or of any of
the other Loan Documents.
Section 3.9 Return of Notes upon Payment in Full. Upon the payment in full
of all Obligations arising under the Loan Documents, each Lender shall mark the
Note held by it as "Paid in Full" and shall return such Note to the Borrower.
ARTICLE 4
Yield Protection and Illegality
-------------------------------
Section 4.1 Additional Costs.
----------------
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender delivered to the Administrative
<PAGE>
Agent, and further delivered to the Borrower by the Administrative Agent, the
costs incurred by such Lender which such Lender determines are attributable to
its making or maintaining of any Eurodollar Loans or its obligation to make any
of such Loans, or any reduction in any amount receivable by such Lender
hereunder in respect of any such Loans or obligations (such increases in costs
and reductions in amounts receivable being herein called "Additional Costs"),
----------------
resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such
Lender under this Agreement or its Notes in respect of any of such Loans
(other than taxes imposed on the overall net income of such Lender or its
Applicable Lending Office for any of such Loans by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirement relating to any extensions of
credit or other assets of, or any deposits with or other liabilities or
commitments of, such Lender (including any of such Loans or any deposits
referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof,
-----------
but excluding the Reserve Requirement to the extent it is included in the
calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or the
Notes or any extensions of credit or liabilities or commitments contemplated
hereunder or thereunder.
Each Lender will notify the Administrative Agent who shall notify the Borrower,
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as
-------------
practicable after it obtains knowledge thereof and determines to request such
compensation, and (if so requested by the Borrower) will designate a different
Applicable Lending Office for the Eurodollar Loans of such Lender if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole opinion of such Lender, violate any law, rule or
regulation or be in any way disadvantageous to such Lender, provided that such
--------
Lender shall have no obligation to so designate an Applicable Lending Office
located in the U.S. Each Lender will furnish the Administrative Agent, for
further delivery to the Borrower, with a certificate setting forth the basis and
the amount of each request of such Lender for compensation under this
Section 4.1(a). If any Lender requests compensation from the Borrower under this
- --------------
Section 4.1(a), the Borrower may, by notice to the Administrative Agent, who
- -------------
shall promptly deliver a copy of such notice to such Lender, suspend the
obligation of such Lender to make or Continue making, or Convert Base Rate Loans
into, Eurodollar Loans until the Regulatory Change giving rise to such request
ceases to be in effect (in which case the provisions of Section 4.4 hereof shall
-----------
be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
- -----------
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities
<PAGE>
of such Lender which includes deposits by reference to which the interest rate
on Eurodollar Loans is determined as provided in this Agreement or a category
of extensions of credit or other assets of such Lender which includes
Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such
a category of liabilities or assets which it may hold, then, if such Lender so
elects by notice to the Administrative Agent (who shall notify the Borrower),
the obligation of such Lender to make or Continue making, or Convert Base Rate
Loans into, Eurodollar Loans hereunder shall be suspended until such
Regulatory Change ceases to be in effect (in which case the provisions of
Section 4.4 hereof shall be applicable).
- -----------
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
its obligation to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans and of the additional amounts required to
compensate such Lender in respect of any Additional Costs, shall be conclusive
in the absence of manifest error, provided that such determinations and
allocations are made on a reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the
----------------------------
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in
Section 1.1 hereof are not being provided in the relative amounts or for the
- -----------
relative maturities for purposes of determining the rate of interest for such
Loans as provided in this Agreement; or
(b) the Required Lenders determine (which determination shall be conclusive
absent manifest error) and notify the Administrative Agent that the relevant
rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which the
-----------
rate of interest for such Loans for such Interest Period is to be determined do
not accurately reflect the cost to the Lenders of making or maintaining such
Loans for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
-----------
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Administrative Agent thereof (and the Administrative Agent shall promptly notify
the Borrower) and such Lender's obligation to make or maintain Eurodollar Loans
and to Convert Base Rate Loans into Eurodollar Loans
<PAGE>
hereunder shall be suspended until such time as such Lender may again make and
maintain Eurodollar Loans (in which case the provisions of Section 4.4 hereof
shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any
---------------------------
Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans
is suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's
----------- ---
Eurodollar Loans shall be automatically Converted into Base Rate Loans on the
last day(s) of the then current Interest Period(s) for the Eurodollar Loans (or,
in the case of a Conversion required by Section 4.1(b) or 4.3 hereof, on
-------------- ---
such earlier date as such Lender may specify to the Administrative Agent (and
the Administrative Agent shall promptly notify the Borrower) and, unless and
until such Lender gives notice as provided below that the circumstances
specified in Section 4.1 or 4.3 hereof which gave rise to such Conversion no
----------- ---
longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such Lender as
Eurodollar Loans shall be made as or Converted into Base Rate Loans and all
Loans of such Lender which would otherwise be Converted into Eurodollar Loans
shall be Converted instead into (or shall remain as) Base Rate Loans. If such
Lender gives notice to the Administrative Agent that the circumstances specified
in Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's
Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such Lender
agrees to do promptly upon such circumstances ceasing to exist) at a time when
Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 4.5 Compensation. The Borrower shall pay to the
------------
Administrative Agent for the account of each Lender, promptly upon the request
of such Lender through the Administrative Agent, such amount or amounts as shall
be sufficient (in the reasonable opinion of such Lender) to compensate it for
any loss, cost or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant to Section 11.2) on a date other than the last day of an
------------
Interest Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to
---------
be satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for
such borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
<PAGE>
Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender
----------------
shall have determined that the adoption or implementation of any applicable law,
rule or regulation regarding capital adequacy (including, without limitation,
any law, rule or regulation implementing the Basle Accord), or any change
therein, or any change in the interpretation or administration thereof by any
central bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount reasonably deemed by
such Lender to be material, then from time to time, after demand by such Lender
delivered to the Administrative Agent, who shall promptly deliver a copy to the
Borrower, the Borrower shall, within ten Business Days after receipt of a notice
of such demand, pay to such Lender such additional amount or amounts as will
compensate such Lender (or its parent) for such reduction. A certificate of such
Lender claiming compensation under this Section 4.6 and setting forth the
-----------
additional amount or amounts to be paid to it hereunder shall be conclusive
absent manifest error, provided that the determination thereof is made on a
--------
reasonable basis. In determining such amount or amounts, such Lender may use any
reasonable averaging and attribution methods.
Section 4.7 Additional Interest on Eurodollar Loans. Without
---------------------------------------
duplication of Section 2.4 or amounts directly included in the definition of the
term "Adjusted Eurodollar Rate", the Borrower shall pay, directly to each Lender
from time to time, additional interest on the unpaid principal amount of each
Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest rate
per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
-----------
payable by the Borrower on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the Borrower
--------------- -------- -------
shall not be obligated to make any such payment of additional interest until the
first Business Day after the date when the Borrower has been informed (i) that
such Lender is subject to a Reserve Requirement and (ii) of the amount of such
Reserve Requirement (after which time the Borrower shall be obligated to make
all such payments of additional interest, including, without limitation, such
payment of additional interest that otherwise would have been payable by the
Borrower on or prior to such time had the Borrower been earlier informed).
ARTICLE 5
Security
--------
<PAGE>
Section 5.1 Collateral. To secure the full and complete payment and
----------
performance of the Obligations, the Borrower will grant to the Administrative
Agent for the benefit of the Administrative Agent and the Lenders a perfected,
first priority Lien on all of its right, title and interest in and to the
Collateral, whether now owned or hereafter acquired, pursuant to the Security
Documents, consisting of the following:
(a) all Nortel Networks Equipment purchased under the Master Purchase
Agreement and owned by the Borrower or any Subsidiary of the Borrower and any
and all additions, substitutions and replacements of any of the foregoing,
wherever located and whether the same constitute personal property or fixtures,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto;
(b) all Nortel Networks Software;
(c) all Service Agreement Revenues; and
(d) all cash and non-cash proceeds and products of any of the foregoing.
Section 5.2 Guaranties. The Borrower will cause Holdings and each of
----------
the Subsidiaries of the Borrower (whether owned as of the Closing Date or
thereafter organized or created) to Guarantee the payment and performance of the
Obligations pursuant to the Guaranties.
Section 5.3 New Subsidiaries. Contemporaneously with the creation or
----------------
acquisition of any Subsidiary of the Borrower after the Closing Date, the
Borrower shall:
(a) cause each such Subsidiary of the Borrower to Guarantee the payment and
performance of the Obligations by executing and delivering to the Administrative
Agent a Guaranty or a joinder therein acceptable to the Administrative Agent;
and
(b) cause each such Subsidiary of the Borrower to execute and deliver to
the Administrative Agent a Security Agreement and such other Security Documents,
in form and substance acceptable to the Administrative Agent, as the
Administrative Agent may request to grant the Administrative Agent, for the
benefit of itself and the Lenders, a perfected, first priority Lien on all
Collateral owned by such Subsidiary of the Borrower.
Section 5.4 Further Assurances. In addition to the foregoing, the
------------------
Borrower shall, and shall cause each of its Subsidiaries and other appropriate
Persons (as applicable) to, execute and/or deliver such further agreements,
documents and instruments (including, without limitation, financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain and maintain the perfected, first priority Liens to be granted in
accordance with this Article 5.
---------
Section 5.5 Landlord Waivers. With respect to each lease of real
----------------
Property where Collateral is or will be located and each OverVoice System
Property where Collateral is or will be located, the Borrower will use its
reasonable best efforts to obtain, in form and substance reasonably
<PAGE>
satisfactory to the Administrative Agent, waivers, subordinations or other
agreements from each lessor and/or owner of the OverVoice System Property
necessary or appropriate to ensure Administrative Agent's perfected, first
priority Lien on the Collateral and the Administrative Agent's access to such
Collateral; provided, however, that the Borrower shall not be required to
-----------------
obtain waivers, subordinations or other agreements from owners of OverVoice
System Properties with respect to OverVoice System Properties under contract
with the Borrower as of the Closing Date and provided, that the Borrower and
---------
the Administrative Agent agree that the inclusion of the contract provision
shown in Schedule 5.5 in the Borrower's Service Agreements shall satisfy the
requirements of this Section 5.5 for OverVoice System Properties.
-----------
Section 5.6 Setoff. If an Event of Default shall have occurred and be
------
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to the Borrower (any such notice being hereby expressly waived by
the Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final excluding any trust accounts) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement, such Lender's Note
or any other Loan Document, irrespective of whether or not the Administrative
Agent or such Lender shall have made any demand under this Agreement, such
Lender's Note or any such other Loan Document and although such Obligations may
be unmatured. Each Lender agrees promptly to notify the Administrative Agent
(and the Administrative Agent shall promptly notify the Borrower) after any such
setoff and application, provided that the failure to give such notice shall not
affect the validity of such setoff and application. The rights and remedies of
each Lender hereunder are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which such Lender may have.
ARTICLE 6
Conditions Precedent
--------------------
Section 6.1 Initial Extension of Credit. The obligation of each
----------------------------
Lender to make its initial Loan under this Agreement is subject to completion of
Lenders' due diligence review of the Borrower and Holdings and the receipt by
the Administrative Agent, on or before the Closing Date, of all of the following
in form and substance satisfactory to the Administrative Agent and, in the case
of actions to be taken, the taking of the following required actions and
evidence that such actions have been taken to the satisfaction of the
Administrative Agent:
(a) Resolutions. Resolutions of the board of directors or equivalent
-----------
governing body (as applicable) certified by the Secretary or an Assistant
Secretary or equivalent officer or representative of each Loan Party which
authorize the execution, delivery and performance by such Loan Party of the Loan
Documents to which it is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
----------------------
<PAGE>
the Secretary or an Assistant Secretary (or other analogous officer) of each
Loan Party certifying as to the name of each officer or other representative of
such Loan Party (i) who is authorized to sign the Loan Documents to which it is
or is to be a party (including any certificates contemplated therein), together
with specimen signatures of each such officer or other representative, and (ii)
who will, until replaced by other officers or representatives duly authorized
for that purpose, act as its representative for the purposes of signing
documents and giving notices and other communications in connection with the
Loan Documents and the transactions contemplated thereby;
(c) Articles of Incorporation. The articles of incorporation of each
-------------------------
Loan Party certified by the Secretary of State or other applicable Governmental
Authority of the state of incorporation of such corporation and dated as of a
Current Date;
(d) Bylaws. The bylaws of each Loan Party certified by its Secretary or
-------
an Assistant Secretary (or other analogous officer or representative);
(e) Governmental Certificates. Certificates of appropriate officials as
-------------------------
to the existence and good standing of each of the Loan Parties in its
jurisdiction of incorporation and in all jurisdictions in which such Loan Party
is qualified or is required to qualify to do business as a foreign entity, each
such certificate to be dated as of a Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
------
payable to the order of each Lender with respect to each of its Commitments);
(g) Security Agreements and Other Security Documents. Security
------------------------------------------------
Agreements and other Security Documents executed by the Borrower pertaining to
the Collateral sufficient to create a Lien;
(h) Insurance Certificates and Policies. Certificates evidencing all
-----------------------------------
insurance policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance policies;
(i) Lien Searches. Lien searches in the name of each of the Loan
-------------
Parties (and in all names under which any of them has done business within the
last five years) in each jurisdiction where such Loan Party maintains an office
or has Property, showing no financing statements or other Lien instruments of
record affecting the Collateral except for Permitted Liens and Liens being
released prior to or concurrently with the making of the initial Loan, and
financing statement terminations executed by ING Bank pursuant to which ING Bank
releases its security interests in and to all of the Collateral;
(j) Master Purchase Agreement. The Administrative Agent shall have
-------------------------
received a photocopy of the Master Purchase Agreement as so executed and
delivered, certified by a Responsible Officer of the Borrower as being a true
and correct copy of such document as of the Closing Date;
<PAGE>
(k) Payment of Fees and Expenses. The Borrower shall have paid all fees
----------------------------
due on or before the Closing Date as specified in this Agreement or in the
Administrative Agent's Letter;
(l) Compliance with Laws. As of the Closing Date, the Borrower and the
--------------------
other Loan Parties shall have complied in all material respects with all
Governmental Requirements necessary to consummate the transactions contemplated
by this Agreement and the other Loan Documents;
(m) No Prohibitions. No Governmental Requirement shall prohibit the
----------------
consummation of the transactions contemplated by this Agreement or any other
Loan Document, and no order, judgment or decree of any Governmental Authority or
arbitrator shall, and no litigation or other proceeding shall be pending or to
the Borrower's knowledge, threatened which would, enjoin, prohibit, restrain or
otherwise adversely affect in any material manner the consummation of the
transactions contemplated by this Agreement and the other Loan Documents or
otherwise have a Material Adverse Effect;
(n) Financial Statements. Copies of each of the financial statements
--------------------
referred to in Section 7.2;
(o) Opinions of Counsel. Favorable legal opinions of counsel for the
-------------------
Loan Parties, in form and substance and issued by law firms satisfactory to the
Administrative Agent, with respect to the Loan Parties and with respect to the
Loan Documents;
(p) Legal Matters and Loan Documents. All matters of a legal nature
--------------------------------
relating to the Borrower and the Loan Documents shall be reasonably satisfactory
to the Administrative Agent and its counsel, and the Administrative Agent shall
have received all such other agreements, documents and instruments, each in form
and substance and executed and delivered by all parties, as the Administrative
Agent may have reasonably requested to receive;
(q) Business Plan. A copy of the Business Plan in form and substance
-------------
satisfactory to the Administrative Agent;
(r) Material Contracts. A true and correct and fully executed copy of
------------------
each of the Material Contracts in existence as of the Closing Date, in form
and substance satisfactory to the Administrative Agent;
(s) Permits. Copies of all material Permits affecting each Loan Party
-------
or any Subsidiary of such Loan Party in connection with its businesses or any of
the Properties owned or leased by it and in connection with its businesses to be
conducted and Properties to be owned or leased as contemplated by the Business
Plan, and evidence reasonably satisfactory to the Administrative Agent that the
Borrower and each Loan Party is able to conduct its businesses as currently
conducted and as to be conducted as contemplated by the Business Plan with the
use of such licenses and Permits in full force and effect; and the
Administrative Agent shall be satisfied that (i) the Borrower and each Loan
Party has the exclusive, unrestricted right to use each of such licenses and
Permits pursuant to license agreements or other agreements, documents or
<PAGE>
instruments in form and substance reasonably satisfactory to the Administrative
Agent and (ii) the Borrower and each Loan Party has complied with all initial
and on-going conditions of the issuance and use of all such licenses and Permits
and all other terms and provisions thereof;
(t) Waivers and Consents. To the extent not referred to in clause (g)
--------------------
preceding, copies of all material waivers and consents necessary for the
execution, delivery and performance by the Loan Parties of the Loan Documents to
which it is a party, including, without limitation, any waivers and consents in
connection with the Master Purchase Agreement as the Administrative Agent may
require, which waivers and consents shall be certified by a Responsible Officer
of the Borrower as true and correct copies of such consents as of the Closing
Date;
(u) Regulatory Approvals. Evidence satisfactory to the Administrative
--------------------
Agent that all filings, consents or approvals with or of Governmental
Authorities necessary to consummate the transactions contemplated by the Loan
Documents have been made and obtained, as applicable;
(v) No Material Adverse Change. As of the Closing Date, (i) no material
---------------------------
adverse change shall have occurred with respect to the financial condition,
results of operations, businesses, operations, capitalization, indebtedness,
liabilities, obligations, profitability or prospects or Properties or of the
general affairs or management of Holdings and its Subsidiaries, taken as a
whole, or of the Borrower, in each case since December 31, 1998, (ii) no
disruption or adverse change in the capital markets generally or in the market
for loan syndications in particular shall have occurred since December 31, 1998,
which disruption or adverse change is deemed material in the judgment of the
Administrative Agent, and (iii) the Administrative Agent shall be satisfied that
the financial performance of Holdings and its Subsidiaries and of the Borrower
to the Closing Date is not materially different from the financial projections
for such Person(s) through the Closing Date that were previously submitted to
the Administrative Agent;
(w) Registration Statement. The filing by Holdings of a registration
----------------------
statement on Form S-1 with the United States Securities and Exchange Commission
for an initial public offering of Holdings common stock, which registration
statement is not subject to a "stop order" and has not been withdrawn;
(x) Accountant's Letter. A letter from Holdings authorizing the
-------------------
independent public accountants of Holdings and its Subsidiaries to communicate
with the Administrative Agent and the Lenders (provided that the Borrower shall
have notice of any such proposed communication and the right to be present
and/or participate in such communication) and acknowledging reliance with the
Administrative Agent and the Lenders on past, present and future financial
statements;
(y) Solvency. A certificate from Holdings and the Borrower certifying
--------
that each of Holdings and the Borrower is Solvent, together with contribution
agreements between and among Holdings and the Borrower.
(z) Subordination Agreement. A Subordination Agreement executed by
-----------------------
<PAGE>
Holdings in respect of the Intercompany Subordinated Debt that may from time to
time be owed by the Borrower to Holdings.
The Borrower shall deliver, or cause to be delivered, to the Administrative
Agent sufficient counterparts of each agreement, document or instrument to be
received by the Administrative Agent under this Section 6.1 to permit the
------------
Administrative Agent to distribute a copy of the same to each of the Lenders.
After the request of the Borrower, the Administrative Agent shall inform the
Borrower in writing as to the status of satisfaction of the conditions precedent
set forth in this Section 6.1.
------------
Section 6.2 All Extensions of Credit. The obligation of each Lender
-------------------------
to make any Loan (including the initial Loan) under this Agreement is subject to
the continued satisfaction of each of the conditions precedent set forth in
Section 6.1 and each of the following additional conditions precedent:
- -----------
(a) No Default or Material Adverse Effect. No Default or Material
--------------------------------------
Adverse Effect shall have occurred and be continuing, or would result from
such Loan;
(b) Representations and Warranties. All of the representations and
-------------------------------
warranties of the Borrower contained in this Agreement and in the other Loan
Documents shall be true and correct in all material respects on and as of the
date of such Loan with the same force and effect as if such representations and
warranties had been made on and as of such date unless they relate solely to an
earlier date;
(c) Use of Proceeds. The Borrower shall have certified to the
---------------
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower for the purposes specified in Section 2.10, and the Borrower shall have
delivered to the Administrative Agent such further evidence thereof (if any) as
the Administrative Agent may reasonably request;
(d) Master Purchase Agreement. The Master Purchase Agreement shall not
-------------------------
have been terminated by the Borrower;
(e) Full Disclosure. Neither the Borrower nor any other Loan Party
---------------
shall have failed to disclose to the Administrative Agent or any Lender any
material fact with respect to their business or their respective financial
conditions (including any contingent liabilities), or shall have failed to
disclose any information the absence of which makes any information previously
disclosed to the Administrative Agent or any Lender materially misleading; and
(f) Additional Documentation. The Administrative Agent shall have
-------------------------
received such additional approvals, agreements, documents and instruments as the
Administrative Agent may reasonably request. Each notice of borrowing by the
Borrower hereunder shall constitute a representation and warranty by the
Borrower that the conditions precedent set forth in this Section 6.2 have been
<PAGE>
satisfied (both as of the date of such notice and, unless the Borrower otherwise
notifies the Administrative Agent prior to the date of such borrowing, as of the
date of such borrowing).
Section 6.3 Closing Certificates. The Borrower shall, concurrently
--------------------
with the Closing Date (with respect to the conditions precedent set forth in
Section 6.1) and concurrently with the date of the making of each other Loan,
- -----------
execute and deliver to the Administrative Agent a certificate in form and
substance reasonably satisfactory to the Administrative Agent certifying as to
the satisfaction of each of the conditions precedent set forth in this Article
-------
6 which are required to be satisfied on or before such date (without regard to
- -
whether such matters are, in fact, satisfactory to the Administrative Agent to
the extent that such satisfaction is required hereunder).
ARTICLE 7
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Administrative Agent and the
Lenders that the following statements are and, after giving effect to the
funding of the initial Loans on the Closing Date, will be true, correct and
complete:
Section 7.1 Existence. Each Loan Party (a) is a corporation duly
----------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (b) has all requisite corporate power and
authority to own its Properties and carry on its business as now conducted, and
(c) is qualified to do business in all jurisdictions in which the nature of its
business makes such qualification necessary and where failure to so qualify
would have a Material Adverse Effect. Each of the Loan Parties has the power and
authority and legal right to execute, deliver and perform its obligations under
the Loan Documents to which it is or may become a party.
Section 7.2 Financial Statements.
---------------------
(a) The Borrower has delivered to the Administrative Agent, for further
delivery to the Lenders, (i) the audited consolidated and consolidating
financial statements (including balance sheet and statements of income or
operations, shareholders' equity and cash flows) of Holdings and its
Subsidiaries as of and for the fiscal year ended December 31, 1998 and (ii) an
unaudited pro forma balance sheet of Holdings and its Subsidiaries dated as of
the Closing Date which gives effect to the initial Loans made on the Closing
Date and the other transactions to occur on such date. Such financial statements
are true and correct, have been prepared in accordance with GAAP and fairly and
accurately present, on a consolidated and consolidating (where applicable)
basis, the financial condition of Holdings and its Subsidiaries as of such dates
and the results of operations for the respective periods indicated therein.
There has not been, as of the Closing Date, any material adverse change in the
financial condition, results of operations, businesses, operations, Properties,
capitalization, assets, liabilities or prospects of Holdings and its
Subsidiaries, taken as a whole, or of the Borrower on an individual basis, since
December 31, 1998.
<PAGE>
(b) The Business Plan (including, without limitation, the financial
projections contained therein) represents, as of the Closing Date, the good
faith estimate of the Borrower and its senior management concerning the probable
financial condition and performance of Holdings, the Borrower and their
Subsidiaries for the time period covered thereunder based upon the assumptions
believed to be reasonable at the time made.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
----------------------------
performance by each of the Loan Parties of the Loan Documents to which it is or
may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite entity action and do not and
will not (a) violate or conflict with, or result in a breach of, or require any
consent under (i) the articles of incorporation, articles of organization,
bylaws, regulations or other constitutional documents of such Loan Party, (ii)
any material Governmental Requirement or any material order, writ, injunction or
decree of any Governmental Authority or arbitrator, or (iii) any material
agreement, document or instrument to which any Loan Party is a party or by which
any Loan Party or any of its Property is bound or subject, or (b) constitute a
default under any such material agreement, document or instrument, or result in
the creation or imposition of any Lien (except a Lien in favor of the
Administrative Agent for and on behalf of the Lenders under the Security
Documents as provided in Article 5) upon any of the revenues or Property of any
Loan Party.
Section 7.4 Operation of Business; Licenses. Each Loan Party and its
--------------------------------
Subsidiaries (a) possesses all material Permits necessary or appropriate to
conduct its businesses substantially as now conducted and as to be conducted as
contemplated by the Business Plan, and (b) has complied with all initial and
on-going conditions to the issuance and use of all such Permits, except where
failure to comply could not reasonably be expected to have a Material Adverse
Effect. None of such Persons is in violation of any such material Permits in a
manner which reasonably could be expected to result in any termination or
cessation thereof. Such Permits are summarized by category or type, as relevant
to the operation of each Loan Party and its Subsidiaries, on Schedule 7.4. Such
Permits set forth on Schedule 7.4 have been duly issued by the appropriate
Governmental Authority (as applicable) and are in full force and effect, and all
provisions of such Permits have been complied with in all material respects. No
such Permit is subject to any pending or, to the knowledge of the Borrower,
threatened revocation or termination proceeding or action.
Section 7.5 Intellectual Property. Each material item of Intellectual
----------------------
Property owned or used by each Loan Party and its Subsidiaries in the operation
of its business (including each item of Intellectual Property for which an
application for registration or protection has been filed with a Governmental
Authority) is set forth on Schedule 7.5. Each Loan Party and its Subsidiaries
-------------
owns or possesses (or will be licensed or have the full right to use) all
Intellectual Property which is reasonably necessary or appropriate for the
operation of its businesses as presently conducted and as proposed to be
conducted, without any known conflict with the rights of others. The
consummation of the transactions contemplated by this Agreement and the other
Loan Documents will not materially alter or impair, individually or in the
aggregate, any of such rights of such Persons. No product or service of any Loan
Party or any of its Subsidiaries infringes upon any Intellectual Property of any
other Person, and no claim or litigation is pending or, to the knowledge of the
Borrower, threatened against any such Person contesting its
<PAGE>
right to sell or otherwise use any product or material or service which could
reasonably be expected to have a Material Adverse Effect. There is no violation
by any Loan Party or any of its Subsidiaries of any right of such Person with
respect to any material Intellectual Property owned or used by such Person.
Section 7.6 Litigation and Judgments. Each material action, suit,
------------------------
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of the Borrower, threatened against or
affecting any Loan Party, or that relates to any of the Loan Documents as of the
Closing Date, is disclosed on Schedule 7.6. None of such actions, suits,
------------
investigations or proceedings could, if adversely determined, reasonably be
expected to have a Material Adverse Effect. Except as may be disclosed on
Schedule 7.6, as of the Closing Date, there are no outstanding judgments
- ------------
against any Loan Party. No Loan Party has received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed to any
liability or disadvantage that could reasonably be expected to have a Material
Adverse Effect.
Section 7.7 Rights in Properties; Liens. Except as disclosed on
---------------------------
Schedule 7.7, none of the Loan Parties owns any right, title or interest in
- ------------
any real Property. Each Loan Party has good and marketable title to or, with
respect to leasehold interests, valid leasehold interests in all of its material
Properties and assets, real and personal, including the material Properties,
assets and leasehold interests reflected in the financial statements described
in Section 7.2(a), except where failure to have good and
--------------
marketable title or valid leasehold interests could not reasonably be expected
to have a Material Adverse Effect, and none of the Properties or leasehold
interests of any of the Loan Parties is subject to any Lien, except Permitted
Liens. No Loan Party has granted or voluntarily allowed or permitted to exist
any Lien to or in favor of any Person (other than the Administrative Agent for
and on behalf of the Lenders as security for the Obligations) which attaches or
relates to any of the Collateral and the Liens on the Collateral in favor of the
Administrative Agent are perfected, first priority Liens.
Section 7.8 Enforceability. The Loan Documents have been duly and
--------------
validly executed and delivered by each of the Loan Parties that is a party
thereto, and such Loan Documents constitute the legal, valid and binding
obligations of such Persons, enforceable against each such Person in accordance
with their respective terms, except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and
----------
no filing or registration with or notice to, any Governmental Authority or third
party is or will be necessary for the execution, delivery or performance by any
Loan Party of any of the Loan Documents or any of the Material Contracts to
which it is or will be a party or for the validity or enforceability thereof,
except for such consents, approvals and filings as have been validly obtained or
made and are in full force and effect or as to which the failure to obtain is
not, individually or in the aggregate, material. The consummation of the
transactions contemplated by the Loan
<PAGE>
Documents and the Material Contracts does not require the consent or approval of
any other Person, except such consents and approvals (a) as have been validly
obtained and are in full force and effect or (b) as to which the failure to
obtain is not, individually or in the aggregate, material. No Loan Party has
failed to obtain any material consent, approval or Permit of any Governmental
Authority necessary for the ownership or use of any of its Properties, conduct
of its business and performance of the Business Plan.
Section 7.10 Debt. As of the Closing Date, Holdings and the Borrower
----
do not have any Debt other than (a) the Obligations, and (b) the Debt disclosed
on Schedule 7.10 hereto.
Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax
------
returns (federal, state and local) and reports required to be filed including
all income, franchise, employment, Property and sales tax returns, and (b) all
other material tax returns and reports required to be filed, in each case except
where failure to file could not reasonably be expected to have a Material
Adverse Effect, and has paid all federal and other material taxes (shown on such
returns or reports to be due and payable), assessments, fees and other
governmental charges levied or imposed upon it or its Properties, income or
assets otherwise due and payable before they become delinquent, except those
which are being contested in good faith by appropriate proceedings and for which
adequate reserves have been provided in accordance with GAAP and no notice of
Lien has been filed or recorded or, as to such Loan Parties only, except where
failure to pay could not reasonably be expected to have a Material Adverse
Effect. There is no proposed tax assessment against any Loan Party which could,
if the assessment were made, reasonably be expected to have a Material Adverse
Effect.
Section 7.12 Margin Securities. None of the Loan Parties is engaged
-----------------
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 7.13 ERISA. None of the Loan Parties or any ERISA Affiliate
-----
maintains or contributes to, or has any obligation under, any Pension Plan
other than the Pension Plans identified on Schedule 7.13. Each Plan of the
-------------
Loan Parties is in compliance in all material respects with all applicable
provisions of ERISA and the Code. Neither a Reportable Event nor a Prohibited
Transaction has occurred within the last 60 months with respect to any Plan that
could reasonably be expected have a Material Adverse Effect. No notice of intent
to terminate a Pension Plan has been filed, nor has any Pension Plan been
terminated. No circumstances exist which constitute grounds entitling the PBGC
to institute proceedings to terminate, or appoint a trustee to administer, a
Pension Plan, nor has the PBGC instituted any such proceedings. None of the Loan
Parties, any Subsidiary of any Loan Party or any ERISA Affiliate has completely
or partially withdrawn from a Multiemployer Plan. Each Loan Party and its
Subsidiaries and each ERISA Affiliate have met their minimum funding
requirements under ERISA and the Code or with respect to all of their Pension
Plans subject to such requirements, and, as of the Closing Date except as
specified on Schedule 7.13, the present value of all vested
--------------
<PAGE>
benefits under each funded Plan (exclusive of any Multiemployer Plan) does not
and will not exceed the fair market value of all such Plan assets allocable to
such benefits, as determined on the most recent valuation date of such Plan and
in accordance with ERISA. None of the Loan Parties, any Subsidiary of any Loan
Party or any ERISA Affiliate has incurred any liability to the PBGC under ERISA.
No litigation is pending or, to the Borrower's knowledge, threatened concerning
or involving any Plan that could reasonably be expected to have a Material
Adverse Effect. There are no unfunded or unreserved liabilities (on either a
going-concern basis or a wind-up basis) relating to any Plan that could,
individually or in the aggregate, have a Material Adverse Effect if the Borrower
were required to fund or reserve such liability in full. As of the Closing Date,
no funding waivers have been or will have been requested or granted under
Section 412 of the Code with respect to any Plan. No unfunded or unreserved
liability for benefits under any Plan or Plans (exclusive of any Multiemployer
Plans) exceeds $100,000, with respect to any such Plan, or $200,000 with respect
to all such Plans, in the aggregate as of the Closing Date, on either a
going-concern basis or a wind-up basis.
Section 7.14 Disclosure. No written statement, information, report,
-----------
representation or warranty made by any Loan Party in any Loan Document or
furnished to the Administrative Agent or any Lender by or on behalf of any Loan
Party in connection with the Loan Documents or any transaction contemplated
hereby or thereby contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances in which made, not misleading. There is no fact known
to the Borrower which has had a Material Adverse Effect, and there is no fact
known to the Borrower which in the future could reasonably be expected to have a
Material Adverse Effect except as may have been disclosed in writing to the
Administrative Agent.
Section 7.15 Loan Parties. Schedule 7.15 attached hereto contains, as
------------ -------------
of the Closing Date, complete and accurate information regarding (a) the
identities of each Loan Party and (b) the jurisdiction of incorporation or other
organization of each Loan Party.
Section 7.16 Compliance with Laws. None of the Loan Parties or any
--------------------
Subsidiary of any Loan Party is in violation of any Governmental Requirement
(including, without limitation, the Communications Act, any rule or regulation
of the FCC or any rule or regulation of any federal or state public utility
commission or other Governmental Authority), except for instances of
non-compliance that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 7.17 Investment Company Act. No Loan Party is an "investment
----------------------
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. No Loan Party is a
----------------------------------
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
---------------------
(a) Except for instances of noncompliance with or exceptions to any of the
following representations and warranties that could not have, individually or in
the aggregate, a Material Adverse Effect:
<PAGE>
(i) Each Loan Party and its Subsidiaries and all of their
respective Properties and operations are in compliance with all
Environmental Laws in all material respects. The Borrower is not aware of,
and no Loan Party or any Subsidiary of a Loan Party has received written
notice of, any past, present or future conditions, events, activities,
practices or incidents which may interfere with or prevent the compliance
or continued compliance by the Loan Party and its Subsidiaries with all
Environmental Laws;
(ii) Each Loan Party and its Subsidiaries have obtained all
Permits that are required under applicable Environmental Laws, and all such
Permits are in good standing and all such Persons are in compliance with
all of the terms and conditions thereof;
(iii) No Hazardous Materials exist on, about or within or have
been (to the knowledge of the Borrower) or are being used, generated,
stored, transported, disposed of on or Released from any of the Properties
of each Loan Party and its Subsidiaries except in compliance with
applicable Environmental Laws. The use which each Loan Party and its
Subsidiaries make and intend to make of their respective Properties will
not result in the use, generation, storage, transportation, accumulation,
disposal or Release of any Hazardous Material on, in or from any of their
currently owned Properties except in compliance with applicable
Environmental Laws;
(iv) There are no conditions or circumstances associated with the
currently owned or leased Properties or operations of each Loan Party and
its Subsidiaries that could reasonably be expected to give rise to any
Environmental Liabilities or claims resulting in any Environmental
Liabilities;
(v) None of the Loan Parties and none of their respective
currently or previously owned or leased Properties or operations are
subject to any outstanding or, to the knowledge of the Borrower, threatened
order from or agreement with any Governmental Authority or other Person or
subject to any judicial or administrative proceeding with respect to (A)
any failure to comply with Environmental Laws, (B) any Remedial Action, or
(C) any Environmental Liabilities;
(vi) None of the Loan Parties is subject to, or has received
written notice of any claim from any Person alleging that it is or will be
subject to, any Environmental Liabilities;
(vii) None of the Properties of any of the Loan Parties is a
treatment facility (except for the recycling of Hazardous Materials
generated on-site and the treatment of liquid wastes subject to the Clean
Water Act or other applicable Environmental Law for temporary storage of
Hazardous Materials generated on-site prior to their disposal off-site) or
disposal facility requiring a permit under the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et seq., regulations thereunder or any
comparable provision of state law. The Loan Parties are in compliance with
all applicable financial responsibility requirements of all Environmental
Laws; and
(viii) None of the Loan Parties has failed to file any notice
required under applicable Environmental Law reporting a Release.
<PAGE>
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
Property or revenues of any of the Loan Parties.
Section 7.20 Year 2000 Compliance. Each Loan Party has (a) initiated a
--------------------
review and assessment of all areas within its and each of its Subsidiaries'
business and operations (including those affected by suppliers and vendors) that
could reasonably be expected to be relevant to whether the Loan Party and its
Subsidiaries are Year 2000 Compliant, (b) developed a plan and timeline intended
to ensure that the Loan Party and its Subsidiaries are Year 2000 Compliant on a
timely basis, and (c) to date, implemented that plan in accordance with that
timetable. Based upon the foregoing, each Loan Party reasonably believes that it
and its Subsidiaries are Year 2000 Compliant as of the Closing Date except to
the extent described in Schedule 8.13.
Section 7.21 Acts of God. Neither the business nor the Properties of
-----------
any of the Loan Parties are affected by any fire, explosion, accident, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that is having or could
reasonably be expected to have a Material Adverse Effect.
Section 7.22 Material Contracts. Attached hereto as Schedule 7.22 is a
------------------
complete list, as of the Closing Date, of all Material Contracts of each Loan
Party, other than the Loan Documents. All of the Material Contracts are in full
force and effect and no Loan Party is in default under any Material Contract
and, to the knowledge of the Borrower after due inquiry, no other Person that is
a party thereto is in default under any of the Material Contracts. None of the
Material Contracts prohibits the transactions contemplated under the Loan
Documents. Except as may be provided on Schedule 7.22, each of the Material
-------------
Contracts is currently in the name of a Loan Party. The Borrower has delivered
to the Administrative Agent a complete and current copy of each Material
Contract (other than purchase orders entered into in the ordinary course of
business) existing on the Closing Date and, with respect to each Material
Contract (other than purchase orders entered into in the ordinary course of
business) entered into after the Closing Date, will deliver to the
Administrative Agent a complete and current copy of such Material Contract in a
reasonably prompt fashion after the creation thereof.
Section 7.23 Bank Accounts. As of the Closing Date, Schedule 7.23 sets
------------- -------------
forth the account numbers and location of all bank accounts (including lock box
and special deposit accounts) of the Loan Parties.
Section 7.24 Outstanding Securities. As of the Closing Date, all
----------------------
outstanding securities (as defined in the Securities Act of 1933, as amended, or
any successor thereto, and the rules and regulations of the Securities and
Exchange Commission thereunder) of the Loan Parties have been offered, issued,
sold and delivered in compliance with all applicable Governmental Requirements.
Section 7.25 Solvency. Each of the Loan Parties, as a separate entity,
---------
is Solvent, both before and after giving effect to the Loans.
<PAGE>
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26,
----------------
as of the Closing Date (a) no Loan Party nor any of their employees is subject
to any collective bargaining agreement, and (b) no petition for certification or
union election is pending with respect to the employees of any Loan Party, and
no union or collective bargaining unit has sought such certification or
recognition with respect to the employees of any such Person. There are no
strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of the Borrower after due inquiry, threatened against, any Loan Party
or its respective employees which could have, either individually or in the
aggregate, a Material Adverse Effect. Except as set forth on Schedule 7.26, as
of the Closing Date, none of the Loan Parties is subject to an employment
contract.
Section 7.27 Insurance. Schedule 7.27 sets forth a complete and
---------- -------------
accurate description of all policies of insurance that relate to the Collateral.
To the extent such policies have not been replaced, no notice of cancellation
has been received for such policies and the Borrower and the owner and holder of
each such policy are in compliance with all of the terms and conditions of such
policies in all material respects.
Section 7.28 Common Enterprise. The Borrower and each Loan Party are
-----------------
members of an affiliated group with each other such Person and are collectively
engaged in a common enterprise with one another. Each of the Loan Parties
expects to derive substantial benefit (and may reasonably be expected to derive
substantial benefit), directly and indirectly, from the Loans contemplated by
this Agreement, both in its separate capacity and as a member of an affiliated
and integrated group.
Section 7.29 Loan Parties; Capitalization. Schedule 7.29 attached
----------------------------- -------------
hereto contains, as of the Closing Date, complete and accurate information
regarding (a) the identities of each Subsidiary of the Loan Parties, (b) the
number of issued and outstanding shares (or other units) of each class of
Capital Stock issued by the Borrower and each of its Subsidiaries and the
identities of, and number and percentage of each of such shares (or other units)
held by, the owner(s) (both of record and beneficially) of such Capital Stock,
and (c) the jurisdiction of incorporation or other organization of each of the
Loan Parties.
ARTICLE 8
Affirmative Covenants
---------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The Borrower will furnish (or
----------------------
will cause to be furnished) to the Administrative Agent for further delivery
to each Lender:
(a) Annual Financial Statements. As soon as available, and in any event
---------------------------
within 90 days after the end of each fiscal year of the Borrower, beginning with
the fiscal year ending December 31, 1998, either (i) a copy of the form
<PAGE>
10-K (including all financial statements contained therein) filed by Holdings as
of the end of and for such fiscal year then ended, together with consolidating
schedules for each of Holdings and its Subsidiaries (including, without
limitation, the Borrower) with respect to the financial statements contained
therein, or (ii) a copy of the annual audit report of Holdings and its
Subsidiaries as at the end of such year and the related consolidated statements
of income or operations, shareholders' equity and cash flows for such fiscal
year, together with consolidating schedules for Holdings and its Subsidiaries
(including, without limitation, the Borrower) with respect to each of such
financial statements, in each case (other than with respect to the consolidating
schedules) setting forth in comparative form the figures for the previous fiscal
year, and accompanied by the opinion of Arthur Andersen LLP or other independent
certified public accountants of recognized standing reasonably acceptable to the
Administrative Agent, which opinion shall state that such consolidated financial
statements present fairly the financial position and results of operations for
the periods indicated in conformity with GAAP applied on a basis consistent with
prior years and which opinion shall not be qualified or limited because of a
restricted or limited examination by such accountant of any material portion of
such Person's records;
(b) Quarterly Financial Statements. As soon as available, and in any
------------------------------
event within 45 days after the end of each of the quarters of each fiscal year
of the Borrower, beginning with the fiscal quarter ending March 31, 1999, either
(i) a copy of the form 10-Q (including all financial statements contained
therein) filed by Holdings as of the end of and for such fiscal quarter then
ended, together with consolidating schedules for each of Holdings and its
Subsidiaries (including, without limitation, the Borrower) with respect to each
of the financial statements contained therein, or (ii) a copy of the unaudited
consolidated balance sheet of Holdings and its Subsidiaries as at the end of
such quarter and the related consolidated statements of income or operations,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, together with unaudited
consolidating schedules for Holdings and its Subsidiaries (including, without
limitation, the Borrower) with respect to each of such financial statements, in
each case (other than with respect to the consolidating schedules) setting forth
in comparative form the quarterly operating budgets figures for the
corresponding period of the preceding fiscal year, and certified by an
appropriate Responsible Officer of the Borrower as fairly presenting, in
accordance with GAAP, the financial position and the results of operations of
the Borrower and its Subsidiaries (except for year-end adjustments and financial
statement footnotes required by GAAP);
(c) Compliance Certificate. Concurrently with the delivery of each of
-----------------------
the financial statements referred to in Sections 8.1(a) and 8.1(b), a
-------------- -------
Compliance Certificate of a Responsible Officer of the Borrower substantially in
the form of Exhibit D hereto, appropriately completed, stating that, to the
---------
best of such officer's knowledge, no Default has occurred and is continuing or,
if a Default has occurred and is continuing, stating the nature thereof and the
action that has been taken and is proposed to be taken with respect thereto;
(d) Notice of Actions, Suits or Proceedings. Promptly after the
----------------------------------------
commencement thereof, notice of all actions, suits and proceedings pending
before any Governmental Authority or arbitrator affecting any Loan Party or any
license or Permit, which, if determined adversely to the Borrower or any
<PAGE>
Subsidiary of the Borrower, could reasonably be expected to have a Material
Adverse Effect;
(e) Notice of Default, etc. As soon as possible and in any event
----------------------
immediately upon the Borrower's obtaining knowledge of the occurrence of any
Default, a written notice setting forth the details of such Default and the
action that the Borrower has taken and, if and to the extent known, proposes to
take with respect thereto;
(f) ERISA Plan Reports. Promptly after the filing or receipt thereof,
------------------
copies of all reports, including annual reports, and notices which the Borrower
or any of its ERISA Affiliates files with or receives from the PBGC or the U.S.
Department of Labor under ERISA with respect to a Pension Plan or for which the
Borrower has any potential liability; and as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any Pension
Plan is insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the PBGC, or
the Borrower or any ERISA Affiliate has instituted or will institute proceedings
under ERISA to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of the Borrower setting forth the details
as to such insolvency, withdrawal, Reportable Event, Prohibited Transaction or
termination and the action that the Borrower has taken and proposes to take with
respect thereto;
(g) Proxy Statements, Etc. As soon as available, one copy of each (if
---------------------
any) financial statement, report, notice or proxy statement sent by Holdings to
its stockholders or other security holders generally and one copy of each (if
any) regular, periodic or special report (including, without limitation, reports
on form 8-K), registration statement or prospectus filed by Holdings with any
securities exchange or the Securities and Exchange Commission or any successor
agency;
(h) Insurance. Within 60 days prior to the end of each fiscal year of
----------
the Borrower, a report in form and substance reasonably satisfactory to the
Administrative Agent summarizing all material insurance coverage maintained by
the Loan Parties as of the date of such report and all material insurance
coverage planned to be maintained by such Persons in the subsequent fiscal year;
(i) Plan Information. From time to time, as reasonably requested by the
----------------
Administrative Agent, such books, records and other documents relating to any
Pension Plan as the Administrative Agent shall specify; prior to any
termination, partial termination or merger of a Pension Plan covering employees
of the Borrower or any ERISA Affiliate, or a transfer of assets of a Pension
Plan covering employees of the Borrower or any ERISA Affiliate, written
notification thereof; promptly upon the Borrower's receipt thereof, a copy of
any determination letter or advisory opinion regarding any Pension Plan received
from any Governmental Authority and any amendment or modification thereto as may
be necessary as a condition to obtaining a favorable determination letter or
advisory opinion; and promptly upon the occurrence thereof, written notification
of any action requested by any Governmental Authority to be taken as a condition
to any such determination letter or advisory opinion;
<PAGE>
(j) Business Plan, etc. Not later than 15 days prior to the end of each
------------------
year, an update of the Business Plan in reasonable detail generally consistent
with the form and substance of the Business Plan provided to the Administrative
Agent on or before the Closing Date, which update shall reflect the
corresponding information for the prior year;
(k) Management Letters. Promptly upon each receipt thereof by the
-------------------
Borrower or any of its Subsidiaries, a copy of any management letter or other
written report submitted to such Loan Party by independent certified public
accountants with respect to the business, condition (financial or otherwise),
operations, prospects or Properties of any such Person;
(l) Reports to Other Creditors. Promptly after the furnishing thereof,
--------------------------
copy of any financial or other material statement or report furnished by the
Borrower or any Loan Party to any other party pursuant to the terms of any
indenture, loan, stock purchase or credit or similar agreement and not otherwise
required to be furnished to the Administrative Agent pursuant to any other
subsection of this Section 8.1;
(m) Notice of Material Adverse Effect. Within three Business Days after
---------------------------------
the Borrower becomes aware thereof, written notice of any matter that could
reasonably be expected to have a Material Adverse Effect;
(n) Environmental Assessments and Notices. Promptly after the receipt
-------------------------------------
thereof, a copy of each environmental assessment (including any analysis
relating thereto) prepared with respect to any Property of the Borrower or any
Loan Party and each notice sent by any Governmental Authority relating to any
failure or alleged failure to comply with any Environmental Law or any liability
with respect thereto;
(o) Notices Under Material Contracts. Promptly after the receipt by the
--------------------------------
Borrower or any Loan Party and promptly after the delivery by the Borrower or
any Loan Party, a copy of each written notice delivered under any Material
Contract which notice (i) relates to any alleged default under or noncompliance
with or proposed termination of such Material Contract or (ii) otherwise relates
to any matter under any Material Contract which could reasonably be expected to
give rise to Material Adverse Effect;
(p) Accounts Receivable and Payable. As soon as available and in any
-------------------------------
event within 45 days after the end of each fiscal quarter, an aged trial balance
of all then-existing Receivables and all then existing accounts payable of the
Borrower and its Subsidiaries;
(q) Accountant's Letter. A letter from Holdings shall have been
-------------------
delivered to the then current independent public accountants of Holdings and its
Subsidiaries authorizing such accountants to communicate with the Administrative
Agent and the Lenders and acknowledging reliance with the Administrative Agent
and the Lenders on past, present and future financial statements; and
(r) General Information. Promptly, such other business, financial,
<PAGE>
corporate affairs and other similar information concerning the Loan Parties
and/or the Collateral as the Administrative Agent may from time to time
reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. The
----------------------------------------------
Borrower will, and will cause each Loan Party to, preserve and maintain its
existence and all of its leases, privileges, licenses, Permits, franchises,
qualifications, Intellectual Property, intangible Property and contract and
other rights that are reasonably necessary in the ordinary conduct of its
business except to the extent that failure to so preserve and maintain such
could not reasonably be expected to have a Material Adverse Effect. Without
limiting the generality of the foregoing, the Borrower will maintain the Inline
Contract in full force and effect and will comply with the terms and provisions
of such contract in all material respects. The Borrower will, and will cause
each Loan Party to, conduct its business in an orderly and efficient manner in
accordance with good business practices and the Business Plan.
Section 8.3 Maintenance of Properties and Permits. The Borrower will,
-------------------------------------
and will cause each Loan Party to, maintain, keep and preserve all of its
Properties and Permits reasonably necessary in the proper conduct of its
businesses in good repair, working order and condition (ordinary wear and tear
excepted) and make all necessary repairs, renewals and replacements and
improvements thereof.
Section 8.4 Taxes and Claims. The Borrower will, and will cause each
-----------------
Loan Party to, pay or discharge before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (b) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property;
provided, however, that neither the Borrower nor any Loan Party shall be
required to pay or discharge any tax, levy, assessment or governmental charge,
or claim for labor, material or supplies, whose amount, applicability or
validity is being contested in good faith by appropriate proceedings being
diligently pursued and for which adequate reserves have been established under
GAAP.
Section 8.5 Insurance.
----------
(a) The Borrower will, and will cause each Loan Party to, keep insured by
financially sound and reputable insurers all Property of a character usually
insured by responsible corporations engaged in the same or a similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations or entities and carry such
other insurance as is usually carried by such corporations or entities, provided
that in any event the Borrower and the other Loan Parties will maintain:
(i) Property Insurance. Insurance against loss or damage
------------------
covering substantially all of the insurable tangible real and personal
Property (including, without limitation, the Nortel Networks Equipment and
related equipment) and improvements of such Person by reason of any Peril
(as defined below) in such amounts (subject to any deductibles as shall be
satisfactory to the Administrative Agent) as shall be reasonable and
customary and sufficient to avoid the insured named
<PAGE>
therein from becoming a co-insurer of any loss under such policy, but in
any event in such amounts as are reasonably available as determined by the
Borrower's independent insurance broker reasonably acceptable to the
Administrative Agent.
(ii) Automobile Liability Insurance for Bodily Injury and
----------------------------------------------------
Property Damage. Insurance in respect of all vehicles (whether owned,
---------------
hired or rented by such Person) at any time located at, or used in
connection with, its Properties or operations against liabilities for
bodily injury and Property damage in such amounts as are then customary
for vehicles used in connection with similar Properties and businesses,
but in any event to the extent required by applicable law.
(iii) Comprehensive General Liability Insurance. Insurance
-----------------------------------------
against claims for bodily injury, death or Property damage occurring on,
in or about the Property (and adjoining streets, sidewalks and waterways)
of such Person, in such amounts as are then customary for Property similar
in use in the jurisdictions where such Properties are located.
(iv) Worker's Compensation Insurance. Worker's compensation
-------------------------------
insurance (including employers' liability insurance) to the extent
required by applicable law, which may be self-insurance to the extent
permitted by applicable law.
Without limiting the generality of the foregoing, the Borrower shall purchase
and maintain in effect all-risk, property and casualty insurance (including
casualty insurance covering earthquake and flood damage) reasonably acceptable
and in amounts reasonably acceptable to the Administrative Agent covering all
equipment purchased by the Borrower or any of its Subsidiaries from Nortel
Networks and liability insurance covering the operations of the Borrower and its
Subsidiaries. Such insurance shall be written by financially responsible
companies selected by the Borrower and having an A.M. Best Rating of "A-" or
better and being in a financial size category of "VI" or larger, or by other
companies reasonably acceptable to the Administrative Agent. Each policy
referred to in this Section 8.5 shall name the Administrative Agent (for the
benefit of itself and the other Lenders) as loss payee (with respect to casualty
insurance policies) and as an additional insured (with respect to liability
insurance policies) and shall provide that it will not be canceled, amended or
reduced except after not less than 30 days' prior written notice to the
Administrative Agent and shall also provide that the interests of the
Administrative Agent and the Lenders shall not be invalidated by any act or
negligence of any Loan Party. The Borrower will advise the Administrative Agent
promptly of any policy cancellation, reduction or amendment. For purposes
hereof, the term "Peril" shall mean, collectively, fire, lightning, flood,
windstorm, hail, explosion, riot and civil commotion, vandalism and malicious
mischief, damage from aircraft, vehicles and smoke and other perils covered by
the "all-risk" endorsement then in use in the jurisdictions where the Properties
of the Loan Parties are located.
(b) The Borrower will pay all Insurance Recoveries with respect to
Collateral to the Administrative Agent for application against the Obligations
if and to the extent required in accordance with Section 2.7(a).
---------------
<PAGE>
Section 8.6 Inspection Rights. The Borrower will, and will cause each
------------------
of the Loan Parties to, permit representatives and agents of the Administrative
Agent and the Lenders, during normal business hours and upon reasonable notice
to the Borrower, to examine, copy and make extracts from its books and records,
to visit and inspect its Properties and to discuss its business, operations and
financial condition with its officers and independent certified public
accountants, which items shall be at the expense of the Administrative Agent and
the Lenders unless an Event of Default has occurred and is continuing. The
Borrower will authorize, and will cause each of the Loan Parties to authorize,
its accountants in writing (with a copy to the Administrative Agent) to comply
with this Section 8.6. The Administrative Agent or its representatives may at
any time and from time to time, conduct field exams for such purposes as the
Administrative Agent may reasonably request; provided, that such field exams
shall be conducted not more than once yearly and shall be at the expense of the
Administrative Agent and the Lenders, unless an Event of Default has occurred
and is continuing in which case such field exams may be conducted at any time
and from time to time as shall be reasonable and shall be at the expense of the
Borrower.
Section 8.7 Keeping Books and Records. The Borrower will, and will
-------------------------
cause each of the Loan Parties to, maintain appropriate books of record and
account in accordance with GAAP consistently applied in which true, full and
correct entries will be made of all their respective dealings and business
affairs. If any changes in accounting principles from those used in the
preparation of the financial statements referenced in Section 8.1 are hereafter
required or permitted by GAAP and are adopted by the Borrower with the
concurrence of its independent certified public accountants and such changes in
GAAP result in a change in the method of calculation or the interpretation of
any of the covenants, standards or terms contained in this Agreement, the
Borrower and the Required Lenders agree to amend any such affected terms and
provisions so as to reflect such changes in GAAP with the result that the
criteria for evaluating the financial condition or performance of the Loan
Parties shall be the same after such changes in GAAP as if such changes in GAAP
had not been made.
Section 8.8 Compliance with Laws. The Borrower will, and will cause
--------------------
each of the Loan Parties to, comply with all Governmental Requirements
applicable to the operation of its business, except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
Section 8.9 Compliance with Agreements. The Borrower will, and will
---------------------------
cause each of the Loan Parties to, comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
Section 8.10 Further Assurances. The Borrower will execute and deliver
-------------------
and will cause each of the Loan Parties to execute and deliver such further
agreements, documents and instruments (including, without limitation, financing
statements and amendments to financing statements specifying each item of the
Collateral and the serial number therefor) and take such further action as may
be reasonably requested by the Administrative Agent to carry out the provisions
and purposes of this Agreement and the other Loan Documents, to evidence the
Obligations and to create, preserve, maintain and perfect the
<PAGE>
Liens of the Administrative Agent for the benefit of itself and the Lenders in
and to the Collateral and the required priority of such Liens.
Section 8.11 ERISA. The Borrower will, and will cause each of its
-----
ERISA Affiliates to, comply with all minimum funding requirements and all other
material requirements of ERISA so as not to give rise to any material liability
thereunder.
Section 8.12 Non-Consolidation. The Borrower will, and will cause each
-----------------
other Loan Party to: (a) maintain entity records and books of account separate
from those of any other entity which is an Affiliate of such Loan Party; (b) not
commingle its funds or assets with those of any other entity which is an
Affiliate of such Loan Party; and (c) provide that its board of directors or
other analogous governing body will hold all appropriate meetings to authorize
and approve such Person's entity actions, which meetings will be separate from
those of other Loan Parties.
Section 8.13 Year 2000 Compliance. Except for such instances as
--------------------
individually or in the aggregate would not have a Material Adverse Effect, all
of the material computer software, computer hardware (whether general or special
purpose), and other similar or related items of automated, computerized or
software systems that are used or relied upon by the Borrower or any Loan Party
in the conduct of its business will be Year 2000 Compliant and, without limiting
the generality of the foregoing, will not malfunction, will not cease to
function, will not generate incorrect data and will not produce incorrect
results when processing, providing or receiving (a) date-related data into and
between the twentieth and twenty-first centuries and (b) date-related data in
connection with any valid date in the twentieth and twenty-first centuries. The
Borrower will promptly notify the Administrative Agent in the event the Borrower
discovers or determines that any computer application (including those of its
suppliers and vendors) that is material to its or any Loan Party's business and
operations will not be Year 2000 Compliant on a timely basis.
Section 8.14 Delivery of Certain Amendments. The Borrower will, and
------------------------------
will cause the other Loan Parties to, promptly deliver to the Administrative
Agent any amendment, modification or supplement to (a) the articles of
incorporation, articles of organization, bylaws, regulations or other
constitutional documents of the Borrower or any other Loan Party or (b) any
Material Contract to which it is a party or any license or Permit which it
possesses; provided, however, that any such amendment, modification, or
supplement shall be subject to the provisions of Section 9.15 hereof.
Section 8.15 Interest Rate Protection. The Borrower shall, commencing
-------------------------
on or before the thirtieth (30th) day after the Closing Date, maintain in full
force and effect through the Maturity Date one or more Interest Rate Protection
Agreements reasonably satisfactory to the Administrative Agent with one or more
counterparties reasonably acceptable to the Administrative Agent rated in one of
the three of the highest rating categories of Standard & Poors Corporation or
Moody's Investors Services, Inc. and otherwise reasonably acceptable to the
Administrative Agent that enable the Borrower to fix or place a limit upon a
rate of interest with respect to not less than an aggregate notional amount (not
less than zero) equal to fifty percent (50%) of Total Debt minus the amount of
such Total Debt with a fixed interest rate. The maximum amount for which
interest may be fixed or limited under all such Interest Rate Protection
Agreements shall not exceed one hundred percent
<PAGE>
(100%) of the Total Debt bearing interest at a variable rate of the Borrower and
its Subsidiaries.
Section 8.16 Ownership of Assets; Holdings to Remain a Holding Company.
---------------------------------------------------------
The Borrower shall, at all times during the term of the Loans and except as set
forth on Schedule 8.16, own all assets used or useful in the operation of
--------------
the telecommunications business of the Borrower, Holdings and their
Subsidiaries. Holdings shall, at all times during the term of the Loans and
except as set forth on Schedule 8.16, be a holding company and shall not own
-------------
assets (other than cash and Investments) used or useful in the operation of the
telecommunications business of the Borrower, Holdings and their Subsidiaries.
Section 8.17 Service Agreement Revenues. The Borrower will, on and
--------------------------
after August 1, 1999, ensure that all cash proceeds of Service Agreement
Revenues are (a) deposited directly, as received, into a lockbox or collection
account of the Borrower as the Administrative Agent may require from time to
time and (b) on a daily basis after such deposit, transferred into a lockbox or
concentration account of the Borrower as the Administrative Agent may require
from time to time. The Borrower will maintain in effect an agreement governing
each of its lockbox accounts, collection accounts and/or concentration accounts
in a form approved by the Agent with a depository bank satisfactory to the
Agent.
ARTICLE 9
Negative Covenants
------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 9.1 Debt. The Borrower will not, and will not permit any
-----
Subsidiary of the Borrower to, incur, create, assume or permit to exist any
Debt, except:
(a) Debt to the Lenders pursuant to the Loan Documents;
(b) Subordinated Debt, which Subordinated Debt is on terms and
conditions acceptable to the Required Lenders;
(c) unsecured Debt under Interest Rate Protection Agreements entered
into in compliance with Section 8.16, provided, however, that Debt thereunder
may be secured if such Debt constitutes a part of the Obligations;
(d) (i) existing and other Debt in the principal amounts and as
otherwise described on Schedule 7.10 hereto and renewals, extensions or
-------------
refinancings of such Debt which do not increase the outstanding principal amount
of such Debt, which do not shorten the maturity of any principal of such Debt
and the terms and provisions of which are not materially more
<PAGE>
onerous than the terms and conditions of such Debt on the Closing Date, (ii)
purchase money Debt (including Capital Lease Obligations) secured by purchase
money Liens permitted under clause (g) of the definition of Permitted Liens
----------
contained in Section 1.1, and (iii) additional unsecured Debt in an amount not
-----------
to exceed $5,000,000 to the extent that no Default exists at the time the
Borrower incurs such Debt or would result from the Borrower's incurring such
Debt;
(e) Intercompany Subordinated Debt which does not in the aggregate
exceed $50,000,000;
(f) Debt consisting of any Guarantee resulting from endorsement for
collection of any instrument executed by the Borrower in the ordinary course;
and
(g) liabilities of the Borrower in respect of unfunded vested benefits
under any Plan if and to the extent that the existence of such liabilities will
not constitute, cause or result in a Default.
Section 9.2 Limitation on Liens. The Borrower will not, and will not
-------------------
permit any Subsidiary of the Borrower to, incur, create, assume or permit to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, except Permitted Liens and will not enter into any negative
pledge or similar arrangement in favor of other creditors (other than such
negative pledge or similar arrangement under purchase money Debts and Capital
Lease Obligations with respect to the assets financed or secured thereby or as
consented to in writing by the Administrative Agent, which consent shall not be
unreasonably withheld).
Section 9.3 Mergers, Etc. The Borrower will not, and will not permit
-------------
its Subsidiaries to, (a) become a party to a merger or consolidation, (b)
wind-up, dissolve or liquidate itself, or (c) purchase or acquire all or a
material or substantial part of the business or Properties of any Person;
provided, however, that any Subsidiary of the Borrower may merge with and into
the Borrower or a Subsidiary of the Borrower if the Borrower or a Subsidiary of
the Borrower is the surviving entity, provided that no consideration is given by
the surviving entity in such merger other than the issuance of any Capital Stock
of the surviving entity. The surviving entity in any such merger shall ratify
the Security Documents and other obligations of the non-surviving entity under
the Loan Documents.
Section 9.4 Restricted Payments. The Borrower will not, and will not
--------------------
permit any Subsidiary of the Borrower to, make any Restricted Payments,
except:
(a) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower;
(b) the Borrower and its Subsidiaries may make temporary loans or advances
to employees, officers and directors of the Loan Parties in the ordinary course
of business that do not exceed $2,000,000 in aggregate amount at any time
outstanding; or
(c) Salaries paid in the ordinary course of business and amounts paid to
Holdings necessary to pay interest on Subordinated Debt of Holdings to the
<PAGE>
extent that the proceeds of such Subordinated Debt have been contributed to
the Borrower as equity;
provided, however, that no Restricted Payments may be made pursuant to the
- ------------------
preceding clause (a) if a Default exists at the time of such Restricted Payment
or would result therefrom.
Section 9.5 Investments. The Borrower will not, and will not permit
------------
any Subsidiary of the Borrower to, make or permit to remain outstanding any
advance, loan, extension of credit or capital contribution to or investment in
any Person, or purchase or own any stock, bonds, notes, debentures or other
securities of any Person, or be or become a joint venturer with or partner of
any Person (all such transactions being herein called "Investments"), except:
(a) Investments in obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to the Borrower or
another Loan Party;
(b) existing Investments identified on Schedule 9.5 hereto;
------------
(c) Investments in securities issued or guaranteed by the U.S. or any
agency thereof with maturities of one year or less from the date of acquisition;
(d) Investments in certificates of deposit and Eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000;
(e) Investments in repurchase obligations with a term of not more than
seven days for securities of the types described in clause (c) preceding with
any Lender or with any domestic commercial bank having capital and surplus in
excess of $500,000,000;
(f) Investments in commercial paper of a domestic issuer rated A-1 or
better or P-1 or better by Standard & Poor's Corporation or Moody's Investors
Services, Inc., respectively, maturing not more than 270 days from the date of
acquisition;
(g) (i) Investments (other than Intercompany Debt referred to in clause (h)
below) by the Borrower in its Subsidiaries existing on the Closing Date or
required to occur in accordance with this Agreement, and (ii) additional
Investments by the Borrower in its Subsidiaries made after the Closing Date
which, together with intercompany Debt referred to in clause (h) below, does not
in the aggregate exceed $2,000,000;
(h) Intercompany Debt which, together with Investments referred to in
clause (g)(ii) above, does not in the aggregate exceed $2,000,000, provided that
payment of such Debt shall be fully subordinated to the Obligations;
(i) Interest Rate Protection Agreements entered into in compliance with
Section 8.16; or
(j) Temporary loans or advances to employees, officers and directors of the
Loan Parties in the ordinary course of business that do not exceed $2,000,000 at
any time outstanding in aggregate amount;
<PAGE>
provided, however, that no Investments may be made by the Borrower pursuant to
clauses (g) or (h) preceding if a Default exists at the time of such Investment
or would result therefrom.
Section 9.6 Limitation on Operating Leases of the Borrower. Without
----------------------------------------------
the prior written consent of the Administrative Agent, which consent shall not
be unreasonably withheld, the Borrower will not, and will not permit any
Subsidiary of the Borrower to, at any time enter into or be a party to operating
leases that in the aggregate obligate the Borrower and/or its Subsidiaries to
make annual payments in excess of $1,000,000.
Section 9.7 Transactions with Affiliates. Except for the continuance
-----------------------------
of the existing relationships set forth in Schedule 9.7, without the consent of
the Administrative Agent, the Borrower will not, and will not permit any
Subsidiary of the Borrower to, enter into any transaction, including, without
limitation, the purchase, sale or exchange of Property or the rendering of any
service, with any Affiliate of the Borrower except in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's business and upon fair
and reasonable terms no less favorable to the Borrower than would be obtained in
a comparable arms-length transaction with a Person not an Affiliate of the
Borrower; provided, however, that transactions between or among the Borrower and
------------------
its Affiliates may be on terms more favorable to the Borrower than would be
obtained in a comparable arms-length transaction with a Person not an Affiliate
of the Borrower.
Section 9.8 Disposition of Property. The Borrower will not, and will
------------------------
not permit any Subsidiary of the Borrower to, sell, lease, assign, transfer or
otherwise dispose of any of its Property (including, without limitation, the
Nortel Networks Goods and Services), except (subject to the succeeding proviso):
(a) dispositions of Inventory (other than equipment) in the ordinary
course of business;
(b) Asset Dispositions of Property, other than accounts and Receivables,
by the Borrower made in the ordinary course of business if each of the following
conditions have been satisfied: (i)(A) the Net Proceeds from any single Asset
Disposition or series of related Asset Dispositions in any fiscal year of the
Borrower do not exceed $500,000 and (B) the Borrower receives fair consideration
for such assets and (ii) no Default exists at the time of or will result from
such Asset Disposition; provided, that the Borrower may undertake an Asset
---------
Disposition of Property or series of related Asset Dispositions which would
result in Net Proceeds in excess of $500,000 with the prior written consent of
the Required Lenders, which consent shall not be unreasonably withheld.
(c) Asset Dispositions of Property, other than equipment, accounts and
Receivables, by the Borrower to any Wholly-Owned Subsidiary of the Borrower if
each of the following conditions have been satisfied: (i) the assets sold,
disposed of or otherwise transferred to a Wholly-Owned Subsidiary of the
Borrower shall continue to be subject to a perfected, first priority Lien
(except for Permitted Liens, if any, which are expressly permitted by the Loan
Documents to have priority over the Liens in favor of the Administrative Agent)
in favor of the Administrative Agent and the Lenders, and (ii) no Default exists
at the time of or will result from such Asset Disposition; and
<PAGE>
(d) dispositions of Property no longer used or useful in the ordinary
course of business, including, without limitation, dispositions of equipment
being exchanged or replaced with comparable or better equipment;
provided, however, that the Borrower will not, and will not permit any
- --------- --------
Subsidiary of the Borrower to, sell, lease, assign, transfer or otherwise
dispose of any of the equipment which constitutes Nortel Networks Goods and
Services without the prior written consent of the Required Lenders.
Section 9.9 Sale and Leaseback. Without the prior consent of the
------------------
Required Lenders, which consent shall not be unreasonably withheld, the Borrower
will not, and will not permit any Subsidiary of the Borrower to, enter into any
arrangement with any Person pursuant to which it leases from such Person real or
personal Property that has been or is to be sold or transferred, directly or
indirectly, by it to such Person.
Section 9.10 Lines of Business. Without the prior consent of the
-----------------
Required Lenders, which consent shall not be unreasonably withheld, the Borrower
will not, and will not permit any Subsidiary of the Borrower to, engage in any
line or lines of business activity other than the businesses described in and
contemplated by the Business Plan and the conduct of related telecommunications
businesses and othr reasonably related lines of business.
Section 9.11 Environmental Protection. The Borrower will not, and will
-------------------------
not permit any Loan Party to, (a) use (or permit any tenant to use) any of its
Properties for the handling, processing, storage, transportation or disposal of
any Hazardous Material except in compliance with applicable Environmental Laws,
(b) generate any Hazardous Material except in compliance with applicable
Environmental Laws, (c) conduct any activity that is likely to cause a Release
or threatened Release of any Hazardous Material in violation of any
Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner, that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which the Borrower
or any Loan Party would be responsible, except for circumstances or events
described in clauses (a) through (d) preceding that could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 9.12 Intercompany Transactions. Except as may be expressly
-------------------------
permitted or required by the Loan Documents or as consented to by the
Administrative Agent, which consent shall not be unreasonably withheld, the
Borrower will not, and will not permit any Loan Party to, create or otherwise
cause or permit to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Loan Party to (a) pay dividends or
make any other distribution to the Borrower or any of its Subsidiaries in
respect of such Subsidiary's Capital Stock or with respect to any other interest
or participation in, or measured by, its profits, (b) pay any indebtedness owed
to the Borrower or any of its Subsidiaries, (c) make any loan or advance or
capital contribution to the Borrower or any of its Subsidiaries, or (d) sell,
lease or transfer any of its Property to the Borrower or any of its
Subsidiaries.
Section 9.13 Management Fees. The Borrower and its Subsidiaries shall
---------------
not pay any management fees.
<PAGE>
Section 9.14 Master Purchase Agreement. The Borrower will not
-------------------------
terminate the Master Purchase Agreement prior to the later to occur of the
Amortization Commencement Date or the satisfaction in full of the Borrower's
purchase commitments under the Master Purchase Agreement.
Section 9.15 Modification of Certain Agreements. Without the prior
-----------------------------------
consent of the Required Lenders, which consent shall not be unreasonably
withheld, the Borrower will not, and will not permit any Loan Party to, consent
to or implement any termination, amendment, modification, supplement or waiver
of (a) the articles of incorporation, articles of organization, bylaws,
regulations or other constitutional documents of the Borrower or any Loan Party
(other than Holdings), (b) the Business Plan or (c) the Inline Contract or any
other Material Contract to which it is a party, or any Permit which it
possesses; provided, however, that the Loan Parties may amend or
-----------------
modify (i) the documents referred to in clause (a) preceding if and to the
----------
extent that such amendment or modification is not substantive or material and
could not be adverse to the Administrative Agent or the Lenders, provided,
---------
however, that none of such documents referred to in clause (a) preceding may
- -------- ----------
be amended or modified as they relate to, in any way, any capital contribution
to the Borrower or any obligation or agreement relating thereto, and (ii) the
Material Contracts referred to in clause (c) preceding if and to the extent that
such amendment or modification could not reasonably be expected to be materially
adverse to any Loan Party or any of its Subsidiaries or the Administrative Agent
or any of the Lenders.
Section 9.16 ERISA. The Borrower will not, and will not permit any
-----
Loan Party to:
(a) allow, or take (or permit any ERISA Affiliate to take) any action which
would cause, any unfunded or unreserved liability for benefits under any Plan
(exclusive of any Multiemployer Plan) to exist or to be created that exceeds
$100,000 with respect to any such Plan or $200,000 with respect to all such
Plans in the aggregate on either a going concern or a wind-up basis; or
(b) with respect to any Multiemployer Plan, allow, or take (or permit any
ERISA Affiliate to take) any action which would cause, any unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to be
created, either individually as to any such Plan or in the aggregate as to all
such Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material Adverse
Effect.
Section 9.17 No Prepayment of Debt, Etc. The Borrower will not, and
---------------------------
will not permit any Subsidiary of the Borrower to, directly or indirectly, make
any optional prepayment or distribution on account of, or voluntarily purchase,
acquire, redeem or retire, any Debt, prior to 30 days before its originally
stated maturity (or its stated maturity as of the Closing Date in the case of
Debt outstanding on the Closing Date), or in the case of interest, its stated
due date, or directly or indirectly become obligated to do any of the foregoing
by amending the terms thereof or otherwise, except for:
<PAGE>
(a) subject to Section 2.7(c) hereof, prepayments of the Loans or other
--------------
Obligations pursuant to or as permitted by the Loan Documents and prepayments of
the Debt referred to in clauses (ii) and (iii) of clause (d) of Section 9.1;
----------- ------ --------- ------------
(b) prepayments made with the proceeds of new Debt incurred for the purpose
of refinancing the Debt being prepaid, provided that (i) no portion of such new
Debt matures or is required to be prepaid, purchased or otherwise retired
earlier than the corresponding portion of the Debt being prepaid (including as a
result of any prepayment or redemption upon the occurrence of a condition), (ii)
such new Debt (A) is subordinated to the Obligations to at least the same extent
as the Debt being refinanced if such Debt is subordinated debt or (B) is
permitted in accordance with this Agreement, and (iii) no Default or Event of
Default then exists or would result from such prepayment or refinancing; and
(c) prepayments of trade payables incurred in the ordinary course of the
Borrower's or any Subsidiary's business.
In addition, the Borrower will not, and will not permit any Subsidiary of the
Borrower to, prepay any rent or other obligations under any operating lease or
any other Material Contract prior to 90 days before the originally stated due
date therefor (or the due date therefor as of the Closing Date in the case of
operating leases on Material Contracts in existence on the Closing Date).
ARTICLE 10
Financial Covenants
-------------------
The Borrower and Holdings will be subject to the following tests (measured
for Holdings, Borrower and any Subsidiaries on a consolidated basis):
Section 10.1 Total Debt to Total Capitalization. The Borrower and
-----------------------------------
Holdings will not permit the ratio of (a) Total Debt outstanding at the end of
any of the calendar quarters set forth on on Column 1 of Schedule 10 to (b)
-------- -----------
Total Capitalization on such date, to exceed the ratio set forth opposite such
date on such Schedule.
Section 10.2 Total Debt to Annualized EBITDA. The Borrower and
--------------------------------
Holdings will not permit the ratio of (a) Total Debt outstanding at the end of
any of the calendar quarters set forth on Column 2 of Schedule 10 to (b)
--------- -----------
Annualized EBITDA for the calendar quarter ending on such date, to exceed the
ratio set forth opposite such date on such Schedule.
Section 10.3 Fixed Charge Coverage. The Borrower and Holdings will not
permit the ratio of (a) Annualized EBITDA during any of the calendar quarters
ending on any of the dates set forth on Column 3 of Schedule 10 plus cash
-------- -----------
balances on such date to (b) Consolidated Fixed Charges for the immediately
succeeding calendar quarter, to be less than the ratio set forth opposite such
date on such Schedule.
<PAGE>
Section 10.4 Quarterly Minimum Revenue Levels. The Borrower and
---------------------------------
Holdings will not permit Gross Revenues for any of the calendar quarters ending
on any of the dates set forth on Column 4 of Schedule 10 to be less
-------- -----------
than the amount set forth opposite such date on such Schedule.
ARTICLE 11
Default
-------
Section 11.1 Events of Default. Each of the following shall be deemed
-----------------
an "Event of Default":
----------------
(a) (i) The Borrower shall fail to pay, repay or prepay when due, any
amount of principal or interest owing to the Administrative Agent or any Lender
pursuant to this Agreement or any other Loan Document, or (ii) the Borrower
shall fail to pay, within two Business Days after the due date thereof, any fee,
expense or other amount or other Obligation owing to the Administrative Agent or
any Lender pursuant to this Agreement or any other Loan Document.
(b) Any representation or warranty made or deemed made by or on behalf of
any Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Section 5.1, 8.1(e), 8.2 (other than
------------ ------ ----
the last sentence thereof), Article 9 or Article 10; any Loan Party shall fail
to perform, observe or comply with any covenant, agreement or term contained in
Article 5 or Section 8.1, 8.2 (the last sentence thereof), 8.3, 8.5, 8.6,
- --------- ----------- --- ---- ---- ----
8.7, 8.8, 8.9, 8.10, 8.13 and 8.15, and such failure is not remedied or waived
- ---- ---- ---- ---- ---- ----
within ten days after such failure commenced; or any Loan Party shall fail to
perform, observe or comply with any other covenant, agreement or term contained
in this Agreement or any other Loan Document (other than covenants to pay the
Obligations) and such failure is not remedied or waived within the earlier to
occur of 30 days after such failure commenced or, if a different grace period is
expressly made applicable in such other Loan Documents, such applicable grace
period.
(d) Any Loan Party ceases to be Solvent or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due.
(e) Any Loan Party shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, trustee, liquidator or
administrator of itself or of all or a substantial part of its Property, (ii)
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due, subject to any applicable grace periods, (iii) make a
<PAGE>
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (v) file a petition seeking to take advantage of any
---------------
other law providing for the relief of debtors or relating to bankruptcy,
insolvency, reorganization, liquidation, dissolution, arrangement or winding up,
or composition or readjustment of debts, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or other applicable Governmental
Requirement, (vii) dissolve, or (viii) take any entity action for the purpose of
effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application or
consent of any Loan Party in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, dissolution, arrangement, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or of
all or any substantial part of its Property, or (iii) similar relief in respect
of it, under any law providing for the relief of debtors or relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding up, or composition or readjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief shall be entered
in an involuntary case under the Bankruptcy Code against any Loan Party and
shall continue unstayed and in effect for any period of 60 consecutive days.
(g) Any Loan Party shall fail to discharge within a period of 30 days after
the commencement thereof any attachment, sequestration, forfeiture or similar
proceeding or proceedings involving an aggregate amount in excess of $250,000
against any of its Properties.
(h) A final judgment or judgments for the payment of money in excess of
$250,000 in the aggregate shall be rendered by a court or courts against any
Loan Party on claims not covered by insurance and the same shall not be
discharged, bonded or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof and any Loan Party shall not, within said
period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) Any Loan Party shall fail to pay when due any principal of or interest
on any Debt of such Loan Party (other than the Obligations) having (either
individually or in the aggregate) a principal amount of at least $250,000 or the
maturity of any such Debt shall have been accelerated, or any such Debt shall
have been required to be prepaid prior to the stated maturity thereof, or any
event shall have occurred (and shall not have been waived or otherwise cured)
that permits (or, with the giving of notice or lapse of time or both, would
permit) any holder or holders of such Debt or any Person acting on behalf of
such holder or holders to accelerate the maturity thereof or require any such
prepayment.
(j) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Loan Party or any
Loan Party shall deny that it has further liability or obligation under any of
the Loan Documents; or any Lien created or purported to be created by
<PAGE>
the Loan Documents shall for any reason cease to be or fail to be a valid, first
priority perfected Lien upon any of the Collateral purported to be covered
thereby.
(k) Any of the following events shall occur or exist with respect to any
Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction involving any
Plan; (ii) any Reportable Event with respect to any Pension Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any
Pension Plan or the termination of any Pension Plan; (iv) any event or
circumstance that could reasonably be expected to constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Pension
Plan, or the institution by the PBGC of any such proceedings; (v) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any Pension
Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency or termination of
any Pension Plan; and in each case above, such event or condition, together with
all other events or conditions, if any, have subjected or could in the
reasonable opinion of Required Lenders subject any Loan Party or any ERISA
Affiliate to any tax, penalty or other liability to a Plan, a Multiemployer
Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $100,000.
(l) The occurrence of any breach or default by the Borrower under the
Supply Agreement (after giving effect to any grace or cure period specified
therein) which breach or default entitles Nortel Networks to exercise a right or
remedy under or in connection with the Master Purchase Agreement.
(m) The occurrence of any Material Adverse Effect.
(n) The occurrence of any Change in Control.
Section 11.2 Remedies. If any Event of Default shall occur and be
--------
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
-------------
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower;
(b) Termination of Commitments. Terminate each of the Commitments
--------------------------
without notice to the Borrower;
(c) Judgment. Reduce any claim to judgment;
---------
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the
-----------
Administrative Agent for the benefit of the Administrative Agent and the Lenders
to secure payment and performance of the Obligations in accordance with the
terms of the Loan Documents; or
<PAGE>
(e) Rights. Exercise any and all rights and remedies afforded by the
------
laws of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise; provided, however, that upon the
--------- --------
occurrence of an Event of Default under Section 11.1(e) or Section 11.1(f),
--------------- ---------------
the Commitments of all of the Lenders shall immediately and automatically
terminate, and the outstanding principal of and accrued and unpaid interest on
the Loans and all other amounts payable by the Borrower under the Loan Documents
shall thereupon become immediately and automatically due and payable.
Section 11.3 Performance by the Administrative Agent, etc. If the
---------------------------------------------
Borrower shall fail to perform any covenant or agreement in accordance with the
terms of the Loan Documents, the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform, such covenant or agreement on behalf of the Borrower. In
such event, the Borrower shall, at the request of the Administrative Agent,
promptly pay any amount expended by the Administrative Agent or the Lenders in
connection with such performance or attempted performance to the Administrative
Agent at its Principal Office, together with interest thereon at the applicable
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that neither the Administrative Agent nor any Lender shall have
any liability or responsibility for the performance of any obligation of the
Borrower or any other Person under this Agreement or any of the other Loan
Documents.
ARTICLE 12
The Administrative Agent
------------------------
Section 12.1 Appointment, Powers and Immunities. Each Lender hereby
-----------------------------------
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan Documents, and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Lenders,
(d) shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or any certificate or other document referred to or provided for in,
or received by any of them under, this
<PAGE>
Agreement or any other Loan Document, or for the value, validity, effectiveness,
enforceability or sufficiency of this Agreement or any other Loan Document or
any other document referred to or provided for herein or therein or for any
failure by any Person to perform any of its obligations hereunder or thereunder,
(e) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts, and (f)
shall incur no liability under or in respect of any Loan Document by acting upon
any notice, consent, certificate or other instrument or writing reasonably
believed by it to be genuine and signed or sent by the proper party or parties.
As to any matters not expressly provided for by this Agreement, the
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions signed by the
Required Lenders, and such instructions of the Required Lenders and any action
taken or failure to act pursuant thereto shall be binding on all of the Lenders;
provided, however, that the Administrative Agent shall not be required to take
any action which exposes the Administrative Agent to liability or which is
contrary to this Agreement or any other Loan Document or applicable law. The
Administrative Agent shall not be deemed to have any fiduciary relationship with
any Lender or any Loan Party, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Administrative Agent. Without limiting
the generality of the foregoing, the use of the term "agent" in this Agreement
with respect to the Administrative Agent is not intended to connote any
fiduciary or other express or implied obligation arising under agency doctrine
of any applicable law; instead, such term is used merely as a matter of market
custom and is intended to create or reflect only an administrative relationship
among independent contracting parties.
Section 12.2 Rights of Administrative Agent as a Lender. With respect
------------------------------------------
to its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, the Borrower or any of its Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders.
Section 12.3 Defaults. The Administrative Agent shall not be deemed to
--------
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 12.1) take such
action with respect to such Default as shall be directed by the Required
Lenders, provided that unless and until the Administrative Agent
<PAGE>
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall seem advisable and in the best interest of
the Lenders.
Section 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY
----------------
THE ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS
AGAINST (TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT
------------- -----
WITHOUT LIMITING THE OBLIGATIONS OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2),
RATABLY IN ACCORDANCE WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS
COMMITMENT PERCENTAGE OF THE COMMITMENTS), ANY AND ALL LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING
ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY
RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR
OMITTED TO BE TAKEN BY THE ADMINISTRATIVE AGENT UNDER OR IN RESPECT OF ANY OF
THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR ANY
---------
PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY THE ADMINISTRATIVE AGENT'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT
IS THE EXPRESS INTENTION OF THE LENDERS THAT THE ADMINISTRATIVE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE
OF THE ADMINISTRATIVE AGENT (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE
ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING
ANY OTHER PROVISION OF THIS SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE
------------
ADMINISTRATIVE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON
THE BASIS OF ITS COMMITMENT PERCENTAGE OF THE COMMITMENTS) OF ANY AND ALL
OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE
ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
ADMINISTRATIVE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY THE
BORROWER.
Section 12.5 Independent Credit Decisions. Each Lender agrees that it
----------------------------
has independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and the Subsidiaries
of the Borrower and its own decision to enter into this Agreement and that it
will, independently and without reliance upon the Administrative Agent or any
other Lender, and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Loan
Documents. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower (or any other
Person) of this Agreement or any other Loan Document or to inspect the
Properties or books of the Borrower (or any other Person). Except for notices,
reports and other documents and information expressly required to be furnished
to the Lenders by the Administrative Agent hereunder or under the
<PAGE>
other Loan Documents, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other financial
information concerning the affairs, financial condition or business of the
Borrower (or any of its Affiliates) which may come into the possession of the
Administrative Agent or any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other
--------------------
obligations of the Lenders under this Agreement are several. The default by any
Lender in making a Loan in accordance with any of its Commitments shall not
relieve the other Lenders of their obligations under this Agreement. In the
event of any default by any Lender in making any Loan, each nondefaulting Lender
shall be obligated to make its Loan but shall not be obligated to advance the
amount which the defaulting Lender was required to advance hereunder. In no
event shall any Lender be required to advance an amount or amounts with respect
to any of the Loans which would in the aggregate exceed such Lender's Commitment
with respect to such Loans. No Lender shall be responsible for any act or
omission of any other Lender.
Section 12.7 Successor Administrative Agent. Subject to the
------------------------------
appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Lenders and the Borrower. Upon any such resignation, the Required Lenders
will have the right to appoint another Lender as a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the U.S. or any state thereof or of a foreign country if acting through its
U.S. branch and having combined capital and surplus of at least $100,000,000.
Upon the acceptance of its appointment as successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all rights, powers, privileges, immunities and duties of the resigning
Administrative Agent, and the resigning Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents. After any Administrative Agent's resignation as Administrative Agent,
the provisions of this Article 12 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Administrative Agent. Each Administrative Agent (including each successor
Administrative Agent) agrees that, so long as it is acting as Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.
ARTICLE 13
Miscellaneous
--------------
Section 13.1 Expenses. Each of the Borrower and the Administrative
---------
Agent shall pay its own costs and expenses (including attorneys' fees and
expenses) associated with the preparation, negotiation, execution and delivery
of this Agreement The Borrower hereby agrees, on demand, to pay or reimburse the
Administrative Agent and each of the Lenders for paying: (a) all reasonable
out-of-pocket costs and expenses of the Administrative Agent accrued in
connection with any and all waivers, amendments, modifications, renewals,
extensions and supplements of or to the Loan Documents, and the syndication of
the Commitments and the Loans, including, without limitation, the reasonable
fees and expenses of legal counsel (including all local
<PAGE>
counsel) for the Administrative Agent, (b) all out-of-pocket costs and expenses
of the Administrative Agent and the Lenders in connection with any Default, the
exercise of any right or remedy and the enforcement of this Agreement or any
other Loan Document or any term or provision hereof or thereof, including,
without limitation, the reasonable fees and expenses of all legal counsel for
the Administrative Agent and/or any Lender, (c) all transfer, stamp, documentary
or other similar taxes, assessments or charges levied by any Governmental
Authority in respect of this Agreement or any of the other Loan Documents, (d)
all costs, expenses, assessments and other charges incurred in connection with
any filing, registration, recording or perfection of any Lien contemplated by
this Agreement or any other Loan Document, and (e) all reasonable out-of-pocket
costs and expenses incurred by the Administrative Agent in connection with due
diligence, computer services, copying, appraisals, environmental audits,
collateral audits, field exams, insurance, consultants and search reports.
Section 13.2 INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY
---------------
THE ADMINISTRATIVE AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD
EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY FORECLOSURE RIGHT OR OTHER
RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN COMPLIANCE WITH LAWS
AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO OTHER PERSONS, (B) ANY
OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS (EXCLUSIVE OF THE MASTER
PURCHASE AGREEMENT WHICH, AS TO THE MATTERS ADDRESSED IN THIS SECTION, SHALL BE
GOVERNED BY ITS TERMS), (C) ANY BREACH BY THE BORROWER OF ANY MATERIAL
REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT CONTAINED IN ANY OF THE
LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE OF ANY LOAN, (E) THE PRESENCE,
RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF ANY HAZARDOUS
MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE PROPERTIES OF THE
BORROWER OR ANY OF ITS AFFILIATES, EXCEPT TO THE EXTENT THAT THE LOSS, DAMAGE OR
CLAIM IS THE DIRECT RESULT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
PERSON TO BE INDEMNIFIED, OR (F) ANY INVESTIGATION, LITIGATION OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING; BUT EXCLUDING
ANY OF THE FOREGOING CLAUSES (A) THROUGH (F) TO THE EXTENT CAUSED BY OR ARISING
OUT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE
INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER
LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH
PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL BE INDEMNIFIED FROM AND
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING
OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER TERM OR PROVISION OF THIS
AGREEMENT, THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE
------------
THE REPAYMENT OF THE LOANS AND OTHER OBLIGATIONS AND TERMINATION OF THE
COMMITMENTS.
Section 13.3 Limitation of Liability. None of the Administrative
-----------------------
Agent, any Lender or any Affiliate, officer, director, employee, attorney or
agent thereof shall be liable for any error of judgment or act done in good
faith, or be otherwise liable or responsible under any circumstances
<PAGE>
whatsoever (including such Person's negligence), except for such Person's gross
negligence or willful misconduct. None of the Administrative Agent, any Lender
or any Affiliate, officer, director, employee, attorney or agent thereof shall
have any liability with respect to, and the Borrower hereby waives, releases and
agrees not to sue any of them upon, any claim for any special, indirect,
incidental or consequential damages suffered or incurred by the Borrower or any
Affiliate of the Borrower in connection with, arising out of or in any way
related to this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or any of the other Loan Documents.
The Borrower hereby waives, releases and agrees not to sue the Administrative
Agent or any Lender or any of their respective Affiliates, officers, directors,
employees, attorneys or agents for exemplary or punitive damages in respect of
any claim in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
-------
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty of disclosure, duty
of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to the Borrower or any of its Affiliates or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between the
-------------------------
Borrower and each Lender is solely that of debtor and creditor, and neither the
Administrative Agent nor any Lender has any fiduciary or other special
relationship with the Borrower or any of its Affiliates, and no term or
condition of any of the Loan Documents shall be construed so as to deem the
relationship between the Borrower and any Lender, or such Affiliate and any
Lender, to be other than that of debtor and creditor. No joint venture or
partnership is created by this Agreement among the Lenders or among the Borrower
or any of its Affiliates and the Lenders.
Section 13.6 Equitable Relief. The Borrower recognizes that, in the
----------------
event it fails to pay, perform, observe or discharge any or all of the
Obligations, any remedy at law may prove to be inadequate relief to the
Administrative Agent and the Lenders. The Borrower therefore agrees that the
Administrative Agent and the Lenders, if the Administrative Agent or the Lenders
so request, shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
-------------------------------
the Administrative Agent or any Lender to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided for in this Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
Section 13.8 Successors and Assigns.
----------------------
<PAGE>
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The Borrower may not
assign or transfer any of its rights or obligations under this Agreement or any
other Loan Document without the prior written consent of the Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitments and the
Loans owing to it); provided, however, that (i) such Lender's obligations under
-----------------
this Agreement and the other Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrower for the performance of such obligations, (iii) such
Lender shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents, and (v) the Lenders shall not grant any participation
under which the participant shall have the right to approve (or under which the
consent of the participant must be obtained prior to the Lenders' being able to
approve) any amendment or waiver of this Agreement or the other Loan Documents,
except to the extent that such amendment or waiver (A) increases any Commitment,
(B) reduces the interest rate or the amount of principal or fees applicable to
the Loans or Commitments in which such participant is participating, (C) extends
any Maturity Date, (D) releases any of the Collateral (except as provided for
herein or in any other Loan Document) or any guaranty of the Obligations, or (E)
releases any Loan Party from its monetary Obligations under any of the Loan
Documents.
(b) The Borrower and each of the Lenders agree that any Lender (the
"Assigning Lender") may at any time assign to one or more Eligible Assignees all
or any part of its rights and/or obligations under this Agreement and the other
Loan Documents (including, without limitation, its Commitments and/or Loans)
(each an "Assignee"); provided, however, that (i) each such assignment may be of
a varying percentage of the Assigning Lender's rights and/or obligations under
this Agreement and the other Loan Documents and may relate to some but not all
of such rights and/or obligations, (ii) except in the case of an assignment of
all of a Lender's rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitment(s) and/or Loans of the Assigning Lender
being assigned pursuant to each assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $5,000,000 calculated based upon the aggregate amount of the
Commitment(s) and/or Loans assigned and (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with the Note subject to such assignment, and a processing
and recordation fee of $3,500. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by the Administrative
Agent, (1) the Assignee thereunder shall be a party hereto as a "Lender" and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have the rights and obligations of a
Lender hereunder and under the Loan Documents, and (2) the Assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement and the other Loan
Documents (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of a Lender's rights and obligations under the Loan Documents,
such Lender shall
<PAGE>
cease to be a party thereto, provided that such Lender's rights under Article 4,
Section 13.1 and Section 13.2 accrued through the date of assignment shall
continue). The Borrower will provide full and prompt assistance to each Lender
as it may reasonably request from time to time in connection with such Lender's
efforts to assign its Commitments and/or Loans or sell any participation
interest therein. Such assistance shall include, without limitation, making
senior officers of the Borrower available for meetings with prospective Lenders
and participants and providing (in a timely manner) such assistance as may be
reasonably requested by such Lender and/or its advisors, including, without
limitation, providing information to and responding to inquiries from such
prospective Lenders and participants with respect to the businesses, operations,
business plan, financial condition and results of operations of the Borrower and
its Subsidiaries.
(c) By executing and delivering an Assignment and Acceptance, the Assigning
Lender thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such Assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of the Loan Documents or any other instrument or document furnished
pursuant thereto; (ii) such Assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition or results
of operations of the Borrower or any of its Affiliates or the performance or
observance by the Borrower or any of its Affiliates of its obligations under the
Loan Documents; (iii) such Assignee confirms that it has received a copy of the
Loan Documents, together with copies of the financial statements referred to in
Section 7.2 and such other documents and information as it has deemed
- -----------
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such Assignee will, independently and without
reliance upon the Administrative Agent or such Assigning Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents; (v) such Assignee confirms that it
is an Eligible Assignee; (vi) such Assignee appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and exercise
such powers under the Loan Documents as are delegated to the Administrative
Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; and (vii) such Assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender. (d) The
Administrative Agent shall maintain at its Principal Office a copy of each
Assignment and Acceptance delivered to and accepted by it and a register for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Loans owing to, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Administrative Agent and
the Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes under the Loan Documents. The Register shall
be available for inspection by the Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment and
---------
<PAGE>
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt written notice thereof to the Borrower. Within five Business
Days after its receipt of such notice, the Borrower, at its expense, shall
execute and deliver to the Administrative Agent in exchange for each surrendered
Note evidencing the Loans assigned, a new Note evidencing such Loans payable to
the order of such Eligible Assignee in an amount equal to such Loans assigned to
it and, if the Assigning Lender has retained any Loans, a new Note evidencing
each such Loans payable to the order of the Assigning Lender in the amount of
such Loans retained by it (each such promissory note shall constitute a "Note"
for purposes of the Loan Documents). Such new Notes shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of Exhibit B hereto.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 13.8,
disclose to the Assignee or participant or proposed Assignee or participant
any information relating to the Borrower or any of its Affiliates furnished to
such Lender by or on behalf of the Borrower or any of its Affiliates; provided
that each such actual or proposed Assignee or participant shall agree to be
bound by the provisions of Section 13.20.
-------------
(g) Any Lender may assign and pledge any Note held by it to any Federal Reserve
Bank or the U.S. Treasury as collateral security pursuant to Regulation A of the
Board of Governors of the Federal Reserve System and any operating circular
issued by such Federal Reserve System and/or Federal Reserve Bank; provided,
---------
however, that any payment made by the Borrower for the benefit of such assigning
- -------
and/or pledging Lender in accordance with the terms of the Loan Documents shall
satisfy the Borrower's obligations under the Loan Documents in respect thereof
to the extent of such payment. No such assignment and/or pledge shall release
the assigning and/or pledging Lender from its obligations hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register (the
"Registered Note Register") (which, at the request of the Borrower (which
------------------------
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of each
of the Loans which is evidenced by a Registered Note. Notwithstanding anything
to the contrary contained in this Section 13.8, a Registered Note and the Loans
------------
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Registered Note and
the Loans evidenced thereby on the Registered Note Register (and each Registered
Note shall expressly so provide). Any assignment or transfer of all or part of
such Loans and the Registered Note evidencing the same shall be registered on
the Registered Note Register only upon surrender for registration of assignment
or transfer of the Registered Note evidencing such Loans, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the registered noteholder thereof, and thereupon one or more new Registered
Notes in the same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the due presentment for registration of
transfer of any Registered Note, the Borrower and the Administrative Agent shall
treat the Person in whose name such Loans and the Registered Note(s) evidencing
the same are registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding any notice to the
<PAGE>
contrary. The Registered Note Register shall be available for inspection by the
Borrower and any Lender at any reasonable time upon reasonable prior notice.
(i) The Borrower will not become a party to any loan agreement, credit
agreement or similar agreement which restricts or prohibits the right or ability
of any lender which is a party thereto to become a Lender under this Agreement.
(j) The Borrower shall provide prompt assistance to the Administrative
Agent and the Lenders in connection with their efforts in syndicating the Loans
and Commitments. Such assistance shall include making senior officers and other
representatives of the Borrower and its Affiliates available for meetings with
prospective Lenders and providing, in a timely manner, such assistance as may be
reasonably requested by the Administrative Agent or its advisors, including,
without limitation, providing information to and responding to inquiries from
prospective Lenders with respect to the business, operations, Business Plan,
results and other matters relating to the business of the Borrower and the other
Loan Parties.
Section 13.9 Survival. All representations and warranties made or
--------
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans, and no investigation by the
Administrative Agent or any Lender or any closing shall affect the
representations and warranties or the right of the Administrative Agent or any
Lender to rely upon them. Without prejudice to the survival of any other
obligation of the Borrower hereunder, the obligations of the Borrower under
Article 4 and Sections 13.1 and 13.2 shall survive repayment of the Loans and
- --------- ------------- ----
the Reimbursement Obligations and the other Obligations.
Section 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
-----------------
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, TERM SHEETS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS
OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES
HERETO.
Section 13.11 Amendments. No amendment or waiver of any provision of
----------
this Agreement, the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Lenders and the Borrower in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders and the Borrower, do any of
the following: (a) increase the Commitments of the Lenders (or any Lender) or
subject the Lenders to any additional obligations; (b) reduce the principal of,
or interest on, the Loans or any fees or other amounts payable hereunder; (c)
postpone any date fixed for any payment (including, without limitation, any
mandatory prepayment) of principal of, or interest on, the Loans or any fees or
other amounts payable hereunder; (d) change the Commitment Percentages or the
aggregate unpaid principal amount of the Loans
<PAGE>
or the number or interests of the Lenders which shall be required for the
Lenders or any of them to take any action under this Agreement; (e) change any
provision contained in Section 3.2, 3.3 or 5.1 or this Section 13.11 or modify
-----------------------
the definition of "Required Lenders" contained in Section 1.1; or (f) except as
expressly authorized by this Agreement, release any Collateral from any of the
Liens created by the Security Documents; and provided further, however, that no
amendment, waiver or consent relating to Sections 12.1, 12.2, 12.3,
------------- ----- -----
12.4 or 12.5 shall require the agreement of the Borrower. Notwithstanding
- ---- --
anything to the contrary contained in this Section 13.11, no amendment, waiver
-------------
or consent shall be made with respect to (i) Article 12 hereof without the
----------
prior written consent of the Administrative Agent, (ii) the definition of
"Nortel Networks Goods and Services" or "Master Purchase Agreement" or Section
-------
2.5, 2.9 or 2.10 hereof without the prior written consent of Nortel Networks
- ---- ----
(whether or not Nortel Networks is then a Lender hereunder), or (iii) any
condition precedent set forth in Article 6 with respect to the making of any
---------
Loans without the prior written consent of the Lenders that hold, at the time of
such amendment, waiver or consent, at least a majority (in Dollar amount) of the
Commitments.
Section 13.12 Maximum Interest Rate.
----------------------
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
-------------
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this Agreement
or the other Loan Documents, none of the terms and provisions of this Agreement
or the other Loan Documents shall ever be construed to create a contract or
obligation to pay interest at a rate in excess of the Maximum Rate; and neither
the Administrative Agent nor any Lender shall ever charge, receive, take,
collect, reserve or apply, as interest on the Obligations, any amount in excess
of the Maximum Rate. The parties hereto agree that any interest, charge, fee,
expense or other obligation provided for in this Agreement or in the other Loan
Documents which constitutes interest under applicable law shall be, ipso facto
and under any and all circumstances, limited or reduced to an amount equal to
the lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section 13.12(b) or (ii)
----------------
an amount, which when added to all other interest payable under this Agreement
and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the
foregoing, the Administrative Agent or any Lender ever contracts for, charges,
receives, takes, collects, reserves or applies as interest any amount in excess
of the Maximum Rate, such amount which would be deemed excessive interest shall
be
<PAGE>
deemed a partial payment or prepayment of principal of the Obligations and
treated hereunder as such; and if the Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to the
Borrower. In determining whether the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the Borrower, the Administrative
Agent and the Lenders shall, to the maximum extent permitted by applicable law,
(i) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate does not
exceed the Maximum Rate at any time during the term of the Obligations; provided
that, if the unpaid principal balance is paid and performed in full prior to the
end of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Rate, the Administrative
Agent and/or the Lenders, as appropriate, shall refund to the Borrower the
amount of such excess and, in such event, the Administrative Agent and the
Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or applying
interest in excess of the Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil
Statutes of Texas 1925, as amended, the Borrower agrees that such Chapter 15
(which regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not govern or in any manner apply to the Obligations.
Section 13.13 Notices. All notices and other communications provided
-------
for in this Agreement and the other Loan Documents to which the Borrower is a
party shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or, with respect to a Lender that becomes a party to this Agreement
pursuant to an assignment made in accordance with Section 13.8, in the
-------------
Assignment and Acceptance executed by it); or, as to any party, at such other
address as shall be designated by such party in a notice to each other
party given in accordance with this Section 13.13. Except as otherwise provided
-------------
in this Agreement, all such communications shall be deemed to have been duly
given when transmitted by telecopy or personally delivered or, in the case of a
mailed notice, upon receipt, in each case given or addressed as aforesaid;
provided, however, that notices to the Administrative Agent shall be deemed
given when received by the Administrative Agent.
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
-----------------------------------------------------
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
- --------
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES
HERETO CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT
PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE
LAWS OF THE U.S. THE BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK,
(2) ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE U.S.
DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE
COURT SITTING IN DALLAS COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN
<PAGE>
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER HEREBY
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS
ADDRESS SET FORTH UNDERNEATH ITS SIGNATURE HERETO. THE BORROWER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORM.
Section 13.15 Counterparts. This Agreement may be executed in one or
-------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
------------
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
--------
this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 13.18 Construction. The Borrower, the Administrative Agent and
-------------
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall
-------------------------
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality. Each Lender agrees to exercise its best
---------------
efforts to keep any information delivered or made available by the Borrower to
it which is clearly indicated to be confidential information, confidential from
anyone other than Persons employed or retained by such Lender who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Lender
--------
from disclosing such information (a) to any other Lender, (b) to any Person if
reasonably incidental to the administration of the Loans, (c) upon the order of
any court or administrative agency, (d) upon the request or demand of any
regulatory agency or authority having jurisdiction over such Lender, (e) which
has been publicly disclosed, (f) in connection with any litigation to which the
Administrative Agent, any Lender or their respective Affiliates may be a party,
(g) to the extent reasonably required in connection with the exercise of any
right or remedy under the Loan Documents, (h) to such Lender's legal counsel,
independent auditors and affiliates, and (i) to any actual or proposed
participant or Assignee of all or part of its rights hereunder, so
<PAGE>
long as such actual or proposed participant or Assignee agrees to be bound by
the provisions of this Section 13.20.
-------------
Section 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BORROWER, THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly
---------------------
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the Administrative Agent
or any Lender is requested or required, (a) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of the Administrative Agent or such Lender, respectively, and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such approval or consent or to exercise such judgment in
any particular manner, regardless of the reasonableness of the request or the
action or judgment of the Administrative Agent or such Lender, and (b) no
approval or consent of the Administrative Agent or any Lender shall in any event
be effective unless the same shall be in writing and the same shall be effective
only in the specific instance and for the specific purpose for which given.
Section 13.23 Service of Process. The Borrower irrevocably consents to
------------------
the service of process by the mailing thereof by the Administrative Agent or the
Required Lenders by registered or certified mail, postage prepaid, to the
Borrower at its address listed on the signature pages hereof. Nothing in this
Section 13.23 shall affect the right of the Administrative Agent or the
- -------------
Lenders to serve legal process in any other manner permitted by law or affect
the right of the Administrative Agent or any Lender to bring any action or
proceeding against the Borrower or its Property in the court of any
jurisdiction.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
BORROWER:
CAIS, INC.
By: /s/ Ulysses G. Auger, II
------------------------------
Name: Ulysses G. Auger, II
------------------------------
Title: Chief Executive Officer
------------------------------
Address for Notices:
--------------------
CAIS, Inc.
1255 22nd Street, N.W.
Washington, D.C. 20037
Attention:
--------------------------------
Telecopy No.:
--------------------------------
Telephone No.:
--------------------------------
<PAGE>
ADMINISTRATIVE AGENT:
--------------------
NORTEL NETWORKS INC.,
as Administrative Agent
By: /s/ Michael W. McCorkle
---------------------------
Name: Michael W. McCorkle
Title: Director, Customer Finance
Address for Notices:
--------------------
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe,
Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
<PAGE>
LENDERS:
--------
Commitment: $ 30,000,000 NORTEL NETWORKS INC.
By: /s/ Michael W. McCorkle
-----------------------
Name: Michael W. McCorkle
Title: Director, Customer Finance
Address for Notices:
--------------------
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
Lending Office for Base Rate Loans:
----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for Eurodollar Loans:
-----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
<PAGE>
EXHIBIT A
---------
FORM OF ASSIGNMENT AND ACCEPTANCE
Attached
- --------
<PAGE>
EXHIBIT B-1
-----------
FORM OF NOTE
Attached
- --------
<PAGE>
EXHIBIT C
---------
FORM OF NOTICE OF BORROWINGS, CONVERSIONS,
CONTINUATIONS OR PREPAYMENTS
Attached
- --------
<PAGE>
EXHIBIT D
---------
FORM OF COMPLIANCE CERTIFICATE
Attached
- --------
<PAGE>
SCHEDULE 1.1(a)
CERTAIN PERMITTED HOLDERS
Attached
- --------
<PAGE>
SCHEDULE 1.1(b)
---------------
CERTAIN PERMITTED LIENS
Attached
- --------
<PAGE>
SCHEDULE 7.4
------------
PERMITS, FRANCHISES, LICENSES AND AUTHORIZATIONS REQUIRED BY GOVERNMENTAL
REQUIREMENTS OR ISSUED BY GOVERNMENTAL AUTHORITIES
Attached
- --------
<PAGE>
SCHEDULE 7.5
------------
INTELLECTUAL PROPERTY
Attached
- --------
<PAGE>
SCHEDULE 7.6
------------
LITIGATION, ETC.
Attached
- --------
<PAGE>
SCHEDULE 7.7
------------
REAL PROPERTY INTERESTS
Attached
- --------
<PAGE>
SCHEDULE 7.10
-------------
EXISTING DEBT
Attached
- --------
<PAGE>
SCHEDULE 7.13
-------------
PLANS
Attached
- --------
<PAGE>
SCHEDULE 7.15
-------------
SUBSIDIARIES
Attached
- --------
<PAGE>
SCHEDULE 7.22
-------------
MATERIAL CONTRACTS
Attached
- --------
<PAGE>
SCHEDULE 7.23
-------------
BANK ACCOUNTS
Attached
- --------
<PAGE>
SCHEDULE 7.26
-------------
EMPLOYEE MATTERS
Attached
- --------
<PAGE>
SCHEDULE 7.27
-------------
INSURANCE
Attached
- --------
<PAGE>
SCHEDULE 7.29
-------------
CAPITALIZATION
Attached
- --------
<PAGE>
SCHEDULE 8.13
-------------
YEAR 2000 COMPLIANCE
Attached
- --------
<PAGE>
SCHEDULE 8.17
-------------
ASSETS USED IN THE TELECOMMUNICATIONS BUSINESS OF THE BORROWER,
HOLDINGS AND THEIR SUBSIDIARIES NOT OWNED BY THE BORROWER
<PAGE>
SCHEDULE 9.5
------------
CERTAIN INVESTMENTS
Attached
- ---------
<PAGE>
SCHEDULE 9.7
------------
EXISTING RELATIONSHIPS WITH AFFILIATES
Attached
- --------
<PAGE>
SCHEDULE 10
-----------
FINANCIAL COVENANTS
Attached
- --------
<PAGE>
GUARANTY AGREEMENT
This GUARANTY AGREEMENT (this "GUARANTY"), dated effective as of June 4,
1999, is executed and delivered by CAIS INTERNET, INC., a Delaware corporation
("GUARANTOR"), to and in favor of NORTEL NETWORKS INC., as administrative agent
for itself and the other Lenders (as such term is hereinafter defined) (in such
capacity, together with its successors and assigns in such capacity,
"ADMINISTRATIVE AGENT").
W I T N E S S E T H:
--------------------
A. CAIS, Inc. ("BORROWER"), the lenders named therein (together with their
successors and assigns, "Lenders") and Administrative Agent are, concurrently
herewith, entering into that certain Credit Agreement dated as of June 4, 1999
(as the same may be amended, renewed, extended, restated, replaced, substituted,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT")
and, in connection therewith, inter alia, Borrower is, concurrently herewith,
executing and delivering that certain Note dated June 4, 1999, in the original
principal amount of $30,000,000 payable to the order of Nortel Networks Inc.
(such promissory note, as it may be amended, renewed, extended, restated,
replaced, substituted, supplemented or otherwise modified from time to time, the
"Note" and, to the extent there is more than one promissory note subsequent to a
partial assignment of the Loans, the "Notes"); the Credit Agreement, the Notes
and the other Loan Documents (as such terms are defined in the Credit
Agreement), including, without limitation, any and all security agreements,
pledge agreements, assignments, guaranties, licenses, lien waivers, collection
account agreements and other agreements, documents, instruments and certificates
now or hereafter executed and/or delivered in connection therewith, and any and
all amendments, modifications, renewals, extensions, restatements and/or
supplements thereto from time to time, are hereinafter collectively called the
"Loan Documents").
B. Guarantor has directly and indirectly benefitted and will directly and
indirectly benefit from the loans evidenced and governed by the Credit
Agreement, the Notes and the other Loan Documents and the other transactions
evidenced by and contemplated in the Loan Documents.
C. Execution and delivery of this Guaranty is a condition to Administrative
Agent and Lenders entering into the Credit Agreement and the making of Loans
pursuant
thereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows:
1. Definitions. Unless otherwise defined in this Guaranty, all
-----------
capitalized terms used in this Guaranty shall have the meanings ascribed to such
terms in the Credit Agreement.
2. Guaranty of Indebtedness, Liabilities and Obligations. Guarantor
-----------------------------------------------------
hereby absolutely, unconditionally and irrevocably guarantees (a) payment and
performance to Administrative Agent and Lenders, as and when the same become due
or performable strictly in accordance with the terms
GUARANTY AGREEMENT - Page 1
<PAGE>
acceleration or otherwise, of any and all Obligations (as such term is defined
in the Credit Agreement), which Obligations include, without limitation, (i) any
and all interest, penalties, fees and expenses (specifically including, but not
limited to, attorneys' fees and expenses) which Borrower may now or at any time
hereafter owe to Administrative Agent or any Lender (whether or not such
interest, penalties, fees and expenses were originally contracted with
Administrative Agent or any Lender or with another or others and whether or not
such interest, penalties, fees and expenses are enforceable against Borrower)
pursuant to the Credit Agreement, any Note or any other Loan Document plus (ii)
the principal amount of any and all indebtedness, liabilities and other
obligations, whether primary, absolute, secondary, direct, indirect, fixed,
contingent, liquidated, unliquidated, secured or unsecured, matured or
unmatured, joint, several or joint and several, due or to become due and whether
arising by agreement, note, discount, acceptance, overdraft or otherwise, which
Borrower may now or at any time hereafter owe to Administrative Agent or any
Lender (whether or not such indebtedness, liabilities and obligations were
originally contracted with Administrative Agent or any Lender or with another or
others and whether or not such indebtedness, liabilities or obligations are
enforceable against Borrower) pursuant to the Credit Agreement, any Note or any
other Loan Document and (b) the faithful prompt and complete compliance by
Borrower with all terms, conditions, covenants, agreements and undertakings of
Borrower under the Credit Agreement, any Note or any other Loan Document (the
Obligations and the interest, penalties, fees, expenses, indebtedness,
liabilities and obligations, etc. referred to in clauses (a) and (b) preceding
as to which payment, performance and compliance are guaranteed pursuant to this
Guaranty are hereinafter individually and collectively called the "Guaranteed
Obligations").
Notwithstanding that Borrower may not be liable or obligated to
Administrative Agent or any Lender for interest and/or attorneys' fees and
expenses on, or in connection with, the Guaranteed Obligations from and after
the Petition Date (as hereinafter defined) as a result of the provisions of the
federal bankruptcy laws or otherwise, the Guaranteed Obligations for which
Guarantor shall be liable and obligated under this Guaranty shall include (to
the extent permitted by law or a court of competent jurisdiction) interest
accruing on the Guaranteed Obligations at the highest rate provided for in the
Credit Agreement from and after the date on which Borrower files for protection
under the federal bankruptcy laws or from and after the date on which an
involuntary proceeding is filed against Borrower under the federal bankruptcy
laws (herein collectively referred to as the "Petition Date") and all attorneys'
fees and expenses incurred by Administrative Agent or any Lender from and after
the Petition Date in connection with the Guaranteed Obligations.
3. Continuing Guaranty of Payment. This Guaranty is and shall be an
-------------------------------
absolute, unconditional, irrevocable and continuing guaranty of payment, and not
merely of collection, and from time to time or at any time the Guaranteed
Obligations may be increased, reduced or paid in full without affecting the
liability or obligation of Guarantor with respect to indebtedness, liabilities
and obligations of Borrower to Administrative Agent or any Lender thereafter
incurred. Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated (if a release or discharge has occurred), as the case
may be, if at any time any payment (or any part thereof) to Administrative Agent
or any Lender in respect of the Guaranteed Obligations is rescinded or must
otherwise be restored by Administrative Agent or any Lender pursuant to any
bankruptcy,
GUARANTY AGREEMENT - Page 2
<PAGE>
insolvency, reorganization, receivership or other debtor relief granted to
Borrower or its successors or assigns. In the event that Administrative Agent or
any Lender must rescind or restore any payment received by Administrative Agent
or any Lender, respectively, in satisfaction of the Guaranteed Obligations, as
set forth herein, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Administrative Agent or such Lender, respectively, shall
be without effect, and this Guaranty shall remain in full force and effect. It
is the intention of Administrative Agent, Lenders and Guarantor that Guarantor's
liabilities and obligations hereunder shall not be discharged except by the full
and complete payment and performance of the Guaranteed Obligations and then only
to the extent of such payment and performance. This Guaranty is independent of,
and in addition and without modification to and does not impair or in any way
affect any other guaranty, endorsement or other agreement executed in favor of
Administrative Agent or any Lender, and this Guaranty and Guarantor's
liabilities and obligations under this Guaranty shall not be impaired or
otherwise affected by the execution, delivery or performance by Guarantor or any
other Person of any other guaranty, endorsement or other agreement.
4. Absolute Guaranty. Guarantor's liabilities and obligations under
------------------
this Guaranty shall be absolute and unconditional irrespective of, shall not be
released, impaired, limited, reduced, conditioned upon or otherwise affected by
and shall continue in full force and effect notwithstanding the occurrence of
any event (other than an event consisting of payment and performance of such
liabilities and obligations as provided in Paragraph 3 hereof) at any time or
from time to time, including, without limitation, any one or more of the
following events specified in clauses (a) through (o) of this Paragraph 4 below,
and neither Administrative Agent nor any Lender shall be obligated or required
to take or to refrain from taking any of such actions or inactions specified
below and shall not have any liability, obligation or duty whatsoever with
respect to such actions or inactions, it being acknowledged and agreed by
Guarantor that all of such liabilities, obligations and duties (if any) of
Administrative Agent or any Lender otherwise existing and all rights and
remedies (if any) of Guarantor with respect thereto (whether such liabilities,
obligations, duties, rights or remedies exist by virtue of agreement, common
law, equity, statute or otherwise), and each and every defense which, under
principles of guaranty or suretyship law, would otherwise operate to eliminate,
impair, condition or restrict the liabilities and obligations of Guarantor for
the Guaranteed Obligations, are hereby expressly waived by Guarantor:
(a) the taking or accepting of any security or other guaranty for
any or all of the Guaranteed Obligations, whether heretofore, concurrently
herewith or hereafter;
(b) any failure to create or perfect or properly create or
perfect any lien, security interest or assignment intended as security, or
any release, surrender, exchange, substitution, subordination or loss of
any security or guaranty at any time existing in connection with any or all
of the Guaranteed Obligations for any reason; or any suretyship defenses,
including, without limitation, any impairment of collateral;
(c) any partial or full release of the liability or obligation of
Guarantor under any other guaranty whether or not similar to this Guaranty;
GUARANTY AGREEMENT - Page 3
<PAGE>
(d) the entering into, delivery of, modification of, amendment to
or waiver of compliance with the Credit Agreement, any Note or any other
Loan Document, or any agreement, document or instrument evidencing,
securing or otherwise affecting all or part of the Guaranteed Obligations,
without the notification of Guarantor, the right of such notification being
hereby specifically waived by Guarantor;
(e) the bankruptcy, insolvency, arrangement, adjustment,
composition, liquidation, disability, dissolution or lack of authority
(whether corporate, partnership or trust or relating to any other entity or
Person) of Borrower, Guarantor or any other Person at any time liable or
obligated for the payment of any or all of the Guaranteed Obligations,
whether now existing or hereafter arising;
(f) any increase, reduction, renewal, extension, amendment,
modification, repayment, refunding and/or rearrangement of the payment or
any other terms or provisions of any or all of the Guaranteed Obligations
at any time and from time to time, whether on one or more occasions, either
with or without notice to or consent of Guarantor, or any adjustment,
indulgence, forbearance or compromise that might be granted or given by
Administrative Agent or any Lender to Borrower or Guarantor;
(g) any neglect, delay, omission, failure or refusal of
Administrative Agent or any Lender (i) to exercise or properly or
diligently exercise any right or remedy with respect to any or all of the
Guaranteed Obligations or the collection thereof or any collateral,
security or guaranty therefor, whether under the Credit Agreement, any Note
or any other Loan Document or otherwise, including, without limitation, to
ensure compliance with any term or provision of the Credit Agreement or any
other Loan Document, (ii) to take or prosecute or properly or diligently
take or prosecute any action for the collection of any or all of the
Guaranteed Obligations against Borrower, Guarantor or any other guarantor
of any or all of the Guaranteed Obligations and/or any other Person, (iii)
to foreclose or prosecute or properly or diligently foreclose or prosecute
any action in connection with any agreement, document or instrument or
arrangement evidencing, securing or otherwise affecting all or any part of
the Guaranteed Obligations, including, without limitation, any failure to
conduct a commercially reasonable foreclosure sale, or (iv) to mitigate
damages or take any other action to reduce, collect or enforce the
Guaranteed Obligations;
(h) any failure of Administrative Agent or any Lender to give
notice to Borrower and/or Guarantor of, or obtain the consent of Borrower
and/or Guarantor with respect to,(i) the incurrence of any of the
Guaranteed Obligations, (ii) the occurrence of any "Default" or "Event of
Default" as such terms are defined in the Credit Agreement or any of the
other Loan Document, (iii) demand, presentment, protest, nonpayment,
intention to accelerate, acceleration, lack of diligence or delay in
collection of all or any part of the Guaranteed Obligations or any other
matter, or the absence thereof, (iv) any renewal, extension or assignment
of the Guaranteed Obligations or any part thereof, (vi) the disposition or
release of all or any part of any security for the Guaranteed Obligations
(whether or not such disposition is commercially reasonable) or (vi) any
other action taken or refrained from being
GUARANTY AGREEMENT - Page 4
<PAGE>
taken by Administrative Agent or any Lender against Borrower, it being
agreed that (except as may be expressly provided in the other Loan
Documents) neither Administrative Agent nor any Lender shall be required to
give Borrower or Guarantor any notice of any kind or to obtain Borrower's
or Guarantor's consent under any circumstances whatsoever with respect to
or in connection with the Guaranteed Obligations;
(i) the unenforceability, illegality or uncollectibility of all
or any part of the Guaranteed Obligations against Borrower by reason of (i)
failure of consideration, (ii) breach of warranty, (iii) the act of
creating the Guaranteed Obligations or any part thereof is ultra vires,
(iv) the officers, directors, partners, trustees or representatives
creating the Guaranteed Obligations acted in excess of their authority or
lacked legal capacity, (v) the Credit Agreement, any Note or any other Loan
Document evidencing the Guaranteed Obligations has been forged or otherwise
is irregular or is not genuine or authentic, or (vi) failure to comply with
the statute of frauds;
(j) any payment by Borrower to Administrative Agent or any Lender
is held to constitute a preferential transfer or a fraudulent conveyance or
transfer under any applicable law, or for any reason Administrative Agent
or any Lender is required to refund such payment or pay such amount to
Borrower or any other Person;
(k) any merger, reorganization, consolidation or dissolution of
Borrower, any sale, lease or transfer of any or all of the assets of
Borrower, or any change in name, business, location, composition, structure or
any change in the shareholders, partners or members (whether by accession,
secession, death, dissolution, transfer of assets or otherwise) of Borrower;
(l) any failure of Administrative Agent or any Lender to notify
Guarantor of (i)the acceptance of this Guaranty, (ii) the making of Loans
by any Lender in reliance on this Guaranty, (iii) the failure of Borrower
to make any payment due by Borrower to Administrative Agent or any Lender,
or (iv) any information regarding the financial condition or prospects of
Borrower;
(m) any existing or future offset, claim or defense of Borrower
against Administrative Agent or any Lender or against payment of all or any
part of the Guaranteed Obligations, whether such offset, claim or defense
arises in connection with the Guaranteed Obligations (or the transactions
creating the Guaranteed Obligations) or otherwise;
(n) any full or partial release of the liability of Borrower, any
guarantor of all or any part of the Guaranteed Obligations or any other
Person for all or any part of the Guaranteed Obligations, it being
acknowledged and agreed by Guarantor that it may be required to pay the
Guaranteed Obligations in full without assistance or support, whether from
Borrower, any other guarantor or any other Person; or
GUARANTY AGREEMENT - Page 5
<PAGE>
(o) any other action taken or omitted to be taken with respect to
any of the Credit Agreement, any Note or any other Loan Document, the
Guaranteed Obligations or the security and collateral therefor, whether or
not such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay all or any part of the
Guaranteed Obligations pursuant to the terms hereof.
Without limiting the foregoing or Guarantor's liability under this Guaranty, to
the extent that Administrative Agent and Lenders (or any of them) have advanced
funds or extended credit to Borrower and do not receive payments or benefits
thereon in the amounts and at the times required or provided by or in connection
with the Credit Agreement, any Notes or any other Loan Document, Guarantor is
absolutely liable to make such payments and to confer such benefits on Lenders
on a timely basis.
5. Representations and Warranties. In connection with this Guaranty,
-------------------------------
Guarantor hereby represents and warrants to Administrative Agent and Lenders
that:
(a) Guarantor is the parent corporation of Borrower and Guarantor
has received and will receive a direct and indirect material benefit from
the transactions evidenced by and contemplated in the Credit Agreement, the
Notes and the other Loan Documents; this Guaranty is given by Guarantor in
furtherance of the direct and indirect business interests and corporate
purposes of Guarantor, and is necessary to the conduct, promotion and
attainment of the businesses of Borrower and Guarantor; and the value of
the consideration received and to be received by Guarantor is reasonably
worth at least as much as the liability and obligation of Guarantor
hereunder;
(b) The execution and delivery of this Guaranty and the performance
of and compliance with the terms hereof will not constitute a default (or
an event which with notice or lapse of time or both would constitute a
default) under, or result in the breach of, any material contract,
agreement or instrument to which Guarantor is a party or which may be
applicable to Guarantor or any of its assets;
(c) This Guaranty, when executed and delivered by Guarantor, will
constitute the legal, valid and binding obligation of Guarantor enforceable
in accordance with its terms, except as limited by bankruptcy, insolvency
or other laws of general application relating to the enforcement of
creditors' rights and general principles of equity;
(d) As of the date of this Guaranty, and after giving effect to
this Guaranty and the contingent obligation evidenced by this Guaranty,
Guarantor is not, on either an unconsolidated basis or a consolidated basis
with Borrower and Guarantor's subsidiaries, insolvent, as such term is used
or defined in any applicable bankruptcy, fraudulent conveyance, fraudulent
transfer or similar law, and Guarantor has and will have assets which,
fairly valued, exceed its indebtedness, liabilities and obligations;
Guarantor is not executing this Guaranty with any intention to hinder,
delay or defraud any present or future creditor or creditors of Guarantor;
Guarantor is not engaged in any business or transaction (including,
GUARANTY AGREEMENT - Page 6
<PAGE>
without limitation, the execution of
this Guaranty) which will leave Guarantor with unreasonably small capital
or assets which are unreasonably small in relation to the business or
transactions engaged in by Guarantor, and Guarantor does not intend to
engage in any such business or transaction; Guarantor does not intend to
incur, nor does Guarantor believe that it will incur, debts beyond
Guarantor's ability to repay such debts as they mature;
(e) All acts and conditions required to be performed and
satisfied prior to the creation and issuance of this Guaranty, and to
constitute this Guaranty as the legal, valid and binding obligation of
Guarantor in accordance with its terms, have been performed and satisfied
in due and strict compliance with all applicable laws;
(f) Guarantor is familiar with, and has independently received
books and records regarding, the financial condition of Borrower and is
familiar with the value of any and all collateral (if any) intended to
secure the Guaranteed Obligations; however, Guarantor is not relying on
such financial condition or any such collateral (if any) as an inducement
to enter into this Guaranty; Guarantor has adequate means to obtain from
Borrower, on a continuing basis, the information referred to in this
clause (f) preceding and is not relying on Administrative Agent or any
Lender to provide any such information at any time;
(g) Guarantor has not been induced to enter into this Guaranty on
the basis of a contemplation, belief, understanding or agreement that any
Person other than Guarantor will be liable to pay the Guaranteed
Obligations;
(h) Except for the execution of the Credit Agreement, neither
Administrative Agent, any Lender nor any other Person has made any
representation, warranty or statement to, or promise, covenant or
agreement with, Guarantor in order to induce Guarantor to execute this
Guaranty;
(i) Borrower is a wholly-owned Subsidiary of Guarantor; and
(j) All representations and warranties in the Credit Agreement
relating to the Guarantor are true and correct in all material respects as
of the date hereof, except to the extent made only as of a specific prior
date, and on each date the representations and warranties thereunder are
restated pursuant to any of the Loan Documents with the same force and
effect as if such representations and warranties had been made on and as
of such date, all of which are incorporated herein by reference.
6. Default. Upon the occurrence of an Event of Default, Guarantor
--------
shall, on demand by Administrative Agent and without further notice of dishonor
and without notice of any kind (including, without limitation, notice of
acceptance by Administrative Agent or any Lender of this Guaranty) having been
given to Borrower, Guarantor or any other Person previous to such demand,
promptly (i.e., not later than 1:00 p.m., New York, New York time, on the date
of such demand or,if such demand is made after 12:00 noon, on the next
succeeding Business Day) pay, in immediately available funds, the full unpaid
amount of the Guaranteed Obligations, or such lesser amount, if any,
GUARANTY AGREEMENT - Page 7
<PAGE>
as may be specifically demanded by Administrative Agent from time to time, to
Administrative Agent at Administrative Agent's Principal Office located in New
York, New York or at such other place as Administrative Agent may specify to
Guarantor in writing. If acceleration of the time for payment of any amount
payable by Borrower under or with respect to any of the Guaranteed Obligations
is stayed or otherwise delayed upon the insolvency, bankruptcy or reorganization
of Borrower, all such amounts otherwise subject to acceleration under the terms
of the Guaranteed Obligations shall nonetheless be payable by Guarantor
hereunder promptly on demand by Administrative Agent.
7. Cumulative Remedies; No Election. If Guarantor is or becomes liable
--------------------------------
or obligated for the Guaranteed Obligations, by endorsement or otherwise, other
than under this Guaranty, such liability or obligation shall not be in any
manner impaired or affected hereby, and the rights and remedies of
Administrative Agent or any Lender hereunder shall be cumulative of any and all
other rights and remedies that Administrative Agent or such Lender may ever have
against Guarantor. The exercise by Administrative Agent or any Lender of any
right or remedy hereunder or under any other agreement, document or instrument,
or at law or in equity, shall not preclude the concurrent or subsequent exercise
of any other right or remedy. Without in any way limiting the generality of the
foregoing, it is specifically understood and agreed that this Guaranty is given
by Guarantor as an additional guaranty or security to any and all other
guaranties or security heretofore, concurrently herewith or hereafter executed
and/or delivered by Guarantor to or in favor of Administrative Agent or any
Lender relating to the Guaranteed Obligations, and nothing herein shall ever be
deemed to in any way negate or replace any such other guaranties or security;
provided, however, that Administrative Agent and Lenders shall have all of their
rights and remedies under this Guaranty irrespective of anything to the contrary
contained in any such other guaranties or security. This Guaranty may be
enforced from time to time as often as occasion therefor may arise, and it is
agreed and understood that it shall not be necessary for Administrative Agent or
any Lender, in order to enforce this Guaranty against Guarantor, first to
exercise any rights or remedies against Borrower or any other Person or
institute suit or exhaust any available rights or remedies against security in
Administrative Agent's or any Lender's possession or under Administrative
Agent's or any Lender's control, or to resort to any other sources or means of
obtaining payment of the Guaranteed Obligations.
8. Joint and Several Obligation. Guarantor agrees that Administrative
----------------------------
Agent and Lenders, in their sole discretion, may (a) bring suit against all
guarantors or other Persons liable or obligated to Administrative Agent or any
Lender or against any one or more of them, for interest, penalties, expenses,
fees, indebtedness, liabilities and obligations owed to Administrative Agent or
any Lender and apply any amounts obtained by Administrative Agent or any Lender
in such a manner as Administrative Agent or any Lender may elect, (b) bring suit
against all guarantors of the Guaranteed Obligations jointly and severally or
against any one or more of them, (c) settle fully or in part with any one or
more of such guarantors for such consideration as Administrative Agent or any
Lender may deem proper, and (d) partially or fully release one or more of such
guarantors from liability under any guaranty agreement, and that no such action
shall impair the rights of Administrative Agent or any Lender to collect the
Guaranteed Obligations (or the unpaid balance
GUARANTY AGREEMENT - Page 8
<PAGE>
thereof) from other guarantors (including, without limitation, Guarantor), or
any of them, not so sued, settled with or released.
9. Release of Collateral, etc. If all or any part of the Guaranteed
---------------------------
Obligations is at any time secured, Guarantor agrees that Administrative Agent
or any Lender may, at any time and from time to time in its discretion and with
or without valuable consideration, allow substitution or withdrawal of
collateral or other security and release collateral or other security without
impairing or diminishing the liabilities or obligations of Guarantor hereunder.
Guarantor further agrees that, if Borrower or any other Person executes in favor
of Administrative Agent or any Lender any collateral agreement, mortgage, deed
of trust, collateral assignment, security agreement or other security
instrument, the exercise by Administrative Agent or any Lender of any right or
remedy thereby conferred on Administrative Agent or any Lender shall be wholly
discretionary with Administrative Agent and such Lender, respectively, and that
the exercise or failure to exercise any such right or remedy shall in no way
impair or diminish the obligation of Guarantor hereunder. Guarantor further
agrees that (except to the extent prohibited by applicable law notwithstanding
an agreement of the parties to the contrary) neither Administrative Agent nor
any Lender shall be liable for its failure to use diligence or care in the
collection of the Guaranteed Obligations, in the creation or perfection of any
lien, security interest or assignment intended as security or in preserving the
liability of any Person liable or obligated on the Guaranteed Obligations, and
Guarantor hereby waives presentment for payment, notice of nonpayment, protest
and notice thereof, and diligence in bringing suit against any Person liable on
the Guaranteed Obligations or any part thereof.
10. Binding Effect. This Guaranty is for the benefit of Administrative
---------------
Agent and Lenders and their successors and permitted assigns, and in the event
of an assignment by Administrative Agent or any Lender or its successors or
assigns of the Guaranteed Obligations, or any part thereof, the rights and
benefits hereunder, to the extent applicable to the indebtedness, liabilities
and obligations so assigned, may be transferred with such indebtedness,
liabilities and obligations. This Guaranty is binding, not only upon Guarantor,
but upon its successors and assigns.
11. WAIVER OF SUBROGATION, CONTRIBUTION AND OTHER RIGHTS. UPON PAYMENT
----------------------------------------------------
BY GUARANTOR OF ANY SUMS IN RESPECT OF THE GUARANTEED OBLIGATIONS HEREUNDER
(INCLUDING, WITHOUT LIMITATION, ANY AMOUNTS ADVANCED TO BORROWER BY GUARANTOR),
ALL RIGHTS OF GUARANTOR AGAINST BORROWER OR ANY OTHER GUARANTOR OF THE
GUARANTEED OBLIGATIONS ARISING AS A RESULT THEREFROM BY WAY OF RIGHT OF
SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR
OTHERWISE SHALL IN ALL RESPECTS BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT
AND ENFORCEMENT TO THE PRIOR INDEFEASIBLE PAYMENT AND ENFORCEMENT IN FULL OF THE
GUARANTEED OBLIGATIONS. GUARANTOR SHALL NOT HAVE, AND HEREBY IRREVOCABLY WAIVES,
ANY AND ALL RIGHTS AND REMEDIES OF SUBROGATION, REIMBURSEMENT, EXONERATION,
CONTRIBUTION, INDEMNIFICATION AND/OR OTHERWISE AGAINST OR FROM BORROWER UNLESS
AND UNTIL ALL OF THE GUARANTEED OBLIGATIONS HAVE BEEN PAID
GUARANTY AGREEMENT - Page 9
<PAGE>
AND PERFORMED IN FULL. IN ADDITION TO THE FOREGOING, GUARANTOR HEREBY
IRREVOCABLY WAIVES ANY AND ALL CLAIMS OR OTHER RIGHTS AND REMEDIES IT MAY NOW
HAVE OR HEREAFTER ACQUIRE AGAINST ADMINISTRATIVE AGENT, ANY LENDER, BORROWER OR
ANY OTHER PERSON UNDER CHAPTER 34 OF THE TEXAS BUSINESS AND COMMERCE CODE, UNDER
RULES 31 AND 163 OF THE TEXAS RULES OF CIVIL PROCEDURE, UNDER SECTION 17.001 OF
THE TEXAS CIVIL PRACTICE AND REMEDIES CODE AND UNDER ANY OTHER STATUTE OF ANY
STATE OR OTHER JURISDICTION REQUIRING RECOURSE AGAINST THE PRIMARY OBLIGOR OR
IMPOSING OTHER REQUIREMENTS AS A CONDITION TO RECOURSE AGAINST A GUARANTOR IF
AND TO THE EXTENT THAT THE SAME MAY BE APPLICABLE TO THIS GUARANTY. Except as
expressly otherwise provided in this Paragraph 11, Guarantor shall have all
rights of subrogation, reimbursement, exoneration, contribution and
indemnification that may exist under currently applicable law.
12. Right of Setoff. Guarantor hereby grants to Administrative Agent
---------------
and each Lender a right of setoff upon any and all monies, securities or other
property of Guarantor, and the proceeds therefrom, now or hereafter held or
received by or in transit to Administrative Agent or any Lender from or for the
account of Guarantor, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of Guarantor, and any and all claims of Guarantor against
Administrative Agent or any Lender at any time existing. The right of setoff
granted pursuant to this Paragraph 12 shall be cumulative of and in addition to
Administrative Agent's and each Lender's common law right of setoff.
13. Further Assurances. Upon the request of Administrative Agent or any
------------------
Lender, Guarantor will, at any time and from time to time, duly execute and
deliver to Administrative Agent any and all such further agreements, documents
and instruments, and supply such additional information, as may be necessary or
advisable, in the reasonable opinion of Administrative Agent or any Lender, to
obtain the full benefits of this Guaranty.
14. Invalid Provisions. If any provision of this Guaranty is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable, this Guaranty shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Guaranty a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable. No provision herein or in any other Loan Document
evidencing the Guaranteed Obligations shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable law.
15. Modification in Writing. No modification, consent, amendment or
-----------------------
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor herefrom, shall be effective
GUARANTY AGREEMENT - Page 10
<PAGE>
unless the same shall be in writing and signed by a duly authorized officer of
Administrative Agent and Guarantor and then shall be effective only in the
specific instance and for the specific purpose for which given.
16. No Waiver, Etc. No notice to or demand on Guarantor or
--------------
Administrative Agent in any case shall entitle Guarantor or Administrative
Agent, respectively, to any other or further notice or demand in similar or
other circumstances. No delay or omission by Administrative Agent, any Lender or
Guarantor in exercising any right or remedy hereunder shall impair any such
right or remedy or be construed as a waiver thereof or any acquiescence therein,
and no single or partial exercise of any such right or remedy shall preclude
other or further exercise thereof or the exercise of any other right or remedy
hereunder.
17. Cumulative Rights. All rights and remedies of Administrative Agent
-----------------
and Lenders hereunder are cumulative of each other and of every other right or
remedy which Administrative Agent or any Lender may otherwise have at law or in
equity or under any other contract or document, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
18. Expenses. Guarantor agrees to pay on demand by Administrative Agent
--------
all costs and expenses incurred by Administrative Agent or any Lender in
connection with the enforcement of the terms and provisions of this Guaranty
and, if and to the extent that Borrower is obligated therefor in accordance with
the Credit Agreement, any and all amendments, modifications, renewals,
restatements and/or supplements hereto from time to time, including, without
limitation, the reasonable fees and expenses of legal counsel to administrative
Agent. If Guarantor should breach or fail to perform any provision of this
Guaranty, Guarantor agrees to pay to Administrative Agent all costs and expenses
incurred by Administrative Agent or any Lender in the enforcement of this
Guaranty from time to time, including, without limitation, the reasonable fees
and expenses of all legal counsel to Administrative Agent and Lenders.
19. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED
---------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES).
20. NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT
------------------
BETWEEN GUARANTOR AND ADMINISTRATIVE AGENT AND LENDERS RELATING TO THE SUBJECT
MATTER OF THIS GUARANTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG GUARANTOR AND ADMINISTRATIVE AGENT OR
ANY LENDER. THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) ORAL AGREEMENTS, ORAL
ARRANGEMENTS OR ORAL UNDERSTANDINGS RELATING TO THE SUBJECT MATTER OF THIS
GUARANTY, AND THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) WRITTEN AGREEMENTS
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY IF AND TO THE
GUARANTY AGREEMENT - Page 11
<PAGE>
EXTENT THAT SUCH PRIOR AGREEMENTS ARE INCONSISTENT WITH THIS GUARANTY.
21. Notices. All notices and other communications required or permitted
-------
to be given under this Guaranty shall be given or made in writing and shall be
delivered in the manner and to the addresses, and shall be deemed to have been
duly given when, specified in the Credit Agreement.
22. Survival. All representations, warranties, covenants and agreements
--------
of Guarantor in this Guaranty shall survive the execution of this Guaranty.
23. Counterparts. This Guaranty may be executed in any number of
------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one and the same Guaranty.
24. Limitation on Interest. Notwithstanding anything to the contrary
----------------------
contained or referred to in this Guaranty, none of the terms and provisions of
this Guaranty, the Credit Agreement, the Notes or any other Loan Document shall
ever be construed to create a contract or obligation to pay interest at a rate
in excess of the Maximum Rate, and neither Administrative Agent nor any Lender
shall ever charge, receive, take, collect, reserve or apply, as interest on the
Obligations or the Guaranteed Obligations, any amount in excess of the Maximum
Rate. The parties hereto agree that any interest, charge, fee, expense or other
indebtedness, liability or obligation provided for in this Guaranty, the Credit
Agreement, the Notes or any other Loan Document which constitutes interest under
applicable law shall be, ipso facto and under any and all circumstances,limited
or reduced to an amount equal to the lesser of (a) the amount of such interest,
charge, fee, expense or other indebtedness, liability or obligation that would
be payable in the absence of this Paragraph 24 or (b) an amount, which when
added to all other interest payable under this Guaranty, the Credit Agreement,
the Notes and any other Loan Document, equals the Maximum Rate. If,
notwithstanding the foregoing, Administrative Agent or any Lender ever contracts
for, charges, receives, takes, collects, reserves or applies as interest any
amount in excess of the Maximum Rate, such amount which would be deemed
excessive interest shall be deemed a partial payment or prepayment of principal
of the Obligations and the Guaranteed Obligations and treated hereunder as such,
and if the Obligations and the Guaranteed Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to
Borrower, Guarantor or such other Person (as appropriate). In determining
whether the interest paid or payable, under any specific contingency, exceeds
the Maximum Rate, Guarantor, Borrower, Administrative Agent and Lenders shall,
to the maximum extent permitted by applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the Obligations and the
Guaranteed Obligations, or applicable portions thereof, so that the interest
rate does not exceed the Maximum Rate at any time during the term of the
Obligations and the Guaranteed Obligations; provided that, if the unpaid
principal balance is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, Administrative Agent and Lenders
shall refund to Borrower, Guarantor or such
GUARANTY AGREEMENT - Page 12
<PAGE>
other Person (as appropriate) the amount of such excess and, in such event,
neither Administrative Agent nor any Lender shall be subject to any penalties
provided by any laws for contracting for, charging, receiving, taking,
collecting, receiving or applying interest in excess of the Maximum Rate.
25. Irrevocable Nature of Guaranty. This Guaranty may not be revoked by
-------------------------------
Guarantor; provided, however, in the event it shall be determined that Guarantor
shall have the right, in accordance with applicable law and notwithstanding its
express agreement herein to the contrary, to revoke this Guaranty, Guarantor may
deliver to Administrative Agent, at its address for notices set forth in the
Credit Agreement, written notice of Guarantor's intention not to be liable
hereunder for any Guaranteed Obligations arising, created or incurred after
Administrative Agent's receipt of such notice, whereupon such notice shall be
effective to the extent (but only to the extent) provided hereinbelow as to
Guarantor from and after (but not before) the time when such notice is actually
delivered to and received by and receipted for in writing by Administrative
Agent (the "Effective Revocation Time"); provided, further, however, that such
notice shall not be effective as to, and shall not in any way restrict, limit,
impair, release or otherwise affect, the indebtedness, liabilities or
obligations of Guarantor under this Guaranty with respect to (a) any Guaranteed
Obligations consisting of indebtedness, liabilities or obligations under the
Credit Agreement, the Notes or any other Loan Document, whether incurred before
or after the Effective Revocation Time (including, without limitation, any
loans, advances or extensions of credit at any time made or created under the
Credit Agreement, whether or not agreed, committed or contemplated to be made by
Administrative Agent or any Lender and whether or not discretionary with
Administrative Agent or any Lender), (b) any Guaranteed Obligations arising,
created or incurred prior to the Effective Revocation Time, (c) any amendments,
modifications, renewals, extensions, restatements and/or supplements to or of
the indebtedness, liabilities or obligations referred to in clauses (a) and (b)
preceding, whether occurring before or after the Effective Revocation Time, or
(d) any interest or costs of collection with respect to any of the indebtedness,
liabilities or obligations referred to in clauses (a), (b) or (c) preceding. Any
revocation or attempted revocation of this Guaranty, whether in whole or in
part, shall not be effective except under limited circumstances (if any), and to
the limited extent, expressly provided in this Paragraph 25.
26. Reinstatement of Guaranteed Obligations. Notwithstanding anything
----------------------------------------
to the contrary contained in this Guaranty or any other Loan Document, if the
payment of any amount of principal of or interest with respect to the Guaranteed
Obligations, or any portion thereof, is rescinded, voided or must otherwise be
refunded by the Administrative Agent or any Lender or otherwise for any reason
whatsoever, then the Guaranteed Obligations will be automatically reinstated and
become automatically effective and in full force and effect, all to the extent
that and as though such payment so rescinded, voided or otherwise refunded had
never been made.
27. Covenants and Agreements. Guarantor covenants and agrees that, as
------------------------
long as the Guaranteed Obligations or any part thereof are outstanding or any
Lender has any Commitment under the Credit Agreement, it will comply, strictly
in accordance with the terms thereof, with all covenants and agreements
specifically applicable to it as set forth in any one or more of the Credit
Agreement and the other Loan Documents, all of which are incorporated herein by
reference.
GUARANTY AGREEMENT - Page 13
<PAGE>
[remainder of page intentionally left blank]
GUARANTY AGREEMENT - Page 14
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first written above.
GUARANTOR:
CAIS INTERNET, INC.
By:/s/ Ulysses G. Auger, II
--------------------------
Name: Ulysses G. Auger, II
Title: Chief Executive Officer
The undersigned has executed this Guaranty solely for the purpose of
confirming receipt of this Guaranty and reliance on this Guaranty by
Administrative Agent and Lenders as of the date first written above.
NORTEL NETWORKS INC.,
as Administrative Agent
By: /s/ Michael W. McCorkle
-------------------------
Name: Michael W. McCorkle
Title: Director, Customer Finance
GUARANTY AGREEMENT - Page 15
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT ("Agreement") dated as of June 4, 1999, is by and
---------
between CAIS, INC., a Virginia corporation ("Debtor") whose address is 1255
------
22nd Street, N.W., Fourth Floor, Washington, D.C. 20037 and whose Tax I.D. No.
is 52-1974158, and NORTEL NETWORKS INC., a Delaware corporation ("Secured
-------
Party"), as Administrative Agent for the "Lenders", as that term is defined
- -----
below, whose address is 2221 Lakeside Blvd., Richardson, Texas 75082.
R E C I T A L S:
---------------
A. Debtor entered into that certain Credit Agreement, concurrently
herewith, with the lenders party thereto (each individually a "Lender" and
------
collectively, the "Lenders") and Secured Party (such Agreement as it may be
-------
amended, renewed, extended, restated, replaced, substituted, supplemented, or
otherwise modified from time to time is referred to herein as the "Credit
------
Agreement").
- ---------
B. The execution and delivery of this Agreement is required by the terms of
the Credit Agreement and is a condition to the availability of the Loans to
Debtor pursuant to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the adequacy, receipt and sufficiency of which are
hereby acknowledged, and in order to induce the Lenders to make the Loans under
the Credit Agreement, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
-----------
Section 1.1 Definitions. As used in this Agreement, the following
------------
terms have the following meanings:
"Collateral" has the meaning specified in Section 2.1.
---------- ------------
"Document" means any "document," as such term is defined in
--------
Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor,
including, without limitation, all documents of title and all
<PAGE>
receipts covering, evidencing or representing goods now owned or hereafter
acquired by Debtor.
"Governmental Authority" means any nation or government, any
----------------------
state, provincial or political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Master Purchase Agreement" means the certain Global Purchase
-------------------------
Agreement dated as of April 1, 1999, by and between the Debtor and Nortel
Networks, as amended, supplemented or restated from time to time.
"Nortel Networks" means Nortel Networks Inc., a Delaware
---------------
corporation.
"Nortel Networks Equipment" means all equipment sold to Debtor
-------------------------
pursuant to the Master Purchase Agreement and financed pursuant to the Credit
Agreement, including, without limitation, the optical equipment, switches,
access nodes and related software.
"Obligations" means the "Obligations", as such term is defined
-----------
in the Credit Agreement, and the obligations, indebtedness and liabilities of
Debtor under this Agreement and any other Loan Document to which Debtor may be a
party.
"Person" means any individual, corporation, trust, association,
------
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.
"Proceeds" means any "proceeds," as such term is defined in
--------
Article or Chapter 9 of the UCC and, in any event, shall include, but not be
limited to, (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Debtor from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting, or purporting to
act, for or on behalf of any Governmental Authority), and (c) any and all other
amounts from time to time paid or payable under or in connection with any of the
Collateral.
"Service Agreement" means any service agreement, license agreement
-----------------
or other agreement, including, without limitation, the Hilton Contact and the
Hammons Contract, relating to any hotel property, multiple dwelling unit
property or other property at which Nortel Networks Equipment is utilized by
Debtor to operate an OverVoice System and/or to provide internet services.
"Service Agreement Revenues" means the revenues, payments,
--------------------------
accounts receivable, proceeds, monies or other amounts received by or
payable to Debtor under any Service Agreement.
<PAGE>
"Software" means any and all software sold or licensed by Nortel
--------
Networks to the Debtor, including, without limitation, all source code and
object code and all manuals and other documentation relating thereto and each
copy thereof regardless of the media in which they are stored.
"UCC" means the Uniform Commercial Code as in effect in the State of
---
New York; provided, that if, by applicable law, the perfection or effect of
perfection or non-perfection of the security interest created hereunder in any
Collateral is governed by the Uniform Commercial Code as in effect on or after
the date hereof in any other jurisdiction, "UCC" means the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or the effect of perfection or
non-perfection.
Section 1.2 Other Definitional Provisions. Terms used herein that
-----------------------------
are defined in the Credit Agreement and are not otherwise defined herein shall
have the meanings therefor specified in the Credit Agreement. References to
"Sections," "subsections," "Exhibits" and "Schedules" shall be to Sections,
subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement are
equally applicable to the singular and plural forms of the terms defined. All
references to statutes and regulations shall include any amendments of the same
and any successor statutes and regulations. References to particular sections of
the UCC should be read to refer also to parallel sections of the Uniform
Commercial Code as enacted in each state or other jurisdiction where any portion
of the Collateral is or may be located.
ARTICLE 2
Security Interest
-----------------
Section 2.1 Security Interest. As collateral security for the prompt
-----------------
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as
collateral) to Secured Party, and grants to Secured Party a continuing lien on
and security interest in, all of Debtor's right, title and interest in and to
the following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the "Collateral"):
(a) all Nortel Networks Equipment purchased under the Master Purchase
Agreement, owned by Debtor and financed pursuant to the Credit Agreement,
including any such equipment that becomes a fixture, and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto;
(b) all Software;
(c) all Service Agreement Revenues; and
(d) all cash and non-cash Proceeds and products of any of the
foregoing.
<PAGE>
ARTICLE 3
Representations and Warranties
------------------------------
To induce Secured Party and the Lenders to enter into this Agreement and
the other Loan Documents, Debtor represents and warrants that:
Section 3.1 Title. Debtor is, and with respect to Collateral acquired
------
after the date hereof Debtor will be, the legal and beneficial owner of the
Collateral free and clear of any Lien or other encumbrance, except for Permitted
Liens and Liens in favor of Secured Party.
Section 3.2 Financing Statements. No financing statement, security
--------------------
agreement or other Lien instrument covering all or any part of the Collateral is
on file in any public office, except as may have been filed in favor of Secured
Party pursuant to this Agreement and except for financing statements evidencing
Permitted Liens. Except as otherwise disclosed on Schedule 1 hereto, Debtor does
not do business and has not done business within the past five (5) years under a
trade name or any name other than its legal name set forth at the beginning of
this Agreement.
Section 3.3 Principal Place of Business. The principal place of
---------------------------
business and chief executive office of Debtor, and the office where Debtor keeps
its books and records, is located at the address of Debtor shown at the
beginning of this Agreement.
Section 3.4 Location of Collateral. All Collateral of Debtor is
----------------------
located in the United States at the places specified on the order forms or
schedules to the Master Purchase Agreement. If any location where Collateral is
to be located is leased by Debtor, the name and address of the landlord leasing
such location shall be specified in connection with the order of such Collateral
pursuant to the Master Purchase Agreement. Debtor has exclusive possession and
control of its Collateral.
Section 3.5 Perfection. Upon the filing of Uniform Commercial Code
----------
financing statements in the jurisdictions listed on Schedule 2, the security
interest in favor of Secured Party created herein will constitute a valid and
perfected Lien upon and security interest in the Collateral, subject to no equal
or prior Liens except for those (if any) which constitute Permitted Liens.
ARTICLE 4
Covenants
---------
Debtor covenants and agrees with Secured Party that until the Obligations
are paid and performed in full, the obligations of Secured Party under the Loan
Documents and all Commitments of the Lenders have expired or have been
terminated:
Section 4.1 Encumbrances. Debtor shall not create, permit or suffer
------------
to exist, and shall defend the Collateral against, any Lien or other
<PAGE>
encumbrance on the Collateral except for Permitted Liens, and shall defend
Debtor's rights in the Collateral and Secured Party's pledge and collateral
assignment of and security interest in the Collateral against the claims and
demands of all Persons. Debtor shall do nothing to impair the rights of Secured
Party in the Collateral.
Section 4.2 Disposition of Collateral. Except as expressly permitted
-------------------------
by the terms of the Credit Agreement, Debtor shall not sell, lease, assign by
operation of law or otherwise, transfer or otherwise dispose of, or grant any
option with respect to, the Collateral or any part thereof without the prior
written consent of Secured Party.
Section 4.3 Further Assurances. At any time and from time to time,
------------------
upon the request of Secured Party, and at the sole expense of Debtor, Debtor
shall promptly execute and deliver all such further agreements, documents and
instruments and take such further action as Secured Party may reasonably deem
necessary or appropriate to preserve and perfect its security interest in and
pledge and collateral assignment of the Collateral and carry out the provisions
and purposes of this Agreement or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any of the Collateral.
Except as otherwise expressly permitted by the terms of the Credit Agreement
relating to disposition of assets and except for Permitted Liens, Debtor agrees
to defend the title to the Collateral and the Lien thereon of Secured Party
against the claim of any other Person and to maintain and preserve such Lien.
Without limiting the generality of the foregoing, Debtor shall, subject to the
terms of the Credit Agreement (a) execute and deliver to Secured Party such
financing statements as Secured Party may from time to time reasonably require;
(b) deliver and pledge to Secured Party all Documents (including, without
limitation, all documents of title) evidencing the Collateral (except for
certificates of title covering vehicles) and cause Secured Party to be named as
lienholder on all such Documents; and (c) execute and deliver to Secured Party
such other agreements, documents and instruments as Secured Party may require to
perfect and maintain the validity, effectiveness and priority of the Liens
intended to be created by the Loan Documents. Debtor authorizes Secured Party to
file one or more financing or continuation statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of Debtor
where permitted by law. A carbon, photographic or other reproduction of this
Agreement or of any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement and may be filed as a
financing statement.
Section 4.4 Insurance. Debtor shall maintain insurance in the types
---------
and amounts, and under the terms and conditions, specified in Section 8.5 of the
Credit Agreement. Recoveries under any such policy of insurance shall be paid as
provided in the Credit Agreement.
Section 4.5 Bailees. If any of the Collateral is at any time in the
-------
possession or control of any warehouseman, bailee or any of Debtor's agents or
processors, Debtor shall, at the request of Secured Party, notify such
warehouseman, bailee, agent or processor of the security interest created
hereunder and shall instruct such Person to hold such Collateral for Secured
Party's account subject to Secured Party's instructions.
Section 4.6 Inspection Rights. Debtor shall permit Secured Party and
-----------------
its representatives and agents, during normal business hours and upon reasonable
notice to the Debtor, to examine, copy and make extracts from its
<PAGE>
books and records, to visit and inspect its Properties and to discuss its
business, operations and financial condition with its officers and independent
certified public accountants, which items shall be at the expense of the Secured
Party unless an Event of Default has occurred and is continuing. The Debtor will
authorize its accountants in writing (with a copy to the Secured Party) to
comply with this Section 4.6. The Secured Party or its representatives may
conduct field exams at any time and from time to time for such purposes as the
Secured Party may reasonably request; provided, that such field exams shall be
conducted not more than once yearly and shall be at the expense of the Secured
Party, unless an Event of Default has occurred and is continuing in which case
such field exams may be conducted at any time and from time to time as shall be
reasonable and shall be at the expense of the Debtor.
Section 4.7 Corporate Changes. Debtor shall not change its name,
-----------------
identity or corporate structure in any manner that might make any financing
statement filed in connection with this Agreement seriously misleading unless
Debtor shall have given Secured Party thirty (30) days prior written notice
thereof and shall have taken all action deemed necessary or appropriate by
Secured Party to protect its Liens and the perfection and priority thereof.
Debtor shall not change its principal place of business, chief executive office
or the place where it keeps its books and records unless it shall have given
Secured Party thirty (30) days prior written notice thereof and shall have taken
all action reasonably deemed necessary or appropriate by Secured Party to cause
its security interest in the Collateral to be perfected with the priority
required by this Agreement.
Section 4.8 Books and Records; Information. Debtor shall keep
-------------------------------
accurate and complete books and records of the Collateral and Debtor's business
and financial condition in accordance with GAAP. Debtor shall from time to time
at the request of Secured Party deliver to Secured Party such information
required by the Credit Agreement regarding the Collateral and Debtor as Secured
Party may reasonably request, including, without limitation, lists and
descriptions of the Collateral and evidence of the identity and existence of the
Collateral. Debtor shall mark its books and records to reflect the security
interest of Secured Party under this Agreement.
Section 4.9 Collateral.
-----------
(a) Debtor shall keep the Collateral at the locations specified
in Section 3.4 hereto or at such other places within the U.S. where all
action required to perfect Secured Party's security interest in the
Collateral with the priority required by this Agreement shall have been
taken; provided that if any Collateral is being relocated to any
jurisdiction where the security interest of Secured Party under this
Agreement has not been previously perfected, then in such case Debtor shall
deliver prompt (and in any event within not less than thirty (30) days)
notice thereof to Secured Party.
(b) Debtor shall maintain the Collateral in good condition and
repair (ordinary wear and tear of the Collateral excepted). Debtor shall
not permit any waste or destruction of the Collateral. Debtor shall not
permit the Collateral to be used in violation of any law, rule or
regulation or the material terms of any policy of insurance. Debtor shall
not use or permit any of the Collateral to be used in any manner or for any
purpose other than in the ordinary course of business that would impair its
value or expose it to unusual risk.
<PAGE>
(c) Within forty-five (45) days of the end of each of Debtor's
fiscal quarters, Debtor shall provide Secured Party with a report setting
forth in reasonable detail any change during such preceding fiscal quarter
of the location of any Collateral.
Section 4.10 Warehouse Receipts Non-Negotiable. Debtor agrees that if
----------------------------------
any warehouse receipt or receipt in the nature of a warehouse receipt is issued
in respect of any of the Collateral, such warehouse receipt or receipt in the
nature thereof shall not be "negotiable" (as such term is used in Section 7-104
of the UCC) unless such warehouse receipt or receipt in the nature thereof is
delivered to Secured Party.
Section 4.11 Notification. Debtor shall promptly notify Secured Party
------------
of (a) any Lien, encumbrance or claim (other than Permitted Liens) that has
attached to or been made or asserted against any of the Collateral, (b) any
material change in any of the Collateral, including, without limitation, any
material damage to or loss of Collateral, and (c) the occurrence of any other
event or condition (including, without limitation, matters as to (i) Lien
priority and (ii) default under the terms of any service agreement, license
agreement or other agreement relating to Service Agreement Revenues) that could
have a Material Adverse Effect on the Collateral or the security interest
created hereunder.
Section 4.12 Transfers and Other Liens. Except as may be expressly
--------------------------
permitted by the terms of the Credit Agreement, Debtor shall not grant any
option with respect to, exchange, sell or otherwise dispose of any of the
Collateral or create or permit to exist any Lien upon or with respect to any of
the Collateral except for the Liens created hereby.
Section 4.13 Possession; Reasonable Care. Following the occurrence and
----------------------------
during the continuation of an Event of Default, Secured Party shall be entitled
to take possession of the Collateral. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Secured Party accords its own property, it being understood that
Secured Party shall not have any responsibility for taking any necessary steps
to preserve rights against any parties with respect to any Collateral.
Section 4.14 Maintenance of Certain Contracts. Debtor shall use its
commercially reasonable efforts to preserve and maintain the existence of all
service agreements, license agreements or other agreements relating to the
Service Agreement Revenues.
Section 4.15 Collection of Service Agreement Revenues. Debtor shall
promptly collect all amounts due or to become due to Debtor under all service
agreements, license agreements or other agreements relating to the Service
Agreement Revenues.
ARTICLE 5
Rights of Secured Party
Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes
-----------------
<PAGE>
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, to take after the
occurrence and during the continuance of an Event of Default and from time to
time thereafter, any and all action and to execute any and all documents and
instruments which Secured Party at any time and from time to time deems
necessary or desirable to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, Debtor hereby gives Secured Party the
power and right on behalf of Debtor and in its own name to do any of the
following after the occurrence and during the continuance of an Event of
Default, without notice to or the consent of Debtor:
(a) to demand, sue for, collect or receive, in the name of Debtor
or in its own name, any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral and, in
connection therewith, endorse checks, notes, drafts, acceptances, money
orders, documents of title or any other instruments for the payment of
money under the Collateral or any policy of insurance;
(b) to pay or discharge taxes, Liens or other encumbrances levied
or placed on or threatened against the Collateral;
(c) (i) to receive payment of and receipt for any and all monies,
claims and other amounts due and to become due at any time in respect of
or arising out of any Collateral; (ii) to sign and endorse any invoices,
freight or express bills, bills of lading, storage or warehouse receipts,
drafts against debtors, assignments, proxies, stock powers, verifications
and notices in connection with accounts and other documents relating to
the Collateral; (iii) to commence and prosecute any suit, action or
proceeding at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right
in respect of any Collateral; (iv) to defend any suit, action or
proceeding brought against Debtor with respect to any Collateral; (v) to
settle, compromise or adjust any suit, action or proceeding described
above and, in connection therewith, to give such discharges or releases as
Secured Party may deem appropriate; (vi) to exchange any of the Collateral
for other property upon any merger, consolidation, reorganization,
recapitalization or other readjustment of the issuer thereof and, in
connection therewith, deposit any of the Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon such
terms as Secured Party may determine; (vii) to add or release any
guarantor, indorser, surety or other party to any of the Collateral;
(viii) to renew, extend or otherwise change the terms and conditions of
any of the Collateral; (ix) to make, settle, compromise or adjust any
claims under or pertaining to any of the Collateral (including, without
limitation, claims under any policy of insurance); and (x) to sell,
transfer, pledge, convey, make any agreement with respect to or otherwise
deal with any of the Collateral as fully and completely as though Secured
Party were the absolute owner thereof for all purposes, and to do, at
Secured Party's option and Debtor's expense, at any time, or from time to
time, all acts and things which Secured Party deems necessary to protect,
preserve, maintain or realize upon the Collateral and Secured Party's
security interest therein. This power of attorney is a power coupled with
an interest and shall be irrevocable until this Agreement is terminated in
accordance with its terms. Secured Party shall be under no duty to
exercise or withhold the exercise of any of the rights, powers, privileges
and options expressly or implicitly granted to Secured Party in this
<PAGE>
Agreement, and shall not be liable for any failure to do so or any delay
in doing so. Neither Secured Party nor any Person designated by Secured Party
shall be liable for any act or omission or for any error of judgment or any
mistake of fact or law, except for gross negligence or willful misconduct. This
power of attorney is conferred on Secured Party solely to protect, preserve,
maintain and realize upon its security interest in the Collateral. Secured Party
shall not be responsible for any decline in the value of the Collateral and
shall not be required to take any steps to preserve rights against prior parties
or to protect, preserve or maintain any Lien given to secure the Collateral.
Section 5.2 Set-off. Each of Secured Party and the Lenders shall,
--------
after an Event of Default, have the right to set-off and apply against the
Obligations, at any time and without notice to Debtor, any and all deposits
(general or special, time or demand, provisional or final) or other sums at any
time credited by or owing from any of Secured Party or the Lenders to Debtor
whether or not the Obligations are then due. The rights and remedies of Secured
Party and the Lenders hereunder are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that Secured Party and
the Lenders may have.
Section 5.3 Assignment by Secured Party. In accordance with the provisions
of the Credit Agreement, any of Secured Party and the Lenders may at any time
assign or otherwise transfer all or any portion of its rights and obligations
under this Agreement and the other Loan Documents (including, without
limitation, the Obligations), in connection with an assignment of the
Obligations, to any other Person, and such other Person shall thereupon become
vested with all the benefits thereof granted to Secured Party and the Lenders,
respectively, herein or otherwise.
Section 5.4 Performance by Secured Party. If Debtor shall fail to perform
any covenant or agreement contained in this Agreement, Secured Party may perform
or attempt to perform such covenant or agreement on behalf of Debtor. In such
event, Debtor shall, at the request of Secured Party, promptly pay any amount
expended by Secured Party in connection with such performance or attempted
performance to Secured Party, together with interest thereon at the Default Rate
from and including the date of such expenditure to but excluding the date such
expenditure is paid in full. Notwithstanding the foregoing, it is expressly
agreed that Secured Party shall not have any liability or responsibility for the
performance of any obligation of Debtor under this Agreement.
ARTICLE 6
Default
Section 6.1 Rights and Remedies. If an Event of Default shall have occurred
and be continuing, Secured Party shall have the following rights and remedies
with respect to the Collateral (subject to Section 6.3):
-----------
(a) In addition to all other rights and remedies granted to
Secured Party in this Agreement or in any other Loan Document or by
applicable law, Secured Party shall have all of the rights and remedies of
a secured party under the UCC (whether or not the UCC applies to the
affected Collateral) and Secured Party may also, without notice except as
specified below, sell the Collateral or any part thereof in one or more
parcels at public or private sale, at any exchange, broker's board or at
any of Secured Party's offices or elsewhere, for cash, on credit or for
<PAGE>
future delivery, and upon such other terms as Secured Party may deem
commercially reasonable or otherwise as may be permitted by law. Without
limiting the generality of the foregoing, Secured Party may (i) without
demand or notice to Debtor, collect, receive or take possession of the
Collateral or any part thereof and for that purpose Secured Party may enter
upon any premises on which the Collateral is located and remove the
Collateral therefrom or render it inoperable, and/or (ii) sell, lease or
otherwise dispose of the Collateral, or any part thereof, in one or more
parcels at public or private sale or sales, at Secured Party's offices or
elsewhere, for cash, on credit or for future delivery, and upon such other
terms as Secured Party may deem commercially reasonable or otherwise as may
be permitted by law. Secured Party shall have the right at any public sale
or sales, and, to the extent permitted by applicable law, at any private
sale or sales, to bid (which bid may be, in whole or in part, in the form
of cancellation of indebtedness) and become a purchaser of the Collateral
or any part thereof free of any right or equity of redemption on the part
of Debtor, which right or equity of redemption is hereby expressly waived
and released by Debtor. Upon the request of Secured Party, Debtor shall
assemble the Collateral and make it available to Secured Party at any place
designated by Secured Party that is reasonably convenient to Debtor and
Secured Party. Debtor agrees that Secured Party shall not be obligated to
give more than five (5) days prior written notice of the time and place of
any public sale or of the time after which any private sale may take place
and that such notice shall constitute reasonable notice of such matters.
Secured Party shall not be obligated to make any sale of Collateral if it
shall determine not to do so, regardless of the fact that notice of sale of
Collateral may have been given. Secured Party may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and
place to which the same was so adjourned. Debtor shall be liable for all
expenses of retaking, holding, preparing for sale or the like, and all
attorneys' fees, legal expenses and other costs and expenses incurred by
Secured Party in connection with the collection of the Obligations and the
enforcement of Secured Party's rights under this Agreement. Debtor shall
remain liable for any deficiency if the Proceeds of any sale or other
disposition of the Collateral applied to the Obligations are insufficient
to pay the Obligations in full. Secured Party may apply the Collateral
against the Obligations in such order and manner as Secured Party may elect
in its sole discretion. Debtor waives all rights of marshaling, valuation
and appraisal in respect of the Collateral. Any cash held by Secured Party
as Collateral and all cash proceeds received by Secured Party in respect of
any sale of, collection from or other realization upon all or any part of
the Collateral may, in the discretion of Secured Party, be held by Secured
Party as collateral for, and then or at any time thereafter applied in
whole or in part by Secured Party against, the Obligations in such order as
Secured Party shall select. Any surplus of such cash or cash proceeds and
interest accrued thereon, if any, held by Secured Party and remaining after
payment in full of all the Obligations shall be paid over to Debtor or to
whomsoever may be lawfully entitled to receive such surplus; provided that
Secured Party shall have no obligation to invest or otherwise pay interest
on any amounts held by it in connection with or pursuant to this Agreement.
(b) Secured Party may cause any or all of the Collateral held by
it to be transferred into the name of Secured Party or the name or names of
Secured Party's nominee or nominees.
<PAGE>
(c) Secured Party may exercise any and all rights and remedies of
Debtor under or in respect of the Collateral, including, without
limitation, any and all rights of Debtor to demand or otherwise require
payment of any amount under, or performance of any provision of, any of the
Collateral and any and all voting rights and corporate powers in respect of
the Collateral.
(d) Secured Party may collect or receive all money or property at
any time payable or receivable on account of or in exchange for any of the
Collateral, but shall be under no obligation to do so.
(e) On any sale of the Collateral, Secured Party is hereby
authorized to comply with any limitation or restriction with which
compliance is necessary, in the view of Secured Party's counsel, in order
to avoid any violation of applicable law or in order to obtain any required
approval of the purchaser or purchasers by any applicable Governmental
Authority.
ARTICLE 7
Miscellaneous
Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of
------------------------------
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 7.2 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of Debtor and Secured Party and their respective
heirs, successors and permitted assigns, except that Debtor may not assign any
of its rights, indebtedness, liabilities or obligations under this Agreement
without the prior written consent of Secured Party.
Section 7.3 Entire Agreement; Amendment. THIS AGREEMENT EMBODIES THE
---------------------------
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES HERETO.
Section 7.4 Notices. All notices and other communications provided
-------
for in this Agreement shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested, or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof, or, as to any party, at such other address as shall
be designated by such party in a notice to the other party given in accordance
with this Section 7.4. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given
<PAGE>
when transmitted by telecopy or when personally delivered or, in the case of a
mailed notice, three (3) Business Days after deposit in the mails, in each case
given or addressed as aforesaid; provided, however, that notices to Secured
Party shall be deemed given when received by Secured Party.
Section 7.5 Governing Law; Submission to Jurisdiction; Service of
-----------------------------------------------------
Process. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN THE CREDIT
- -------
AGREEMENT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES) AND EACH OF THE PARTIES HERETO CHOOSE THE LAWS OF THE STATE OF NEW
YORK TO GOVERN THIS AGREEMENT PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401
(CONSOL. 1995) AND APPLICABLE LAWS OF THE U.S. DEBTOR HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK, (2) ANY NEW YORK STATE COURT SITTING IN NEW YORK,
NEW YORK, (3) THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, AND
(4) ANY TEXAS STATE COURT SITTING IN DALLAS, COUNTY, TEXAS, FOR THE PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. DEBTOR
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO DEBTOR AT ITS ADDRESS FOR
NOTICES SET FORTH UNDERNEATH ITS SIGNATURE HERETO. DEBTOR HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 7.6 Headings. The headings, captions and arrangements used in
--------
this Agreement are for convenience only and shall not affect the
interpretation of this Agreement.
Section 7.7 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the execution and delivery of this
Agreement, and no investigation by Secured Party shall affect the
representations and warranties or the right of Secured Party to rely upon them.
Section 7.8 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 7.9 Waiver of Bond. In the event Secured Party seeks to take
--------------
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
Section 7.10 Severability. Any provision of this Agreement which is
------------
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
<PAGE>
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
Section 7.11 Construction. Debtor and Secured Party acknowledge that
------------
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Debtor and Secured
Party.
Section 7.12 Termination. If all of the Obligations shall have been
-----------
paid and performed in full and all Commitments of the Lenders shall have expired
or terminated, Secured Party shall, upon the written request of Debtor, promptly
execute and deliver to Debtor a proper instrument or instruments acknowledging
the release and termination of the security interests created by this Agreement,
and shall duly assign and deliver to Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of Secured Party and has not previously been sold or otherwise applied pursuant
to this Agreement.
Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED
PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
[The remainder of this page has been intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
DEBTOR:
CAIS, INC.
By: /s/ Ulysses G. Auger, II
Name: Ulysses G. Auger, II
Title: Chief Executive Officer
Address for Notices:
-------------------
1255 22nd Street, N.W.
Fourth Floor
Washington, D.C. 20037
Attention:
Telecopy No.: (202)
Telephone No.: (202)
<PAGE>
SECURED PARTY:
-------------
NORTEL NETWORKS INC.,
as Administrative Agent
By: /s/ Michael W. McCorkle
-----------------------
Name: Michael W. McCorkle
Title: Director, Customer Finance
Address for Notices:
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 04 B30
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance
North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe, Loan
Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
<PAGE>
SCHEDULE 1
----------
TRADE AND OTHER NAMES
To be attached.
<PAGE>
SCHEDULE 2
----------
UNIFORM COMMERCIAL CODE FINANCING STATEMENTS
To be attached.
<PAGE>
[LETTERHEAD OF CISCO SYSTEMS CAPITAL]
EXECUTION COPY
June 30, 1999
CAIS, Inc.
1255 22nd Street NW
Fourth Floor
Washington D.C. 20037
Attn: Ulysses G. Auger, II
Ladies and Gentlemen:
Cisco Systems Capital Corporation ("Lender"), a corporation organized and
existing under the laws of the State of Nevada, is pleased to make a credit
facility available to CAIS, Inc. ("Borrower"), a corporation organized and
existing under the laws of the State of Virginia, on the following terms and
conditions:
SECTION 1. DEFINITIONS.
------------
1.1 As used in this agreement (this "Agreement"), the following terms
shall have the following meanings:
"Availability Period" has the meaning set forth in the Schedule.
-------------------
"Banking Day" has the meaning set forth in the Note(s).
-----------
"Bankruptcy Code" means Title 11 of the United States Code entitled
---------------
"Bankruptcy".
"Borrower" has the meaning set forth in the recital of parties to this
--------
Agreement.
"Borrowing Date" means any date on which a Loan is made to Borrower.
--------------
"CAIS Internet" means CAIS Internet, Inc., a Delaware corporation.
-------------
"Cisco Systems" means Cisco Systems, Inc. or any subsidiary or
-------------
affiliate thereof.
"Cisco Service Agreement" means any service agreement, license
-----------------------
<PAGE>
agreement, or other agreement relating to any hotel property, multiple dwelling
unit property or other property at which Financed Products are utilized by
Borrower.
"Cisco Service Agreement Revenues" means the revenues, payments,
--------------------------------
accounts receivable, proceeds, monies or other amounts received by or payable to
the Borrower under any Cisco Service Agreement.
"Cisco Products" means information systems networking equipment and
--------------
other goods, spare parts and accessories which Cisco Systems manufactures,
assembles or sells.
"Change of Control" means the occurrence of any of the following
-----------------
events: (a) any "person" or "group" (as such terms are used in Sections 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
excluding Ulysses G. Auger, Sr., Ulysses G. Auger, II and/or their affiliates,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 or 13d-5 under
the Exchange Act), directly or indirectly, of more than 30% of the total voting
power of all voting stock of CAIS Internet (except that the person or group
shall not be deemed the "beneficial owner" of shares tendered pursuant to a
tender or exchange offer made by that person or group or any of their affiliates
until the tendered shares are accepted for purchase or exchange) or (b) during
any consecutive two-year period, individuals who at the beginning of such period
constituted CAIS Internet's Board of Directors (together with any new directors
whose election by the Board or whose nomination for election by the stockholders
of CAIS Internet was approved by a vote of a majority of the directors then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board then in office.
"Closing Date" has the meaning set forth in Section 3.1.
------------
"Closing Deadline" has the meaning set forth in the Schedule.
----------------
"Collateral" means the property described in the Collateral
----------
Documents, and all other property now existing or hereafter acquired which may
at any time be or become subject to a Lien in favor of Lender pursuant to the
Collateral Documents or otherwise, securing the payment and performance of the
Obligations. Notwithstanding the foregoing, the term "Collateral" shall not
include any assets or property of Borrower specifically excluded in the term
"Collateral" pursuant to the Collateral Documents.
"Collateral Documents" means each Collateral Document identified in
--------------------
the Schedule, any security agreement provided under Section 5.1(l) and any other
agreement pursuant to which Borrower, any Guarantor or any other Person
provides a Lien on its assets in favor of Lender and all filings, documents and
agreements made or delivered pursuant thereto.
<PAGE>
"Commencement Date of Tranche A2" has the meaning set forth in the
-------------------------------
Schedule.
"Commitment" means the Dollar amount set forth in the Schedule or
----------
where the context so requires, the obligation of Lender to make Loans up to such
aggregate principal amount on the terms and conditions set forth in this
Agreement.
"Compliance Certificate" means a certificate of CAIS Internet, in
----------------------
substantially the form of Exhibit D, with such changes thereto as Lender may
from time to time reasonably request.
"Creditor" has the meaning set forth in the Schedule.
--------
"Default" means an Event of Default or an event or condition which
-------
with notice or lapse of time or both would constitute an Event of Default.
"Dollars" and the sign "$" each means lawful money of the United
-------
States.
"Event of Default" has the meaning set forth in Section 6.1.
----------------
"Financed Products" means the Cisco Products and other goods the
-----------------
acquisition of which is financed by Lender hereunder.
"GAAP" means generally accepted accounting principles as in effect
----
from time to time.
"Governmental Authority" means any national government, or any
----------------------
state, province or other political subdivision thereof or therein, or any
governmental ministry, department, body, commission, board, bureau, agency,
central bank, court, tribunal or other instrumentality or authority exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantor" means CAIS Internet and any Subsidiary of Borrower
---------
becoming a guarantor as provided under Section 5.1(l) and any guarantor
identified in the Schedule.
"Guarantor Documents" means any Guaranty and all other documents,
-------------------
agreements and instruments delivered to Lender under or in connection with any
Guaranty.
<PAGE>
"Guaranty" means the guaranty of any Guarantor, as provided under
--------
Section 5.1(l), and any guaranty of any Guarantor identified in the Schedule.
"Indebtedness" means, for any Person, (i) all indebtedness or other
------------
obligations of such Person for borrowed money, or for the deferred purchase
price of property or services (acquired or obtained other than on normal trade
credit terms); (ii) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (iii) all non-contingent
reimbursement and other obligations of such Person in respect of letters of
credit and bankers acceptances and all net obligations in respect of interest
rate swaps, caps, floors and collars, currency swaps, or other similar financial
products (collectively, "Swap Agreements"); (iv) all obligations under leases
which shall have been or should be, in accordance with GAAP, recorded as capital
leases; and (v) all indebtedness of another Person of the types referred to in
clauses (i) through (iv) guaranteed directly or indirectly in any manner by the
Person for whom Indebtedness is being determined.
"Insolvency Proceeding" means (i) any case, action or proceeding
---------------------
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution, winding-up
or relief of debtors, or (ii) any general assignment for the benefit of
creditors, composition, marshalling of assets for creditors, or other, similar
arrangement in respect of its creditors generally or any substantial portion of
its creditors, in each case undertaken under U.S. federal, state or foreign law,
including the Bankruptcy Code.
"Landlord Agreement" has the meaning set forth in the Schedule.
------------------
"Lien" means any mortgage, pledge, security interest, assignment,
----
deposit arrangement, charge or encumbrance, lien or other type of preferential
arrangement (other than a financing statement filed by a lessor in respect of an
operating lease not intended as security).
"Loan Documents" means this Agreement, the Notes, any Collateral
--------------
Documents, any Guaranty, any Guarantor Documents and all other certificates,
documents, agreements and instruments delivered to Lender under or in connection
with this Agreement.
"Loans" has the meaning set forth in Section 2.1.
-----
"Material Adverse Change" means (i) a material adverse change in the
-----------------------
business, operations or financial condition of Borrower and its Subsidiaries
taken as a whole or any Guarantor and its Subsidiaries taken as a whole, or (ii)
any event, matter, condition or circumstance which (A) would materially impair
the ability of Borrower or any Guarantor to perform or observe its
<PAGE>
obligations under or in respect of the Loan Documents, or (B) affects the
legality, validity, binding effect or enforceability of any of the Loan
Documents.
"Nortel" means Nortel Networks Inc., a Delaware corporation.
-------
"Nortel Credit Agreement" means that certain Credit Agreement dated as
-----------------------
of June 4, 1999 by and among Borrower, Nortel, as administrative agent, and the
Lender named therein.
"Nortel Collateral" means certain collateral as described in Section
-----------------
5.1 of the Nortel Credit Agreement and Section 2.1 of the Nortel Security
Agreement.
"Nortel Networks Equipment" has the meaning set forth in Section 1.1
-------------------------
of the Nortel Credit Agreement.
"Nortel Networks Software" has the meaning set forth in Section 1.1 of
------------------------
the Nortel Credit Agreement.
"Nortel Security Agreement" means that certain Security Agreement
-------------------------
dated as of June 4, 1999 by and between Borrower and Nortel.
"Note" means each Promissory Note referred to in the Schedule.
----
"Obligations" means the indebtedness, liabilities and other
-----------
obligations of Borrower and any Guarantor to Lender under or in connection with
the Loan Documents, including all Loans, all interest accrued thereon, all fees
due under this Agreement and all other amounts payable by Borrower and any
Guarantor to Lender thereunder or in connection therewith.
"Permitted Acquisitions" means any transaction or series of related
----------------------
transactions for the purpose of or resulting, directly or indirectly, in (i) the
acquisition of all or substantially all of the assets of a Person, or of any
business or division of a Person, (ii) the acquisition of all or any of the
capital stock, partnership interests, membership interests or equity of any
Person, or otherwise causing any Person to become a Subsidiary, or (iii) a
merger or consolidation or any other combination with another Person (other than
a Person that is a Subsidiary), provided that Borrower, or its Subsidiary, is
the surviving Person (an "Acquisition"); and provided further that the
Acquisition conforms to the following requirements: (a) Lender shall have
received promptly, and in any event no less than 15 Banking Days prior to
the consummation of such Acquisition, financial information regarding the
assets, Person or business to be acquired, including the most recent audited
financial statements, if available, but in any case the most recently prepared
balance sheet, statement of income and statement of cash flows for the assets,
<PAGE>
Person or business to be acquired and pro forma projected financial statements
showing the effect of the Acquisition of the assets, Person or business on CAIS
Internet, including a balance sheet for CAIS Internet and its Subsidiaries as of
the time of the Acquisition and projected statements of income and cash flows
for CAIS Internet and its Subsidiaries through at least the maturity date of the
Loans, (b) all transactions related to such Acquisition shall be consummated in
accordance with applicable Requirements of Law, and (c) immediately after giving
effect to such Acquisition no Default or Event of Default shall have occurred
and be continuing or would result therefrom.
"Permitted Liens" means: (i) Liens in favor of Lender, (ii) the
---------------
existing Liens disclosed in writing to Lender or incurred in connection with the
extension, renewal or refinancing of the Indebtedness secured by such existing
Liens, provided that any extension, renewal or replacement Lien shall
--------
be limited to the property encumbered by the existing Lien and the principal
amount of the Indebtedness being extended, renewed or refinanced does not
increase; (iii) Liens for taxes, fees, assessments or other governmental charges
or levies, either not delinquent or being contested in good faith by appropriate
proceedings and which are adequately reserved for in accordance with GAAP,
provided the same does not have priority over any of Lender's Liens
- --------
and no notice of tax lien has been filed of record; (iv) Liens of materialmen,
mechanics, warehousemen, carriers or employees or other similar Liens provided
for by mandatory provisions of law and securing obligations either not
delinquent or being contested in good faith by appropriate proceedings and which
do not in the aggregate materially impair the use or value of the property or
risk the loss or forfeiture thereof; (v) Liens consisting of deposits or pledges
to secure the performance of bids, trade contracts, leases, public or statutory
obligations, or other obligations of a like nature incurred in the ordinary
course of business (other than for Indebtedness); (vi) Liens upon or in any
property acquired or held by any Person or any of its Subsidiaries to secure the
purchase price of such property or Indebtedness incurred solely for the purpose
of financing the acquisition of such property, provided that (A) any such Lien
--------
attaches to such property concurrently with or within 30 days after the
acquisition thereof, (B) such Lien attaches solely to the property so acquired
in such transaction, (C) the principal amount of the Indebtedness secured
thereby does not exceed 100% of the cost of such property, and (D) such
Indebtedness is permitted hereunder; (vii) restrictions and other minor
encumbrances on real property which do not in the aggregate materially impair
the use or value of such property or risk the loss or forfeiture thereof; and
(viii) Liens upon or in the Nortel Collateral pursuant to the Nortel Credit
Agreement and the Nortel Security Agreement; provided
---------
that the term "Permitted Liens" shall not include any Liens on any Collateral
consisting of Financed Products or any identifiable proceeds thereof or any
Cisco Service Agreements.
"Person" means an individual, corporation, partnership, joint venture,
------
trust, unincorporated organization or any other entity of whatever nature or
any Governmental Authority.
<PAGE>
"Requirement of Law" means, as to any Person, any law, treaty, rule or
------------------
regulation or determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its property or to
which the Person or any of its property is subject.
"Responsible Officer" means, as to any Person, the chief financial
-------------------
officer or treasurer of such Person(or any other senior officer of such Person
involved principally in the financial administration or controllership function
of such Person).
"Schedule" means the Schedule of Information attached hereto.
--------
"Subordinated Debt" has the meaning set forth in Section 5.1(j).
-----------------
"Subsidiary" means any corporation, association, partnership, joint
----------
venture or other business entity of which more than 50% of the voting stock or
other equity interest is owned directly or indirectly by any Person or one or
more of the other Subsidiaries of such Person or a combination thereof.
"Town & Country" means Town and Country Trust and any Person controlled
--------------
by or under common control with Town and Country Trust.
"Tranche A1" has the meaning set forth in the Schedule.
----------
"Tranche A2" has the meaning set forth in the Schedule.
----------
"United States" and "U.S." each means the United States of America.
------------- ---
"Vendor" means Cisco Systems, or any distributor or other reseller of
------
Cisco Products.
"Wholly-Owned Subsidiary" means any corporation in which (other than
-----------------------
directors' qualifying shares required by law) 100% of the capital stock of each
class having ordinary voting power, and 100% of the capital stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by CAIS Internet, or by one or more of the
other Wholly-Owned Subsidiaries, or both.
1.2 Interpretation. In the Loan Documents, except to the
---------------
extent the context otherwise requires: (i) any reference to an Article, a
Section, a Schedule or an Exhibit is a reference to an article or section
thereof, or a schedule or an exhibit thereto, respectively, and to a subsection
or a clause is, unless otherwise stated, a reference to a subsection or a clause
of the Section or subsection in which the reference appears; (ii) the words
"hereof," "herein," "hereto," "hereunder" and the like mean and refer to this
Agreement or any other Loan Document as a whole and not
<PAGE>
merely to the specific Article, Section, subsection, paragraph or clause in
which the respective word appears; (iii) the meaning of defined terms shall be
equally applicable to both the singular and plural forms of the terms defined;
(iv) the words "including," "includes" and "include" shall be deemed to be
followed by the words "without limitation;" (v) references to agreements and
other contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto; (vi) references to statutes or
regulations are to be construed as including all statutory and regulatory
provisions consolidating, amending or replacing the statute or regulation
referred to; (vii) any table of contents, captions and headings are for
convenience of reference only and shall not affect the construction of this
Agreement or any other Loan Document; and (viii) in the computation of periods
of time from a specified date to a later specified date, the word "from" means
"from and including"; the words "to" and "until" each mean "to but excluding";
and the word "through" means "to and including."
SECTION 2. THE LOAN FACILITY.
-----------------
2.1 The Loans. Subject to compliance with the conditions precedent
---------
set forth in Sections 3.1 and 3.2, Lender agrees, on the terms and conditions
hereinafter set forth, to make loans (each a "Loan" and, collectively, the
"Loans") to Borrower during the Availability Period, in an aggregate principal
amount up to but not exceeding the Commitment. Any amount of the Loans repaid
may not be reborrowed.
2.2 Use of Proceeds. Borrower agrees to use the proceeds of any Loans
----------------
made hereunder solely for the purposes described in the Schedule.
2.3 Borrowing Procedure. Except to the extent otherwise provided in
-------------------
the Schedule, each Loan to be made hereunder shall be in such minimum
principal amount and subject to such advance written notice, or telephonic
notice (confirmed immediately in writing), as shall be mutually agreed by
Borrower and Lender. Each such written notice of borrowing shall be in
substantially the form of Exhibit A (with appropriate completions). Upon
---------
fulfillment of the applicable conditions set forth in Section 3.1 and 3.2,
Lender shall make the proceeds of the Loan available to Borrower in accordance
with its payment instructions. In the case of any Loan made hereunder for the
purpose of paying the purchase price of Cisco Products, (i) Lender shall make
the Loan available directly to the Vendor on the Borrowing Date (which date
shall not be earlier than the date such Loan is deemed to be outstanding in
accordance with clause (ii)), and Borrower hereby authorizes and directs Lender
to make direct payment to the Vendor of all such Loan proceeds, and
(ii) each such Loan shall be deemed to be outstanding hereunder and under the
Note evidencing such Loan effective as of the date 30 days after the invoice
date of the Cisco Products which are being financed by such Loan. Promptly
following each Loan funding Lender shall send Borrower a written confirmation of
the Loan funding, provided that any failure to send, or delay in sending, such
confirmation shall not limit or otherwise affect the obligation of Borrower to
pay any amount owing with respect to the Loans.
<PAGE>
2.4 Evidence of Indebtedness. As additional evidence of the
-------------------------
Indebtedness of Borrower to Lender resulting from the Loans made by Lender,
Borrower shall execute and deliver the Note (or Notes) required pursuant to the
Schedule.
2.5 Interest and Fees.
------------------
(a) Interest. Borrower shall pay interest on the unpaid
--------
principal amount of each Loan at the interest rate and on the dates set forth in
the Note evidencing such Loan.
(b) Fees. Borrower agrees to pay to Lender such fee as may be
----
specified in the Schedule, payable on the date set forth in the Schedule. All
fees payable under this Section 2.5 shall be nonrefundable.
(c) Determinations. Each determination by Lender of any
--------------
applicable rate of interest, and of any change therein, in the absence of
manifest error shall be conclusive and binding on the parties hereto.
2.6 Computations. All computations of fees and interest hereunder
------------
shall be made on the basis of a year of 360 days for the actual number of days
occurring in the period for which any such interest or fee is payable.
2.7 Highest Lawful Rate. Anything herein to the contrary
--------------------
notwithstanding, if during any period for which interest is computed hereunder,
the applicable interest rate, together with all fees, charges and other payments
which are treated as interest under applicable law, as provided for herein or in
any other Loan Document, would exceed the maximum rate of interest which may be
charged, contracted for, reserved, received or collected by Lender in connection
with this Agreement under applicable law (the "Maximum Rate"), Borrower shall
not be obligated to pay, and Lender shall not be entitled to charge, collect,
receive, reserve or take, interest in excess of the Maximum Rate, and during any
such period the interest payable hereunder shall be limited to the Maximum Rate.
2.8 Repayment of the Loans. Borrower shall repay to Lender the
----------------------
principal amount of each Loan in accordance with the terms and conditions of the
Note evidencing such Loan.
2.9 Prepayments. Borrower may, upon prior notice to Lender,
------------
prepay the outstanding amount of the Loans in whole or in part. If any mandatory
prepayments are required under the Schedule, Borrower shall prepay the
outstanding Loans in the amounts and at the times specified in the Schedule. Any
such prepayments shall not be subject to any fee, premium or penalty except to
the extent a prepayment fee is required under the Schedule. The notice given of
any prepayment shall identify the Loan to be prepaid and specify the date and
amount of the prepayment. Partial prepayments of a Loan shall be applied to the
installments of principal thereof in the inverse order
<PAGE>
of maturity. Accrued interest on any such Loan prepaid shall be due on the
prepayment date as to the principal amount of such Loan prepaid.
2.10 Reduction or Termination of the Commitment. Borrower may, upon
------------------------------------------
prior notice to Lender, terminate in whole or reduce in part, as of the date
specified by Borrower in such notice, any then unused portion of the Commitment.
From the effective date of any reduction or termination, any commitment fee
payable pursuant to the Schedule shall be computed on the basis of the
Commitment as so reduced or terminated. Once reduced or terminated, the
Commitment may not be increased or otherwise reinstated.
2.11 Increased Costs. If, due to either (i) the adoption of, or any
----------------
change in, any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof (a "Regulatory Change"), or
(ii) compliance by Lender with any request, guideline or directive (whether or
not having the force of law) of any such Governmental Authority, there shall be
any increase in the cost to Lender of agreeing to make or making, or funding or
maintaining, any Loan, or any reduction of any amount received or receivable by
Lender under this Agreement or the Note with respect thereto, then from time to
time, within 15 days after demand by Lender, Borrower shall pay to Lender such
additional amounts as shall compensate Lender for such increased cost or
reduction. Any such request for compensation by Lender under this Section 2.11
shall set forth the basis of calculation thereof and shall, in the absence of
manifest error, be conclusive and binding for all purposes. In determining the
amount of such compensation, Lender may use any reasonable averaging and
attribution methods.
2.12 Payments. Borrower shall make each payment under the Loan
---------
Documents unconditionally in full and free and clear of, and without reduction
for or on account of, any present and future taxes or withholdings, and all
liabilities with respect thereto. Each such payment shall be made without
set-off, counterclaim or, to the extent permitted by applicable law, other
defense, including without any deduction or setoff arising out of or in
connection with the purchase of the Cisco Products, all of which rights of
Borrower are hereby expressly waived by Borrower; provided, however, that no
payment hereunder shall be deemed to be a waiver of any right or claim that
Borrower may have against Cisco Systems or other Vendor with respect to the
Cisco Products. Each such payment shall be made on the day when due to Lender in
Dollars and in immediately available funds, to Lender's account specified in the
Schedule or to such other bank and/or account of Lender as it from time to time
shall designate in a written notice to Borrower.
SECTION 3. CONDITIONS PRECEDENT.
--------------------
3.1 Conditions Precedent to the Initial Loan. The obligation of
-----------------------------------------
Lender to make its Loan on the initial Borrowing Date (the "Closing Date") shall
be subject to the satisfaction on or before the Closing Deadline of each of the
following conditions precedent before or concurrently with the initial Loan:
<PAGE>
(a) Documents. Lender shall have received the following, in form and
---------
substance reasonably satisfactory to it: (i) the Note (or Notes) required under
the Schedule, executed by Borrower; (ii) any required Guaranty and any
additional Loan Documents specified in the Schedule, executed by each of the
respective parties thereto, and (iii) any other documents and information
reasonably requested by Lender and specified in the Schedule.
(b) Additional Closing Documents. Lender shall have received the
----------------------------
following, in form and substance reasonably satisfactory to it: (i) evidence
that all approvals or consents of any other Person, required in connection with
the execution, delivery and performance of the Loan Documents shall have been
obtained; (ii) a certificate of the Secretary or other appropriate officer of
Borrower, dated the Closing Date, or a date not more than five Banking Days
prior to the Closing Date, certifying (A) copies of the certificate or articles
of incorporation and bylaws of Borrower and the resolutions adopted by Borrower
and other actions taken or adopted by Borrower (or any shareholders of Borrower)
authorizing the execution, delivery and performance of the Loan Documents, and
(B) the incumbency, authority and signatures of each officer of Borrower
authorized to execute and deliver the Loan Documents and act with respect
thereto; and (iii) a certificate of the Secretary or other appropriate officer
of any Guarantor, dated the Closing Date, or a date not more than five Banking
Days prior to the Closing Date, certifying (A) copies of the certificate or
articles of incorporation and bylaws of any Guarantor and the resolutions and
other actions taken or adopted by any Guarantor authorizing the execution,
delivery and performance of any Guarantor Documents, and (B) the incumbency,
authority and signatures of each officer of any Guarantor authorized to execute
and deliver any Guarantor Documents and act with respect thereto.
(c) Legal Opinion. Lender shall have received a legal opinion of
--------------
legal counsel to Borrower and any Guarantor, dated the Closing Date, or a date
not more than five Banking Days prior to the Closing Date, in form and substance
reasonably satisfactory to Lender.
(d) Collateral. If any Collateral Documents are referred to in the
----------
Schedule, Lender shall have received the following, in form and substance
reasonably satisfactory to it: (i) executed copies of all UCC-1 financing
statements necessary or appropriate in the reasonable opinion of Lender to
perfect the security interests of Lender created under the Collateral Documents;
(ii) written advice relating to such Lien and judgment searches as Lender shall
have requested, and such termination statements or other documents, as may be
necessary to confirm that the Collateral described in the Collateral Documents
is subject to no other Liens in favor of any Persons (other than Permitted
Liens); (iii) evidence that all other actions necessary or appropriate in the
reasonable opinion of Lender to perfect and protect the security interest
created by the Collateral Documents have been taken; and (iv) evidence that
Lender has been named as loss payee under all policies of property insurance,
and as additional insured under all policies of liability insurance, as required
by the Collateral Documents.
(e) Fees, Costs and Expenses. Borrower shall have paid (i) all
------------------------
<PAGE>
fees then due in accordance with the Schedule, and (ii) all invoiced costs and
expenses then due in accordance with Section 7.4.
(f) Compliance Certificate. Lender shall have received a
-----------------------
completed Compliance Certificate of a Responsible Officer of Borrower, as of the
end of the fiscal quarter immediately preceding the Closing Date.
3.2 Conditions Precedent to All Loans. The obligation of
----------------------------------
Lender to make each Loan shall be subject to the satisfaction of each of the
following conditions precedent:
(a) Use of Proceeds. Lender shall have received details with
---------------
respect to the use of proceeds of the Loan (in the form of a schedule or other
listing of the Financed Products or otherwise in a form as shall be reasonably
specified by Lender or in the Schedule).
(b) Representations and Warranties; No Default. On and as of
-------------------------------------------
the date of such Loan, both before and after giving effect thereto and to the
application of proceeds therefrom: (i) the representations and warranties
contained in Section 4.1 and in the other Loan Documents shall be true, correct
and complete as though made on and as of such date; and (ii) no Default shall
have occurred and be continuing or shall result from the making of such Loan.
For purposes of this Section 3.2, clause (i) shall take into account any
amendments to any disclosures made in writing by Borrower and any Guarantor to
Lender after the Closing Date and approved by Lender. The giving of any notice
of borrowing and the acceptance by Borrower of the proceeds of each Loan made
following the Closing Date shall each be deemed a certification to Lender that
on and as of the date of such Loan such statements are true.
(c) Material Adverse Change. On and as of the date of such
------------------------
Loan, there shall have occurred no Material Adverse Change since the date of the
financial statements furnished to Lender prior to the Closing Date.
(d) Additional Documents and Conditions. Lender shall have
-----------------------------------
received, in form and substance reasonably satisfactory to it, such additional
approvals, opinions, documents and other information as Lender may reasonably
request, including any specified in the Schedule, and any additional conditions
precedent set forth in the Schedule shall have been satisfied.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
-------------------------------
4.1 Representations and Warranties of Borrower. Borrower
represents and warrants to Lender that:
(a) Organization and Powers. Borrower (i) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, (ii) has all requisite power and authority to
own its assets and carry on its business and to execute, deliver and
<PAGE>
perform its obligations under the Loan Documents, (iii) is qualified to do
business and is in good standing in each jurisdiction in which the failure so to
qualify or be in good standing would result in a Material Adverse Change, and
(iv) is in compliance with all Requirements of Law, except to the extent that
such noncompliance could not reasonably be expected to result in a Material
Adverse Change.
(b) Authorization; No Conflict. The execution, delivery and
--------------------------
performance by Borrower of the Loan Documents have been duly authorized by all
necessary corporate action of Borrower and do not and will not (i) contravene
the terms of the articles or certificate of incorporation, or bylaws, of
Borrower; or (ii) result in a breach of or constitute a default under any
material lease, instrument, contract or other agreement to which Borrower is a
party or by which it or its properties may be bound or affected; or (iii)
violate any provision of any law, rule, regulation, order, judgment, decree or
the like binding on or affecting Borrower except as to clauses (ii) and (iii),
to the extent any such breach, default or violation could not reasonably be
expected to result in a Material Adverse Change.
(c) Binding Obligations. The Loan Documents constitute, or
-------------------
when delivered under this Agreement will constitute, legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms except as may be limited by bankruptcy, insolvency, fraudulent
conveyances, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally and general principles of equity,
including, concepts of materiality, reasonableness, good faith and fair dealing
and the possible unavailability of specific performance or injunctive relief,
regardless of whether considered in a proceeding in equity or at law.
(d) Consents. No authorization, consent, approval, license,
--------
exemption of, or filing or registration with, any Governmental Authority, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by Borrower or any Guarantor of any of the Loan
Documents or the purchase of the Cisco Products, except (1) as may be set forth
in the Schedule or (2) where the failure to obtain the foregoing could not
reasonably be expected to result in a Material Adverse Change. (e) Litigation.
There are no actions, suits or proceedings pending or, to the best of Borrower's
knowledge, threatened against or affecting Borrower or any of its Subsidiaries
before any Governmental Authority or arbitrator which if determined adversely to
Borrower or any such Subsidiary would result in a Material Adverse Change.
(f) Financial Statements. All financial statements of
--------------------
Borrower and its Subsidiaries delivered to Lender are complete and correct and
fairly present the financial condition of Borrower and its Subsidiaries as at
the times and for the periods covered by such statements, in each case in
accordance with GAAP, consistently applied, subject, in the case of any
unaudited financial statements, to normal year-end adjustments and any absence
of notes. Since the date of the most recent financial statements furnished to
Lender prior to the Closing Date, there has not been, nor is it reasonably
likely that there will be, any Material Adverse Change.
<PAGE>
(g) Purchase Transaction. Each purchase transaction to be financed
---------------------
with any Loan represents a bona fide and undisputed transaction between Borrower
and the Vendor (or other applicable vendor of Financed Products) entered into in
compliance in all material respects with all applicable laws and regulations.
(h) Subsidiaries. Except as set forth in the Schedule, on the date
-------------
of this Agreement Borrower has no Subsidiaries.
(i) Patents and Other Rights. Each of Borrower and its Subsidiaries
-------------------------
possesses all approvals, authorizations, permits, franchises, licenses, patents,
trademarks, trade names, service marks, copyrights, leases and all rights with
respect thereto, free from burdensome restrictions, that are reasonably
necessary for the ownership, maintenance and operation of its business, except
to the extent the failure to possess the foregoing could not reasonably be
expected to result in a Material Adverse Change, and neither Borrower nor any
such Subsidiary is in material violation of any rights of others with respect to
the foregoing except for violations which could not reasonably be expected to
result in a Material Adverse Change.
(j) Insurance. The properties of Borrower and its Subsidiaries are
----------
insured, with financially sound and reputable insurance companies, in such
amounts, with such deductibles and covering such risks as is customarily carried
by companies engaged in similar businesses and owning similar properties in the
localities where Borrower or such Subsidiary operates.
(k) Year 2000 Compliance. On the basis of a comprehensive review and
---------------------
assessment of Borrower's and its Subsidiaries' systems and equipment and inquiry
made of Borrower's and its Subsidiaries' material suppliers, vendors and
customers, Borrower reasonably believes that the "Year 2000 problem" (that is,
the inability of computers, as well as embedded microchips in non-computing
devices, to perform properly date-sensitive functions with respect to certain
dates prior to and after December 31, 1999), including costs of remediation,
will not result in a Material Adverse Change.
(l) Disclosure. None of the representations or warranties made by
-----------
Borrower in the Loan Documents as of the date of such representations and
warranties, and none of the statements contained in any other information with
respect to Borrower and its Subsidiaries, including each exhibit or report,
furnished by or on behalf of Borrower to Lender in connection with the Loan
Documents, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading.
(m) Location of Financed Products. As of the date hereof, Borrower
-----------------------------
does not anticipate locating Financed Products within the multiple dwelling
units owned by Town & Country other than those locations listed on Exhibit E
attached hereto and the value of such Financed Products at such locations will
not, in the aggregate, exceed $500,000. As of the date hereof, Borrower does
<PAGE>
not anticipate maintaining points of presence where Financed Products will be
located, except for those locations listed on Exhibit E attached hereto.
4.2 Representations and Warranties of Lender. Lender represents
-----------------------------------------
and warrants to Borrower that Lender: (i) will acquire each Note for its own
account for investment and (subject to the disposition of its property being at
all times within its control) not with a view to any resale or other
distribution of such Note in a transaction constituting a public offering or
otherwise requiring registration under the Securities Act of 1933, as amended
(the "Securities Act") or in a transaction that would result in noncompliance
with applicable state securities laws; (ii) has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and the
risks of its acquisition of any Note and credit extensions to Borrower, (iii) is
an accredited investor as such term is defined in Rule 501 of Regulation D under
the Securities Act, and (iv) understands that such Note has not been, and will
not be, registered under the Securities Act or any state securities laws.
SECTION 5. COVENANTS.
-----------
5.1 Covenants. So long as any of the Obligations shall remain
----------
unpaid or Lender shall have any Commitment, Borrower agrees that:
(a) Financial Statements and Other Information. Borrower shall
-------------------------------------------
furnish to Lender: (i) as soon as available and in any event within 45 days
after the end of the first three fiscal quarters of each fiscal year of CAIS
Internet or 90 days (in the case of the fourth fiscal quarter), the quarterly
consolidated financial statements of CAIS Internet, prepared in accordance with
GAAP, and, if requested by Lender, the quarterly consolidating financial
statements of CAIS Internet, accompanied by a certificate of a Responsible
Officer of CAIS Internet stating that such financial statements fairly present
the financial condition of CAIS Internet and its Subsidiaries as at such date
and the results of operations of CAIS Internet and its Subsidiaries for the
period ended on such date and have been prepared in accordance with GAAP
consistently applied, subject to changes from normal, year-end adjustments and
except for the absence of notes, (ii) as soon as available and in any event
within 90 days after the end of each fiscal year of CAIS Internet, the
consolidated annual financial statements of CAIS Internet, prepared in
accordance with GAAP and, if requested by Lender, consolidating annual financial
statements of CAIS Internet, and in the case of consolidated financial
statements, accompanied by an unqualified report thereon of independent
certified public accountants of recognized standing; (iii) as soon as available
and in any event not more than 90 days after the commencement of each fiscal
year, the business plan and financial projections of CAIS Internet and its
Subsidiaries for such fiscal year; (iv) promptly after Borrower has knowledge or
becomes aware thereof, notice of the occurrence of any Default hereunder; (v)
prompt written notice of any condition or event known to Borrower which has
resulted, or that could reasonably be expected to result, in a Material Adverse
Change; (vi) together with the financial statements required pursuant to clauses
(i) and (ii), a Compliance Certificate of a
<PAGE>
Responsible Officer of CAIS Internet as of the end of the applicable accounting
period; and (vii) and (vi) such other information respecting the operations,
properties, business or financial condition of Borrower, its Subsidiaries and
any Guarantor as Lender may from time to time reasonably request.
(b) Preservation of Existence, Etc. Borrower shall, and shall cause
-------------------------------
each of its Subsidiaries to, maintain and preserve (i) its corporate existence,
and (ii) all material copyrights, patents, trademarks, trade names and service
marks and other intellectual property rights, and all other material rights,
qualifications, permits, licenses, franchises and privileges, necessary or
desirable in the normal course of its business and operations and the ownership
of its properties, except in connection with any transactions expressly
permitted by this Section 5.1.
(c) Licenses. Borrower shall, and shall cause each of its
---------
Subsidiaries to, obtain and maintain all licenses, authorizations, consents,
filings, exemptions, registrations and other governmental approvals of any
Government Authority necessary or desirable (i) in connection with the
execution, delivery and performance of the Loan Documents, the purchase of the
Cisco Products or the consummation of the transactions therein contemplated, or
(ii) in the normal course of its business and operations and the ownership of
its properties, except, in the case of this clause (ii), to the extent that the
failure to do so could not reasonably be expected to result in a Material
Adverse Change.
(d) Compliance with Laws. Borrower shall comply, and shall cause
---------------------
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business,
except such as may be contested in good faith or as to which a bona fide dispute
may exist or where noncompliance could not reasonably be expected to result in a
Material Adverse Change.
(e) Insurance. Borrower shall, and shall cause each of its
---------
Subsidiaries to, carry and maintain in full force and effect, at its own expense
and with financially sound and reputable insurance companies, insurance in such
amounts, with such deductibles and covering such risks as is customarily carried
by companies engaged in the same or similar businesses and owning similar
properties in the localities where Borrower or such Subsidiary operates. Without
limiting the generality of the foregoing, Borrower shall, and shall cause each
of its Subsidiaries to, comply with all requirements of the Collateral Documents
pertaining to maintenance of insurance.
(f) Change in Nature of Business. Borrower shall not, and shall not
-----------------------------
permit any of its Subsidiaries to, engage in any material line of business
substantially different from those lines of business carried on by it at the
date hereof, provided, however, that Borrower shall be permitted to engage in a
line of business that is reasonably related to its lines of business on the date
hereof including internet content solutions and voice communications.
(g) Restrictions on Fundamental Changes. Borrower shall not, and
<PAGE>
shall not suffer or permit any Subsidiary to, merge, consolidate with or into,
or convey, transfer, lease or otherwise dispose of (whether in one transaction
or in a series of transactions all or substantially all of its assets (whether
now owned or hereafter acquired) to or in favor of any Person), except:
a. any of Borrower's Subsidiaries may merge with, consolidate into
or transfer all or substantially all of its assets to Borrower or to any
Subsidiary of Borrower (provided that the surviving or transferee entity is
Borrower or a Wholly-Owned Subsidiary of Borrower) and in connection therewith
such Subsidiary may be liquidated or dissolved, provided that no Material
Adverse Change would result therefrom;
b. Borrower or any of its Subsidiaries may sell or dispose of
assets in accordance with the provisions of Section 5.1(h);
c. Borrower or any of its Subsidiaries may make any investment
permitted by Section 5.1(k); and
d. Borrower or any of its Subsidiaries may merge with or
consolidate into any other Person (other than CAIS Internet), provided that (i)
(in the case of Borrower, Borrower is the surviving Person, (ii) no such merger
or consolidation shall be made while there exists a Default or if a Default
would occur as a result thereof and (iii) all actions have been taken (to the
satisfaction of the Lender) under Section 5.1(n) to protect and continue
perfected the Liens of the Lender under this Agreement.
(h) Sales of Assets. Borrower shall not, and shall not permit any of
---------------
its Subsidiaries to, sell, lease, transfer, or otherwise dispose of, or part
with control of (whether in one transaction or a series of transactions) any
assets (including any shares of stock in any Subsidiary or other Person) outside
the ordinary course of business (each a "Transfer") or enter into or consummate
any Transfer: (i) involving Financed Products (other than in the ordinary course
of business to a Wholly-Owned Subsidiary that is a Guarantor hereunder), (ii)
that could reasonably be expected to result in a Material Adverse Change or
(iii) that would violate the terms of any other Loan Document; provided that as
a condition to consummating any Transfer to any such Wholly-Owned Subsidiary of
Financed Products, Borrower shall provide ten Banking Days' prior written notice
to Lender of the proposed Transfer. Notwithstanding the foregoing, Borrower
and/or its Subsidiaries may effect a Transfer of any assets, other than the
Financed Products, provided that all such Transfers, in the aggregate, do not
have a fair market value greater than $10,000,000.
(i) Negative Pledge. Borrower shall not, and shall not permit any of
---------------
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any of its properties, revenues or assets, whether now owned or
hereafter acquired, other than Permitted Liens.
(j) Indebtedness. Borrower shall not, and shall not permit any of
------------
its Subsidiaries to, create, incur, assume or otherwise become liable for or
suffer to exist any Indebtedness, other than: (i) Indebtedness of Borrower to
Lender hereunder; (ii) Indebtedness of Borrower and its Subsidiaries existing on
the date hereof and disclosed to Lender or extensions, renewals and refinancings
of such Indebtedness, provided that the principal amount of such
<PAGE>
Indebtedness being extended, renewed or refinanced does not increase; (iii)
accounts payable to trade creditors for goods and services and current operating
liabilities (not the result of the borrowing of money) incurred in the ordinary
course of Borrower's or such Subsidiary's business in accordance with customary
terms and paid within the specified time, unless contested in good faith by
appropriate proceedings and reserved for in accordance with GAAP; (iv)
Indebtedness consisting of guarantees resulting from endorsement of negotiable
instruments for collection by Borrower or any such Subsidiary in the ordinary
course of business; (v) Indebtedness of Borrower and its Subsidiaries under
capital leases or otherwise incurred under or in connection with any Liens of
the type referred to in clause (vi) or (viii) (or any extension, refinancing or
replacement thereof) of the definition of Permitted Liens in Section 1.1,
provided that the aggregate principal amount outstanding of Indebtedness under
the Nortel Credit Agreement does not exceed $30,000,000; (vi) Indebtedness of
Borrower to CAIS Internet or any other Person subordinated to the payment of the
Obligations of Borrower (the "Subordinated Debt") on terms satisfactory to
Lender; (vii) Indebtedness of Borrower to any of its Wholly-Owned Subsidiaries
or of any of its Wholly-Owned Subsidiaries to another of its Wholly-Owned
Subsidiaries; and (viii) Indebtedness incurred under any Swap Agreements or
under one or more secured or unsecured term loans and/or revolving credit
facilities (including any letter of credit subfacility), and any refinancing,
replacements, renewals or extensions thereof, in an aggregate principal amount
not to exceed 200% of paid in equity capital of CAIS Internet minus the sum of
(x) the Indebtedness described in clause (i) of this paragraph and (y) the
purchase money Indebtedness described in clause (v) of this paragraph.
(k) Loans and Investments. Borrower shall not, and shall not permit
----------------------
any of its Subsidiaries to, purchase or otherwise acquire the capital stock,
assets (constituting a business unit), obligations or other securities of or any
interest in any Person, or otherwise extend any credit to or make any additional
investments in any Person (an "Investment"), other than in connection with: (i)
extensions of credit in the nature of accounts receivable or notes receivable
arising from the sales of goods or services in the ordinary course of business;
(ii) extensions of credit by Borrower to any of its Wholly-Owned Subsidiaries or
by any of its Wholly-Owned Subsidiaries to another of its Wholly-Owned
Subsidiaries or Borrower; (iii) employee loans in an amount not to exceed
$2,000,000; (iv) short term, investment grade money market instruments, in
accordance with Borrower's usual and customary treasury management policies
(including, without limitation, the Investments described in Section 9.5 (c)
through (f) of the Nortel Credit Agreement). Notwithstanding the foregoing,
Borrower or any of its Subsidiaries, shall be permitted to engage in one or more
Permitted Acquisitions provided that any such Permitted Acquisition is funded by
the proceeds from any equity offering of CAIS Internet or Borrower in excess of
$68,000,000, in the aggregate, and provided further that the amount of such
proceeds resulting in any Permitted Acquisition that is not a Wholly- Owned
Subsidiary shall not be, in the aggregate, in excess of $20,000,000 of such
proceeds.
(l) Additional Subsidiaries. (A) If Borrower proposes to incorporate,
-----------------------
create or acquire any additional Wholly- Owned Subsidiary, Borrower shall notify
Lender thereof, and, if required hereby, obtain Lender's consent thereto. After
the incorporation, creation or acquisition of any such Wholly-Owned Subsidiary
(subject to obtaining any necessary Lender consent), within five Banking Days
following receipt by Borrower from Lender of a security agreement, in form and
substance reasonably satisfactory to Lender,
<PAGE>
and a guaranty of the Obligations in form and substance reasonably satisfactory
to Lender, Borrower shall cause such Wholly-Owned Subsidiary to execute and
deliver such guaranty and security agreement to Lender. Lender may elect in its
sole discretion to waive any such requirement in the case of any non-U.S.
Wholly-Owned Subsidiary and any Wholly-Owned Subsidiary that will remain a
dormant or shell Wholly-Owned Subsidiary. (B) Within five Banking Days after
receipt from Lender of any request to do so, Borrower shall cause such
Wholly-Owned Subsidiary to have executed and filed any UCC-1 financing
statements furnished by Lender in each jurisdiction in which such filing is
necessary to perfect the security interest of Lender in the Collateral of such
Wholly-Owned Subsidiary and in which Lender requests that such filing be made.
(C) Additionally, Borrower and such Wholly-Owned Subsidiary shall have executed
and delivered to Lender such other items as reasonably requested by Lender in
connection with the foregoing, including resolutions, incumbency and officers'
certificates, opinions of counsel, search reports and other certificates and
documents.
(m) Books and Records; Inspections. Borrower shall, and shall cause
-------------------------------
each of its Subsidiaries to, keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP. Borrower shall
provide Lender and its agents access to the premises of Borrower and its
Subsidiaries at any time and from time to time, during normal business hours and
upon reasonable notice under the circumstances, and at any time on and after the
occurrence of a Default or Event of Default, for the purposes of (i) inspecting
and verifying the Collateral, (ii) inspecting and copying any and all records
pertaining thereto, and (iii) discussing the affairs, finances and business of
Borrower and its Subsidiaries with any officer, employee or director of Borrower
or with its accountants.
(n) Collateral. While any Loans are outstanding, Borrower shall use
----------
its best efforts to ensure that such Loans are secured by a perfected security
interest in the Collateral.
(o) Distributions. Borrower shall not declare or pay any dividends in
-------------
respect of Borrower's capital stock, or purchase, redeem, retire or otherwise
acquire for value any of its capital stock now or hereafter outstanding, return
any capital to its shareholders as such, or make any distribution of
<PAGE>
assets to its shareholders as such, or permit any of its Subsidiaries to
purchase, redeem, retire, or otherwise acquire for value any stock of Borrower,
except that Borrower may: (A) declare and deliver dividends and distributions
payable only in common stock of Borrower; and (B) purchase, redeem, retire, or
otherwise acquire shares of its capital stock with the proceeds received from a
substantially concurrent issue of new shares of its capital stock.
(p) Location of Financed Products. Borrower shall not locate, and
------------------------------
shall not permit any of its Subsidiaries to locate, any Financed Products on the
same premises where Nortel Networks Equipment and/or Nortel Networks Software
are located.
(q) Service Agreement Revenues. Borrower shall, on and after August
---------------------------
1, 1999, ensure that all cash proceeds of Cisco Service Agreement Revenues are
(a) deposited directly, as received, into a lockbox or collection account of
Borrower as Lender may require from time to time and (b) on a daily basis after
such deposit, transferred into a lockbox or concentration account of Borrower as
Lender may require from time to time. Borrower shall maintain in effect an
agreement governing each of its lockbox accounts, collection accounts and/or
concentration accounts in form and substance approved by Lender with Bank of
America, N.A. or another depositary bank located in the state of California and
reasonably satisfactory to Lender. (r) Further Assurances and Additional Acts.
Borrower shall execute, acknowledge, deliver, file, notarize and register at its
own expense all such further agreements, instruments, certificates, documents
and assurances and perform such acts as Lender shall deem necessary or
appropriate to effectuate the purposes of the Loan Documents, and promptly
provide Lender with evidence of the foregoing reasonably satisfactory in form
and substance to Lender.
SECTION 6. EVENTS OF DEFAULT.
6.1 Events of Default. Any of the following events which shall occur
-----------------
shall constitute an "Event of Default":
(a) Payments. Borrower shall fail to pay when due (i) any amount
---------
of principal of any Loan or Note, or (ii) any amount of interest on any Loan or
Note, or any fee or other amount payable under any of the Loan Documents, and in
the cases of clauses (i) and (ii) any such default shall remain unremedied for
five days.
(b) Representations and Warranties. Any representation or
-------------------------------
warranty by Borrower under or in connection with the Loan Documents shall prove
to have been incorrect in any material respect when made or deemed made.
(c) Failure by Borrower to Perform Certain Covenants. Borrower
-------------------------------------------------
shall fail to perform or observe any term, covenant or agreement contained in
subsections (b)(i)or (f) through (l) or (n) through (q) of Section 5.1.
(d) Failure by Borrower to Perform Other Covenants. Borrower
----------------------------------------------
shall fail to perform or observe any other term, covenant or agreement contained
in any Loan Document on its part to be performed or observed and any such
failure shall remain unremedied for a period of 20 days from the occurrence
thereof (unless Lender reasonably determines that such failure is not capable of
remedy).
(e) Insolvency. (i) Borrower, any Guarantor or any of their
-----------
respective Subsidiaries shall be dissolved, liquidated, wound up or cease its
corporate existence; or (ii) Borrower, the Guarantor or any such Subsidiary (A)
shall make a general assignment for the benefit of creditors, or shall generally
fail to pay, or admit in writing its inability to pay, its debts as they become
due, subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (B) shall voluntarily cease to conduct its business in the ordinary
course; (C) shall commence any Insolvency Proceeding with respect to itself; or
(D) shall take any action to effectuate or authorize any of the foregoing.
<PAGE>
(f) Involuntary Proceedings. (i) Any involuntary Insolvency
------------------------
Proceeding is commenced or filed against Borrower, any Guarantor or any or their
respective Subsidiaries, or any writ, judgment, warrant of attachment, execution
or similar process, is issued or levied against a substantial part of
Borrower's, any Guarantor's or any such Subsidiary's properties, and any such
proceeding or petition shall not be dismissed, or such writ, judgment, warrant
of attachment, execution or similar process shall not be released, vacated or
fully bonded within 60 days after commencement, filing or levy; (ii) Borrower,
any Guarantor or any such Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) Borrower, any Guarantor or any such Subsidiary acquiesces in the
appointment of a receiver, trustee, custodian, conservator, liquidator,
mortgagee in possession (or agent therefor), or other similar Person for itself
or a substantial portion of its property or business.
(g) Defaults Under Other Indebtedness. Borrower, any Guarantor or
----------------------------------
any of their respective Subsidiaries shall fail (i) to make any payment of any
Indebtedness in an aggregate principal amount outstanding of at least $250,000
(or its equivalent in another currency) when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace or notice period, if any, specified in the
agreement or instrument relating to such Indebtedness as of the date of such
failure, or (ii) to perform or observe any term, covenant or condition on its
part to be performed or observed under any agreement, note or instrument
relating to any such Indebtedness, when required to be performed or observed, or
any other event shall occur or condition shall exist thereunder, and such
failure, event or condition shall continue after the applicable grace or notice
period, if any, specified in such agreement, note or instrument, if the effect
of such failure, event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), prior to the stated maturity
thereof.
(h) Cisco Defaults. Borrower or any Guarantor (i) shall fail to
---------------
pay any Indebtedness owing under any other agreement with Cisco Systems, Lender
or any of their respective Subsidiaries or under any note or instrument in favor
of Cisco Systems, Lender or any of their respective Subsidiaries, when due
(whether at scheduled maturity or by required prepayment, acceleration, demand
or otherwise), or (ii) shall otherwise be in breach of or default in any of its
obligations under any such agreement, note or instrument, and such failure,
breach or default shall continue after the applicable grace period, if any,
specified in such agreement, note or instrument.
(i) Material Adverse Change. Any Material Adverse Change shall
-----------------------
occur that gives Lender reasonable grounds to conclude that Borrower may not, or
will be unable to, perform or observe in any material respect in the normal
course its obligations under the Loan Documents.
<PAGE>
(j) Failure by Guarantor to Perform Covenants; Invalidity of
---------------------------------------------------------
Guaranty. Any Guarantor shall fail to perform or observe any term, covenant
- --------
or agreement contained in any Guaranty on its part to be performed or observed,
or any default shall occur under any Guaranty, and any such failure or default
shall continue after the applicable grace period, if any, specified in any
Guaranty as of the date of such failure, or any defined "Event of Default" as
defined in any Guaranty shall have occurred and is continuing; or any Guaranty
or any other Guarantor Document shall for any reason be revoked or invalidated,
or otherwise cease to be in full force and effect, or any Guarantor or any other
Person shall contest in any manner the validity or enforceability thereof or
deny that it has any further liability or obligation thereunder.
(k) Default under Other Loan Documents. Any defined "Event of
----------------------------------
Default" (as defined in any other Loan Document) shall have occurred. (l)
Consents, Etc. Any law, decree, license, consent, authorization,
registration or approval now or hereafter necessary to enable Borrower or any
Guarantor to comply with its obligations incurred in the Loan Documents or in
connection with the purchase of Cisco Products shall be modified in a materially
adverse manner, or shall be revoked, withdrawn or withheld or shall cease to
remain in full force and effect.
(m) Judgments. A final judgment or order for the payment of
----------
money in excess of $500,000 (or its equivalent in another currency) which is not
fully covered by third-party insurance shall be rendered against Borrower or any
Guarantor or any of their respective Subsidiaries; or (ii) any non-monetary
judgment or order shall be rendered against Borrower, any Guarantor or any such
Subsidiary which has resulted in or would reasonably be expected to result in a
Material Adverse Change; and in each case there shall be any period of 30
consecutive days during which such judgment continues unsatisfied or during
which a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
(n) Change of Control. There shall occur a Change of Control.
-----------------
(o) Subordination. Borrower or any Guarantor makes any payment
-------------
on account of any Indebtedness which has been subordinated to the Obligations
("Subordinated Debt") other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such Subordinated Debt
terminates or in any way limits its subordination agreement.
6.2 Effect of Event of Default. If any Event of Default shall
--------------------------
occur and is continuing, Lender may by notice to Borrower, (i) declare its
Commitment to be terminated, whereupon the same shall forthwith terminate, and
(ii) declare the entire unpaid principal amount of the Loans and the Note(s),
all interest accrued and unpaid thereon and all other Obligations to be
forthwith due and payable, whereupon the Loans and the Note(s), all such accrued
interest and all such other Obligations shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any
<PAGE>
kind, all of which are hereby expressly waived by Borrower, provided that if an
event described in Section 6.1(e) or 6.1(f) shall occur, the result which would
otherwise occur only upon giving of notice by Lender to Borrower as specified in
this Section 6.2 shall occur automatically, without the giving of any such
notice.
SECTION 7. MISCELLANEOUS.
7.1 Amendments. No amendment to any provision of the Loan Documents
-----------
shall be effective unless it is in writing and has been signed by Lender and
Borrower, and no waiver of any provision of any Loan Document, or consent to any
departure by Borrower therefrom, shall be effective unless it is in writing and
has been signed by Lender. Any such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
7.2 Notices. All notices and other communications provided for
-------
hereunder and under the other Loan Documents shall, unless otherwise stated
herein, be in writing (including by facsimile transmission) and mailed, sent or
delivered to the respective parties hereto at or to their respective addresses
or facsimile numbers set forth in the Schedule, or at or to such other address
or facsimile number as shall be designated by any party in a written notice to
the other party hereto. All such notices and communications shall be effective
(i) if delivered by hand, when delivered; (ii) if sent by courier service, when
delivered; (iii) if sent by mail, upon the earlier of the date of receipt or
five Banking Days after deposit in the mail, first class (or air mail, with
respect to communications to be sent to or from the United States), postage
prepaid; and (iv) if sent by facsimile transmission, when sent; provided,
however, that notices and communications to Lender pursuant to Section 2 shall
not be effective until received.
7.3 No Waiver; Cumulative Remedies. No failure on the part of Lender
------------------------------
to exercise, and no delay in exercising, any right, remedy, power or privilege
under any Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under the Loan Documents are
cumulative and not exclusive of any rights, remedies, powers and privileges that
may otherwise be available to Lender.
7.4 Costs and Expenses; Indemnification. Borrower agrees to pay on
------------------------------------
demand (i) the reasonable out-of-pocket costs and expenses of Lender and any of
its affiliates, and the reasonable fees and disbursements of counsel to Lender
(including allocated costs and expenses for internal legal services), in
connection with the negotiation, preparation, execution and delivery of the Loan
Documents, in an aggregate amount not to exceed $100,000; and (ii) all costs and
expenses of Lender and its affiliates, and fees and disbursements of counsel
(including allocated costs and expenses for internal legal services), in
connection with any amendments, modifications or waivers of the terms of any
Loan Documents, any Default, the enforcement or attempted enforcement of, and
preservation of any rights or interests under, the Loan Documents, and any
out-of-court workout or other refinancing or restructuring or any bankruptcy or
insolvency case or proceeding. In addition, whether or not the
<PAGE>
transactions contemplated hereby shall be consummated, Borrower hereby agrees to
indemnify Lender, any affiliate thereof and their respective directors,
officers, employees, agents, counsel and other advisors (each an "Indemnified
Person") against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including the
reasonable fees and disbursements of counsel to an Indemnified Person (including
allocated costs and expenses for internal legal services), which may be imposed
on, incurred by, or asserted against any Indemnified Person, in any way relating
to or arising out of any of the Loan Documents, the use or intended use of the
proceeds of the Loans or the transactions contemplated hereby or thereby,
including with respect to any investigation, litigation or other proceeding
relating to any of the foregoing, irrespective of whether the Indemnified Person
shall be designated a party thereto (the "Indemnified Liabilities"); provided
that Borrower shall not be liable to any Indemnified Person for any portion of
such Indemnified Liabilities to the extent they are found by a final decision of
a court of competent jurisdiction to have resulted from such Indemnified
Person's gross negligence or willful misconduct. If and to the extent that the
foregoing indemnification is for any reason held unenforceable, Borrower agrees
to make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
7.5 Survival. All covenants, agreements, representations
--------
and warranties made in any Loan Documents shall, except to the extent otherwise
provided therein, survive the execution and delivery of this Agreement, the
making of the Loans and the execution and delivery of any Note, and shall
continue in full force and effect so long as Lender has any Commitment, any
Loans remain outstanding or any other Obligations remain unpaid or any
obligation to perform any other act hereunder or under any other Loan Document
remains unsatisfied. Without limiting the generality of the foregoing, the
obligations of Borrower under Section 7.4, and all similar obligations under the
other Loan Documents (including all obligations to pay costs and expenses and
all indemnity obligations), shall survive the repayment of the Loans and the
termination of the Commitment.
7.6 Benefits of Agreement. The Loan Documents are entered
---------------------
into for the sole protection and benefit of the parties hereto and their
successors and permitted assigns and the Indemnified Persons referred to in
Section 7.5, and no other Person shall be a direct or indirect beneficiary of,
or shall have any direct or indirect cause of action or claim in connection
with, any Loan Document.
7.7 Binding Effect; Successors and Assigns. This Agreement
---------------------------------------
shall become effective when it shall have been executed by Borrower and Lender
and thereafter shall be binding upon and shall inure to the benefit of Lender
and Borrower and their respective successors and permitted assigns, except as
otherwise provided herein. Borrower may not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any other Loan Document without the prior express written consent of Lender. Any
such purported assignment, transfer, hypothecation or other conveyance by
Borrower without the prior express written consent of Lender
<PAGE>
shall be void. Borrower acknowledges and agrees that Lender may assign, or grant
participations in, all or a portion of its rights and obligations hereunder and
under the other Loan Documents, including the benefit of Section 7.4. Upon any
assignment of Lender's rights hereunder and under the other Loan Documents, such
assignee shall have, to the extent of such assignment, all rights of Lender
hereunder and thereunder and may in turn assign such rights. Upon any assignment
and delegation of Lender's obligations hereunder and under the other Loan
Documents, such assignee shall have, to the extent of such assignment, all
obligations of Lender hereunder and thereunder and may in turn assign such
obligations, and, if any such assignee has expressly assumed Lender's
obligations hereunder and thereunder, Lender shall be relieved of its
obligations hereunder and thereunder to the extent of such assignment and
assumption. Borrower agrees that, upon any such assignment, such assignee may
enforce directly, without joinder of Lender, the rights of Lender set forth in
this Agreement and in the other Loan Documents. Any such assignee shall be
entitled to enforce Lender's rights and remedies under this Agreement and under
any other Loan Document to the same extent as if it were the "Lender" party
hereto or thereto.
7.8 Customer Information. Lender agrees to take normal and
---------------------
reasonable precautions and exercise due care to maintain the confidentiality of
all information respecting Borrower and its business ("Customer Information").
Borrower agrees that Lender may disclose from time to time all Customer
Information in its possession to Lender's other offices, to its subsidiaries and
affiliates, to any potential assignees or participants of the rights and/or
obligations of the Lender hereunder, to any underwriters or placement agents for
any securities to be issued by the Lender or any of its affiliates (or any
transferee of any such affiliates) and to any rating agency such rating such
securities and to their respective legal counsel, agents and other professional
advisors. Borrower also consents to the disclosure of Customer Information by
Lender, or any of its subsidiaries or affiliates, (i) at the request of any
Governmental Authority having jurisdiction over Lender or such subsidiary or
affiliate, (ii) pursuant to subpoena or other court process, or to the extent
required in connection with any litigation between Lender, any of its
subsidiaries or affiliates and Borrower, (iii) when otherwise required to do so
in accordance with applicable law, (iv) to any prospective assignee or
participant in connection with this Agreement, and (v)(A) to the extent such
information is made available by any Guarantor or was or becomes generally
available to the public other than as a result of disclosure by Lender, or (B)
was or becomes available on a non-confidential basis from a source other than
Borrower, provided that such source is not bound by a confidentiality agreement
with Borrower known to Lender.
7.9 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York.
7.10 Submission to Jurisdiction. Borrower hereby (i) submits to
--------------------------
the non-exclusive jurisdiction of the courts of the State of New York and the
Federal courts of the United States sitting in the Borough of Manhattan
(collectively, the "New York Courts"), for the purpose of any action or
proceeding arising out of or relating to the Loan Documents, (ii) irrevocably
waives (to the extent permitted by applicable law) any objection which it now or
hereafter may have to the laying of venue of any such action or proceeding
brought in any of the New York Courts, and any objection on the ground that
<PAGE>
any such action or proceeding in any New York Court has been brought in an
inconvenient forum, and (iii) agrees that (to the extent permitted by applicable
law) a final judgment in any such action or proceeding brought in a New York
Court shall be conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner permitted by law. Nothing in this Section
7.10 shall limit the right of Lender to bring any action or proceeding against
Borrower or its property in the courts of other jurisdictions.
7.11 Waiver of Jury Trial. Each of Lender and Borrower hereby
--------------------
knowingly, voluntarily and intentionally waives any rights it may have to a
trial by jury in respect of any litigation in connection with any Loan Document.
7.12 Entire Agreement. The Loan Documents reflect the entire
-----------------
agreement between Borrower and Lender with respect to the matters set forth
therein and supersede any prior agreements, commitments, drafts, communication,
discussions and understandings, oral or written, with respect thereto.
7.13 Severability. Whenever possible, each provision of the Loan
-------------
Documents shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of any of the
Loan Documents shall be prohibited by or invalid under any such law or
regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation, or,
if for any reason it is not deemed so modified, it shall be ineffective and
invalid only to the extent of such prohibition or invalidity without affecting
the remaining provisions of such Loan Document, or the validity or effectiveness
of such provision in any other jurisdiction.
<PAGE>
7.14 Counterparts. This Agreement may be executed in any number of
-------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
7.15 Joint and Several Liability. If Borrower consists of more than
---------------------------
one Person, the liability of each Person comprising Borrower shall be joint and
several, and each reference herein to "Borrower" shall mean and be a reference
to each such Person comprising Borrower. The Borrowers agree that any and all of
the Obligations shall be the joint and several responsibility of each of them
notwithstanding any absence herein or in any other Loan Document of a reference
such as "jointly and severally" with respect to such Obligation. The compromise
of any claim with, or the release of, any Borrower shall not constitute a
compromise with, or a release of, any other Borrower.
[remainder of page intentionally left blank]
<PAGE>
Please indicate Borrower's agreement and acceptance below and return a copy of
this Agreement to Lender. Upon the signature of Borrower below, this Agreement
shall become a binding agreement of Lender and Borrower as of the date first
written above.
Very truly yours,
Cisco Systems Capital Corporation
By: /s/ Brian P. Fukuhara
Title: Manager, Worldwide Financial Services
Acknowledged and Agreed:
CAIS, Inc.
By: /s/ William M. Caldwell, IV
Title: President
<PAGE>
June 30, 1999
SCHEDULE OF INFORMATION
This Schedule of Information (this "Schedule") is an integral part of
the Agreement dated as of June 30, 1999 (as amended, modified, renewed or
extended from time to time, the "Credit Agreement") between CAIS, Inc.
("Borrower") and Cisco Systems Capital Corporation ("Lender"). Capitalized terms
used herein shall have the respective meanings assigned to them in the Credit
Agreement.
1. Information Relating to the Loans and Borrower:
Availability Period: Tranche A1 (as defined below), for the twelve month
period from the Closing Date; and Tranche A2 (as defined below), for the twelve
month period beginning on the first day of the thirteenth month from the Closing
Date ("Commencement Date of Tranche A2"). The "Commitment Expiry Date" shall be
the last day of the twelfth month following the Commencement Date of Tranche A2.
Commitment: $50,000,000 to be made available as follows: (i) up to
$25,000,000 of term Loans ("Tranche A1"), in multiple drawdowns, in minimum
drawings of $100,000 or a multiple of $100,000 in excess thereof; and (ii) up to
$25,000,000 of term Loans ("Tranche A2"), in multiple drawdowns, in minimum
drawings of $100,000 or a multiple of $100,000 in excess thereof, provided
however that no more than three Loan requests may be made by Borrower per month
during the Availability Period.
Fee(s):
(i) Closing Fee: 1.50% of the Commitment as of the Closing Date,
payable in two parts: (1) 1.50% of Tranche A1 is payable on
the Closing Date and (2) 1.50% of Tranche A2 is payable on the
Commencement Date of Tranche A2.
(ii) Commitment Fee: 0.50% per annum on the average daily unused
portion of the Commitment, computed on a monthly basis in
arrears on the last Banking Day of each month based on the daily
utilization for that month as calculated by Lender. Such
Commitment Fee shall accrue from the Closing Date to the
Commitment Expiry Date and shall be due and payable monthly in
arrears on the last Banking Day of each calendar month, with
the final payment to be made on the Commitment Expiry Date;
provided that, in connection with any reduction or termination
of the Commitment, the accrued Commitment Fee calculated for the
period ending on such reduction or termination date shall also
be paid on the date thereof. The Commitment Fee provided for
herein shall accrue at all times after the abovementioned
commencement date, including at any time during which one or
more conditions precedent in Section 3.2 are not satisfied.
<PAGE>
(iii) Facility Fee: $20,000 per quarter. Such Facility Fee shall
accrue from the Closing Date until the date upon which all
Obligations due under the Credit Agreement shall have been
paid in full and shall be due and payable quarterly in arrears
on the last Banking Day of each calendar quarter, with a final
payment to be made on the date upon which such final payment
of Obligations is made. Any payment of Facility Fee
for a partial quarter shall be calculated on a prorated basis.
(iv) Prepayment Fee: 2% of the outstanding amount of the Loans as of
the date of such prepayment for the first twelve months after
the Closing Date; 1% of the outstanding amount of the Loans as
of the date of such prepayment for the second twelve month
period after the Closing Date; and 0.50% of the outstanding
amount of the Loans as of the date of such prepayment for the
third twelve month period after the Closing Date. Borrower
shall provide Lender with at least 30 days written notice in the
event of any prepayment.
Closing Deadline: July 21, 1999.
Additional documents and information: Completion of additional due
diligence satisfactory to Lender including satisfactory analysis validating
underlying industry and market assumptions with regard to Borrower's business
plan and pro forma financials.
Other conditions:
The following condition(s) precedent shall be satisfied on or prior to
each Borrowing Date: (A) Borrower shall provide to Lender a detailed schedule or
other listing of the Financed Products at least five Banking Days prior to the
funding of such Loan, and, if any Subsidiary is the intended recipient of the
Financed Products, designation of the Loan proceeds being borrowed for the
benefit of such Subsidiary and identification of such Subsidiary; (B) Borrower
shall designate whether a proposed Loan is a utilization of Tranche A1 or
Tranche A2; and (C) Each Loan request under Tranche A1 or Tranche A2 must be in
principal amounts of at least $100,000 provided that Borrower shall not request
more than three Loans per month.
Subsidiaries: None.
2. Additional Terms and Conditions:
Use of Proceeds: Financing of Borrower's purchase of Cisco Products
and related Cisco Systems' services from the Vendor thereof.
Note(s): The execution and delivery of a Promissory Note in
substantially the form of Exhibit B evidencing the Loans under Tranche A1 and a
Promissory Note in the form of Exhibit C, evidencing the Loans under Tranche A2.
Guaranty: The execution and delivery of a Guaranty, made by CAIS
Internet, in favor of Lender in form and substance reasonably satisfactory to
the Lender.
<PAGE>
Collateral Documents: The execution and delivery of a security agreement
between Lender and Borrower in form and substance reasonably satisfactory to the
Lender and a security agreement between Lender and each Guarantor referred to
above in form and substance reasonably satisfactory to the Lender.
Additional Loan Documents: The execution and delivery of landlord
agreements and/or collateral access agreements pursuant to the Collateral
Documents (each a "Landlord Agreement").
Mandatory Prepayment: Upon the occurrence of any event or circumstance
which results in a mandatory prepayment under Section 2.7(b) of the Nortel
Credit Agreement (the "Nortel Prepayment Provision"), Borrower shall, as a
condition to such prepayment, prepay a "Pro Rata Amount" of the outstanding
Loans hereunder to Lender. For the purposes hereof, "Pro Rata Amount" shall mean
an amount of the outstanding Loans prior to such prepayment determined by
multiplying (i) the total outstanding amount of Loans prior to such prepayment
by (ii) the quotient of (y) the amount of Indebtedness to be prepaid to Nortel
pursuant to the Nortel Prepayment Provision by (z) the total amount of
Indebtedness owed to Nortel under the Nortel Credit Agreement. Borrower shall
promptly notify Lender of the occurrence of prepayment under the Nortel
Prepayment Provision and the amount of any prepayment to be made hereunder. When
such notice is given, Borrower shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified therein.
Any prepayment made by Borrower hereunder shall be applied first to the
outstanding principal of the Tranche A1 Loans first and second to the
outstanding principal of the Tranche A2 Loans.
3. Addresses for Notices:
(a) Borrower:
CAIS, Inc.
1255 22nd Street, NW
Fourth Floor
Washington, D.C. 20037
Attn: Ulysses G. Auger, II
Fax No.: (202) 463-7190
(b) Lender:
Cisco Systems Capital Corporation
Mailstop SJC2 3rd Floor
170 West Tasman Drive
San Jose, California 95134-1706
Attn: Loan Administration, Worldwide Financial Services
Fax No.: (408) 527-3993
4. Lender's Account for Payments:
Account no.: 1233124070
Ref "CAIS, Inc."
ABA no.: 121000358
Account maintained with:
Bank of America
Concord, California
[remainder of page intentionally left blank]
<PAGE>
Acknowledged and agreed:
- ------------------------
Cisco Systems Capital Corporation
By:
-------------------------------
Title:
CAIS, Inc.
By:
-------------------------------
Title:
<PAGE>
EXHIBIT A
Notice of Borrowing
-------------------
Date:
-------------
To: Cisco Systems Capital Corporation
Mailstop SJC2 3rd Floor
170 West Tasman Drive
San Jose, California 95134-1706
Attn: Loan Administration, Worldwide Financial Services
Fax No.: (408) 527-3993
Re: CAIS, Inc.
----------
Ladies and Gentlemen:
The undersigned, CAIS, Inc. ("Borrower"), refers to the Agreement dated as of
June 30, 1999 (as amended, modified, renewed or extended from time to time, the
"Credit Agreement"), between Borrower and Cisco Systems Capital Corporation
("Lender"), the terms defined therein being used herein as therein defined, and
hereby gives you notice irrevocably, pursuant to Section 2.3 of the Credit
Agreement, of the borrowing of the Loan specified herein:
1. The date of the proposed borrowing is [the Closing Date]
[_____________].
- --------------
2. The amount of the proposed borrowing is $ .
----------
3. The borrowing is a utilization of Tranche .
--
4. The purpose of the borrowing is . Detailed
-------------------
information on any purchase transaction being financed by the proposed
borrowing is attached hereto.
5. The payment instructions with respect to the funds to be made
available to Borrower are as follows: [Lender shall make payment directly to the
Vendor.] [Lender shall make payment directly to [insert
--------------
payment instructions for a vendor other than Cisco Systems.]] [Lender may retain
the proceeds and apply them against the amounts owing to Lender described
above.]
CAIS, Inc.
By:
------------------------
Title:
------------------------
<PAGE>
EXHIBIT B
Promissory Note
---------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS. IT MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNDER CIRCUMSTANCES THAT WOULD RESULT IN A VIOLATION
OF THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR SUCH
OTHER LAWS.
U.S.$25,000,000 June 30, 1999
FOR VALUE RECEIVED, the undersigned, CAIS, Inc. ("Borrower"), a corporation
organized and existing under the laws of the State of Virginia, HEREBY
UNCONDITIONALLY PROMISES TO PAY to the order of Cisco Systems Capital
Corporation ("Lender"), a corporation organized and existing under the laws of
the State of Nevada, the principal sum of twenty-five million United States
Dollars (U.S.$25,000,000), or such greater or lesser amount as represents the
aggregate principal amount of the Loans made by Lender to Borrower pursuant to
the Credit Agreement referred to below, in twelve substantially equal
consecutive quarterly installments, commencing on the last day of the first
calendar quarterly period from the initial Loan, with subsequent installments
payable on the last day of each calendar quarter thereafter, and with the last
such installment to be due and payable on July 31, 2002 (the "Maturity Date")
and in the amount necessary to repay in full the unpaid principal balance
hereof.
If any Loans are made to Borrower after the commencement of the foregoing
amortization, such amortization schedule shall be adjusted to ensure that the
increased principal amount hereof will amortize in substantially equal
consecutive quarterly installments, as provided above.
Borrower further promises to pay interest on the principal amount of each
Loan outstanding hereunder on each Interest Payment Date (as defined below)
until the Maturity Date, at a rate per annum equal at all times during each
Interest Period for such Loan to LIBOR for such Interest Period plus 6.00% per
annum (the "Interest Rate").
The period between the date of a Loan and the Maturity Date shall be
divided into successive periods, each such period being an "Interest Period" for
purposes of this Promissory Note.
The initial Interest Period for a Loan shall begin on the date such Loan
is made and end on the next succeeding Interest Payment Date. Each subsequent
Interest Period shall begin on the last day of the immediately preceding
Interest Period and shall end on the next succeeding Interest Payment Date. As
used herein, "LIBOR" means for any Interest Period the rate of interest per
annum determined by Lender to be the average (rounded upward, if necessary, to
the nearest 1/16 of 1%) of the offered rates for deposits in Dollars for three
months appearing on the display page designated as "3750" in the Dow Jones
Market Service (formerly known as the Telerate Service), or any replacement page
thereof in the Dow Jones Market Service displaying London interbank offered
rates of major banks for Dollar deposits, at or about 11:00 a.m. (London time)
on the second Banking Day preceding the first day of the
<PAGE>
applicable Interest Period, provided that if no, or only one, such offered
quotation appears on such Telerate display page (or such other replacement
page), "LIBOR" shall be determined by reference to the Reuters Screen LIBO Page
of the Reuters Monitor Money Rates Service (or any replacement page thereof or
other applicable Reuters display page) or other comparable source of interest
quotations for such interbank rates selected by Lender. Interest on each Loan
shall be payable in arrears to Lender on the last day of each calendar quarter
and on the Maturity Date (each such date, an "Interest Payment Date"); provided
that if any prepayment hereof is effected other than on an Interest Payment
Date, accrued interest hereon shall be due on such prepayment date as to the
principal amount prepaid.
In the event that any amount of principal hereof or interest thereon, or
any other amount payable hereunder or under the Credit Agreement, shall not be
paid in full when due (whether at stated maturity, by acceleration or
otherwise), Borrower shall pay interest on such unpaid amount to Lender, from
the date such amount becomes due until the date such amount is paid in full,
payable on demand of Lender, a fluctuating rate per annum equal at all times to
the Reference Rate (as defined below) plus 8% per annum. As used herein,
"Reference Rate" means for any day the rate of interest in effect for such day
as publicly announced from time to time by Bank of America National Trust and
Savings Association in San Francisco, California, as its "reference rate". Each
change in the interest rate hereon based on a change in the Reference Rate shall
be effective at the opening of business on the day specified in the public
announcement of such change.
All computations of interest hereunder shall be made on the basis of a
year of 360 days for the actual number of days occurring in the period for which
any such interest or fee is payable.
Whenever any payment hereunder shall be stated to be due, or whenever any
Interest Payment Date or any other date specified hereunder would otherwise
occur, on a day other than a Banking Day, then, except to the extent otherwise
provided hereunder, such payment shall be made, and such Interest Payment Date
or other date shall occur, on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of payment
of interest hereunder; provided, however, that if such extension would cause
such payment to be made, or such Interest Payment Date or other date to occur,
in the next following calendar month, such payment shall be made and such
Interest Payment Date or other date shall occur on the next preceding Banking
Day. As used herein, "Banking Day" means a day other than a Saturday or Sunday
on which commercial banks are not required or authorized by law to close in San
Jose, California, except that if the applicable Banking Day relates to any
determination of LIBOR, "Banking Day" means such a day on which dealings are
carried out in the applicable offshore U.S. Dollar interbank market.
Each such payment shall be made on the date when due, in immediately
available funds, to Lender's account at Bank of America, N.T.&S.A., Concord,
California, ABA no. 12100358, to account number 1233124070, ref. "CAIS, Inc.,"
or to such other account of Lender as it from time to time shall designate in a
written notice to Borrower.
All payments of principal, interest and other amounts made on or in
respect to this Promissory Note shall be made in freely transferable United
States Dollars for value received on the date of payment, without setoff,
<PAGE>
counterclaim or, to the extent permitted by applicable law, defense, and free
and clear of and without deduction for any present and future taxes or charges
whatsoever.
Lender shall record the date and amount of each Loan made to Borrower,
the amount of principal and interest due and payable from time to time
hereunder, each payment thereof, and the resulting unpaid principal balance
hereof, in Lender's internal records, and any such records shall be conclusive
evidence absent manifest error of the amount of the Loans made by Lender and the
interest and payments thereon; provided, however, that Lender's failure so to
record shall not limit or otherwise affect the obligations of Borrower hereunder
and under the Credit Agreement to repay the principal of and interest on the
Loans.
This Promissory Note is a Note referred to in, and is subject to and
entitled to the benefits of, the Agreement dated as of June 30, 1999 (as
amended, modified, renewed or extended from time to time, the "Credit
Agreement") between Borrower and Lender. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement. The
Credit Agreement provides, among other things, for acceleration (which in
certain cases shall be automatic) of the maturity hereof upon the occurrence of
certain stated events, in each case without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived. This
Promissory Note is subject to prepayment in whole or in part as provided in the
Credit Agreement.
Borrower hereby waives diligence, presentment, protest or notice of
total or partial nonpayment or dishonor with respect to this Promissory Note.
Failure by the holder hereof to exercise any of its rights hereunder in any
instance shall not constitute a waiver thereof in that or any other instance.
Borrower agrees to pay on demand all costs and expenses of Lender and its
affiliates, and fees and disbursements of counsel (including allocated costs and
expenses for internal legal services), in connection with the enforcement or
attempted enforcement of, and preservation of any rights or interests under, (i)
this Promissory Note, and (ii) any out-of-court workout or other refinancing or
restructuring or any bankruptcy or insolvency case or proceeding, including any
losses, costs and expenses sustained by Lender as a result of any failure by
Borrower to perform or observe its respective obligations contained herein.
This Promissory Note shall be governed by, and construed in accordance
with, the law of the State of New York. Borrower hereby (a) submits to the
non-exclusive jurisdiction of the courts of the State of New York and the
Federal courts of the United States sitting in the Borough of Manhattan
(collectively, the "New York Courts"), for the purpose of any action or
proceeding arising out of or relating to this Promissory Note, (b) irrevocably
waives (to the extent permitted by applicable law) any objection which it now or
hereafter may have to the laying of venue of any such action or proceeding
brought in any of the New York Courts, and any objection on the ground that any
such action or proceeding in any New York Court has been brought in an
inconvenient forum, and (c) agrees that (to the extent permitted by applicable
law) a final judgment in any such action or proceeding brought in a New York
Court shall be conclusive and may be enforced in other jurisdictions by suit on
the judgment or in any other manner permitted by law.
<PAGE>
IN WITNESS WHEREOF, Borrower by its duly authorized legal representatives
has executed this Promissory Note on the date and in the year first above
mentioned.
CAIS, Inc.
By:
Title:
<PAGE>
EXHIBIT C
Promissory Note
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS. IT MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNDER CIRCUMSTANCES THAT WOULD RESULT IN A VIOLATION
OF THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR SUCH
OTHER LAWS.
U.S.$25,000,000 June 30, 1999
FOR VALUE RECEIVED, the undersigned, CAIS, Inc. ("Borrower"), a
corporation organized and existing under the laws of the State of Virginia,
HEREBY UNCONDITIONALLY PROMISES TO PAY to the order of Cisco Systems Capital
Corporation ("Lender"), a corporation organized and existing under the laws of
the State of Nevada, the principal sum of twenty-five million United States
Dollars (U.S.$25,000,000), or such greater or lesser amount as represents the
aggregate principal amount of the Loans made by Lender to Borrower pursuant to
the Credit Agreement referred to below, in twelve substantially equal
consecutive quarterly installments, commencing on the last day of the first
calendar quarterly period from the initial Loan, with subsequent installments
payable on the last day of each calendar quarter thereafter, and with the last
such installment to be due and payable on July 31, 2002 (the "Maturity Date")
and in the amount necessary to repay in full the unpaid principal balance
hereof.
If any Loans are made to Borrower after the commencement of the foregoing
amortization, such amortization schedule shall be adjusted to ensure that the
increased principal amount hereof will amortize in substantially equal
consecutive quarterly installments, as provided above.
Borrower further promises to pay interest on the principal amount of each
Loan outstanding hereunder on each Interest Payment Date (as defined below)
until the Maturity Date, at a rate per annum equal at all times during each
Interest Period for such Loan to LIBOR for such Interest Period plus 6.00% per
annum (the "Interest Rate").
The period between the date of a Loan and the Maturity Date shall be
divided into successive periods, each such period being an "Interest Period" for
purposes of this Promissory Note.
The initial Interest Period for a Loan shall begin on the date such Loan is
made and end on the next succeeding Interest Payment Date. Each subsequent
Interest Period shall begin on the last day of the immediately preceding
Interest Period and shall end on the next succeeding Interest Payment Date. As
used herein, "LIBOR" means for any Interest Period the rate of interest per
annum determined by Lender to be the average (rounded upward, if necessary, to
the nearest 1/16 of 1%) of the offered rates for deposits in Dollars for three
months appearing on the display page designated as "3750" in the Dow Jones
Market Service (formerly known as the Telerate Service), or any replacement page
thereof in the Dow Jones Market Service displaying London interbank offered
rates of major banks for Dollar deposits, at or about 11:00 a.m. (London time)
on the second Banking Day preceding the first day of the applicable Interest
Period, provided that if no, or only one, such offered quotation appears on such
Telerate display page (or such other replacement page), "LIBOR" shall be
determined by reference to the Reuters Screen LIBO Page of the Reuters Monitor
Money Rates Service (or any replacement page
<PAGE>
thereof or other applicable Reuters display page) or other comparable source of
interest quotations for such interbank rates selected by Lender. Interest on
each Loan shall be payable in arrears to Lender on the last day of each calendar
quarter and on the Maturity Date (each such date, an "Interest Payment Date");
provided that if any prepayment hereof is effected other than on an Interest
Payment Date, accrued interest hereon shall be due on such prepayment date as to
the principal amount prepaid.
In the event that any amount of principal hereof or interest thereon, or any
other amount payable hereunder or under the Credit Agreement, shall not be paid
in full when due (whether at stated maturity, by acceleration or otherwise),
Borrower shall pay interest on such unpaid amount to Lender, from the date such
amount becomes due until the date such amount is paid in full, payable on demand
of Lender, a fluctuating rate per annum equal at all times to the Reference Rate
(as defined below) plus 8% per annum.
As used herein, "Reference Rate" means for any day the rate of interest in
effect for such day as publicly announced from time to time by Bank of America
National Trust and Savings Association in San Francisco, California, as its
"reference rate". Each change in the interest rate hereon based on a change in
the Reference Rate shall be effective at the opening of business on the day
specified in the public announcement of such change.
All computations of interest hereunder shall be made on the basis of a year
of 360 days for the actual number of days occurring in the period for which any
such interest or fee is payable.
Whenever any payment hereunder shall be stated to be due, or whenever any
Interest Payment Date or any other date specified hereunder would otherwise
occur, on a day other than a Banking Day, then, except to the extent otherwise
provided hereunder, such payment shall be made, and such Interest Payment Date
or other date shall occur, on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of payment
of interest hereunder; provided, however, that if such extension would cause
such payment to be made, or such Interest Payment Date or other date to occur,
in the next following calendar month, such payment shall be made and such
Interest Payment Date or other date shall occur on the next preceding Banking
Day. As used herein, "Banking Day" means a day other than a Saturday or Sunday
on which commercial banks are not required or authorized by law to close in San
Jose, California, except that if the applicable Banking Day relates to any
determination of LIBOR, "Banking Day" means such a day on which dealings are
carried out in the applicable offshore U.S. Dollar interbank market.
Each such payment shall be made on the date when due, in immediately
available funds, to Lender's account at Bank of America, N.T.&S.A., Concord,
California, ABA no. 12100358, to account number 1233124070, ref. "CAIS, Inc.,"
or to such other account of Lender as it from time to time shall designate in a
written notice to Borrower.
All payments of principal, interest and other amounts made on or in respect
to this Promissory Note shall be made in freely transferable United States
Dollars for value received on the date of payment, without setoff, counterclaim
or, to the extent permitted by applicable law, defense, and free and clear of
and without deduction for any present and future taxes or charges whatsoever.
<PAGE>
Lender shall record the date and amount of each Loan made to Borrower, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof, and the resulting unpaid principal balance hereof, in
Lender's internal records, and any such records shall be conclusive evidence
absent manifest error of the amount of the Loans made by Lender and the interest
and payments thereon; provided, however, that Lender's failure so to record
shall not limit or otherwise affect the obligations of Borrower hereunder and
under the Credit Agreement to repay the principal of and interest on the Loans.
This Promissory Note is a Note referred to in, and is subject to and
entitled to the benefits of, the Agreement dated as of June 30, 1999 (as
amended, modified, renewed or extended from time to time, the "Credit
Agreement") between Borrower and Lender. Capitalized terms used herein shall
have the respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides, among other things, for acceleration
(which in certain cases shall be automatic) of the maturity hereof upon the
occurrence of certain stated events, in each case without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived.
This Promissory Note is subject to prepayment in whole or in part as provided in
the Credit Agreement. Borrower hereby waives diligence, presentment, protest or
notice of total or partial nonpayment or dishonor with respect to this
Promissory Note. Failure by the holder hereof to exercise any of its rights
hereunder in any instance shall not constitute a waiver thereof in that or any
other instance. Borrower agrees to pay on demand all costs and expenses of
Lender and its affiliates, and fees and disbursements of counsel (including
allocated costs and expenses for internal legal services), in connection with
the enforcement or attempted enforcement of, and preservation of any rights or
interests under, (i) this Promissory Note, and (ii) any out-of-court workout or
other refinancing or restructuring or any bankruptcy or insolvency case or
proceeding, including any losses, costs and expenses sustained by Lender as a
result of any failure by Borrower to perform or observe its respective
obligations contained herein.
This Promissory Note shall be governed by, and construed in accordance
with, the law of the State of New York.
Borrower hereby (a) submits to the non-exclusive jurisdiction of the courts of
the State of New York and the Federal courts of the United States sitting in the
Borough of Manhattan (collectively, the "New York Courts"), for the purpose of
any action or proceeding arising out of or relating to this Promissory Note, (b)
irrevocably waives (to the extent permitted by applicable law) any objection
which it now or hereafter may have to the laying of venue of any such action or
proceeding brought in any of the New York Courts, and any objection on the
ground that any such action or proceeding in any New York Court has been brought
in an inconvenient forum, and (c) agrees that (to the extent permitted by
applicable law) a final judgment in any such action or proceeding brought in a
New York Court shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner permitted by law.
<PAGE>
IN WITNESS WHEREOF, Borrower by its duly authorized legal representatives has
executed this Promissory Note on the date and in the year first above mentioned.
CAIS, Inc.
By:
-----------------------------
Title:
<PAGE>
EXHIBIT D
Compliance Certificate
Date: __________, ___
To: Cisco Systems Capital Corporation
Mailstop SJC2 3rd Floor
170 West Tasman Drive
San Jose, California 95134-1706
Attn: Loan Administration, Worldwide Financial Services
Re: CAIS Internet, Inc.
Ladies and Gentlemen:
This Compliance Certificate is made and delivered pursuant to the
Agreement dated as of June 30, 1999 (as amended, modified, renewed or extended
from time to time, the "Credit Agreement"), between CAIS, Inc. ("Borrower")
and Cisco Systems Capital Corporation ("Lender"), and reference is made
thereto for full particulars of the matters described therein. All
capitalized terms used in this Compliance Certificate and not otherwise
defined herein shall have the meanings assigned to them in the Credit
Agreement. This Compliance Certificate relates to the accounting
period ending , .
------- -----
I am the of CAIS Internet. I have reviewed the terms of the
--------
Credit Agreement and I have made, or caused to be made under my supervision, a
detailed review of the transactions and conditions of CAIS Internet and its
Subsidiaries during such accounting period. I hereby certify that the
information set forth on Schedule 1 hereto (and on any additional schedules
hereto setting forth further supporting detail) is true, accurate and complete
as of the end of such accounting period.
I hereby further certify that (i) as of the date hereof that no Default
has occurred and is continuing, and (ii) on and as of the date hereof, there has
occurred no Material Adverse Change since the date of the financial statements
furnished to Lender prior to the Closing Date, except in each case as may be set
forth in a separate attachment hereto describing in detail the nature of each
condition or event constituting an exception to the foregoing statements, the
period during which it has existed and the action which CAIS Internet or
Borrower is taking or proposes to take with respect to each such condition or
event.
IN WITNESS WHEREOF, the undersigned officer has signed this Compliance
Certificate this ____ day of ______________, ____.
CAIS, Inc.
Title:
<PAGE>
SCHEDULE 1
to the Compliance Certificate
Dated
--------------
For the fiscal quarter ended
-------
Actual Required/Permitted
Section 9(k) Minimum Total Revenues
- -------------------------------------
Consolidated total revenues $ $
-------- ----------
[See Table in Section
9(k) of Guaranty]
Section 9(l) Minimum EBITDA
- -----------------------------
(A) Guarantor consolidated EBITDA calculation (measured for the fiscal
quarter most recently ended)
consolidated net income $
plus consolidated interest expense
plus consolidated income tax expense
plus consolidated depreciation expense
____ plus consolidated amortization expense
plus losses and gains upon dispositions of properties
____ minus extraordinary gains
plus extraordinary losses
Guarantor consolidated EBITDA (for the fiscal quarter most
recently ended)
Not less than $ .
See Table in Section 9(1)
of Guaranty]
<PAGE>
Actual Required/Permitted
Section 9(m) Maximum Funded Debt to
- -------------------------------------
Capitalization
- ---------------
(A) Guarantor Consolidated Funded Debt
-------
(B) Capitalization
Guarantor Consolidated Funded Debt
$------
plus consolidated capital stock
------
plus consolidated paid in capital
------ ---------
Capitalization
(C) Ratio of (A) to (B) -----% Shall not exceed
75% at any
time
<PAGE>
EXHIBIT E
List of Locations of Financed Products
--------------------------------------
Please see attached list for locations of Financed Products as of the date
hereof.
<PAGE>
EXECUTION COPY
GUARANTY
THIS GUARANTY ("Guaranty"), dated as of June 30, 1999 is made by CAIS INTERNET,
INC., a Delaware corporation ("Guarantor"), in favor of CISCO SYSTEMS CAPITAL
CORPORATION, a Nevada corporation ("Lender").
CAIS, Inc., a corporation organized and existing under the laws of the state of
Virginia ("Company"), and Lender are parties to that certain Agreement dated as
of June 30, 1999 (as amended, modified, renewed or extended from time to time,
the "Agreement"). Guarantor has agreed to guarantee the indebtedness and other
obligations of Company to Lender under or in connection with the Agreement as
set forth herein. Guarantor will derive substantial direct and indirect benefits
from the extension of credit to Company (which benefits are hereby acknowledged
by the Guarantor). All capitalized terms not defined herein shall have the
meanings assigned to them in the Agreement. Accordingly, to induce Lender to
extend credit to Company, and in consideration thereof, Guarantor hereby agrees
as follows:
1. Guaranty. Guarantor hereby unconditionally and irrevocably guarantees to
Lender the full and prompt payment when due (whether at stated maturity,
declaration, acceleration, demand or otherwise) and performance of the
indebtedness, liabilities and other obligations of Company to Lender under or in
connection with the Agreement and any and all other documents and instruments
executed or delivered in connection therewith (each a "Document" and,
collectively, the "Documents"), including all unpaid principal, all interest
accrued thereon, all fees due to Lender and all other amounts payable by Company
to Lender thereunder or in connection therewith. The terms "indebtedness,"
"liabilities" and "obligations" are used herein in their most comprehensive
sense and include any and all advances, debts, obligations and liabilities, now
existing or hereafter arising, regardless of by what instrument, agreement,
contract or entry in Lender's accounts they may be evidenced, or whether
evidenced by any instrument, agreement, contract or entry in Lender's accounts,
whether voluntary or involuntary and whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
recovery upon such indebtedness, liabilities and obligations may be or hereafter
become unenforceable under the Bankruptcy Reform Act of 1978 (the "Bankruptcy
Code") or other applicable law. The foregoing indebtedness, liabilities and
other obligations of Company, and all other indebtedness, liabilities and
obligations to be paid or performed by Guarantor in connection with this
Guaranty (including any and all amounts due under Section 12 hereof), shall
hereinafter be collectively referred to as the "Obligations."
2. Liability of Guarantor. The liability of Guarantor under this Guaranty
shall be irrevocable, absolute, independent and unconditional, and shall not be
affected by any circumstance which might constitute a discharge of a surety or
guarantor other than the indefeasible payment and performance in full of all
Obligations. In furtherance of the foregoing and without limiting the generality
thereof, Guarantor agrees as follows: (i) Guarantor's liability hereunder shall
be the immediate, direct, and primary obligation of Guarantor and shall not be
<PAGE>
contingent upon Lender's exercise or enforcement of any remedy it may have
against Company or any other person or entity ("Person"), or against any
collateral for any Obligations; (ii) this Guaranty is a guaranty of payment when
due and not of collectibility; (iii) Guarantor's payment of a portion, but not
all, of the Obligations shall in no way limit, affect, modify or abridge
Guarantor's liability for any portion of the Obligations remaining unsatisfied;
and (iv) Guarantor's liability with respect to the Obligations shall remain in
full force and effect without regard to, and shall not be impaired or affected
by, nor shall Guarantor be exonerated or discharged by, (A) any insolvency,
bankruptcy, reorganization, arrangement, adjustment, composition, assignment for
the benefit of creditors, liquidation, winding up or dissolution of Company,
Guarantor, any other guarantor or any other Person; (B) any limitation,
discharge, or cessation of the liability of Company, any other guarantor or any
other Person for any Obligations due to any statute, regulation or rule of law,
or any invalidity or unenforceability in whole or in part of any of the
Obligations; (C) any merger, acquisition, consolidation or change in structure
of Company, Guarantor or any other guarantor or Person, or any sale, lease,
transfer or other disposition of any or all of the assets or shares of Company,
Guarantor, any other guarantor or other Person; (D) any assignment or other
transfer, in whole or in part, of Lender's interests in and rights under this
Guaranty; (E) any claim, defense, counterclaim or setoff, other than that of
prior performance, that Company, Guarantor, any other guarantor or other Person
may have or assert, including any defense of incapacity or lack of corporate or
other authority to execute or deliver any Document or this Guaranty or any other
document related thereto; (F) any direction of application of payment to
Company, Guarantor, any other guarantor or other Person; and (G) Lender's vote,
claim, distribution, election, acceptance, action or inaction in any bankruptcy
case related to the Obligations.
3. Consents. Guarantor hereby consents and agrees that, without notice to or
further assent from Guarantor: (i) the time, manner, place or terms of any
payment under any Document may be extended or changed, by a modification or
renewal of any Document or otherwise; (ii) the time for Company's performance of
or compliance with any term, covenant or agreement on its part to be performed
or observed under any Document may be extended, or such performance or
compliance waived, or failure in or departure from such performance or
compliance consented to, all in such manner and upon such terms as Lender may
deem proper; (iii) Lender may discharge or release, in whole or in part, any
other guarantor or any other Person liable for the payment and performance of
all or any part of the Obligations, and may permit or consent to any such action
or any result of such action, and Lender shall not be liable to Guarantor for
any failure to collect or enforce payment of the Obligations; (iv) Lender may
take and hold security of any kind, at any time, as collateral for the
Obligations, may request and accept other guaranties and may, from time to time,
in whole or in part, exchange, sell, surrender, release, subordinate, modify,
waive, rescind, compromise or extend such security or guaranties; and (v) Lender
may exercise, or waive or otherwise refrain from exercising, any other right,
remedy, power or privilege granted by any Document, or otherwise available to
Lender, with respect to the Obligations and any collateral therefor, even if the
exercise of such right, remedy, power or privilege affects or eliminates any
right of subrogation or any other right of Guarantor against Company; all as
Lender may deem advisable, and all without impairing, abridging, releasing or
affecting this Guaranty.
<PAGE>
4. Waivers. (a) Guarantor waives and agrees not to assert: (i) any right
to require Lender to proceed against Company, any other guarantor or any other
Person, to proceed against or exhaust any collateral or other security held for
the Obligations (except to the extent required by applicable law), to give
notice of or institute any public or private sale, foreclosure, or other
disposition of any collateral or security for the Obligations, including,
without limitation, to comply with applicable provisions of the New York Uniform
Commercial Code or any equivalent provision of any other applicable law in
connection with the sale, foreclosure, or other disposition of any collateral or
to pursue any other right, remedy, power or privilege of Lender whatsoever, or
give Guarantor any other notice with respect to the foregoing; (ii) the defense
of the statute of limitations in any action hereunder or for the collection or
performance of the Obligations; and (iii) to the fullest extent permitted by
law, any other defenses or benefits that may be derived from or afforded by
applicable law limiting the liability of or exonerating guarantors or sureties,
or which may conflict with the terms of this Guaranty. (b) Guarantor waives any
and all notice of the acceptance of this Guaranty, and any and all notice of the
creation, renewal, modification, extension or accrual of the Obligations. The
Obligations shall conclusively be deemed to have been created, contracted,
incurred and permitted to exist in reliance upon this Guaranty. Guarantor waives
promptness, diligence, presentment, protest, demand for payment, notice of
default, dishonor or nonpayment and all other notices to or upon Company,
Guarantor or any other Person with respect to the Obligations other than such
notices as may be provided for in the Agreement or any of the Documents. (c) The
obligations of Guarantor hereunder are independent of and separate from the
obligations of Company and any other guarantor and upon the occurrence and
during the continuance of any Default, a separate action or actions may be
brought against Guarantor, whether or not Company or any such other guarantor is
joined therein or a separate action or actions are brought against Company or
any such other guarantor.
5. Subrogation. Until the Obligations shall be satisfied in full, Guarantor
shall not have, and shall not directly or indirectly exercise, (i) any rights
that it may acquire by way of subrogation under this Guaranty, by any payment
hereunder or otherwise, (ii) any rights of contribution, indemnification,
reimbursement or similar suretyship claims arising out of this Guaranty, or
(iii) any other right which it might otherwise have or acquire (in any way
whatsoever) which could entitle it at any time to share or participate in any
right, remedy or security of the Lender as against Company or other guarantors,
whether in connection with this Guaranty or otherwise. If any amount shall be
paid to Guarantor on account of the foregoing rights at any time when any
Obligations are outstanding, such amount shall be held in trust for the benefit
of Lender and shall forthwith be paid to Lender to be credited and applied to
the Obligations.
6. Continuing Guaranty. Guarantor agrees that this Guaranty is a
continuing guaranty relating to any Obligations, including Obligations which may
exist continuously or which may arise from time to time under successive
transactions, and Guarantor expressly acknowledges that this Guaranty shall
remain in full force and effect until all such Obligations are discharged in
full and all commitments are terminated, notwithstanding that there may be
periods in which no Obligations exist. This Guaranty shall continue to be
effective or shall be reinstated and revived, as the case may be, if, for any
reason, any payment of the Obligations by
<PAGE>
or on behalf of Company shall be rescinded or must otherwise be restored by
Lender, whether as a result of proceedings in bankruptcy or reorganization or
otherwise. To the extent any payment is rescinded or restored, the Obligations
shall be revived in full force and effect without reduction or discharge for
such payment.
7. Payments. Guarantor hereby agrees, in furtherance of the foregoing
provisions of this Guaranty and not in limitation of any other right which
Lender or any other Person may have against Guarantor by virtue hereof, that
upon any Default Guarantor shall forthwith pay, or cause to be paid, in cash, to
Lender an amount equal to the amount of the Obligations then due and unpaid
(including interest which, but for the filing of a petition in bankruptcy with
respect to Company, would have accrued on such Obligations, whether or not a
claim is allowed against Company for such interest in any such bankruptcy
proceeding). All payments made by Guarantor hereunder may be applied in such
order as Lender shall elect. Guarantor shall make each payment hereunder,
without deduction (whether for taxes or otherwise), set-off or counterclaim, on
the day when due in same day or immediately available funds, and in U.S.
dollars. As used herein, "Default" means any of the following: (i) Company shall
fail to pay when due and shall remain unremedied within any applicable cure
period (whether at stated maturity, declaration, acceleration, demand or
otherwise) any of the Obligations; (ii) Guarantor shall fail to perform or
observe any term, covenant or agreement contained in subsections (a)(i) or (f)
through (r) of Section 9 hereto or in any other term, covenant or agreement
contained in this Guaranty on its part to be performed or observed and any such
failure shall remain unremedied for a period of 20 days from the occurrence
thereof (unless Lender reasonably determines that such failure is not capable of
remedy); or (iii) (A) Company or Guarantor shall admit in writing its inability
to, or shall fail generally or be generally unable to, pay its debts as they
become due, or shall make a general assignment for the benefit of creditors, or
shall file a voluntary petition in bankruptcy or a petition or answer seeking
reorganization, to effect a plan or other arrangement with creditors or any
other relief under the Bankruptcy Code or under any other state or federal law
relating to bankruptcy or reorganization granting relief to debtors, whether now
or hereafter in effect (collectively, "Bankruptcy Laws"), (B) Company or
Guarantor shall be adjudicated a bankrupt, or shall make an assignment for the
benefit of creditors, or shall apply for or consent to the appointment of any
custodian, receiver or trustee for all or any substantial part of Company's or
Guarantor's property, or shall take any action to authorize any of the actions
set forth above in this clause, or (C) an involuntary petition seeking any of
the relief specified in this clause shall be filed against Company or guarantor,
or any order for relief shall be entered against Company or guarantor in any
involuntary proceeding under any Bankruptcy Laws, unless dismissed, vacated,
released or stayed within 60 days.
8. Representations.
(a) Guarantor (i) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, (ii) has
all requisite power and authority to own its assets and carry on its business
and to execute, deliver and perform its obligations hereunder and under any
other documents and agreements executed and delivered to lender in connection
with the Agreement (the "Guarantor Documents"), as applicable, (iii) is
qualified to do business and is in good standing in each jurisdiction in which
the failure so to
<PAGE>
qualify or be in good standing would result in a Material Adverse Change, and
(iv) is in compliance with all Requirements of Law, except to the extent that
such noncompliance could not reasonably be expected to result in a Material
Adverse Change.
(b) The execution, delivery and performance by Guarantor of the Guarantor
Documents, have been duly authorized by all necessary corporate action of
Guarantor and do not and will not (i) contravene the terms of the articles or
certificate of incorporation, or bylaws, of Guarantor; or (ii) result in a
breach of or constitute a default under any material lease, instrument, contract
or other agreement to which Guarantor is a party or by which it or its
properties may be bound or affected; or (iii) violate any provision of any law,
rule, regulation, order, judgment, decree or the like binding on or affecting
Guarantor except as to clauses (ii) and (iii), to the extent any such breach,
default or violation could not reasonably be expected to result in a Material
Adverse Change.
(c) The Guarantor Documents constitute, or when delivered under the
Agreement will constitute, legal, valid and binding obligations of Guarantor,
enforceable against Guarantor in accordance with their respective terms except
as may be limited by bankruptcy, insolvency, fraudulent conveyances,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally and general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair dealing
and the possible unavailability of specific performance or injunctive relief,
regardless of whether considered in a proceeding in equity or at law.
(d) No authorization, consent, approval, license, exemption of, or filing
or registration with, any Governmental Authority, or approval or consent of any
other Person, is required for the due execution, delivery or performance by
Guarantor of any of the Guarantor Documents, except (1) as may be set forth in
the Schedule or (2) where the failure to obtain the foregoing could not
reasonably be expected to result in a Material Adverse Change. (e) There are no
actions, suits or proceedings pending or, to the best of Guarantor's knowledge,
threatened against or affecting Guarantor or any of its Subsidiaries before any
Governmental Authority or arbitrator which if determined adversely to Guarantor
or any such Subsidiary would result in a Material Adverse Change.
(f) All financial statements of Guarantor and its Subsidiaries delivered to
Lender are complete and correct and fairly present the financial condition of
Guarantor and its Subsidiaries as at the times and for the periods covered by
such statements, in each case in accordance with GAAP, consistently applied,
subject, in the case of any unaudited financial statements, to normal year-end
adjustments and any absence of notes. Since the date of the most recent
financial statements furnished to Lender prior to the Closing Date, there has
not been, nor is it reasonably likely that there will be, any Material Adverse
Change.
(g) Each of Guarantor and its Subsidiaries possesses all approvals,
authorizations, permits, franchises, licenses, patents, trademarks, trade names,
service marks, copyrights, leases and all rights with respect thereto, free from
burdensome restrictions, that are reasonably necessary for the ownership,
maintenance and operation of its business, except to the extent the
<PAGE>
failure to possess the foregoing could not reasonably be expected to result in a
Material Adverse Change, and neither Guarantor nor any such Subsidiary is in
material violation of any rights of others with respect to the foregoing except
for violations which could not reasonably be expected to result in a Material
Adverse Change.
(h) The properties of Guarantor and its Subsidiaries are insured, with
financially sound and reputable insurance companies, in such amounts, with such
deductibles and covering such risks as is customarily carried by companies
engaged in similar businesses and owning similar properties in the localities
where Guarantor or such Subsidiary operates.
(i) On the basis of a comprehensive review and assessment of Guarantor's
and its Subsidiaries' systems and equipment and inquiry made of Guarantor's and
its Subsidiaries' material suppliers, vendors and customers, Guarantor
reasonably believes that the "Year 2000 problem" (that is, the inability of
computers, as well as embedded microchips in non-computing devices, to perform
properly date-sensitive functions with respect to certain dates prior to and
after December 31, 1999), including costs of remediation, will not result in a
Material Adverse Change.
(j) None of the representations or warranties made by Guarantor or
Company in the Loan Documents as of the date of such representations and
warranties, and none of the statements contained in any other information with
respect to Guarantor and its Subsidiaries, including each exhibit or report,
furnished by or on behalf of Guarantor or Company to Lender in connection with
the Loan Documents, contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading.
9. Covenants.
(a) Guarantor shall, and shall cause each of its Subsidiaries to,
maintain and preserve (i) its corporate existence, and (ii) all material
copyrights, patents, trademarks, trade names and service marks and other
intellectual property rights, and all other material rights, qualifications,
permits, licenses, franchises and privileges, necessary or desirable in the
normal course of its business and operations and the ownership of its
properties, except in connection with any transactions expressly permitted by
this Section 9.
(b) Guarantor shall, and shall cause each of its Subsidiaries to, obtain
and maintain all licenses, authorizations, consents, filings, exemptions,
registrations and other governmental approvals of any Government Authority
necessary or desirable (i) in connection with the execution, delivery and
performance of the Loan Documents, the purchase of the Cisco Products or the
consummation of the transactions therein contemplated, or (ii) in the normal
course of its business and operations and the ownership of its properties,
except, in the case of this clause (ii), to the extent that the failure to do so
could not reasonably be expected to result in a Material Adverse Change.
(c) Guarantor shall comply, and shall cause each Subsidiary to comply, in
all material respects with all Requirements of Law of any Governmental Authority
having jurisdiction over it
<PAGE>
or its business, except such as may be contested in good faith or as to which a
bona fide dispute may exist or where noncompliance could not reasonably be
expected to result in a Material Adverse Change.
(d) Guarantor shall, and shall cause each of its Subsidiaries to, carry
and maintain in full force and effect, at its own expense and with financially
sound and reputable insurance companies, insurance in such amounts, with such
deductibles and covering such risks as is customarily carried by companies
engaged in the same or similar businesses and owning similar properties in the
localities where Guarantor or such Subsidiary operates. Without limiting the
generality of the foregoing, Guarantor shall, and shall cause each of its
Subsidiaries to, comply with all requirements of the Collateral Documents
pertaining to maintenance of insurance.
(e) Guarantor shall not engage in any material line of business
substantially different from those lines of business carried on by it at the
date hereof; provided however that any of the Subsidiaries of Guarantor shall be
permitted to engage in a line of business that is reasonably related to its
lines of business on the date hereof including internet content solutions and
voice communications.
(f) Guarantor shall not, and shall not suffer or permit any Subsidiary
to, merge, consolidate with or into, or convey, transfer, lease or otherwise
dispose of (whether in one transaction or in a series of transactions all or
substantially all of its assets (whether now owned or hereafter acquired) to or
in favor of any Person), except:
(i) any of Guarantor's Subsidiaries may merge with, consolidate into
or transfer all or substantially all of its assets to any Subsidiary of
Guarantor (provided that the surviving or transferee entity is the
Company (in the case of a transaction involving the Company) or a
Wholly-Owned Subsidiary of Guarantor) and in connection therewith such
Subsidiary may be liquidated or dissolved, provided that no Material
Adverse Change would result therefrom;
(ii) Guarantor or any of its Subsidiaries may sell or dispose of
assets in accordance with the provisions of Section 9(g);
(iii) Guarantor or any of its Subsidiaries may make any investment
permitted by Section 9(j);
(iv) any Subsidiary of Guarantor may merge with or consolidate into
any other Person, provided that (i) in the case of the Company, the
Company is the surviving Person, (ii) no such merger or consolidation
shall be made while there exists a Default or if a Default would occur
as a result thereof; and (iii) all actions have been taken (to the
satisfaction of the Lender) to protect and continue perfected the Liens
of the Lender under Section 5.1(n) of the Agreement; and
(v) Guarantor may merge with or consolidate into any other Person
(other than the Company) provided that (i) Guarantor is the surviving
Person, (ii) no such merger or consolidation shall be made while there
exists a Default or if a Default would
<PAGE>
occur as a result thereof and (iii) all actions have been taken (to the
satisfaction of the Lender) to protect and continue perfected the Liens
of the Lender under Section 5.1(n) of the Agreement.
(g) Except as provided in the Agreement, Guarantor shall not, and shall
not permit any of its Subsidiaries to, sell, lease, transfer, or otherwise
dispose of, or part with control of (whether in one transaction or a series of
transactions) any assets (including any shares of stock in any Subsidiary or
other Person) outside the ordinary course of business (each a "Transfer") or
enter into or consummate any transfer: (i) involving Financed Products, (other
than in the ordinary course of business to a Wholly-Owned Subsidiary that is a
Guarantor), (ii) that could reasonably be expected to result in a Material
Adverse Change or (iii) that would violate the terms of any other Loan Document,
provided that as a condition to consummating any Transfer to any such Wholly-
Owned Subsidiary of Financed Products, Borrower shall provide ten Banking Days'
prior written notice to Lender of the proposed Transfer. Notwithstanding the
foregoing, Guarantor and/or any of its Subsidiaries may effect a Transfer of any
assets other than the Financed Products provided that all such Transfers, in the
aggregate, do not have a fair market value greater than $10,000,000.
(h) Except as provided in the Agreement, Guarantor shall not, and shall
not permit any of its Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon or with respect to any of its properties, revenues or assets,
whether now owned or hereafter acquired, other than Permitted Liens.
(i) Except as provided in the Agreement, Guarantor shall not, and shall
not permit any of its Subsidiaries to, create, incur, assume or otherwise become
liable for or suffer to exist any Indebtedness, other than: (i) Indebtedness of
Guarantor to Lender hereunder; (ii) Indebtedness of Guarantor existing on the
date hereof and disclosed to Lender or extensions, renewals and refinancings of
such Indebtedness, provided that the principal amount of such Indebtedness being
extended, renewed or refinanced does not increase; (iii) accounts payable to
trade creditors for goods and services and current operating liabilities (not
the result of the borrowing of money) incurred in the ordinary course of
Guarantor's or such Subsidiary's business in accordance with customary terms and
paid within the specified time, unless contested in good faith by appropriate
proceedings and reserved for in accordance with GAAP; (iv) Indebtedness
consisting of guarantees resulting from endorsement of negotiable instruments
for collection by Guarantor or any of its Subsidiaries in the ordinary course of
business; (v) Indebtedness of Guarantor and its Subsidiaries under capital
leases or otherwise incurred under or in connection with any Liens of the type
referred to in clause (vi) or (viii) (or any extension, refinancing or
replacement thereof) of the definition of Permitted Liens in Section 1.1 of the
Agreement, provided that the aggregate principal amount outstanding of
Indebtedness under the Nortel Credit Agreement does not exceed $30,000,000; (vi)
Indebtedness of Guarantor to any other Person subordinated to the payment of the
Obligations of Guarantor on terms satisfactory to Lender; (vii) Indebtedness of
Guarantor to any of its Wholly-Owned Subsidiaries or of any of its Wholly-Owned
Subsidiaries to another of its Wholly-Owned Subsidiaries; and (viii)
Indebtedness incurred under any Swap Agreements or under one or more secured or
unsecured term loans and/or revolving credit facilities (including any letter of
credit subfacility),
<PAGE>
and any refinancing, replacement renewals or extensions thereof, in an aggregate
principal amount not to exceed 200% of paid in equity capital of Guarantor minus
the sum of (x) Indebtedness of Company to Lender under the Agreement and (y) the
purchase money Indebtedness described in clause (v) of this paragraph.
(j) Except as provided in the Agreement, Guarantor shall not, and shall
not permit any of its Subsidiaries to, purchase or otherwise acquire the capital
stock, assets (constituting a business unit), obligations or other securities of
or any interest in any Person, or otherwise extend any credit to or make any
additional investments in any Person (an "Investment"), other than in connection
with: (i) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sales of goods or services in the ordinary course of
business; (ii) equity investments by Guarantor in any Wholly-Owned Subsidiary,
or extensions of credit by Guarantor to any of its Wholly-Owned Subsidiaries or
by any of its Wholly-Owned Subsidiaries to another of its Wholly-Owned
Subsidiaries; (iii) short term, investment grade money market instruments, in
accordance with Guarantor's usual and customary treasury management policies
(including, without limitation, the Investments described in Section 9.5 (c)
through (f) of the Nortel Credit Agreement). Notwithstanding the foregoing,
Guarantor shall be permitted to engage in one or more Permitted Acquisitions
provided that any such Permitted Acquisition is funded by the proceeds from any
equity offering of Guarantor or Company in excess of $68,000,000, in the
aggregate, and provided further that the amount of such proceeds resulting in
any Permitted Acquisition that is not a Wholly-Owned Subsidiary shall not be, in
the aggregate, in excess of $20,000,000 of such proceeds. (k) On a consolidated
basis, Guarantor and its Subsidiaries shall maintain total revenues of the
Guarantor and its subsidiaries for each quarterly period set forth below of not
less than the correlative amount indicated:
Quarterly Period Ending Required Amount
June 30, 1999 $ 1,655,890
September 30, 1999 $ 2,595,646
December 31, 1999 $ 4,100,145
March 31, 2000 $ 6,191,705
June 30, 2000 $ 7,989,340
September 30, 2000 $10,200,671
December 31, 2000 $12,729,166
March 31, 2001 $19,259,094
June 30, 2001 $18,598,631
September 30, 2001 $21,499,863
December 31, 2001 $25,061,558
March 31, 2002 $29,026,614
June 30, 2002 $32,700,266
September 30, 2002 $34,429,544
December 31, 2002 $39,271,302
<PAGE>
(l) On a consolidated basis, Guarantor and its Subsidiaries shall
maintain EBITDA for each quarterly period set forth below of not less than the
correlative amount indicated (bracketed amounts ( ) are negative):
Quarterly Period Ending Required Amount
June 30, 1999 ($ 3,490,788)
September 30, 1999 ($ 4,499,198)
December 31, 1999 ($ 5,480,403)
March 31, 2000 ($ 4,339,424)
June 30, 2000 ($ 4,284,588)
September 30, 2000 ($ 3,727,553)
December 31, 2000 ($ 3,479,121)
March 31, 2001 ($ 1,035,000)
June 30, 2001 ($ 1,232,500
September 30, 2001 $ 2,975,000
December 31, 2001 $ 3,751,796
March 31, 2002 $ 6,035,000
June 30, 2002 $ 7,565,000
September 30, 2002 $10,200,000
December 31, 2002 $11,684,334
"EBITDA" shall mean with respect to any fiscal period of a Person, such
Person's earnings (excluding extraordinary items (determined in accordance with
GAAP)), plus (except to the extent attributable to extraordinary items
(determined in accordance with GAAP)) the amount of any interest, taxes,
depreciation, amortization deducted in arriving at such earnings, and, without
duplication, plus losses and less gains upon dispositions of properties added or
deducted in arriving at such earnings.
(m) On a consolidated basis, the Guarantor and its Subsidiaries shall
not permit the ratio of Consolidated Funded Debt to Capitalization to exceed 75%
at any time. As used in this subsection (m), the following terms shall have the
following meanings:
(i) "Consolidated Funded Debt" means, as of any date of
determination, all Indebtedness of Guarantor and its Subsidiaries on
such date, on a consolidated basis and as determined in accordance
with GAAP.
(ii) "Capitalization" means, on any date, the sum of (x)
Consolidated Funded Debt, plus (y) the sum of capital stock plus paid
in capital of Guarantor and its Subsidiaries on such date, on a
consolidated basis and as determined in accordance with GAAP.
<PAGE>
(n) The Guarantor shall at all times be the beneficial and record
owner of 100% of the capital stock (including all warrants, options or other
rights to acquire capital stock of any class) of the Company.
(o) Guarantor shall, and shall cause each of its Subsidiaries to,
keep adequate records and books of account, in which complete entries will be
made in accordance with GAAP. Guarantor shall provide Lender and its agents
access to the premises of Guarantor and its Subsidiaries at any time and from
time to time, during normal business hours and upon reasonable notice under the
circumstances, and at any time on and after the occurrence of a Default or Event
of Default, for the purposes of (i) inspecting and verifying the Collateral,
(ii) inspecting and copying any and all records pertaining thereto, and (iii)
discussing the affairs, finances and business of Guarantor and its Subsidiaries
with any officer, employee or director of Guarantor or with its accountants.
(p) Guarantor shall not declare or pay any dividends in respect of
Guarantor's capital stock, or purchase, redeem, retire or otherwise acquire for
value any of its capital stock now or hereafter outstanding, return any capital
to its shareholders as such, or make any distribution of assets to its
shareholders as such, or permit any of its Subsidiaries to purchase, redeem,
retire, or otherwise acquire for value any stock of Guarantor, except that
Guarantor may: (A) declare and deliver dividends and distributions payable only
in common stock of Guarantor; and (B) purchase, redeem, retire, or otherwise
acquire shares of its capital stock from officers, directors and employees upon
termination or cessation of employment with Guarantor or with the proceeds
received from a substantially concurrent issue of new shares of its capital
stock.
(q) (A) If Guarantor proposes to incorporate, create or acquire any
additional Wholly-Owned Subsidiary, Guarantor shall notify Lender thereof, and,
if required hereby, obtain Lender's consent thereto. After the incorporation,
creation or acquisition of any such Wholly-Owned Subsidiary (subject to
obtaining any necessary Lender consent), within five Banking Days following
receipt by Guarantor from Lender of a security agreement, in form and substance
satisfactory to Lender, and a guaranty of the Obligations in form and substance
satisfactory to Lender, Guarantor shall cause such Wholly-Owned Subsidiary to
execute and deliver such guaranty and security agreement to Lender. Lender may
elect in its sole discretion to waive any such requirement in the case of any
non-U.S. Wholly-Owned Subsidiary and any Wholly-Owned Subsidiary that will
remain a dormant or shell Wholly-Owned Subsidiary. (B) Within five Banking Days
after receipt from Lender of any request to do so, Guarantor shall cause such
Wholly-Owned Subsidiary to have executed and filed any UCC-1 financing
statements furnished by Lender in each jurisdiction in which such filing is
necessary to perfect the security interest of Lender in the Collateral of such
Wholly-Owned Subsidiary and in which Lender requests that such filing be made.
(C) Additionally, Guarantor and such Wholly-Owned Subsidiary shall have executed
and delivered to Lender such other items as reasonably requested by Lender in
connection with the foregoing, including resolutions, incumbency and officers'
certificates, opinions of counsel, search reports and other certificates and
documents.
<PAGE>
(r) Guarantor shall not locate, and shall not permit any of its
Subsidiaries to locate, any Financed Products on the same premises where Nortel
Networks Equipment and/or Nortel Networks Software are located.
10. Notices. All notices and other communications provided for hereunder
shall, unless otherwise stated herein, be in writing (including by facsimile)
and shall be mailed, sent or delivered (i) if to Lender, to Cisco Systems, Inc.,
Worldwide Financial Services, Mailstop SJC2-3rd Floor, 170 West Tasman Drive,
San Jose, CA 95134-1706, attn. Loan Administration, fax (408) 527-3993; and (ii)
if to Guarantor, at or to its address or facsimile number set forth below its
name on the signature page hereof, or at or to such other address or facsimile
number as such party shall have designated in a written notice to the other
party. All such notices and communications shall be effective upon receipt.
11. No Waiver. No failure on the part of Lender to exercise, and no
delay in exercising, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights and remedies under this Guaranty are cumulative and not exclusive of
any rights, remedies, powers and privileges that may otherwise be available to
Lender.
12. Costs and Expenses. Guarantor agrees to pay on demand all
reasonable costs and expenses of Lender and reasonable fees and disbursements of
counsel in connection with the enforcement, or preservation of any rights under,
this Guaranty.
13. Binding Effect; Entire Agreement; Amendments. This Guaranty shall
be binding upon Guarantor and its successors and assigns, and inure to the
benefit of and be enforceable by Lender and its successors, endorsees,
transferees and assigns; provided that Guarantor shall not have the right to
assign or transfer its rights and obligations hereunder without the prior
written consent of Lender. Any such purported assignment or transfer by
Guarantor without the prior express written consent of Lender shall be void.
Guarantor acknowledges and agrees that in connection with an assignment of, or
grant of a participation in, the Obligations, Lender may assign, or grant
participations in, all or a portion of its rights and obligations hereunder,
including the benefit of Section 12. Upon any assignment of Lender's rights
hereunder, such assignee shall have, to the extent of such assignment, all
rights of Lender hereunder and may in turn assign such rights. Guarantor agrees
that, upon any such assignment, such assignee may enforce directly, without
joinder of Lender, the rights of Lender set forth in this Guaranty.
Any such assignee shall be entitled to enforce Lender's rights and remedies
under this Guaranty to the same extent as if it were the "Lender" party hereto.
This Guaranty constitutes the entire agreement of Guarantor with respect to the
matters set forth herein and supersedes any prior agreements, commitments,
discussions and understandings, oral or written, with respect thereto. This
Guaranty may not be amended except by a writing signed by Guarantor and Lender.
No waiver of any rights of Lender under any provision of this Guaranty or
consent to any departure by Guarantor therefrom shall be effective unless in
writing and signed by Lender. Any such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
<PAGE>
14. Severability. Whenever possible, each provision of the Guaranty shall
be interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Guaranty shall be
prohibited by or invalid under any such law or regulation, it shall be deemed
modified to conform to the minimum requirements of such law or regulation, or,
if for any reason it is not deemed so modified, it shall be ineffective and
invalid only to the extent of such prohibition or invalidity without affecting
the remaining provisions of this Guaranty.
15. Law; Submission to Jurisdiction. This Guaranty shall be governed by
and construed in accordance with New York law. Guarantor hereby (i) submits to
the non-exclusive jurisdiction of the courts of the State of New York and the
Federal courts of the United States sitting in the State of New York and the
Federal courts of the United States sitting in the Borough of Manhattan for the
purpose of any action or proceeding arising out of or relating to this Guaranty,
(ii) agrees that all claims in respect of any such action or proceeding may be
heard and determined in such courts, (iii) irrevocably waives (to the extent
permitted by applicable law) any objection which it now or hereafter may have to
the laying of venue of any such action or proceeding brought in any of the
foregoing courts in and of the State of New York, and any objection on the
ground that any such action or proceeding in any such court has been brought in
an inconvenient forum, and (iv) agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner permitted by law.
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty, as
of the date first above written.
CAIS Internet, Inc.
By: /s/ William M. Caldwell, IV
---------------------------
Title: President
Address:
CAIS Internet, Inc.
1255 22nd Street, NW
Washington D.C. 20037
Attn: Ulysses G. Auger, II
Fax: (202) 463-7190
<PAGE>
EXECUTION COPY
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of June 30, 1999, is
made between CAIS Internet, Inc., a Delaware corporation ("Debtor") and Cisco
Systems Capital Corporation, a Nevada corporation ("CSCC").
Debtor and CSCC hereby agree as follows:
Section 1 Definitions; Interpretation.
---------------------------
(a) All capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings assigned to them in the Guaranty.
(b) As used in this Agreement, the following terms shall have the following
meanings:
"Cisco Company" means Cisco Systems, Inc. and any subsidiary or affiliate
-------------
thereof.
"Collateral" has the meaning set forth in Section 2.
----------
"Credit Agreement" means that certain Agreement dated as of the date
----------------
hereof by and between the Company and CSCC
"Documents" means the Guaranty and any other "Documents" as defined in
---------
the Guaranty.
"Event of Default" has the meaning set forth in Section 6.
----------------
"Guaranty" means the Guaranty, dated as of the date hereof, made by
--------
Debtor in favor of CSCC.
"Lien" means any mortgage, deed of trust, pledge, security interest,
-----
assignment, deposit arrangement, charge or encumbrance, lien, or other type of
preferential arrangement.
"Note" means each Promissory Note made by CAIS, Inc. in favor of CSCC
----
pursuant to the Agreement.
"Person" means an individual, corporation, partnership, joint
------
venture, trust, unincorporated organization, governmental agency or authority,
or any other entity of whatever nature.
<PAGE>
"Products" means information systems networking equipment and any spare
--------
parts, accessories and other goods, and all maintenance and servicing agreements
and any other contractual rights and other general intangibles (including all
software and other intellectual property), which any Cisco Company manufactured
or assembled for Debtor, or sold, licensed, leased or otherwise provided to
Debtor (whether directly or indirectly), or the acquisition of which any Cisco
Company financed, or which are otherwise in the possession of Debtor, together
with all parts, components, supplies, packing and other materials manufactured,
sold, licensed, leased or provided by any Cisco Company to Debtor, or otherwise
financed by a Cisco Company or held or possessed by Debtor.
"UCC" means the Uniform Commercial Code as the same may, from time to
---
time, be in effect in the State of New York; provided, however, in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of New York, the term "UCC" shall mean the Uniform Commercial Code as in effect
in such other jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection or priority and for purposes of definitions related
to such provisions.
(c) Where applicable and except as otherwise defined herein, terms used in
this Agreement shall have the meanings assigned to them in the UCC.
(d) In this Agreement, except to the extent the context otherwise requires:
(i) any reference to an Article, a Section, a Schedule or an Exhibit is a
reference to an article or section thereof, or a schedule or an exhibit thereto,
respectively, and to a subsection or a clause is, unless otherwise stated, a
reference to a subsection or a clause of the Section or subsection in which the
reference appears; (ii) the words "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to the
specific Article, Section, subsection, paragraph or clause in which the
respective word appears; (iii) the meaning of defined terms shall be equally
applicable to both the singular and plural forms of the terms defined; (iv) the
words "including," "includes" and "include" shall be deemed to be followed by
the words "without limitation;" (v) references to agreements and other
contractual instruments shall be deemed to include all subsequent amendments and
other modifications thereto; (vi) references to statutes or regulations are to
be construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to; (vii) any table of
contents, captions and headings are for convenience of reference only and shall
not affect the construction of this Agreement; and (viii) in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including"; the words "to" and "until" each mean "to but
excluding"; and the word "through" means "to and including."
SECTION 2 Security Interest.
-----------------
(a) As security for the payment and performance of the Obligations, Debtor
hereby pledges, assigns, transfers, hypothecates and sets over to CSCC, and
hereby grants to CSCC a security interest in, all of Debtor's right, title and
interest in, to and under the following property, wherever located and whether
now existing or owned or hereafter acquired or arising (collectively,
<PAGE>
the "Collateral"): (i) any of Debtor's inventory and other goods, materials,
merchandise, equipment and general intangibles, of whatever kind or nature and
wherever located, constituting or comprising the Products, (ii) all additions,
substitutions, replacements, attachments, accessories and accessions to and for
the foregoing (including all software upgrades), (iii) any and all lease and
purchase contracts for or with respect to the Products entered into between
Debtor as lessor or seller and any other Person as lessee, purchaser or
otherwise, (iv) any and all payments for Products due and payable from any such
Person as lessee, purchaser or otherwise, (v) any and all rights to any
insurance with respect to the foregoing, (vi) all books, records and other
documentation of the Debtor related to any of the foregoing, and (vii) all
proceeds thereof (including insurance proceeds) (collectively, the "Principal
Collateral") and to the extent not included in the description of the foregoing
Principal Collateral, all accounts, accounts receivable, contract rights, rights
to payment, chattel paper, letters of credit, documents, securities, money and
instruments, and investment property, whether held directly or through a
securities intermediary, and other obligations of any kind owed to Debtor
(including all Cisco Service Agreement Revenues); all deposit accounts, and all
funds and amounts therein; all inventory; all equipment; all general intangibles
and other personal property of Debtor; and all proceeds, including insurance
proceeds, of any and all of the foregoing (collectively, the "Additional
Collateral"). The term "general intangibles" shall not include the copyrights,
patents and trademarks of Debtor except proceeds thereof and such intellectual
property constituting or associated with or related to the Financed Products.
(b) This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 15 hereof.
(c) Notwithstanding the foregoing provisions of this Section 2, the grant
of a security interest as provided herein shall not extend to, and the term
"Collateral" shall not include, any of the Additional Collateral, to the extent
that (i) (A) such Additional Collateral is not assignable or capable of being
encumbered as a matter of law or under the terms of any indenture, loan
agreement, license, lease or other agreement to which Debtor is a party, without
the consent of the creditor, licensor, lessor or other applicable party thereto
and (B) such consent has not been obtained, (ii) such Additional Collateral
constitutes Nortel Collateral, or (iii) such Additional Collateral includes any
equipment and other property the acquisition of which is being financed by any
Person other than Cisco Company under any equipment loan agreement or other loan
facility (including the Nortel Collateral) for so long as any Indebtedness
thereunder is outstanding; provided, however, that the foregoing grant of
security interest shall extend to, and the term "Collateral" shall include
either upon termination of the indenture, loan agreement, license, lease or
other agreement applicable to such Additional Collateral or upon obtaining the
consent of any such creditor, licensor, lessor or other applicable party with
respect to any such otherwise excluded Additional Collateral, any such
Additional Collateral that might theretofore have been excluded from the grant
of a security interest and the term "Collateral."
SECTION 3 Financing Statements, Etc. Debtor shall execute and
--------------------------
deliver to CSCC concurrently with the execution of this Agreement, and from time
to time thereafter, all financing statements, assignments, continuation
<PAGE>
financing statements, termination statements, account control agreements, and
other documents and instruments, in form reasonably satisfactory to CSCC, and
take all other action, as CSCC may reasonably request, to perfect and continue
perfected, maintain the priority of or provide notice of the security interest
of CSCC in the Collateral and to accomplish the purposes of this Agreement.
SECTION 4 Representations and Warranties. Debtor represents
-------------------------------
and warrants to CSCC that:
(a) Debtor is a corporation duly organized, validly existing and in good
standing under the law of the jurisdiction of its incorporation and has all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) The execution, delivery and performance by Debtor of this Agreement
have been duly authorized by all necessary corporate action of Debtor, and this
Agreement constitutes the legal, valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, subject to bankruptcy
and similar laws and equitable principles.
(c) No authorization, consent, approval, license, exemption of, or filing
or registration with, any governmental authority or agency, or approval or
consent of any other Person, is required for the due execution, delivery or
performance by Debtor of this Agreement.
(d) Debtor's chief executive office and principal place of business (as of
the date of this Agreement) is located at the address set forth in Schedule 1;
the Products will be kept only at the locations set forth in Schedule 1; all
other locations where Debtor conducts business or Collateral is kept (as of the
date of this Agreement) are set forth in Schedule 1; and all trade names and
trade styles under which Debtor at any time in the past has conducted or
presently conducts its business operations are set forth in Schedule 1.
(e) Debtor is not and will not become a lessee under any real property
lease or other agreement governing the location of Collateral at the premises of
another Person pursuant to which the lessor or such other Person may obtain any
rights in any of the Collateral, and no such lease or other such agreement now
prohibits, restrains, impairs or will prohibit, restrain or impair Debtor's
right to remove any Collateral from the premises at which such Collateral is
situated.
(f) None of the Collateral now is or will be affixed to any real property
in such a manner, or with such intent, as to become a fixture.
SECTION 5 Covenants. So long as any of the Obligations remain
---------
unsatisfied, Debtor agrees that:
(a) Debtor shall do and perform all reasonable acts that may be necessary
and appropriate to maintain, preserve and protect the Collateral.
(b) Debtor shall comply in all material respects with all laws,
regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.
<PAGE>
(c) Debtor shall give prompt written notice to CSCC (and in any event not
later than 10 days prior to any change described below in this subsection) of:
(i) any change in the location of Debtor's chief executive office or principal
place of business, (ii) any change in the locations set forth in Schedule 1;
(iii) any change in its name, (iv) any changes in, additions to or other
modifications of its trade names and trade styles set forth in Schedule 1, and
(v) any changes in its identity or structure in any manner which might make any
financing statement filed hereunder incorrect or misleading.
(d) Debtor shall not surrender or lose possession of (other than to CSCC),
sell, lease, rent, or otherwise dispose of or transfer any of the Collateral or
any right or interest therein, except (in the case of Collateral other than
Products) in the ordinary course of business or unless such Collateral is
replaced by comparable Collateral of similar value or as otherwise permitted by
the Credit Agreement.
(e) Debtor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral
prior to the date on which penalties attach thereto, except to the extent such
taxes, fees, assessments or governmental charges or levies are being contested
in good faith by appropriate proceedings.
(f) Debtor shall maintain and preserve its corporate existence, its rights
to transact business and all other rights, franchises and privileges necessary
or desirable in the normal course of its business and operations and the
ownership of the Collateral, except in connection with any transactions
expressly permitted by any Document.
(g) Debtor shall carry and maintain in full force and effect, at its own
expense and with financially sound and reputable insurance companies, insurance
with respect to the Collateral in such amounts, with such deductibles and
covering such risks as is customarily carried by companies engaged in the same
or similar businesses and owning similar properties in the localities where
Debtor operates. Insurance on the Collateral shall name CSCC as additional
insured and as loss payee. Upon the request of CSCC, Debtor shall furnish CSCC
from time to time with full information as to the insurance carried by it and,
if so requested, copies of all such insurance policies. Debtor shall also
furnish to CSCC from time to time upon the request of CSCC a certificate of
Debtor's insurance broker or other insurance specialist stating that all
premiums then due on the policies relating to insurance on the Collateral have
been paid and that such policies are in full force and effect. All insurance
policies required under this subsection (g) shall provide that they shall not be
terminated or cancelled nor shall any such policy be materially changed without
at least 30 days' prior written notice to Debtor and CSCC.
(h) Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise and including, without limitation, third parties with
whom Debtor maintains points of presence), Debtor shall, whenever requested by
CSCC, use its reasonable best efforts to cause such third party to execute and
deliver to CSCC, in form and substance satisfactory to CSCC, such waivers,
subordinations and collateral access agreements, as CSCC shall specify, so as to
ensure that CSCC's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party and to ensure that CSCC shall
have access to the Collateral in connection with the exercise
<PAGE>
of its remedies hereunder; provided, however, that Debtor shall not be required
to obtain waivers, subordinations and collateral access agreements from Town &
Country (as defined in the Credit Agreement) in connection with the properties
listed on Exhibit E to the Credit Agreement and provided further, that Debtor
and CSCC agree that the inclusion of the following contract provision (or a
variation thereof which in form and substance is substantially similar) in the
Cisco Service Agreements shall satisfy the requirements of this subsection 5(h):
Owner acknowledges that some of CAIS' Equipment installed at the
Property may be vendor financed. Owner agrees that it will not
encumber such Equipment and that CAIS' third party vendors shall have
reasonable access to such Equipment consistent with any security
interest held by such vendors in the Equipment.
Debtor will keep in full force and effect, and will comply with all the terms
of, any lease of real property where any of the Collateral now or in the future
may be located. Without limiting the foregoing, prior to the Closing Date,
Debtor shall deliver a Landlord Agreement (as defined in the Credit Agreement),
in form and substance satisfactory to CSCC, executed by (i) 1255 22nd Street
Associates Limited Partnership for the property listed on Annex A attached
hereto and (ii) each third party with whom Debtor maintains a point of presence
as of July 21, 1999.
SECTION 6 Events of Default. Any of the following events which shall
-----------------
occur and be continuing shall constitute an "Event of Default":
(a) Debtor shall fail to pay when due any amount payable hereunder or under
any other Document, or any other Obligations, and such failure shall continue
unremedied for five (5) days.
(b) Any representation or warranty by Debtor under or in connection with
this Agreement or any other Document shall prove to have been incorrect in any
material respect when made or deemed made.
(c) Debtor shall fail to perform or observe in any material respect any
other term, covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for a period
of 20 days from the occurrence thereof (unless CSCC reasonably determines that
such failure is not capable of remedy), or any "Event of Default" as defined in
any Document shall have occurred and is continuing.
(d) Any material impairment in the value of the Collateral or the priority
of CSCC's Lien hereunder.
(e) Any levy upon, seizure or attachment of any of the Collateral which
shall not have been rescinded or withdrawn.
(f) Any loss, theft or substantial damage to, or destruction of, any
material portion of the Collateral (unless within 15 days after the occurrence
of any such event, Debtor furnishes to CSCC evidence reasonably satisfactory to
CSCC that the amount of any such loss, theft, damage to or destruction of the
Collateral is fully insured under policies naming CSCC as an additional named
insured or loss payee or such Collateral is otherwise replaced by comparable
Collateral of similar value).
<PAGE>
SECTION 7 Remedies.
---------
(a) Upon the occurrence and continuance of any Event of Default, CSCC may
declare any of the Obligations to be immediately due and payable and shall have,
in addition to all other rights and remedies granted to it in this Agreement or
any other Document, all rights and remedies of a secured party under the UCC and
other applicable laws.
(b) The cash proceeds actually received from the sale or other disposition
or collection of Collateral, and any other amounts received in respect of the
Collateral the application of which is not otherwise provided for herein, shall
be applied to the payment of the Obligations. Any surplus thereof which exists
after payment and performance in full of the Obligations shall be promptly paid
over to Debtor or otherwise disposed of in accordance with the UCC or other
applicable law. Debtor shall remain liable to CSCC for any deficiency which
exists after any sale or other disposition or collection of Collateral.
(c) Subject to paragraph (b) of this Section 7, Debtor waives, to the
fullest extent permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Collateral or other collateral or security for the
Obligations; (ii) any right to require CSCC (A) to proceed against any Person,
(B) to exhaust any other collateral or security for any of the Obligations, (C)
to pursue any remedy in CSCC's power, or (D) to make or give any presentments,
demands for performance, notices of nonperformance, protests, notices of
protests or notices of dishonor in connection with any of the Collateral; and
(iii) all claims, damages, and demands against CSCC arising out of the
repossession, retention, sale or application of the proceeds of any sale of the
Collateral.
Section 8 Notices. All notices or other communications hereunder
-------
shall be in writing (including by facsimile transmission) and mailed, sent or
delivered to the respective parties hereto at or to their respective addresses
or facsimile numbers set forth below their names on the signature pages hereof,
or at or to such other address or facsimile number as shall be designated by any
party in a written notice to the other parties hereto. All such notices and
other communications shall be effective (i) if delivered by hand, when
delivered; (ii) if sent by mail, upon the earlier of the date of receipt or five
business days after deposit in the mail, first class; and (iii) if sent by
facsimile transmission, when such transmission is confirmed to be completed.
Section 9 No Waiver; Cumulative Remedies. No failure on the part of
------------------------------
CSCC to exercise, and no delay in exercising, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights and remedies under this Agreement are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to CSCC.
<PAGE>
Section 10 Binding Effect. This Agreement shall be binding upon,
--------------
inure to the benefit of and be enforceable by Debtor, CSCC and their respective
successors and assigns. Debtor may not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder without
the prior express written consent of CSCC. Any such purported assignment,
transfer, hypothecation or other conveyance by Debtor without the prior express
written consent of CSCC shall be void. Debtor acknowledges and agrees that in
connection with an assignment of, or grant of a participation in, the
Obligations, CSCC may assign, or grant participations in, all or a portion of
its rights and obligations hereunder, including the benefit of Section 17. Upon
any assignment of CSCC's rights hereunder, such assignee shall have, to the
extent of such assignment, all rights of CSCC hereunder and may in turn assign
such rights. Debtor agrees that, upon any such assignment, such assignee may
enforce directly, without joinder of CSCC, the rights of CSCC set forth in this
Agreement. Any such assignee shall be entitled to enforce CSCC's rights and
remedies under this Agreement to the same extent as if it were the original
secured party named herein.
Section 11 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Collateral are governed by the law of a jurisdiction other than
New York.
Section 12 Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire agreement of the parties with respect to the subject matter hereof and
shall not be amended except by the written agreement of the parties.
Section 13 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
Section 14 Counterparts. This Agreement may be executed in any number
------------
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
Section 15 Termination. Upon payment and performance in full of all
-----------
Obligations, this Agreement shall terminate and CSCC shall promptly execute and
deliver to Debtor such documents and instruments reasonably requested by Debtor
as shall be necessary to evidence termination of all security interests given by
Debtor to CSCC hereunder.
<PAGE>
Section 16 Conflicts. In the event of any conflict or inconsistency
----------
between this Agreement and the Guaranty, the terms of this Agreement shall
control.
Section 17 Costs and Expenses. (a) Debtor agrees to pay on demand:
------------------
(i) all title, appraisal, survey, audit, consulting, search, recording, filing
and similar costs, fees and expenses incurred or sustained by CSCC in connection
with this Agreement or the Collateral; and (ii) all costs and expenses of CSCC,
and the fees and disbursements of counsel, in connection with the enforcement or
attempted enforcement of, and preservation of any rights or interests under,
this Agreement and any other Document, including in any out-of-court workout or
other refinancing or restructuring or in any bankruptcy case, and the
protection, sale or collection of, or other realization upon, any of the
Collateral, including all expenses of taking, collecting, holding, sorting,
handling, preparing for sale, selling, or the like, and other such expenses of
sales and collections of Collateral. (b) Any amounts payable to CSCC under this
Section 17 or otherwise under this Agreement if not paid upon demand shall bear
interest from the date of such demand until paid in full, at the highest default
rate of interest set forth in the Note(s).
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of
the date first above written.
CAIS Internet, Inc..
By: /s/ William M. Caldwell, IV
------------------------------
Title: President
CAIS Internet, Inc.
1255 22nd Street NW
Fourth Floor
Washington D.C. 20037
Fax: (202) 463-7190
Cisco Systems Capital Corporation
By: /s/ Brian P. Fukuhara
------------------------------
Title: Manager, Worldwide Financial Services
Worldwide Financial Services
170 West Tasman Drive, Mailstop SJC2-3rd Floor
San Jose, CA 95134-1706
Attn: Loan Administration
Fax: (408) 527-3993
<PAGE>
ANNEX A
1255 22nd Street Associates Limited Partnership, party to the Office Building
Lease for 1255 22nd Street, N.W., Washington D.C. 20037, between 1255 22nd
Street Associates Limited Partnership and CGX Communications, Inc. (presently
known as CAIS Internet, Inc.), dated November 21, 1998.
<PAGE>
SCHEDULE 1
to the Security Agreement
1. Locations of Chief Executive Office and Other Locations, Including
of Collateral
a Chief Executive Office and Principal Place of Business:
b Locations of Products:
c Other locations where Debtor conducts business or Collateral
is kept:
2. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious
Names, Etc.
<PAGE>
EXECUTION COPY
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), dated as of June 30, 1999, is
made between CAIS, Inc., a Virginia corporation ("Debtor") and Cisco Systems
Capital Corporation, a Nevada corporation ("CSCC").
Debtor and CSCC hereby agree as follows:
SECTION 1 Definitions; Interpretation.
---------------------------
(a) All capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.
(b) As used in this Agreement, the following terms shall have the
following meanings:
"Cisco Company" means Cisco Systems, Inc., and any subsidiary or
affiliate thereof.
"Credit Agreement" means the Agreement dated as of the date hereof between
Debtor and CSCC under which CSCC has agreed to make certain credit extensions to
Debtor.
"Collateral" has the meaning set forth in Section 2.
"Documents" means this Agreement, the Credit Agreement, any Notes, and all
other certificates, documents, agreements and instruments delivered to CSCC
under or in connection with any Note.
"Event of Default" has the meaning set forth in Section 6.
"Lien" means any mortgage, deed of trust, pledge, security interest,
assignment, deposit arrangement, charge or encumbrance, lien, or other type of
preferential arrangement.
"Note" means each Promissory Note made by Debtor in favor of CSCC pursuant
to the Credit Agreement.
"Obligations" means all indebtedness, liabilities and other obligations of
Debtor to Secured Party, whether under or in connection with this Agreement, any
Notes and the other Documents or otherwise, including, without limitation, all
unpaid principal of any Notes, all interest accrued thereon, all fees and all
other amounts payable by Debtor to CSCC thereunder or in connection therewith,
and all amounts at any time owing to Secured Party arising under, out of or in
connection with any purchase orders, invoices or order acknowledgments, or other
agreements or contracts governing the sale by Secured Party of equipment or
other goods, and the provision by Secured Party of services, to Debtor, whether
now existing or hereafter arising,
<PAGE>
and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
"Person" means an individual, corporation, partnership, joint venture,
trust, unincorporated organization, governmental agency or authority, or any
other entity of whatever nature.
"Products" means information systems networking equipment and any spare
parts, accessories and other goods, and all maintenance and servicing agreements
and any other contractual rights and other general intangibles (including all
software and other intellectual property), which any Cisco Company manufactured
or assembled for Debtor, or sold, licensed, leased or otherwise provided to
Debtor, or the acquisition of which any Cisco Company financed, together with
all parts, components, supplies, packing and other materials manufactured, sold,
licensed, leased or provided by any Cisco Company to Debtor, or otherwise
financed by a Cisco Company.
"Secured Party" means collectively CSCC and any other Cisco Company to
which any Obligations are at any time owing by Debtor. "UCC" means the Uniform
Commercial Code as the same may, from time to time, be in effect in the State of
New York; provided, however, in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or priority of the
security interest in any Collateral is governed by the Uniform Commercial Code
as in effect in a jurisdiction other than the State of New York, the term
"UCC" shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such
provisions.
(c) Where applicable and except as otherwise defined herein, terms used in
this Agreement shall have the meanings assigned to them in the UCC. (d) The
rules of interpretation set forth in Section 1.2 of the Credit Agreement shall
be applicable to this Agreement and are incorporated herein by this reference.
SECTION 2 Security Interest.
-----------------
(a) As security for the payment and performance of the Obligations, Debtor
hereby pledges, assigns, transfers, hypothecates and sets over to Secured Party,
and hereby grants to Secured Party a security interest in, all of Debtor's
right, title and interest in, to and under the following property, wherever
located and whether now existing or owned or hereafter acquired or arising
(collectively, the "Collateral"): (i) any of Debtor's inventory and other goods,
materials, merchandise, equipment and general intangibles, of whatever kind or
nature and wherever located, constituting or comprising the Products, (ii) all
additions, substitutions, replacements, attachments, accessories and accessions
to and for the foregoing (including all software upgrades), (iii) any and all
lease and purchase contracts for or with respect to the Products entered into
between Debtor as lessor or seller and any other Person as lessee, purchaser or
<PAGE>
otherwise, (iv) any and all payments for Products due and payable from any such
Person as lessee, purchaser or otherwise, (v) any and all rights to any
insurance with respect to the foregoing, (vi) all books, records and other
documentation of the Debtor related to any of the foregoing, and (vii) all
proceeds thereof (including insurance proceeds) (collectively, the "Principal
Collateral") and to the extent not included in the description of the foregoing
Principal Collateral, all accounts, accounts receivable, contract rights, rights
to payment, chattel paper, letters of credit, documents, securities, money and
instruments, and investment property, whether held directly or through a
securities intermediary, and other obligations of any kind owed to Debtor
including all Cisco Service Agreement Revenues; all deposit accounts, and all
funds and amounts therein; all inventory; all equipment; all general intangibles
and other personal property of Debtor; and all proceeds, including insurance
proceeds, of any and all of the foregoing (collectively, the "Additional
Collateral"). The term "general intangibles" shall not include the copyrights,
patents and trademarks of Debtor except proceeds thereof and such intellectual
property constituting or associated with or related to the Financed Products.
(b) This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until terminated in accordance with
Section 15 hereof.
(c) Notwithstanding the foregoing provisions of this Section 2, the grant
of a security interest as provided herein shall not extend to, and the term
"Collateral" shall not include, any of the Additional Collateral, to the extent
that (i) (A) such Additional Collateral is not assignable or capable of being
encumbered as a matter of law or under the terms of any indenture, loan
agreement, license, lease or other agreement to which Debtor is a party, without
the consent of the creditor, licensor, lessor or other applicable party thereto
and (B) such consent has not been obtained, (ii) such Additional Collateral
constitutes Nortel Collateral, or (iii) such Additional Collateral includes any
equipment and other property the acquisition of which is being financed by any
Person other than a Cisco Company under any equipment loan agreement or other
loan facility (including the Nortel Collateral) for so long as any Indebtedness
thereunder is outstanding; provided, however, that the foregoing grant of
security interest shall extend to, and the term "Collateral" shall include
either upon termination of the indenture, loan agreement, license, lease or
other agreement applicable to such Additional Collateral or upon obtaining the
consent of any such creditor, licensor, lessor or other applicable party with
respect to any such otherwise excluded Additional Collateral, any such
Additional Collateral that might theretofore have been excluded from the grant
of a security interest and the term "Collateral."
SECTION 3 Financing Statements, Etc. Debtor shall execute and
--------------------------
deliver to CSCC concurrently with the execution of this Agreement, and from time
to time thereafter, all financing statements, assignments, continuation
financing statements, termination statements, account control agreements, and
other documents and instruments, in form reasonably satisfactory to CSCC, and
take all other action, as CSCC may reasonably request, to perfect and continue
perfected, maintain the priority of or provide notice of the security interest
of Secured Party in the Collateral and to accomplish the purposes of this
Agreement.
SECTION 4 Representations and Warranties. Debtor represents and
------------------------------
warrants to Secured Party that:
<PAGE>
(a) Debtor is a corporation duly organized, validly existing and in
good standing under the law of the jurisdiction of its incorporation and has all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement.
(b) The execution, delivery and performance by Debtor of this Agreement
have been duly authorized by all necessary corporate action of Debtor, and this
Agreement constitutes the legal, valid and binding obligation of Debtor,
enforceable against Debtor in accordance with its terms, subject to bankruptcy
and similar laws and equitable principles.
(c) No authorization, consent, approval, license, exemption of, or
filing or registration with, any governmental authority or agency, or approval
or consent of any other Person, is required for the due execution, delivery or
performance by Debtor of this Agreement.
(d) Debtor's chief executive office and principal place of business (as
of the date of this Agreement) is located at the address set forth in Schedule
1; the Products will be located at the locations set forth in Schedule 1; all
other locations where Debtor conducts business or Collateral is kept (as of the
date of this Agreement) are set forth in Schedule 1; and all trade names and
trade styles under which Debtor at any time in the past has conducted or
presently conducts its business operations are set forth in Schedule 1.
(e) Debtor is not and will not become a lessee under any real property
lease or other agreement governing the location of Collateral at the premises of
another Person pursuant to which the lessor or such other Person may obtain any
rights in any of the Collateral, and no such lease or other such agreement now
prohibits, restrains, impairs or will prohibit, restrain or impair Debtor's
right to remove any Collateral from the premises at which such Collateral is
situated. (f) None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
SECTION 5 Covenants. So long as any of the Obligations remain
----------
unsatisfied, Debtor agrees that:
(a) Debtor shall do and perform all reasonable acts that may be
necessary and appropriate to maintain, preserve and protect the Collateral.
(b) Debtor shall comply in all material respects with all laws,
regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.
(c) Debtor shall give prompt written notice to CSCC (and in any event
not later than 10 days prior to any change described below in this subsection)
of: (i) any change in the location of Debtor's chief executive office or
principal place of business, (ii) any change in the locations set forth in
Schedule 1; (iii) any change in its name, (iv) any changes in, additions to or
other modifications of its trade names and trade styles set forth in Schedule 1,
and (v) any
<PAGE>
changes in its identity or structure in any manner which might make any
financing statement filed hereunder incorrect or misleading.
(d) Debtor shall not surrender or lose possession of (other than to
Secured Party), sell, lease, rent, or otherwise dispose of or transfer any of
the Collateral or any right or interest therein, except (in the case of
Collateral other than Products) in the ordinary course of business or unless
such Collateral is replaced by comparable Collateral of similar value or as
otherwise permitted by the Credit Agreement.
(e) Debtor shall pay and discharge all taxes, fees, assessments and
governmental charges or levies imposed upon it with respect to the Collateral
prior to the date on which penalties attach thereto, except to the extent such
taxes, fees, assessments or governmental charges or levies are being contested
in good faith by appropriate proceedings.
(f) Debtor shall maintain and preserve its corporate existence, its
rights to transact business and all other rights, franchises and privileges
necessary or desirable in the normal course of its business and operations and
the ownership of the Collateral, except in connection with any transactions
expressly permitted by any other Document.
(g) Debtor shall carry and maintain in full force and effect, at its
own expense and with financially sound and reputable insurance companies,
insurance with respect to the Collateral in such amounts, with such deductibles
and covering such risks as is customarily carried by companies engaged in the
same or similar businesses and owning similar properties in the localities where
Debtor operates. Insurance on the Collateral shall name CSCC as additional
insured and as loss payee. Upon the request of CSCC, Debtor shall furnish CSCC
from time to time with full information as to the insurance carried by it and,
if so requested, copies of all such insurance policies. Debtor shall also
furnish to CSCC from time to time upon the request of CSCC a certificate of
Debtor's insurance broker or other insurance specialist stating that all
premiums then due on the policies relating to insurance on the Collateral have
been paid and that such policies are in full force and effect. All insurance
policies required under this subsection (g) shall provide that they shall not be
terminated or cancelled nor shall any such policy be materially changed without
at least 30 days' prior written notice to Debtor and CSCC.
(h) Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed of
trust, lien or otherwise and including, without limitation, third parties with
whom Debtor maintains points of presence), Debtor shall, whenever requested by
CSCC, use its reasonable best efforts to cause such third party to execute and
deliver to CSCC, in form and substance satisfactory to CSCC, such waivers,
subordinations and collateral access agreements, as CSCC shall specify, so as to
ensure that CSCC's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party and to ensure that CSCC shall
have access to the Collateral in connection with the exercise of its remedies
hereunder; provided, however, that Debtor shall not be required to obtain
waivers, subordinations and collateral access agreements from Town & Country in
connection with the properties listed on Exhibit E to the Credit Agreement,
provided further, that Debtor and CSCC agree that the inclusion of the following
contract provision (or a variation thereof which in
<PAGE>
form and substance is substantially similar) in Cisco Service Agreements shall
satisfy the requirements of this subsection 5(h):
Owner acknowledges that some of CAIS' Equipment installed at the
Property may be vendor financed. Owner agrees that it will not
encumber such Equipment and that CAIS' third party vendors shall
have reasonable access to such Equipment consistent with any
security interest held by such vendors in the Equipment.
Debtor will keep in full force and effect, and will comply with all the terms
of, any lease of real property where any of the Collateral now or in the future
may be located. Without limiting the foregoing, prior to or on the Closing Date,
Debtor shall deliver, as applicable, Landlord Agreements, in form and substance
satisfactory to CSCC, executed by (i) Ramay Family Partnership for the
properties listed on Annex A attached hereto and (ii) each third party with whom
Debtor maintains a point of presence as of July 21, 1999.
SECTION 6 Events of Default. Any of the following events which shall
-----------------
occur and be continuing shall constitute an "Event of Default":
(a) Debtor shall fail to pay when due (i) any amount of principal on any
Loan, Note or Obligation, or (ii) any amount of interest on any Loan or Note, or
any fee or other amount payable hereunder or under any other Document, or any
other Obligations, and in the case of clauses (i) and (ii) any such default
shall remain unremedied for five days.
(b) Any representation or warranty by Debtor under or in connection with
this Agreement, any Note or any other Document shall prove to have been
incorrect in any material respect when made or deemed made.
(c) Debtor shall fail to perform or observe in any material respect any
other term, covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for a period
of 20 days from the occurrence thereof (unless CSCC reasonably determines that
such failure is not capable of remedy), or any "Event of Default" as defined in
the Credit Agreement or any other Document shall have occurred and is
continuing.
(d) Any material impairment in the value of the Collateral or the
priority of Secured Party's Lien hereunder.
(e) Any levy upon, seizure or attachment of any of the Collateral which
shall not have been rescinded or withdrawn.
(f) Any loss, theft or substantial damage to, or destruction of, any
material portion of the Collateral (unless within 15 days after the occurrence
of any such event, Debtor furnishes to CSCC evidence reasonably satisfactory to
CSCC that the amount of any such loss, theft, damage to or destruction of the
Collateral is fully insured under policies naming CSCC as
<PAGE>
an additional named insured or loss payee or such Collateral is otherwise
replaced by comparable Collateral of similar value).
SECTION 7 Remedies.
--------
(a) Upon the occurrence and continuance of any Event of Default, CSCC
may declare any of the Obligations to be immediately due and payable and shall
have, in addition to all other rights and remedies granted to it in this
Agreement, any Note or any other Document, all rights and remedies of a secured
party under the UCC and other applicable laws.
(b) The cash proceeds actually received from the sale or other
disposition or collection of Collateral, and any other amounts received in
respect of the Collateral the application of which is not otherwise provided for
herein, shall be applied to the payment of the Obligations. Any surplus thereof
which exists after payment and performance in full of the Obligations shall be
promptly paid over to Debtor or otherwise disposed of in accordance with the UCC
or other applicable law. Debtor shall remain liable to Secured Party for any
deficiency which exists after any sale or other disposition or collection of
Collateral.
(c) Subject to paragraph (b) of this Section 7, Debtor waives, to the
fullest extent permitted by law, (i) any right of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshalling of the Collateral or other collateral or security for the
Obligations; (ii) any right to require Secured Party (A) to proceed against any
Person, (B) to exhaust any other collateral or security for any of the
Obligations, (C) to pursue any remedy in CSCC's power, or (D) to make or give
any presentments, demands for performance, notices of nonperformance, protests,
notices of protests or notices of dishonor in connection with any of the
Collateral; and (iii) all claims, damages, and demands against CSCC arising out
of the repossession, retention, sale or application of the proceeds of any sale
of the Collateral.
SECTION 8 Notices. All notices or other communications
-------
hereunder shall be in writing (including by facsimile transmission) and mailed,
sent or delivered to the respective parties hereto at or to their respective
addresses or facsimile numbers set forth below their names on the signature
pages hereof, or at or to such other address or facsimile number as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and other communications shall be effective (i) if delivered by
hand, when delivered; (ii) if sent by mail, upon the earlier of the date of
receipt or five business days after deposit in the mail, first class; and (iii)
if sent by facsimile transmission, when such transmission is confirmed to be
completed.
SECTION 9 No Waiver; Cumulative Remedies. No failure on the
-------------------------------
part of Secured Party to exercise, and no delay in exercising, any right,
remedy, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, remedy, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights and remedies under this
Agreement are cumulative and not exclusive of any rights, remedies, powers and
privileges that may otherwise be available to Secured Party.
<PAGE>
SECTION 10 Binding Effect. This Agreement shall be binding
--------------
upon, inure to the benefit of and be enforceable by Debtor, Secured Party and
their respective successors and assigns. Debtor may not assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder without the prior express written consent of CSCC. Any such purported
assignment, transfer, hypothecation or other conveyance by Debtor without the
prior express written consent of CSCC shall be void. Debtor acknowledges and
agrees that in connection with an assignment of, or grant of a participation in,
the Obligations, CSCC may assign, or grant participations in, all or a portion
of its rights and obligations hereunder, including the benefit of Section 17.
Upon any assignment of CSCC's rights hereunder, such assignee shall have, to the
extent of such assignment, all rights of CSCC hereunder and may in turn assign
such rights. Debtor agrees that, upon any such assignment, such assignee may
enforce directly, without joinder of CSCC, the rights of CSCC set forth in this
Agreement. Any such assignee shall be entitled to enforce CSCC's rights and
remedies under this Agreement to the same extent as if it were a "Secured Party"
party hereunder.
SECTION 11 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York, except as
required by mandatory provisions of law and to the extent the validity or
perfection of the security interests hereunder, or the remedies hereunder, in
respect of any Collateral are governed by the law of a jurisdiction other than
New York.
SECTION 12 Entire Agreement; Amendment. This Agreement contains the
---------------------------
entire agreement of the parties with respect to the subject matter hereof and
shall not be amended except by the written agreement of the parties.
SECTION 13 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 14 Counterparts. This Agreement may be executed in any
-------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
SECTION 15 Termination. Upon payment and performance in full of all
------------
Obligations, this Agreement shall terminate and CSCC shall promptly execute and
deliver to Debtor such documents and instruments reasonably requested by Debtor
as shall be necessary to evidence termination of all security interests given by
Debtor to Secured Party hereunder.
SECTION 16 Conflicts. In the event of any conflict or
---------
<PAGE>
inconsistency between this Agreement and the Credit Agreement, the terms of this
Agreement shall control.
SECTION 17 Costs and Expenses.
------------------
(a) Debtor agrees to pay on demand: (i) all title, appraisal, survey,
audit, consulting, search, recording, filing and similar costs, fees and
expenses incurred or sustained by Secured Party in connection with this
Agreement or the Collateral; and (ii) all costs and expenses of Secured Party,
and the fees and disbursements of counsel, in connection with the enforcement or
attempted enforcement of, and preservation of any rights or interests under,
this Agreement and any Notes, including in any out-of-court workout or other
refinancing or restructuring or in any bankruptcy case, and the protection, sale
or collection of, or other realization upon, any of the Collateral, including
all expenses of taking, collecting, holding, sorting, handling, preparing for
sale, selling, or the like, and other such expenses of sales and collections of
Collateral.
(b) Any amounts payable to Secured Party under this Section 17 or otherwise
under this Agreement if not paid upon demand shall bear interest from the date
of such demand until paid in full, at the highest default rate of interest set
forth in the Note(s).
[remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement, as of
the date first above written.
CAIS, Inc.
By: /s/ William M. Caldwell, IV
------------------------------
Title: President
CAIS, Inc.
1255 22nd Street NW
Fourth Floor
Washington D.C. 20037
Fax: (202) 463-7190
Cisco Systems Capital Corporation
By: /s/ Brian P. Fukuhara
----------------------
Title: Manager, Worldwide Financial Services
Worldwide Financial Services
170 West Tasman Drive
Mailstop SJC2-3rd Floor
San Jose, CA 95134-1706
Attn: Loan Administration
Fax: (408) 527-3993
<PAGE>
ANNEX A
1. Ramay Family Partnership, party to that certain Office Lease for 6861 Elm
Street, 3rd Floor Raehn Office Building #5, McLean, Virginia 22101, between
Ramay Family Partnership and CAIS, Inc., dated July 28, 1997.
2. Ramay Family Partnership, party to that certain Office Lease for 6861 Elm
Street, 2E Raehn Office Building #5, McLean, Virginia 22101, between Ramay
Family Partnership and CAIS, Inc., dated May 28, 1998.
<PAGE>
SCHEDULE 1
to the Security Agreement
1. Locations of Chief Executive Office and Other Locations, Including of
Collateral
a Chief Executive Office and Principal Place of Business:
b Locations of Products:
c Other locations where Debtor conducts business or Collateral is kept:
2. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious Names,
Etc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 104,416
<SECURITIES> 0
<RECEIVABLES> 1,345
<ALLOWANCES> 212
<INVENTORY> 0
<CURRENT-ASSETS> 107,092
<PP&E> 8,901
<DEPRECIATION> 1,165
<TOTAL-ASSETS> 117,987
<CURRENT-LIABILITIES> 9,554
<BONDS> 0
0
0
<COMMON> 198
<OTHER-SE> 106,274
<TOTAL-LIABILITY-AND-EQUITY> 117,987
<SALES> 0
<TOTAL-REVENUES> 3,420
<CGS> 0
<TOTAL-COSTS> 2,568
<OTHER-EXPENSES> 14,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (592)
<INCOME-PRETAX> (13,811)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,811)
<DISCONTINUED> (340)
<EXTRAORDINARY> 551
<CHANGES> 0
<NET-INCOME> (15,052)
<EPS-BASIC> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
