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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year ended December 31, 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
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CAIS INTERNET, INC.
(Exact name of registrant as specified in its charter)
Delaware
1255 22nd Street, N.W., Fourth Floor, Washington, D.C. 20037
52-2066769
(State or other (I.R.S. Employer)
jurisdiction of Identification No.)
incorporation or
organization)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 715-1300
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $.01 per share
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 than the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Based on the closing sale price of our common stock on March 15, 2000, the
aggregate market value of common stock held by nonaffiliates of the Registrant
was $244,154,000
The number of shares of the Registrant's common stock outstanding as of March
15, 2000 was 23,130,015.
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CAIS INTERNET, INC.
FORM 10-K
For the Fiscal Year Period Ended December 31, 1999
INDEX
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Page
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PART I
Item 1. Business............................................................................... 3
Item 2. Properties............................................................................. 14
Item 3. Legal Proceedings...................................................................... 14
Item 4. Submission of Matters To a Vote of Security Holders.................................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 15
Item 6. Selected Financial Data................................................................ 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............................. 29
Item 8. Financial Statements and Supplementary Data............................................ 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 57
PART III
Item 10. Directors and Executive Officers of the Registrant..................................... 57
Item 11. Executive Compensation................................................................. 57
Item 12. Security Ownership of Certain Beneficial Owners and Management......................... 57
Item 13. Certain Relationships and Related Transactions......................................... 57
PART IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K................................. 57
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Signatures....................................................................60
Exhibits......................................................................61
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PART I
Item 1. Business
This Annual Report on Form 10-K 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 "Risk Factors," among others, 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.
This Annual Report on Form 10-K contains trademarks of the Registrant and
its affiliates, and may contain trademarks, trade names and service marks of
other parties. References to "CAIS" or the "Registrant" are to CAIS Internet,
Inc. and its subsidiaries.
Overview
We are a nationwide provider of broadband Internet access solutions. We
offer cost-effective, broadband Internet access and content solutions to
hotels and multi-family properties utilizing our tier-one, nationwide Internet
network and several proprietary technologies. Our proprietary technologies for
the hotel and multi-family markets include the patented OverVoice technology,
IPORT server software and the CAIS broadband portal. We use our Internet
kiosk's product IPORT PTS, to deliver broadband Internet access and content to
public venues, such as airports, retail centers, hotel lobbies and cruise
ships. To maximize use of our network, we also offer always-on, broadband
Internet access to commercial and residential customers through our digital
subscriber line service, "HyperDSL," in major metropolitan areas throughout
the U.S. Our goal is to become a leader in the provision of broadband Internet
access, content, software and systems.
As of December 31, 1999, we had contracts to offer Internet access in
approximately 9,800 hotels and 1.3 million rooms through master agreements
with Hilton Hotels Corporation, John Q. Hammons Hotels, Inc., Carlson
Hospitality Worldwide, Staybridge Suites, Cendant Corporation, and Prime
Hospitality Corporation, Bass Hotels & Resorts, as well as trial agreements
with Starwood, Hyatt, Promus, and others. To date, we have installed high
speed Internet access in 125 hotels covering 24,000 rooms including properties
such as the Waldorf-Astoria, Westin Peachtree Plaza and the Palmer House-
Chicago. We also had master agreements for approximately 600 multi-family
properties covering 175,000 apartment units through agreements with OnePoint
Communications, Town & Country Trust, Tarragon Realty and United Dominion. We
also have trial agreements with Equity Residential, Charles E. Smith, Avalon
Bay and Insignia. To date we have installed approximately 9 multi-family
properties covering 3,500 apartment units.
We provide broadband Internet access solutions in markets where broadband
Internet access has previously been uneconomical. We deploy highly cost-
effective proprietary technology that allows us to provide broadband Internet
access economically in such markets. We use our OverVoice technology to
simultaneously transmit voice and data over a single traditional copper
telephone line at speeds of up to 175 times those of 56.6k dial-up modems. We
use this technology to convert existing copper telephone wiring into a secure,
broadband Internet network and provide Internet connections to all rooms or
units within a hotel or multi-family residence without costly end-user
equipment or modems. A CAIS Internet customer is able to have both always-on,
broadband Internet access and complete use of the telephone at the same time
over one traditional telephone line. OverVoice technology is inexpensive to
produce and install relative to competing technologies, so we are able to
provide always-on, broadband Internet access in hotels and multi-family
properties in a highly cost-effective manner.
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Our IPORT server software is a broadband provisioning system which provides
hotels and multi-family properties with Internet access connections together
with "plug and play" automatic provisioning, automatic billing, credit card
authorization and quality of service features including the ability to support
Virtual Private Networks and offer secured network access for users. Our
Business Anywhere centers, which have been installed to date in over 100
hotels nationwide, provide a variety of automated business services as well as
facilitate broadband Internet access. Our IPORT PTS Internet kiosks enable us
to offer broadband Internet access to the common areas of hotels, multi-family
properties and other public venues, including airports, retail centers and
cruise ships. Our current customers for IPORT PTS kiosks include US West, GTE,
TCG, Pacific Bell, Royal Caribbean Cruise Lines, Park and View and Mail Boxes
etc.
To complete the customer experience when going online with a CAIS broadband
access service, we offer the CAIS broadband portal. The CAIS portal not only
interfaces with the customer to manage the server's billing and bandwidth
access management, but is also designed to direct customers to proprietary
content when logging on at a CAIS-serviced hotel guest room or apartment home.
We believe that our broadband portal for the hospitality market offers a
targeted demographic for media-rich content partners, advertisers and e-
commerce companies, enabling them to access millions of sets of business
travelers' eyeballs. The portal will also complete the customer experience of
convenience, speed and maximum utility of going online with CAIS Internet
through this aggregated offering of broadband media, e-commerce and
information resources. We believe that expanding the portal puts CAIS in a
unique market leadership position to control access to what we expect will be
the widest viewed portal in hotels and apartment buildings. We generate
advertising and e-commerce revenues through our own sales efforts as well as
the efforts of our content partners. We share a percentage of that revenue
with our hotel chain and multifamily REIT partners.
To maximize use of our network backbone, we also offer always-on, broadband
Internet access to small-to-medium sized business, telecommuters, and
residential customers through our digital subscriber line service, HyperDSL,
in major metropolitan areas throughout the U.S. These users typically make up
our daytime network traffic. We provide our HyperDSL service in conjunction
with Covad Communications, Bell Atlantic, and Rhythms Corporation. We believe
digital subscriber line technology currently represents the most economical
always-on, broadband Internet solution for commercial customers. In addition,
we believe that digital subscriber line technology, used in conjunction with
OverVoice, will provide a highly cost-effective Internet solution for single-
family residences requiring multiple points of access. We intend to continue
the roll-out of HyperDSL as we expand our network to numerous layer
metropolitan areas nationwide. We expect to have points of presence in at
least 37 cities by the end of 2000. We are continually evaluating new partners
in different regions of the U.S. for the provision of digital subscriber line
services.
Industry Background
Currently, most individuals access the Internet from home or while traveling
by using a dial-up service. Due to the inconveniences of dial-up Internet
service, most businesses prefer an always-on, broadband Internet connection,
such as a T-1. However, ordering T-1s for hotel meetings takes provisioning
time and is not always immediately available for hotel meeting rooms. Until
recently, broadband Internet access has been generally unavailable to most
users at home or while traveling due to the cost and difficulty of
implementing such service.
We believe that Internet users have grown accustomed to the broadband
Internet access at work and therefore are increasingly seeking cost-effective
options for broadband access at home and while traveling. As a result, we
believe demand is ever increasing for broadband public networking, also called
visitor-based networks. Visitor-based networks are broadband Internet access
networks available to the public for a fee. Examples of visitor-based networks
include networks for hotels, resorts, and convention centers, as well as
kiosks for airports, shopping centers, cruise ships and truck stops.
We believe that increased demand and evolving technology make the hotel,
multi-family residences and other public venues increasingly attractive
markets for always-on, broadband Internet access. The economies of scale in
these markets create the opportunity to price always-on, broadband Internet
access services at levels
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comparable to, and in some cases better than, current dial-up services. In
addition, many property owners believe that broadband Internet access is an
attractive amenity that can enhance other revenue streams such as rental rates
and occupancy within a given property. Many major hotel chains and multi-
family property owners are currently evaluating alternative solutions to meet
the need for faster Internet connections and simultaneous voice and data
transmission.
We believe that the domestic hotel segment represents a significant market
opportunity. We estimate that as of December 31, 1997, there were 49,000 hotel
properties with a total of 3.8 million hotel rooms nationwide. In the top
twenty-five hotel markets, we estimate that there were more than 7,775
properties with a total of approximately 1.2 million rooms. We are also
targeting the domestic multi-family property market. As of 1998, approximately
31% of the U.S. population, lived in multi-family properties and there were
over nine million apartment units in buildings with 50 or more units.
Business Strategy
Our goal is to become a leader in the provisioning of broadband Internet
access, content, software and systems across large new markets worldwide. The
following are key elements of our business strategy to achieve this objective:
Deploy Visitor-based and Multi-family Networks Nationwide. We are deploying
our broadband Internet solutions through our strategic alliances with Unisys,
Qwest, Nortel and Cisco. As of March 15, 2000, we have contracts to offer
Internet access in 10,400 hotels and apartment buildings. Additionally, CAIS
is accelerating its deployment with the CAIS Nationwide Provisioning Alliance.
The CAIS NPA involves agreements with Bell Atlantic, BellSouth, U S WEST, GTE
and SBC Communications. We are also deploying our IPORT PTS Internet kiosks,
which enable Internet access in the common areas of hotels, multi-family
properties and other public venues, including airports, retail centers and
cruise ships.
Attract End-Users via Ease-of-Use and Increased Demand Creation. As CAIS
Internet visitor-based networks become widely available, we believe travelers
and apartment residents will expect broadband access to the Internet in their
hotel rooms and other visitor-based locations. To promote awareness of our
services, we jointly market nationally with our hotel partners. We believe
that to increase demand for these services, it is imperative for end users to
be able to access the Internet quickly and easily. In addition, we believe
that offering compelling content specifically designed for broadband
connections through our CAIS broadband portal is very important for increasing
demand.
Continue to Expand "Best Solution" Product Suite. We provide broadband
Internet access solutions in markets where broadband Internet has previously
been uneconomical. We deploy highly cost-effective proprietary technology
which allows us to provision broadband Internet access economically in such
markets. We intend to continue expanding our service and product offerings
through internal research and development, and by acquiring complementary
businesses and technologies.
Provide Superior Customer Service & Support. We believe customer service and
support is a cornerstone to our success. We maintain a separate division
dedicated solely to servicing the customer. We believe that our customer
service division will enable us to increase usage of our services by existing
customers and attract new customers.
Expand our Internet Backbone. We operate a tier one, state of the art,
nationwide network to guarantee our customers top quality service. Through our
arrangements with Qwest, we will provide OC-12 and OC-3 capacity over a
redundant, broadband nationwide network to points of presence in 37 U.S.
cities. We provide Internet access to customers outside of these 37 cities
through third party network providers, such as UUNet, PSINet, BBN, and others.
We intend to continue to evaluate strategic relationships and acquisitions
that will allow us to further expand this network.
Capitalize on Operating Leverage. We believe that our ability to deliver
high quality Internet services with low capital investment and low overhead
gives CAIS a significant long-term advantage over providers of competing
services. In our hotel and multi-family properties, we use our proprietary
technology to share a single broadband Internet connection among many multiple
users. As we drive usage by hotel guests and multi-family tenants in these
properties we enjoy significant operating leverage due to the fixed nature of
our operating costs.
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Risk Factors
Our performance may be difficult to evaluate since we have had a limited
operating history during which we have incurred significant net losses,
experienced negative cash flows and accumulated a significant deficit.
Our limited historical operating data may make it more difficult for you to
evaluate our performance. We incurred a loss from continuing operations and
negative cash flows from operations for the year ended December 31, 1998 in
the amounts of approximately $12.3 million and $3.2 million, respectively, and
a loss from continuing operations and negative cash flows from operations for
the year ended December 31, 1999 in the amounts of approximately $52.4 million
and $15.3 million, respectively. We had a stockholders' deficit of
approximately $14.8 million on December 31, 1998, and a stockholders' equity
of approximately $112.0 million on December 31, 1999.
We believe that we will incur further losses in the future, in part due to
expenses incurred in connection with the continued roll-out of our network,
marketing and sales organizations and the introduction of new services. We
also expect that operations in new target markets will experience losses until
we establish an adequate customer base. However, we cannot assure you that
after incurring these additional losses and expenses:
. there will be an increase in revenues;
. we will gain profits in future operating periods; or
. we will have sufficient cash available to meet continuing losses and/or
necessary capital expenditures.
Our continued growth and expansion will place substantial burdens on our
resources and personnel.
Our business strategy depends in large part on our ability to rapidly deploy
OverVoice and our other technology platforms. This growth will increase our
operating complexity as well as the level of responsibility for both existing
and new management personnel. As a result, in order to manage our growth, we
must, among other things:
. continue to implement and improve our operational, financial and
management information systems, including our billing, accounts
receivable and payables tracking, fixed assets and other financial
management systems;
. hire and train additional qualified personnel; and
. continue to expand and upgrade our network infrastructure.
We also expect that demands on our network infrastructure and technical
support resources will increase rapidly as our customer base continues to
grow. We may therefore experience difficulties meeting a high demand for
services in the future. We cannot assure you that our infrastructure,
technical support or other resources will be sufficient to facilitate this
growth. As we strive to increase network utilization, there will be additional
demands on our customer support, sales and marketing resources. Competition
for qualified employees is intense and salaries are escalating very quickly.
In addition, the process of locating such personnel with the combination of
skills and attributes required to carry out our strategy is often lengthy.
We may need additional capital, which we may not be able to obtain.
We intend to rapidly enhance and develop our network and continue a broad-
based roll-out of OverVoice and our other technology platforms in order to
attain our business goals. We will need to seek additional financing to carry
out our growth and operating plans. We may not be able to raise cash on terms
acceptable to us or at all. Financings may be on terms that are dilutive or
potentially dilutive to our stockholders. If financing is insufficient or
unavailable, we will have to modify our growth and operating plans, which may
negatively affect our ability to expand our network and facilities and offer
additional services, and may adversely affect our growth and our ability to
repay our outstanding indebtedness.
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Future sales of our common stock could have a negative impact on the market
price of our common stock and our ability to make future stock offerings.
Sales of a substantial number of shares of common stock in the public
market, or the appearance that such shares are available for sale, could
adversely affect the market price of our common stock and could impair our
ability to raise funds in future stock offerings. As of December 31, 1999
there were 22,595,565 shares of common stock outstanding.
A third party could be prevented from acquiring your shares of stock at a
premium to the market price because of our anti-takeover provisions.
There are provisions in our certificate of incorporation and by-laws that
make it more difficult for a third party to acquire, or attempt to acquire,
control of CAIS Internet, even if a change in control would result in the
purchase of your shares at a premium to the market price.
These provisions include:
. a classified Board of Directors with staggered, three-year terms;
. the authority to issue "blank check" preferred stock;
. eliminating the ability of stockholders to act by written consent;
. eliminating the ability of stockholders to call a special meeting of the
stockholders;
. an advance notice procedure for stockholder proposals to be brought
before meetings of our stockholders; and
. requiring a super-majority stockholder vote to effect certain
amendments.
In addition, the Delaware General Corporation Law may also discourage
takeover attempts that have not been approved by our Board of Directors.
We are required to pay ongoing royalties to Inline to use the OverVoice
technology, and any failure to do so, or otherwise meet our obligations to
Inline, could cause us to lose our exclusive right to use the OverVoice
technology.
We are required to pay Inline Connection Corporation royalties ranging
between 3.0% and 5.5% of net sales of the OverVoice technology. In the rare
cases where we do not provide the Internet access or own the OverVoice
equipment installed, this percentage may be as high as 70.0%. If we sublicense
the patents and pending patent applications relating to the OverVoice
technology to a third party, we are required to pay Inline a percentage of the
income received from the sublicense. Additionally, we had minimum annual
royalty payments $150,000 in 1999 and increasing to $250,000 during the term
of the agreement. If we fail to pay the minimum payments, or otherwise breach
our agreement with Inline, we will lose our exclusive right to use the
OverVoice technology in hotels and multi-family properties which would
eliminate our ability to offer many of our key services.
Technological change and evolving industry standards may render our services
noncompetitive, unnecessary or obsolete.
Our future success will depend, in part, on our ability to: (1) offer
services that address the increasingly sophisticated and varied needs of our
current and prospective customers, and (2) respond to technological advances
and emerging industry standards and practices on a timely and cost-effective
basis. Internet access operations are characterized by:
. rapidly changing and unproven technology;
. evolving industry standards;
. changing customer needs; and
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. numerous competitive services and product offerings.
We cannot assure you that:
. future advances in technology will be beneficial to, or compatible with,
our business;
. we will be able to incorporate such advances on a cost-effective or
timely basis; or
. our services will be necessary and cost-effective as a result of such
advances.
Although we intend to support emerging standards, we cannot assure you that
industry standards will be established, or that, if established, we will be
able to conform to the new standards in a timely fashion or maintain a
competitive position in the market. In addition, future products, services or
technologies developed by others may render our services noncompetitive,
unnecessary or obsolete.
The market in which we operate is highly competitive, and we may not be able
to compete effectively, especially against established industry competitors
with greater marketplace presence and financial resources.
We operate in a highly competitive environment for each of our lines of
business and we believe that competition is increasing. We may not be able to
compete effectively, especially against established industry competitors with
greater marketplace presence and financial resources than ours. The
competitive environments for our different lines of business are as follows:
OverVoice. The major groups of competitors in the business of providing high
speed Internet access to hotels and multi-family properties include:
. local exchange carriers;
. other digital subscriber line providers;
. cable TV companies and other providers using cable modems; and
. installation firms that upgrade existing wiring.
Many of these competitors have extensive marketplace presence and greater
technological and financial resources than we do.
The OverVoice technology also competes with technologies using other
transmission media, such as coaxial cable, wireless facilities and fiber optic
cable. If telecommunications service providers, hotels, multi-family
properties or single family residences install any of these alternative
transmission media, demand for OverVoice may decline.
CAIS Internet. Our principal competitors include other major providers such
as UUNET Technologies, Inc., PSINet Inc., BBN (a GTE subsidiary), and other
providers of always-on high speed Internet access including digital subscriber
line services, T-1 and wireless access. To a lesser extent, we also compete
for always-on and dial-up access and web services business with smaller,
regional Internet service providers and cable companies that operate in the
same geographic markets that we serve. Because the Internet services market
has no substantial barriers to entry, we expect that competition will continue
to intensify. Eventually, we expect some form of a market consolidation to
occur, with those Internet service providers that furnish the most value-added
solutions ultimately surviving.
CAIS Software Solutions, Inc. Our principal competitors include other
providers of self-automated subscriber management systems and kiosk software
that could challenge the private label sale of our IPORT server and kiosk
software solutions. We compete for business with cable, digital subscriber
line and wireless providers in the deployment of access solutions to multiple
users. Our IPORT software automates and creates subscriber management systems
for customer service billing, pay-per-use ordering, work order management, and
portal sales and marketing functions. Some potential customers for our server
and kiosk products may have existing contracts with our competitors, or may
sell their server and kiosk software as part of a competitor's bundled
solution in the hotel and apartment community marketplace.
Business Anywhere Centers and Internet Kiosks. There are currently two major
competitors in the marketplace providing automated business center services.
Based on the published information, Business Anywhere has the most number of
multi-purpose business center placements in business class hotels than any of
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our competitors. Our two key competitors utilize the traditional technology of
individual credit card swipes hard wired to each machine. The major drawbacks
to our competitors' technology are the high cost of equipment service and
upgrading and the high initial capital cost.
As a result of increased competition and vertical and horizontal integration
in the industry, we could encounter significant pricing pressure which could
cause us to significantly reduce the average selling price of some of our
products and services. We might not be able to offset the effects of any such
price reductions with an increase in the number of our customers, higher
revenue from enhanced services, cost reductions or otherwise. Market
consolidation could result in increased price and other competition in these
industries. Increased price or other competition could result in erosion of
our market share and could have a material adverse effect on our financial
condition. We cannot assure you that we will have the financial resources,
technical expertise or marketing and support capabilities to continue to
compete successfully.
If we do not meet our obligations to deliver high speed Internet access
solutions to our customers according to schedule, our reputation will be
harmed and our revenues may be affected.
As of December 31, 1999, we had entered into agreements to provide high
speed Internet access services in approximately 9,800 hotels and 600 multi-
family properties. Our ability to meet the installation schedule in our
agreements is critical to our success and to our ability to generate revenues.
We depend on outside suppliers and vendors to install our technology in
buildings, as well as on telecommunications service providers, to install our
technology in buildings, as well as on telecommunications service providers,
to install our technology and provide services to our customers. If we fail to
install our technology or provide service on a timely basis as required by our
customer agreements, whether or not such failure is outside of our control,
our ability to market our Internet access and content solutions and,
accordingly, our services would be harmed.
We incur significant up-front costs to install our technology, which we may
not be able to recover; our agreements do not contain any minimum use
requirements, and some of our contracts are not exclusive.
We have incurred, and will continue to incur, significant up-front costs
installing OverVoice and our other technology platforms in hotels and multi-
family properties. There is no guarantee that we will be able to recover such
costs.
Because our trial and long-term agreements for both hotels and multi-family
properties generally do not contain any minimum use requirements, there is no
minimum payout that we can expect to receive. Furthermore, some of our
agreements do not require hotel owners and operators to offer our services
exclusively. As a result owners and operators could offer services that
compete with ours.
If we fail to adequately protect our intellectual property rights or face a
claim of intellectual property infringement by a third party, we could lose
our intellectual property rights or be liable for significant damages.
Our competitive advantage depends on certain domestic and foreign patents
and patent applications relating to the OverVoice technology that we license
from and jointly own with Inline Connection Corporation, as well as our
patented IPORT and Business Anywhere Center technology. Our success relies
substantially on our ability to protect our patented technology, both
domestically and abroad. We face two major risks in connection with our
intellectual property rights:
(1) Others may infringe on our intellectual property rights, resulting in:
. lack of competitiveness in the market;
. expense of time and resources to protect our patents; and
. dilution of the brand value of our service.
(2) Although we do not believe this to be the case, we may infringe others'
patents, resulting in:
. significant expense in defending our technology, even in the case of a
frivolous suit;
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. requirement to pay damages; and
. costly and potentially impracticable redesign of our technology.
Because we depend upon our suppliers and have sole and limited sources of
supply for certain products and services, we are vulnerable to service
interruptions and increased costs of services.
We depend substantially on telecommunications services providers and we are
unable to control the prices for these services. For example, in order to
provide Internet access and other on-line services to our customers, we lease
long distance fiber optic telecommunications lines from national
telecommunications services providers.
Certain of our suppliers, including regional Bell operating companies and
competitive local exchange carriers, are currently subject to various price
constraints, including tariff controls, which may change in the future. In
addition, pending regulatory proposals may affect the prices they charge us.
These regulatory changes could result in increased prices for products and
services. This could reduce the profit margin for our services or require us
to increase the prices which we charge our customers, which could reduce the
demand for our services.
We do not manufacture our proprietary OverVoice equipment, such as wall
jacks and the OverVoice DeskJack; rather, we depend on third parties to
manufacture and supply it. Any interruption in these manufacturers' operations
could adversely affect our ability to meet our customers' requirements, which
could cause them to use our competitors' services.
We rely on other companies to supply our network infrastructure, some of
which may compete directly with us or enter into arrangements with our
competitors.
We rely on other companies to supply our network infrastructure (including
telecommunications services and networking equipment) which, in the quantities
and quality we require, is available only from sole or limited sources. We
are, therefore, vulnerable to the possibility that our suppliers may:
. compete directly with us;
. enter into exclusive arrangements with our competitors; or
. stop selling their products or components to us at commercially
reasonable prices, or at all.
The Internet relies on the exchange of traffic over a network of networks
that is owned and operated by many parties. We currently exchange traffic with
other Internet service providers with whom we maintain relationships. These
exchange agreements are not regulated and may be changed. If they become
regulated, modified or are altogether terminated, we may have to find
alternate, more expensive means to exchange traffic, or we may not be able to
do so, which could limit our ability to offer services in a particular market
or increase the cost of our services, which could reduce the demand for these
services.
A system failure could cause interruptions in the services we provide to our
customers.
Our operations depend upon our ability to protect our network against damage
from acts of nature, power failures, telecommunications failures and similar
events. Because we lease our lines from long-distance telecommunications
companies, Internet providers, the regional Bell operating companies and
competitive local exchange carriers, we depend upon those companies for
physical repair and maintenance of those lines. Despite the precautions we and
our telecommunications providers take, the occurrence of a natural disaster,
fire, electrical outage or other unanticipated problems at one of our
facilities may cause interruptions in the services we provide. Such
interruptions in operations could limit our ability to meet our customers'
requirements and reduce the demand for our services.
Viruses, break-ins and other security breaches could cause interruptions,
delays or a cessation of the services we provide to our customers.
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Despite the implementation of network security measures, the core of our
Internet network infrastructure is vulnerable to computer viruses, break-ins
and similar disruptive problems. We may experience future interruptions in
service as a result of the accidental or intentional actions of Internet
users, current and former employees or others. Unauthorized use could also
potentially jeopardize the security of confidential information stored in our
computer systems and the computer systems of our customers. Although we intend
to continue to implement security measures to prevent this, these measures
have occasionally been circumvented in the past, and the possibility exists
that the measures we implement will be circumvented in the future. In
addition, eliminating such viruses and remedying such security problems may
cause interruptions, delays or cessation of service to our customers. If our
security measures fail, we may lose subscribers or be sued, resulting in
additional expenses and reduced profitability. We do not carry any insurance
against these risks because it is unavailable at a reasonable cost.
The loss of our key personnel, or failure to hire additional personnel,
could harm our business because we would lose experienced personnel and new
skilled personnel are in short supply and command high salaries.
Our success depends in significant part upon the continued service and
performance of our senior management personnel and other employees who possess
longstanding industry relationships and technical knowledge of our operations.
While we do not maintain any "key person" insurance, we have entered into
employment agreements with key employees. Our future success also depends on
our ability to attract, train, retain and motivate highly skilled personnel.
To date, we have successfully attracted and retained qualified, high-level
personnel; we have not had to devote significant time and resources recruiting
such personnel; and personnel turnover has not affected our development
efforts. However, competition for qualified, high-level telecommunications
personnel is intense and we cannot assure you that we will be able to continue
to attract and retain such talent. The loss of the services of one or more of
our key individuals, or the failure to attract and retain additional key
personnel, could limit our ability to market our services, manage our growth
and develop and achieve our business objectives.
Because we are an internet service provider, we may become subject to
application of telecommunications laws to services provided over the internet.
As an Internet service provider, we are not currently subject to direct
regulation by the Federal Communications Commission ("FCC"). Nevertheless,
Internet-related regulatory policies are continuing to develop and vigorous
public debates regarding the costs and benefits of regulating the Internet
have emerged in federal, state and local legislative, executive and regulatory
agency forums. It is possible that we could be exposed to regulation as a
telecommunications service provider in the future. For example, the FCC has
stated its intention to consider whether to regulate voice and fax telephony
services provided over the Internet as "telecommunications" even though
Internet access itself would not be regulated; and the FCC recently initiated
a Notice of Inquiry to examine this issue. The FCC is also considering whether
such Internet-based telephone service should be subject to universal service
support obligations, or pay carrier access charges on the same basis as
traditional telecommunications companies.
Local telephone companies assess access charges to long distance companies
for the use of the local telephone network to originate and terminate long
distance calls, generally on a per-minute basis. Access charges have been a
matter of continuing dispute, with long distance companies complaining that
the rates are substantially in excess of cost, and local telephone companies
arguing that access rates are justified to subsidize lower local rates for end
users and other purposes. Both local and long distance companies, however,
contend that Internet-based telephony should be subject to these charges. We
have no current plans to install gateway equipment and offer telephony, and so
we do not believe we would be directly affected by these developments.
However, we cannot predict whether these debates will cause the FCC to
reconsider its current policy of not regulating Internet service providers.
A decision by Congress or the FCC to regulate Internet telephony or Internet
access services may limit the growth of the Internet, increase our cost of
doing business or increase our legal exposure, any of which could cause our
revenues to decrease.
11
<PAGE>
A governmental body could impose sales and other taxes on the provision of
our services, which could increase our costs of doing business.
A number of federal, state and local government officials have asserted the
right or indicated a willingness to impose taxes on Internet-related services
and commerce, including sales, use and access taxes. We cannot accurately
predict whether the imposition of any such taxes would materially increase our
costs of doing business or limit the services we provide.
We may be liable for information sent through our network.
As an Internet service provider, we may be liable for content and
communications provided by third parties and carried over, or hosted on, our
facilities. Because the law of Internet service provider liability is
uncertain and in a constant state of change, our actual exposure for third-
party content cannot be predicted.
One area of potential liability is copyright and trademark infringement. We
may be found liable for third-party communications that infringe a trademark
or copyright, and we are obligated to comply with the requirements of the
Digital Millennium Copyright Act concerning responses to claims of copyright
infringement.
We also may be liable for obscene, indecent or otherwise offensive
communications carried over our facilities. Although the Communications
Decency Act, enacted in 1996, was found by the courts to be unconstitutional
as applied to indecent speech, in 1998 the Congress passed another statute
intended to prohibit indecent communications over the Internet. That more
recent statute was declared to be unconstitutional, but a federal court of
appeals is hearing a pending challenge to that decision. Depending upon the
outcome of that proceeding, we may be exposed to potential liability for
indecent material carried over our facilities.
We also are required to comply with state and federal privacy requirements,
including the Electronic Communications Privacy Act ("ECPA") and the
Children's Online Privacy Protection Act ("COPPA"). The ECPA imposes
limitations on the interception, disclosure and use of communications
transmitted over and stored on our facilities. COPPA, and the Federal Trade
Commission rules implementing that statute, requires us to safeguard personal
information that we know to be transmitted to our website by children under
13.
We also are subject to federal and state laws that regulate the advertising
and sale of certain products and services over the Internet. In addition to
existing statutes of this kind, such as state statutes that prohibit
advertisement of gambling, a number of bills are pending in the Congress and
state legislatures that would prohibit or regulate particular marketing
practices (such as the transmission of unsolicited commercial email) or the
advertisement or sale of certain goods and services. We cannot predict the
impact of these potential laws upon our business.
While no one has ever filed a claim against us concerning content carried
over our service, someone may file a claim of that type in the future and may
be successful in imposing liability on us. If that happens, we may have to
spend significant amounts of money to defend ourselves against these claims
and, if we are not successful in our defense, the amount of damages that we
will have to pay may be significant. Any costs that we incur as a result of
defending these claims or the amount of liability that we may suffer if our
defense is not successful could materially adversely affect our profitability.
If, as the law in this area develops, we may decide to take steps to reduce
our exposure to for information carried on, stored on or disseminated through
our network. This may require us to spend significant amounts of money for new
equipment and may also require us to discontinue offering certain of our
products or services or modify existing arrangements to mitigate potential
liability.
We may not be able to protect our trademarks which could hamper our ability
to market our products and services.
Our success is dependent in part on recognition of our name and trademarks,
such as "CAIS," "OverVoice", IPORT and "Business Anywhere" and pending
trademarks, such as "DeskJack." We intend to protect and defend our name,
servicemarks and trademarks in the United States and internationally. We
achieved
12
<PAGE>
federal registration for several of our trademarks, including the mark CAIS,
and filed for federal trademark protection for a number of other marks which
we use or intend to use, for example "DeskJack." However, we cannot assure you
that:
. our efforts to protect our proprietary rights in the United States or
abroad will be successful;
. our use of our trademarks and servicemarks will be free from legal
challenges; or
. we will have sufficient funds to withstand such challenges or claims,
regardless of their merit.
If we are unable to protect our proprietary rights, it could seriously
affect our ability to market our products and services. In addition, legal
challenges to our proprietary rights could lead to a substantial diversion of
our limited resources.
Our executive officers and directors, as a group, control CAIS Internet.
At December 31, 1999, our executive officers and directors, as a group,
beneficially own or control approximately 42% of the shares of our common
stock on a fully diluted basis. Consequently, as a practical matter, our
executive officers and directors, as a group, are able to control all matters
requiring approval by our stockholders, including the election of our Board of
Directors, management policy and all fundamental corporate actions, including
mergers, substantial acquisitions and dispositions of assets.
Failure to obtain Year 2000 compliance could cause an interruption in, or a
failure of, our normal business activities and operations.
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and date-
sensitive calculations by computers and other machinery as the year 2000 is
approached, reached and passed. Our failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, our normal
business activities or operations. Prior to December 31, 1999, the Company
made custom coding enhancements and other necessary modifications to its
mission-critical internal business systems, as well as to other internal
business systems. We believe that such internal systems are now Year 2000
compliant. We continue to assess the impact of Year 2000 issues on our
internal computer, operational and financial systems, and to review with our
key vendors and suppliers and the compliance of their systems with Year 2000
processing requirements. We currently believe that our most likely worst case
scenario related to the Year 2000 is associated with potential concerns with
our customers' and suppliers' Internet operations. The failure of such parties
to ensure Year 2000 compliance could lead to decreased Internet usage and the
delay or inability to obtain necessary data communication and
telecommunication capacity. These factors could result in delay or loss of
revenue, interruption of network services, cancellation of customer contracts,
diversion of development resources, damage to CAIS Internet's reputation and
litigation costs. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of the Year 2000 Issue"
for a more detailed discussion of the impact of the Year 2000 issue.
Our results of operations and financial condition may be adversely affected if
we do not successfully integrate future acquisitions into our operations.
In order to respond to the competitive pressures of the broadband access
services industry and support our intended growth, we intend to continue to
focus on acquiring, or making significant investments in, additional
companies, products and technologies that complement our business. Since our
initial public offering in May 1999, we have completed four such acquisitions.
We do not have any present understanding, nor are we having any discussions,
relating to any significant acquisition. Our ability to compete effectively
and support our intended growth may be adversely affected if we are not able
to identify suitable acquisition candidates or investments or acquire
companies or make investments on acceptable terms or at acceptable times. In
addition, acquiring companies, products, services or technologies involves
many potential difficulties and risks, including:
. difficulty in assimilating them into our operations;
. disruption of our ongoing business and distraction of our management and
employees;
13
<PAGE>
. negative effects on reported results of operations due to acquisition-
related charges and amortization of acquired technology and other
intangibles; and
. potential dilutive issuances of equity or equity-linked securities.
These potential difficulties and risks could adversely affect our ability to
realize the intended benefits of an acquisition and could result in
unanticipated expenses and disruptions in our business, which could harm our
financial results and condition.
Item 2. Properties
The Company's headquarters are in Washington, D.C. where it leases
approximately 39,000 square feet under a ten year lease which expires in
February 2009. The Company also leases:
. approximately 40,000 square feet of office space for sales and customer
support functions in Arlington, Virginia,
. approximately 24,000 square feet of office space for CAISSoft operations
in San Diego, California,
. approximately 10,000 square feet of office space for technical
operations in McLean, Virgina,
. approximately 5,000 square feet of office space for Business Anywhere
operations in Irvine, California.
The Company also leases or is otherwise provided with the right to utilize
space in various geographic locations for network operations. The Company
believes that these facilities are adequate for its current needs and that
suitable additional space, should it be needed, will be available to
accommodate expansion of its operations on commercially reasonable terms.
Item 3. Legal Proceedings
The Company, one of its principal officers and the corporate inventor of
OverVoice (the "Corporate Inventor") were named as defendants in a federal
civil action filed in the Eastern District of New York in September 1998. The
plaintiff alleged patent infringement, unfair competition, breach of contract
and related claims. On January 24, 1999, the parties in this litigation signed
a Settlement Agreement (the "Settlement"). Under the terms of the Settlement,
the Company agreed to pay the plaintiff $500,000 as follows: $250,000 upon
dismissal of this action, $150,000 on or before July 1, 1999, and $100,000 on
or before July 1, 2000. The Company also issued the plaintiff 25,000 shares of
common stock and agreed to issue additional shares if the 25,000 shares,
multiplied by the price at which shares are issued in this offering, does not
equal or exceed $250,000. In exchange, the plaintiff also agreed to modify
their exclusive license agreement with the Corporate Inventor to a
nonexclusive agreement. As a result, the Company now has the right to install
the OverVoice technology in single family residences and food establishments.
Along with the cash settlement, the Company expensed the fair value of the
25,000 shares of common stock issued together with the fair value of the
commitment to issue additional shares contingent on the offering price in the
accompanying statement of operations for the year ended December 31, 1998. The
Company also granted the plaintiff the right to purchase an additional 25,000
shares of common stock at the offering price in any IPO. The fair value of
this right was nominal.
On March 25, 1999, the Company filed a patent infringement lawsuit against
LodgeNet Entertainment Corp. ("LodgeNet") in Maryland U.S. District Court. The
complaint charged 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. On September 15, 1999 the Company and LodgeNet
entered into a settlement agreement, and on September 16, 1999 the Company
submitted a Stipulation of Dismissal of the lawsuit, under terms satisfactory
to the Company.
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.
Item 4. Submission Of Matters To A Vote Of Security Holders.
None.
14
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters.
The common stock of CAIS has been traded on the Nasdaq National Market
(Nasdaq Symbol: CAIS) since the completion of our initial public offering on
May 20, 1999. Prior to that date, there was no public market for our common
stock. The following table presents for the periods indicated the high and low
closing sales of our common stock, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Price Range
of Common
Stock
-------------
High Low
------ ------
<S> <C> <C>
Fiscal Year Ended December 31, 1999
Second Quarter (from May 20, 1999)............................. $22.13 $10.63
Third Quarter.................................................. $22.75 $11.00
Fourth Quarter................................................. $39.13 $10.69
</TABLE>
On March 9, 2000, the closing price of our common stock as reported on the
Nasdaq National Market was $30.63 per share. As of March 9, 2000, there were
approximately 140 holders of record of our common stock.
Dividends
We have never paid or declared any cash dividends on our common stock. We
currently expect to retain future earnings, if any, to finance the growth and
development of our business, including potential acquisitions. Therefore, we
do not anticipate paying cash dividends in the foreseeable future, except as
required pursuant to the terms of our convertible preferred stock owned by
Qwest.
Recent Sales of Unregistered Securities
In the year ended December 31, 1999, the Company granted stock options to
employees to purchase approximately 1,347,000 shares at exercise prices
ranging from $4.31 to $16.50 per share under the Company's Incentive Stock
Option plan. The Company also converted Atcom options to CAIS options to
purchase approximately 842,000 shares under the Company's Incentive Stock
Option Plan at exercise prices ranging from $0.36 to $12.02 per share.
Additionally, the Company granted options to executives to purchase 1,010,000
shares at exercise prices ranging from $4.31 to $13.50 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.
In September 1999, the Company issued 2,493,383 and 121,704 shares of common
stock in connection with the acquisitions of Atcom Inc. ("Atcom") and Business
Anywhere USA, Inc. ("Business Anywhere"), respectively.
In September 1999, the Company issued 125,000 shares of Series C Preferred
Stock to U.S. Telesource, Inc., an affiliate of Qwest Communications
Corporation ("Qwest") for total gross proceeds of $15,000,000. The Series C
Preferred Stock ranks prior to the Company's common stock with respect to
dividends and rights upon liquidation, dissolution, or winding up of the
Company. Each holder of Series C Preferred Stock is entitled: (i) to receive,
when, as and if declared by the Company's Board of Directors, cumulative
dividends of $10.20 per annum per share; (ii) to a liquidation preference
equal to the sum of $120.00 per share, plus any accrued but unpaid dividends;
(iii) to the number of votes equal to the number of whole shares of Common
Stock into which all of the shares of Series C Preferred Stock held by such
holder are convertible; and (iv) to certain demand and piggyback registration
rights. Subject to certain limitations, each share of Series C Preferred Stock
is convertible, at the option of the holder, into such number of fully paid
and nonassessable shares of common stock at the ratio of ten common shares for
each share of Series C Preferred Stock. The Company shall redeem (i) up to
41,667 shares of the Series C Preferred Stock by the second anniversary of the
date of issuance of the Series C Preferred Stock; and (ii) the remaining
shares of the Series C Preferred Stock upon the third anniversary of the date
of issuance of the Series C Preferred Stock.
In connection with the Series C Preferred Stock, the Company issued warrants
to Qwest to purchase 500,000 shares of common stock at an exercise price of
$12.00 per share. The warrants have been valued at their
15
<PAGE>
estimated fair value of $7.70 per share (or approximately $3,851,000 in the
aggregate) based upon a Black-Scholes valuation model. The fair value of the
warrants has been recorded as a dividend on preferred stock. The warrants
expire on October 28, 2002.
On December 20, 1999, the Company entered into a Preferred Stock Purchase
Agreement ("Purchase Agreement") between CII Ventures LLC, an affiliate of the
private investment firm Kohlberg Kravis Roberts & Co. (KKR). Under the
Purchase Agreement, KKR, through its affiliate, will make a strategic
investment of up to $200 million in the Company.), CII Ventures will purchase
$100 million of the Company's Series D convertible participating preferred
stock ("Series D Shares"). The Series D Shares will be convertible into common
stock of the Company, with an initial conversion price of $16.50 per share,
subject to adjustment. The Purchase Agreement also includes a one-year option
for CII Ventures to purchase up to an additional $100 million of Series E
convertible participating preferred stock ("Series E Shares"). The Series E
Shares are convertible into the Company's common stock, with an initial
conversion price of $20.00 per share, subject to adjustment. Based on the
Company's capitalization at December 31, 1999, the investment by KKR in the
Series D Shares would represent a 16 percent fully diluted capital interest in
the Company. Upon the exercise of the option for the Series E Shares, the
investment by KKR in the Series D and Series E Shares would represent a 26
percent fully diluted capital interest in the Company. The holders of the
Series D and Series E Shares will be entitled to receive dividends, payable in
additional Series D Shares and Series E Shares, respectively, at a rate of 6
percent per annum compounded quarterly. The Company issued approximately
5,577,000 Series D Shares in February 2000.
On January 26, 2000, the Company entered an agreement with Bass to provide
the Company's services to approximately 2,750 properties and 400,000 rooms.
The Company will pay contract rights to individual hotels at a rate of $25 per
room when a hotel contracts for service. Additionally, the Company will
contribute up to approximately $2.2 million in marketing and technology
development funds. The Company issued 63,000 warrants to Bass effective
February 1, 2000 at an exercise price of $40.01 per share.
On March 15, 2000, CAIS Software Solutions, Inc., a wholly owned subsidiary
of the Company, entered into an agreement to purchase the contracts,
intellectual property, and certain other assets of QuickATM, LLC ("QuickATM")
for a purchase price of $500,000 in cash, and $1,250,000 in the Company's
common stock. The Company issued approximately 40,000 shares of common stock
valued at $31.10 per share.
On March 20, 2000, the Company also entered into an agreement with 3Com
Corporation ("3Com") for the issuance of 20,000 shares of Series G Preferred
Stock for total gross proceeds of $20 million. The Series G Shares are
initially convertible into approximately 556,000 shares of CAIS common stock.
The Company also agreed to purchase $10 million of 3Com equipment over the
next year. The closing of the agreement is subject to the negotiation of a
definitive commercial and marketing agreement and apporoval under the Hart-
Scott-Rodino Antitrust Improvement Act of 1976.
Initial Public Offering
Our initial public offering ("IPO") was effected through a Registration
Statement on Form S-1 (File No. 333-72769) that was declared effective by the
SEC on May 19, 1999, and pursuant to which we sold an aggregate of 6,842,100
shares of our common stock, including 842,100 shares pursuant to the exercise
of the underwriters' over-allotment option. The amount of net proceeds to the
Company from the IPO was approximately $118,233,000.
As of December 31, 1999, we had used the net proceeds from our IPO as
follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Capital expenditures and network infrastructure............... $42,183
General corporate purposes.................................... 17,004
Sales and marketing........................................... 11,800
Repay indebtedness............................................ 7,000
Redeem Series B preferred stock............................... 3,000
Repay debt to discontinued operations......................... 2,100
Research and development...................................... 1,525
-------
$84,612
=======
</TABLE>
16
<PAGE>
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this 10-K. The selected
financial data for the fiscal years ended December 31, 1996, 1997, 1998 and
1999 are derived from CAIS Internet's financial statements, which have been
audited by Arthur Andersen LLP, independent public accountants and included
elsewhere in this 10-K. The selected financial data for the period from
January 1, 1996 through May 10, 1996 are derived from Capital Area Internet
Service, Inc.'s financial statements which have been audited by Arthur
Andersen LLP, independent public accountants. The selected financial data for
the fiscal year ended December 31, 1995 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which CAIS Internet considers
necessary for a fair presentation of the financial position and results of
operations for these periods. The financial data set forth for the periods
ended, or as of dates, on or prior to May 10, 1996 reflect the results of
operations of Capital Area prior to its acquisition by CAIS, Inc. and are
captioned as "predecessor." The historical financial data subsequent to May
10, 1996 reflect the results of operations of CAIS Internet's continuing
operations. In February 1999, CAIS Internet completed the spin-off of Cleartel
Communications, Inc. and for financial reporting purposes has accounted for
Cleartel Communications, Inc.'s results as discontinued operations.
Accordingly, the results of operations for Cleartel Communications, Inc. have
been excluded from the selected financial data below. The operating results
for the period ended December 31, 1999 are not necessarily indicative of the
results to be expected 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.
In 1999, the Company increased its capital expenditures and sales and
marketing programs for its hospitality and multi-family networks, and DSL
services. Additionally, the Company acquired Atcom (which was renamed CAIS
Software Solutions Inc.) and Business Anywhere. These activities affect the
comparability of the financial data and statements over time. The following
selected consolidated financial and operating data are qualified by and should
be read in conjunction with our more detailed Consolidated Financial
Statements and notes thereto and the discussion under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in
Part II, Items 7 and 8 of this Form 10-K.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Predecessor Successor
------------------------ ----------------------------------------
Inception
Period from (May 11,
January 1 1996)
Year Ended 1996 to through Year Ended December 31,
December 31, May 10, December 31, ---------------------------
1995 1996 1996 1997 1998 1999
------------ ----------- ------------ ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statements of
Operations Data:
Net revenue............ $2,240 $1,287 $ 2,410 $ 4,556 $ 5,315 $ 10,784
Cost of revenues....... 697 323 834 2,010 3,118 9,689
Operating costs and
expenses:
Selling, general and
administrative...... 514 339 2,126 5,329 10,434 39,693
Research and
development......... -- -- -- 221 223 1,593
Depreciation and
amortization........ 82 42 631 1,117 1,270 7,666
Fair value of stock
issued to
third party......... -- -- -- -- -- 723
Non-cash
compensation........ -- -- -- 616 1,426 4,892
------ ------ ------- ------- -------- --------
Total operating
costs and
expenses.......... 596 381 2,757 7,283 13,353 54,567
------ ------ ------- ------- -------- --------
Loss from operations... 947 583 (1,181) (4,737) (11,156) (53,472)
Net interest income
(expense)............. (3) 2 (212) (288) (1,101) 1,035
------ ------ ------- ------- -------- --------
Loss from continuing
operations(1)......... $ 944 $ 585 $(1,393) $(5,025) $(12,257) $(52,437)
====== ====== ======= ======= ======== ========
Basic and diluted loss
per share from
continuing
operations(1)......... $ (0.14) $ (0.52) $ (1.24) $ (3.10)
======= ======= ======== ========
Weighted average shares
outstanding--basic and
diluted............... 9,648 9,648 9,869 16,937
======= ======= ======== ========
<CAPTION>
December 31, December 31,
------------ ----------------------------------------
1995 1996 1997 1998 1999
------------ ------------ ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents......... $ 113 $ 73 $ 149 $ 95 $ 17,120
Short-term
investments......... -- -- -- -- 16,501
Working capital
(deficit)........... 454 (3,755) (6,440) (9,374) (18,335)
Total assets......... 997 12,841 14,320 14,521 186,951
Preferred stock...... -- -- -- -- 15,319
Put warrants......... -- -- -- -- 1,267
Long-term debt, less
current portion..... -- 4,863 4,110 10,767 --
Stockholders' equity
(deficit)........... 748 (3,412) (5,996) (14,761) 112,030
</TABLE>
- --------
(1) Excludes an extraordinary loss on early extinguishment of debt for the
year ended December 31, 1999 of $551,000 or $(.03) per share.
18
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto contained elsewhere in this report.
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 a nationwide provider of broadband Internet access solutions.
The Company operates two business segments: the visitor-based and multi-family
networks segment provides high-speed Internet access and content solutions for
hotels, apartment communities and other public areas using its patented
OverVoice solution and IPORT server software; and the Internet services
segment provides high-speed Internet access and content solutions for
businesses and consumers, DSL services using HyperDSL lines, always-on access
solutions for ISPs and businesses, and web hosting and other Internet
services. The Company operates a clear-channel Internet 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. The Company entered into an
agreement with Qwest to expand the Company's network to 38 metropolitan areas
across the United States.
During the years ended December 31, 1997, 1998 and 1999, the Company derived
a majority 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. During
the third quarter of 1999, the Company began to increase its visitor-based and
multi-family networks revenues, as it began to install its services in various
hotels and apartment communities, and acquire complementary businesses. The
Company incurred significant costs and devoted substantial resources
associated with the research, development and deployment of its visitor-based
and multi-family networks services. The costs included equipment, contract
labor for surveys and the actual property installation, and Internet bandwidth
and local loop connection charges. The Company capitalizes the costs of
installations in hotels and apartment buildings, including equipment and
labor.
Through its bandwidth purchase in the Qwest IRU, the Company has made a
significant investment in its nationwide network infrastructure. The Company's
business plan will require substantial capital to fully develop, deploy, and
to fund start-up losses. The Company also plans to devote considerable sales
and marketing resources to the sale of its services in hotels and apartment
communities and its DSL services in the commercial and residential markets.
The Company plans to continue to expand its research and development
activities to develop new products and services to be offered using its
patented OverVoice and IPORT technologies.
The Company's nationwide deployment of its services, and the expansion of
its network, will result in increased cost of revenues, 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
visitor-based and multi-family networks 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.
Key Developments in the Year Ended December 31, 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.
New Long Term Networks Contracts and Buildout. As of December 31, 1999, the
Company signed hospitality and multi-family master agreements for the
provision of its services in approximately 10,400 buildings and 1.5 million
rooms/units, and installed its services in approximately 134 buildings and
27,500 rooms/units.
19
<PAGE>
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.
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.
Qwest investment and bandwidth purchase. In September 1999, Qwest
Communications Corporation ("Qwest") invested $15 million in the Company and
in the form of Series C Preferred Stock. Qwest also received warrants to
purchase 500,000 shares of the Company's common stock at $12.00 per share.
Additionally, the Company and Qwest entered into a twenty-year IRU agreement.
The Company purchased approximately $44 million of capacity on Qwest's fiber
network. The Qwest capacity will support the delivery of the Company's network
services up to 38 metropolitan areas by April 2000. The Company also committed
to purchase $10 million of Qwest's communications services over five years.
The IRU agreement terminates the Company's $100 million commitment in the
parties' June 1998 Memorandum of Understanding.
Acquisition -- CAIS Software Solutions, Inc. (formerly Atcom, Inc.). The
Company acquired Atcom, Inc. ("Atcom") (subsequently renamed CAIS Software
Solutions, Inc.) in September 1999 to combine the Company's OverVoice hardware
technology with Atcom's IPORT server software and kiosk products to deliver
high speed Internet access solutions to hotels, apartment communities and
public areas, including shopping centers, airports, travel plazas and lobbies
and common areas.
Acquisition -- Business Anywhere. The Company acquired Business Anywhere
USA, Inc. ("Business Anywhere") in September 1999 to expand its public area
services portfolio. Business Anywhere centers are self-operated, self-
contained units that offer most business services to travelers, including
round-the-clock access to printers, fax machines, copiers, and PCs with
Internet connectivity. The services are activated by touch-screen, and are
remotely monitored.
Unisys. The Company entered into an alliance with Unisys Corporation
("Unisys") to accelerate a full range of Unisys installation, maintenance, and
end-user and network support services for CAIS Internet's solutions in hotels
and apartment communities. The partnership mobilizes a global workforce of
Unisys field operations, project managers and installers to install more than
200 hotel and apartment properties, or 60,000 units, per month.
Portal. The Company introduced the hospitality industry's inaugural,
customized, Content Portal--and announced its plans to deliver the CAIS Portal
to guests at hotels under master agreement to deliver high speed Internet
access with the broadband company.
Business Segments
Visitor-based and Multi-family Networks. The Company delivers high-speed
Internet access and content solutions to hotels, apartment communities and
other public areas across existing telephone lines at speeds up to 175 times
faster than 56K dial-up modems. As of December 31, 1999 the Company had master
contracts to install its services in approximately 10,400 properties and 1.5
million units/rooms.
20
<PAGE>
Internet Services. The primary services in the Company's Internet Services
segment include business digital subscriber line (HyperLan DSL), always-on
access and web hosting:
HyperDSL Services: In 1999 the Company has initiated its roll-out of a new
always-on, high-speed Internet access service using DSL technology under
the name HyperLan DSL. The Company partners with Covad Communications Group
to provide this service to small and medium-sized businesses. During the
year ended December 31, 1999, the Company began to offer HyperLan DSL
services in 13 U.S. metro areas. The Company intends to enter additional
markets in 2000 as it expands its network with Qwest.
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 colocation 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 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. Upfront charges in connection with
service contracts are recognized ratably over the contract period. 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 pay for the related
installation fees. Revenues from equipment sales are recorded when delivery of
the related equipment is accepted by the customer. Dial-up access customers
typically subscribe to service on a monthly or annual basis.
Cost of revenues include recurring expenses for the long haul bandwidth
lease and local interconnection charges from national and local fiber
providers. It also includes wholesale DSL resale charges, equipment costs and
amortization of DSL install and equipment charges incurred in connection with
term contracts.
Research and development costs include internal research and development
activities and external product development agreements.
Selling, general and administrative expenses are incurred in the areas of
sales and marketing, customer support, network operations and maintenance,
engineering, research and development, accounting and administration. Selling,
general and administrative expenses will increase over time as the Company's
operations, including the nationwide deployment of hotel and multi-family
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.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net revenues. Net revenues for the year ended December 31, 1999 increased
103% to approximately $10,784,000 from approximately $5,315,000 for the year
ended December 31, 1998. Net revenues increased primarily due to an increase
of approximately $3,383,000 in visitor-based and multi-family network revenues
(of which approximately $2,174,000 of the increase was for equipment sales),
$1,038,000 in DSL revenues, $743,000 Internet access services, and $304,000 in
web hosting services. The increases were due to an increase in the number of
properties and customers for these services, and the acquisitions of Atcom and
Business Anywhere.
21
<PAGE>
Cost of revenues. Cost of revenues for the year ended December 31, 1999
totaled approximately $9,689,000 or 90% of net revenues, compared to
approximately $3,118,000 or 59% of net revenues for the year ended December
31, 1998. This increase resulted primarily from increases of approximately
$1,833,000 in charges for visitor-based and multi-family network direct
equipment sales, $1,296,000 in visitor-based and multi-family network charges
for bandwidth and network installation, $2,253,000 in additional nationwide
bandwidth, and $1,129,000 in DSL charges for customer connectivity, equipment
and installation.
Selling, general and administrative. Selling, general and administrative
expenses for the year ended December 31, 1999 totaled approximately
$39,693,000 or 368% of net revenues, compared to approximately $10,434,000 or
196% of net revenues for the year ended December 31, 1998. This increase
resulted primarily from increases of $3,906,000 related to visitor-based and
multi-family network payroll, $8,453,000 related to Internet services payroll,
$1,810,000 related to visitor-based and multi-family network costs (e.g.
marketing and professional fees and expenses), and $15,090,000 in advertising
and other sales, marketing and administrative expenses.
Research and development. Research and development for the year ended
December 31, 1999 totaled approximately $1,593,000 or 15% of net revenues,
compared to approximately $223,000, or 4% of net revenues for the year ended
December 31, 1998. This increase resulted from the inclusion of research and
development labor costs incurred by CAISSoft after acquisition and various
development projects related to new hotel/multi-family services and products.
Depreciation and amortization. Depreciation and amortization totaled
approximately $7,666,000 for the year ended December 31, 1999, compared to
approximately $1,270,000 for the year ended December 31, 1998. This increase
resulted from an increase of $1,273,000 in depreciation of capital assets to
support the expansion of the Company's network, $810,000 related to the
amortization of purchased contract rights from visitor-based and multi-family
network partners, and $4,313,000 related to the amortization of goodwill and
intangibles as a result of acquisitions.
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
year ended December 31, 1999. There was no comparable expense for the year
ended December 31, 1998.
Non-cash compensation. Non-cash compensation totaled approximately
$4,892,000 for the year ended December 31, 1999, compared to approximately
$1,426,000 for the year ended December 31, 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 income (expense), net. Interest income (expense), net totaled
income of approximately $1,035,000 for the year ended December 31, 1999,
compared to expense of approximately $1,101,000 for the year ended December
31, 1998. This income total was attributable primarily to interest income
earned from the proceeds of the IPO, offset by interest expense and the
amortization of financing costs related to the Company's financing agreements.
Loss from continuing operations. Loss from continuing operations totaled
approximately $52,437,000 for the year ended December 31, 1999, compared to
approximately $12,257,000 for the year ended December 31, 1998, due to the
foregoing factors.
Income (loss) from discontinued operations. Loss from discontinued
operations totaled approximately $340,000 for the year ended December 31,
1999, compared to income of approximately $671,000 for the year ended ended
December 31, 1998. The decrease in loss amount for 1999 is attributable to the
spin-off of Cleartel at February 12, 1999.
Extraordinary item--early extinguishment of debt. Extraordinary item--early
extinguishment of debt totaled approximately $551,000 for the year ended
December 31, 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 year ended December 31, 1998.
22
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net revenues. Net revenues for the year ended December 31, 1998 increased
17% to approximately $5,315,000, compared to approximately $4,556,000 for the
year ended December 31, 1997. Net revenues increased primarily due to an
increase of $747,000 resulting from the sale of Internet access services and
an increase of $237,000 from the sale of web hosting services. Both of these
increases were due to an increase in the number of customers for these
services. This increase in net revenues was offset by a decrease in consulting
revenues from $159,000 in 1997 to zero in 1998.
Cost of revenues. Cost of revenues for the year ended December 31, 1998
totaled approximately $3,118,000 or 59% of net revenues, compared to
approximately $2,010,000 or 44% of net revenues for the year ended December
31, 1997. This increase resulted primarily from an increase of $944,000 due to
the purchase of additional nationwide bandwidth and the expansion to new
geographic locations. CAIS Internet also incurred bandwidth and local
connection charges of $102,000 in 1998 for the deployment of visitor-based and
multi-family networks in trial properties. There was no OverVoice related cost
of revenues for 1997.
Selling, general and administrative. Selling, general and administrative
expenses for the year ended December 31, 1998 totaled approximately
$10,434,000 or 196% of net revenues, compared to approximately $5,329,000 or
117% of net revenues for the year ended December 31, 1997. This increase
resulted primarily from increases of $910,000 attributable to Internet
services payroll, $1,671,000 related to Internet services administrative
costs, $2,177,000 related to visitor-based and multi-family network costs
(e.g., payroll, market trials and marketing and professional fees and
expenses) and $347,000 for professional fees relating to the October 1998
reorganization.
Research and development. Research and development for the year ended
December 31, 1998 totaled approximately $223,000 or 4% of net revenues,
compared to approximately $221,000 or 5% of net revenues for the year ended
December 31, 1997.
Depreciation and amortization. Depreciation and amortization totaled
approximately $1,270,000 for the year ended December 31, 1998, compared to
approximately $1,117,000 for the year ended December 31, 1997. This increase
was attributable primarily to the purchase of capital equipment necessary to
support the expansion of CAIS Internet's network.
Non-cash compensation. Non-cash compensation totaled approximately
$1,426,000 for the year ended December 31, 1998, compared to approximately
$616,000 for the year ended December 31, 1997. This increase reflects
amortization of deferred compensation for an entire year in 1998 compared to a
partial year in 1997.
Interest income (expense), net. Interest expense totaled approximately
$1,101,000 for the year ended December 31, 1998, compared to approximately
$288,000 for the year ended December 31, 1997. This increase was attributable
primarily to interest on indebtedness incurred, including amortization of
financing costs relating to our credit agreement with ING (U.S.) Capital LLC.
Loss from continuing operations. Loss from continuing operations totaled
approximately $12,257,000 for the year ended December 31, 1998, compared to
approximately $5,025,000 for the year ended December 31, 1997, due to the
foregoing factors.
Income (loss) from discontinued operations. Loss from discontinued
operations totaled $671,000 for the year ended December 31, 1998, compared to
income of approximately $1,923,000 for the year ended December 31, 1997. This
decrease in earnings resulted primarily from a reduction in net revenues
generated from operator assisted telephone calls.
23
<PAGE>
Quarterly Results
The following tables set forth certain unaudited quarterly financial data,
and such data expressed as a percentage of revenue, for the eight quarters
ended December 31, 1999. In the opinion of management, the unaudited financial
information set forth below has been prepared on the same basis as the audited
financial information included elsewhere herein and includes all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the information set forth. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------
1998 1999
---------------------------------- ------------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
------- ------- ------- ------- ------- ------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues(1)......... $ 1,242 $ 1,325 $ 1,357 $ 1,391 $ 1,609 $ 1,811 $ 2,682 $ 4,682
------- ------- ------- ------- ------- ------- -------- --------
Cost of revenues........ 717 750 776 875 1,050 1,518 2,558 4,563
Operating expenses...... 2,704 2,819 3,201 4,629 4,533 9,538 16,080 24,416
------- ------- ------- ------- ------- ------- -------- --------
Loss from operations.... (2,179) (2,244) (2,620) (4,113) (3,974) (9,245) (15,956) (24,297)
------- ------- ------- ------- ------- ------- -------- --------
Net interest income
(expense).............. (82) (92) (295) (632) (677) 85 992 635
------- ------- ------- ------- ------- ------- -------- --------
Loss from continuing
operations............. (2,261) (2,336) (2,915) (4,745) (4,651) (9,160) (14,964) (23,662)
Income (loss) from
discontinued
operations............. 154 211 (249) (787) (340) -- -- --
------- ------- ------- ------- ------- ------- -------- --------
Loss before
extraordinary item..... (2,107) (2,125) (3,164) (5,532) (4,991) (9,160) (14,964) (23,662)
Extraordinary item--
early extinguishment of
debt................... -- -- -- -- -- (551) -- --
------- ------- ------- ------- ------- ------- -------- --------
Net loss................ (2,107) (2,125) (3,164) (5,532) (4,991) (9,711) (14,964) (23,662)
Dividends and accretion
on preferred stock..... -- -- -- -- (171) (179) (3,851) (319)
------- ------- ------- ------- ------- ------- -------- --------
Net loss attributable to
common stockholders.... $(2,107) $(2,125) $(3,164) $(5,532) $(5,162) $(9,890) $(18,815) $(23,981)
======= ======= ======= ======= ======= ======= ======== ========
Basic and diluted loss
per share(2):
Continuing operations,
less dividends on
preferred stock....... $ (0.23) $ (0.23) $ (0.29) $ (0.48) $ (0.48) $ (0.65) $ (0.91) $ (1.06)
Discontinued
operations............ 0.01 0.02 (0.03) (0.08) (0.04) -- -- --
Extraordinary item..... -- -- -- -- -- (0.04) -- --
------- ------- ------- ------- ------- ------- -------- --------
Total.................. $ (0.22) $ (0.21) $ (0.32) $ (0.56) $ (0.52) $ (0.69) $ (0.91) $ (1.06)
======= ======= ======= ======= ======= ======= ======== ========
Basic and diluted
weighted-average shares
outstanding............ 9,648 9,888 9,966 9,966 9,990 14,307 20,586 22,519
======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
- --------
(1) Approximately $1,610,000 of net revenues for the quarter ended December
31, 1999 represent equipment sales.
(2) Since there are changes in the weighted average number of shares
outstanding each quarter, the sum of the loss per share by quarter does
not equal the loss per share for 1998 and 1999.
24
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------
1998 1999
------------------------------ ------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 %
---- ---- ---- ---- ---- ---- ---- ----
Cost of revenues.......... 58 % 56 % 57 % 63 % 65 % 84 % 95 % 98 %
Operating expenses........ 217 % 213 % 236 % 333 % 282 % 527 % 600 % 521 %
---- ---- ---- ---- ---- ---- ---- ----
Loss from operations...... (175)% (169)% (193)% (296)% (247)% (511)% (595)% (519)%
Net interest income
(expense)................ (7)% (7)% (22)% (45)% (42)% 5 % 37 % 14 %
---- ---- ---- ---- ---- ---- ---- ----
Loss from continuing
operations............... (182)% (176)% (215)% (341)% (289)% (506)% (558)% (505)%
Income (loss) from
discontinued operations.. 12 % 16 % (18)% (57)% (21)% -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Loss before extraordinary
item..................... (170)% (160)% (233)% (398)% (310)% (506)% (558)% (505)%
Extraordinary item--early
extinguishment of debt... -- -- -- -- -- (30)% -- --
---- ---- ---- ---- ---- ---- ---- ----
Net loss.................. (170)% (160)% (233)% (398)% (310)% (536)% (558)% (505)%
Dividends and accretion on
preferred stock.......... -- -- -- -- (11)% (10)% (144)% (7)%
---- ---- ---- ---- ---- ---- ---- ----
Net loss attributable to
common stockholders...... (170)% (160)% (233)% (398)% (321)% (546)% (702)% (512)%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Our quarterly operating results have fluctuated and will continue to
fluctuate from period to period depending upon such factors as:
. the installation of our hospitality and multi-family properties,
. the success of our efforts and of our hospitality and multi-family
partners to sell our services in installed buildings,
. the success of our efforts to expand our DSL and traditional Internet
customer base, and to sell enhanced and value added services to existing
customers,
. the timing of acquisitions,
. changes in and the timing of expenditures relating to the continued
expansion of our network,
. the delivery of bandwidth from our global network providers,
. the development of new services, and
. changes in pricing policies by us or our competitors.
In view of the significant historical growth of our operations, we believe
that period-to-period comparisons of our financial results should not be
relied upon as an indication of future performance and that we may experience
significant period-to-period fluctuations in operating results in the future.
We expect to focus in the near term on building and increasing our property
and customer base and increasing our network utilization both through internal
growth and through acquisitions which may require us from time to time to
increase our expenditures for personnel, marketing, network infrastructure and
the development of new services.
Liquidity and Capital Resources
Prior to the IPO, the Company financed its operations with various debt and
private equity placements. During the year ended December 31, 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 provided by (used in) operating activities for the years
ended December 31, 1997, 1998 and 1999 was approximately $692,000,
$(3,208,000) and $(15,329,000), 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 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.
25
<PAGE>
At 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 September 1999, the Company issued to Qwest 125,000 shares of Series C
Preferred Stock, which is initially convertible into 1,250,000 shares of
common stock for total gross proceeds of $15,000,000. It also issued warrants
to acquire 500,000 shares of the Company's common stock at an exercise price
of $12.00 per share. The Company incurred approximately $40,000 of offering
costs paid to third parties. The Series C Preferred Stock ranks prior to the
Company's common stock with respect to dividends and rights upon liquidation,
dissolution, or winding up of the Company. Each holder of Series C Preferred
Stock is entitled: (i) to receive, when, as and if declared by the Company's
Board of Directors, cumulative dividends of $10.20 per annum per share; (ii)
to a liquidation preference equal to the sum of $120.00 per share, plus any
accrued but unpaid dividends; (iii) to the number of votes equal to the number
of whole shares of common stock into which all of the shares of Series C
Preferred Stock held by such holder are convertible; and (iv) to certain
demand and piggyback registration rights. Subject to certain limitations, each
share of Series C Preferred Stock is convertible, at the option of the holder,
into such number of fully paid and nonassessable shares of common stock at the
ratio of ten common shares for each share of Series C Preferred Stock. The
Company shall redeem (i) up to 41,667 shares of the Series C Preferred Stock
by the second anniversary of the date of issuance of the Series C Preferred
Stock; and (ii) the remaining shares of the Series C Preferred Stock upon the
third anniversary of the date of issuance of the Series C Preferred Stock.
Approximately $3.9 million of the proceeds received were allocated to the
value of the warrants to acquire 500,000 shares of the Company's common stock
at $12.00 per share. The warrants have been valued at their estimated fair
value of $7.70 per share (or approximately $3,851,000 in the aggregate) based
on the Black-Scholes valuation model. The warrants expire on October 28, 2002.
As the Series C Preferred Stock is immediately convertible into common
stock, the discount on the preferred stock (as a result of the allocation of
proceeds to the warrants) was fully accreted on the date of issuance and is
reflected as a dividend on preferred stock in the accompanying financial
statements.
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, and several amendments. As of December 31, 1999, the Company had
borrowed approximately $2.7 million under this credit facility. Borrowings
outstanding as of December 31, 1999 incur interest expense at rates ranging
from 10.3 to 10.9 percent. The facility requires the Company to meet certain
financial covenants including revenue targets and leverage and debt service
ratios. In addition, on April 1, 1999, the Company and Nortel Networks entered
into an agreement 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 remaining commitment as of December 31, 1999 was $5.3 million for
the initial April 1, 2000 deadline.
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, and
several amendments. Under the facility, $50 million is available during the
first two years 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 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
December 31, 1999, the Company had not borrowed under this credit facility.
The Company obtained a waiver from Cisco for financial covenant violations as
of December 31, 1999. Subsequent to year-end, the Company and Cisco amended
the financial covenants of this agreement for the remainder of the term of
this facility.
On December 20, 1999, the Company entered into a Preferred Stock Purchase
Agreement ("Purchase Agreement") between CII Ventures LLC, an affiliate of the
private investment firm Kohlberg Kravis Roberts &
26
<PAGE>
Co. (KKR). Under the Purchase Agreement, KKR, through its affiliate, will make
a strategic investment of up to $200 million in the Company. CII Ventures will
purchase $100 million of the Company's Series D convertible participating
preferred stock ("Series D Shares"). The Series D Shares will be convertible
into common stock of the Company, with an initial conversion price of $16.50
per share, subject to adjustment. The Purchase Agreement also includes a one-
year option for CII Ventures to purchase up to an additional $100 million of
Series E convertible participating preferred stock ("Series E Shares"). The
Series E Shares are convertible into the Company's common stock, with a
conversion price of $20.00 per share, subject to adjustment. Based on the
Company's capitalization at December 31, 1999, the investment by KKR in the
Series D Shares would represent a 16 percent fully diluted capital interest in
the Company. Upon the exercise of the option for the Series E Shares, the
investment by KKR in the Series D and Series E Shares would represent a 26
percent fully diluted capital interest in the Company. The holders of the
Series D and Series E Shares will be entitled to receive dividends, payable in
additional Series D and Series E shares, at a rate of 6 percent per annum
compounded quarterly.
Under a Stockholders Agreement, KKR has certain rights to board
representation, stock registration, and must consent with respect to certain
corporate actions by the Company, including share issuances and mergers and
other business combinations, subject to certain exceptions.
As of December 31, 1999, the Company had cash and cash equivalents, and
short-term investments of approximately $33.6 million. In February 2000, the
Company received a investment of $73.9 million of the initial $100 million
from KKR in Series D shares for net proceeds of $67.7 million, and expects to
receive the remaining $26.1 million of Series D shares in May 2000 for net
proceeds of $25.0 million, after approval of the additional shares at a
special meeting of the Company's stockholders. In addition to the KKR option
for the $100 million investment in Series E shares in 2001, the Company may
require additional financing to meet its anticipated cash needs over the next
several years, and is actively exploring alternatives for such financing. If
such sources of financing are insufficient or unavailable, or if the Company
experiences shortfalls in anticipated revenues or increases in anticipated
expenses, the Company would curtail the planned roll-out of its services 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.
Impact of the Year 2000 Issue
Many computer programs were been written using two digits rather than four
to define the applicable year. This posed a problem at the end of the century
because these computer programs may have recognized 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.
Prior to December 31, 1999, the Company made custom coding enhancements and
other necessary modifications to its mission-critical internal business
systems, as well as to other internal business systems. We believe that such
internal systems are now Year 2000 compliant.
During the year ended December 31, 1999, the Company spent approximately
$72.9 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. In addition, the Company
acquired a new billing and customer care system as part of its business
strategy, which the Company believes is Year 2000 compliant. If the Company
uncovers the need for additional expenditures related to Year 2000, it may
have a material adverse effect on the Company's business, financial condition
or results of operations.
27
<PAGE>
To date, the Company has not experienced any material problems attributable
to the inability to recognize dates beginning with the Year 2000 in its
products, equipment, services, systems, or internal systems or those of our
external suppliers. Although the Company believes that it has successfully
modified its products, equipment, services, and systems as necessary to be
Year 2000 compliant, it cannot be sure that its operations do not contain
undetected errors or defects associated with Year 2000 functions that may
result in material costs to us. Its business could suffer if we fail to make
its operations Year 2000 compliant in time.
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
On January 26, 2000, the Company entered an agreement with Bass to provide
the Company's services to approximately 2,750 hotel properties and 400,000
hotel rooms. The Company will pay contract rights to individual hotels at a
rate of $25 per room when a hotel contracts for service. Additionally, the
Company will contribute up to approximately $2.2 million in marketing and
technology development funds. In connection with this agreement, the Company
issued 63,000 warrants to Bass effective February 1, 2000 with an exercise
price of $40.01 per share.
On February 9, 2000, the Company announced that it had entered into an
agreement with Mid-America to provide the Company's services to approximately
35,000 apartment homes in 110 apartment communities. The Company paid Mid-
America approximately $778,000 for contract rights for installation and
marketing.
On February 28, 2000, the Company announced that it had completed the sale
of $73.9 million of Series D convertible participating preferred stock on
February 25, 2000 to an affiliate of KKR. Under a Purchase Agreement dated as
of December 20, 1999, KKR will purchase an additional $26.1 million of Series
D Shares after approval of the Company's stockholders. In conjunction with the
initial purchase of the Series D Shares, two KKR nominees joined the Company's
Board of Directors and KKR was granted a one-year option to purchase $100
million of Series E Shares. The issuance of the Series E Shares pursuant to
the option also is subject to the approval of the Company's stockholders. Upon
the exercise of the option for the Series E Shares, KKR will have the right to
elect an additional director on the Company's Board of Directors.
On March 15, 2000, CAIS Software Solutions, Inc., a wholly owned subsidiary
of the Company, entered into an agreement to purchase the contracts,
intellectual property, and certain other assets of QuickATM, LLC ("QuickATM")
for a purchase price of $500,000 in cash, and $1,250,000 in the Company's
common stock. The Company issued approximately 40,000 shares of common stock
valued at $31.10 per share.
28
<PAGE>
On March 20, 2000, the Company also entered into an agreement with 3Com
Corporation ("3Com") for the issuance of 20,000 shares of Series G Preferred
Stock for total gross proceeds of $20 million. The Series G shares are
initially convertible into approximately 556,000 shares of CAIS common stock.
The Company also agreed to purchase $10 million of 3Com equipment over the
next year. The closing of the agreement is subject to the negotiation of a
definitive commercial and marketing agreement and approval under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976.
Item 7a. Quantitative And Qualitative Disclosures About Market Risk
The Company has limited exposure to financial market risks, including
changes in interest rates. At December 31, 1999, the Company had short-term
investments of approximately $16.5 million. These short-term investments
consist of highly liquid investments in debt obligations of highly rated
entities with maturities of between 91 and 270 days. These investments are
subject to interest rate risk and will fall in value if market interest rates
increase. The Company expects to hold these investments until maturity, and
therefore expects to realize the full value of these investments, even though
changes in interest rates may affect their value prior to maturity. If
interest rates decline over time, this will result in a reduction of our
interest as our cash is reinvested at lower rates.
At December 31, 1999, the Company had notes payable in the aggregate amount
of $2.7 million. A change of interest rates would affect its obligations under
these agreements. Increases in interest rates would increase the interest
expense associated with future borrowings and borrowings under its equipment
financing agreements.
29
<PAGE>
Item 8. Financial Statements And Supplementary Data
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Financial Statements:
Report of Independent Public Accountants................................ 31
Consolidated Balance Sheets as of December 31, 1998 and 1999............ 32
Consolidated Statements of Operations for the years ended December 31,
1997, 1998 and 1999.................................................... 33
Consolidated Statements of Changes in Stockholders' (Deficit) Equity for
the years ended December 31, 1997, 1998 and 1999....................... 34
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999.................................................... 36
Notes to Consolidated Financial Statements.............................. 37
</TABLE>
30
<PAGE>
Report of Independent Public Accountants
To CAIS Internet, Inc. and subsidiaries
(formerly CGX Communications, Inc.):
We have audited the accompanying consolidated balance sheets of CAIS
Internet, Inc. (a Delaware corporation, formerly CGX Communications, Inc.) and
subsidiaries, as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' (deficit) equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CAIS Internet, Inc. and subsidiaries, as of December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles in the United States.
Arthur Andersen LLP
Vienna, Virginia
March 6, 2000 (except with respect to
the matters discussed in Note 15 to the
consolidated financial statements,
which are indicated to have occurred
subsequent to March 6, 2000, as to
which the date is March 20, 2000).
31
<PAGE>
CAIS INTERNET, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1999
-------- --------
<S> <C> <C>
Current Assets
Cash and cash equivalents............................... $ 95 $ 17,120
Short-term investments.................................. -- 16,501
Accounts receivable, net of allowance for doubtful
accounts of $137 and $249, respectively................ 648 3,090
Prepaid expenses and other current assets............... 228 2,571
Current assets of discontinued operations............... 8,170 --
-------- --------
Total current assets.................................. 9,141 39,282
Property and equipment, net............................... 2,638 90,476
Deferred offering costs................................... 237 --
Deferred debt financing costs, net........................ 292 1,499
Intangible assets and goodwill, net....................... 277 51,059
Receivable from officers.................................. -- 450
Other assets.............................................. -- 4,185
Non-current assets of discontinued operations............. 1,936 --
-------- --------
Total assets.......................................... $ 14,521 $186,951
======== ========
Current liabilities
Accounts payable and accrued expenses................... $ 4,396 $ 53,779
Notes payable........................................... -- 2,680
Obligations under capital lease......................... -- 312
Payable to discontinued operations...................... 5,342 --
Unearned revenues....................................... 572 846
Current liabilities of discontinued operations.......... 8,205 --
-------- --------
Total current liabilities............................. 18,515 57,617
Loan, net of unamortized debt discount of $511 and $0,
respectively............................................. 6,183 --
Notes payable to related parties, net of current portion.. 1,983 --
Other long-term liabilities............................... -- 718
Long-term liabilities of discontinued operations.......... 2,601 --
-------- --------
Total liabilities..................................... 29,282 58,335
-------- --------
Series C cumulative mandatory redeemable convertible
preferred stock; 125,000 shares authorized, issued and
outstanding as of December 31, 1999 (aggregate
liquidation preference of $15,319)....................... -- 15,319
-------- --------
Put warrants.............................................. -- 1,267
-------- --------
Commitments and contingencies (Note 12)
Stockholders' (deficit) equity
Common stock, $0.01 par value; 100,000,000 shares
authorized; 9,965,505 and 22,608,331 shares issued and
9,965,505 and 22,595,565 shares outstanding,
respectively........................................... 100 226
Additional paid-in capital.............................. 7,794 188,569
Warrants outstanding.................................... 1,226 13,234
Deferred compensation................................... (2,888) (2,673)
Treasury stock, 12,766 shares of common stock........... -- (150)
Accumulated deficit..................................... (20,993) (87,176)
-------- --------
Total stockholders' (deficit) equity ................. (14,761) 112,030
-------- --------
Total liabilities and stockholders' (deficit) equity
..................................................... $ 14,521 $186,951
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
32
<PAGE>
CAIS INTERNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Net revenues:
Equipment....................................... $ 146 $ 72 $ 2,186
Services........................................ 4,410 5,243 8,598
------- -------- --------
Total net revenues............................ 4,556 5,315 10,784
------- -------- --------
Cost of revenues:
Equipment....................................... 120 58 1,833
Services........................................ 1,890 3,060 7,856
------- -------- --------
Total cost of revenues........................ 2,010 3,118 9,689
------- -------- --------
Operating expenses:
Selling, general and administrative............. 5,329 10,434 39,693
Research and development........................ 221 223 1,593
Depreciation and amortization................... 1,117 1,270 7,666
Fair value of stock issued to third party for
services....................................... -- -- 723
Non-cash compensation........................... 616 1,426 4,892
------- -------- --------
Total operating expenses...................... 7,283 13,353 54,567
------- -------- --------
Loss from operations.............................. (4,737) (11,156) (53,472)
Interest income (expense), net:
Interest income................................. 2 -- 2,419
Interest expense................................ (290) (1,101) (1,384)
------- -------- --------
Total interest income (expense), net.......... (288) (1,101) 1,035
------- -------- --------
Loss from continuing operations before income
taxes............................................ (5,025) (12,257) (52,437)
Provision for income taxes........................ -- -- --
------- -------- --------
Loss from continuing operations................... (5,025) (12,257) (52,437)
Income (loss) from discontinued operations........ 1,923 (671) (340)
------- -------- --------
Loss before extraordinary item.................... (3,102) (12,928) (52,777)
Extraordinary item--early extinguishment of debt.. -- -- (551)
------- -------- --------
Net loss.......................................... (3,102) (12,928) (53,328)
Dividends and accretion on preferred stock........ -- -- (4,520)
------- -------- --------
Net loss attributable to common stockholders...... $(3,102) $(12,928) $(57,848)
======= ======== ========
Basic and diluted earnings (loss) per share:
Loss attributable to common stockholders before
discontinued operations and extraordinary
item........................................... $ (.52) $ (1.24) $ (3.37)
Discontinued operations......................... .20 (.07) (.02)
Extraordinary item.............................. -- -- (.03)
------- -------- --------
Total......................................... $ (.32) $ (1.31) $ (3.42)
======= ======== ========
Basic and diluted weighted-average shares
outstanding...................................... 9,648 9,869 16,937
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
33
<PAGE>
CAIS INTERNET, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Redeemable Convertible Preferred Stock
-------------------------------------------------
Series A Series B Series C
---------------- --------------- --------------
Put
Shares Amount Shares Amount Shares Amount Warrants
------ -------- ------ ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996....... -- $ -- -- $ -- -- $ -- $ --
Unearned compensation
pursuant to issuance
of stock options...... -- -- -- -- -- -- --
Amortization of
unearned
compensation.......... -- -- -- -- -- -- --
Distributions declared
to equity holders.....
Net loss............... -- -- -- -- -- -- --
------ -------- ----- ------- ---- ------- ------
December 31, 1997....... -- -- -- -- -- -- --
Shares issuable upon
settlement............ -- -- -- -- -- -- --
Distributions declared
to equity holders.....
Capital contribution... -- -- -- -- -- -- --
Issuance of common
stock................. -- -- -- -- -- -- --
Warrants issued in
connection with loan.. -- -- -- -- -- -- --
Amortization of
unearned
compensation.......... -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- --
------ -------- ----- ------- ---- ------- ------
December 31, 1998....... -- -- -- -- -- -- --
Issuance of common
stock and options in
connection with
litigation
settlement............ -- -- -- -- -- -- --
Issuance of Series A,
Series B and Series C
Preferred Stock, net
of offering costs of
$175 and amounts
allocated to
warrants.............. 2,827 3,209 1,120 4,557 125 11,149 --
Capital contribution... -- -- -- -- -- -- --
Distribution of
Cleartel net assets... -- -- -- -- -- -- --
Initial public offering
gross proceeds, net of
underwriting discounts
and commissions and
other IPO fees and
expenses.............. -- -- -- -- -- -- --
Accrued dividends on
preferred shares and
accretion of
discount.............. -- 246 -- 104 -- 319 --
Accretion of Series A
and Series C Preferred
Stock warrant and
issuance costs........ -- 8,292 -- -- -- 3,851 --
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.......... -- -- -- -- -- -- --
Issuance of common
stock for
acquisitions.......... -- -- -- -- -- -- --
Exercise of stock
options............... -- -- -- -- -- -- --
Treasury stock......... -- -- -- -- -- -- --
Net loss............... -- -- -- -- -- -- --
------ -------- ----- ------- ---- ------- ------
December 31, 1999....... -- $ -- -- $ -- 125 $15,319 $1,267
====== ======== ===== ======= ==== ======= ======
</TABLE>
(Continued)
The accompanying notes are an integral part of these consolidated statements.
34
<PAGE>
CAIS INTERNET, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
For the Years Ended December 31, 1997, 1998 and 1999
(in thousands)
<TABLE>
<CAPTION>
Stockholders' (Deficit) Equity
-----------------------------------------------------------------------------
Common Stock
------------ Additional
Paid-in Warrants Deferred Treasury Accum.
Shares Par Capital Outstanding Compensation Stock Deficit Total
------- ----- ---------- ----------- ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996....... 9,648 $ 97 $ 1,300 $ -- $ -- $ -- $ (4,809) $ (3,412)
Unearned compensation
pursuant to issuance
of stock options...... -- -- 4,930 -- (4,930) -- -- --
Amortization of
unearned
compensation.......... -- -- -- -- 616 -- -- 616
Distributions declared
to equity holders..... -- -- -- -- -- -- (98) (98)
Net loss............... -- -- -- -- -- -- (3,102) (3,102)
------- ----- -------- ------- ------- ----- -------- --------
December 31, 1997....... 9,648 97 6,230 -- (4,314) -- (8,009) (5,996)
Shares issuable upon
settlement............ -- -- 250 -- -- -- ---- 250
Distributions declared
to equity holders..... -- -- -- -- -- -- (56) (56)
Capital contribution... -- -- 317 -- -- -- -- 317
Issuance of common
stock................. 317 3 997 -- -- -- -- 1,000
Warrants issued in
connection with loan.. -- -- -- 1,226 -- -- -- 1,226
Amortization of
unearned
compensation.......... -- -- -- -- 1,426 -- -- 1,426
Net loss............... -- -- -- -- -- -- (12,928) (12,928)
------- ----- -------- ------- ------- ----- -------- --------
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 -- -- -- -- -- -- --
Issuance of Series A,
Series B and Series C
Preferred Stock, net
of offering costs of
$175 and amounts
allocated to
warrants.............. -- -- -- 12,008 -- -- -- 12,008
Capital contribution... -- -- 1,083 -- -- -- -- 1,083
Distribution of
Cleartel net assets... -- -- -- -- -- -- (43) (43)
Initial public offering
gross 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.............. -- -- -- -- -- -- (669) (669)
Accretion of Series A
and Series C Preferred
Stock warrant and
issuance costs........ -- -- -- -- -- -- (12,143) (12,143)
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...... -- -- 4,677 -- (4,677) -- -- --
Amortization of
unearned
compensation.......... -- -- -- -- 4,892 -- -- 4,892
Issuance of common
stock for
acquisitions.......... 2,615 26 42,461 -- -- -- -- 42,487
Exercise of stock
options............... 185 2 392 -- -- -- -- 394
Treasury stock......... -- -- -- -- -- (150) -- (150)
Net loss............... -- -- -- -- -- -- (53,328) (53,328)
------- ----- -------- ------- ------- ----- -------- --------
December 31, 1999 ...... 22,608 $ 226 $188,569 $13,234 $(2,673) $(150) $(87,176) $112,030
======= ===== ======== ======= ======= ===== ======== ========
</TABLE>
(Concluded)
The accompanying notes are an integral part of these consolidated statements.
35
<PAGE>
CAIS INTERNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(3,102) $(12,928) $(53,328)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Non-cash compensation pursuant to stock
options......................................... 616 1,426 4,892
Amortization of debt discount and deferred
financing costs................................. -- 555 864
Extraordinary item--early extinguishment of
debt............................................ -- -- 551
Loss on disposal of fixed assets................. 63 -- --
Fair value of shares issued to third party for
services........................................ -- -- 723
Depreciation and amortization.................... 1,117 1,270 7,666
Depreciation and amortization of discontinued
operations...................................... 668 519 58
Changes in operating assets and liabilities, net
of effect of acquisitions:
Accounts receivable, net........................ (104) (182) (2,112)
Prepaid expenses and other current assets....... (46) (149) (2,286)
Other assets.................................... -- -- (1,211)
Accounts payable and accrued liabilities........ 380 2,986 31,935
Payable to discontinued operations.............. 2,755 1,047 (3,892)
Unearned revenues............................... 147 116 274
Shares issuable upon settlement................. -- 250 --
Other long-term liabilities..................... -- -- 610
Changes in operating assets and liabilities of
discontinued operations........................ (1,802) 1,882 (73)
------- -------- --------
Net cash provided by (used in) operating
activities.................................... 692 (3,208) (15,329)
------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment.............. (556) (1,435) (72,916)
Purchases of property and equipment of
discontinued operations......................... (551) (387) (14)
Purchases of restricted investments.............. -- -- (160)
Purchases of short-term investments.............. -- -- (16,501)
Cash paid for acquisitions, net of cash
acquired........................................ -- -- (1,394)
Investment in equity holdings.................... -- -- (2,574)
Payment of visitor-based and multi-family network
contract rights................................. -- -- (11,795)
Net payments received (advanced) on notes
receivable...................................... 129 (265) (570)
Net payments received on related party accounts
receivable...................................... 180 317 --
------- -------- --------
Net cash used in investing activities.......... (798) (1,770) (105,924)
------- -------- --------
Cash flows from financing activities:
Net (repayments) borrowings under receivables-
based credit facility of discontinued
operations...................................... (211) (1,451) 313
Borrowings under notes payable................... -- -- 2,680
Borrowings under Loan............................ -- 7,000 --
Repayments under Loan............................ -- -- (7,000)
Borrowings under long-term debt.................. 600 -- --
Repayments under long-term debt.................. (367) (2,000) --
Borrowings under notes payable--related parties.. 675 1,000 1,000
Repayments under notes payable--related parties.. (162) (107) --
Principal payments under capital lease
obligations..................................... (337) (173) (11)
Payment of loan commitment, debt financing, and
offering costs.................................. (16) (345) (442)
Net proceeds from issuance of Series A Preferred
Stock........................................... -- -- 11,365
Redemption of Series B Preferred Stock........... -- -- (3,104)
Net proceeds from issuance of Series C Preferred
Stock and warrants.............................. -- -- 15,000
Net proceeds from initial public offering........ -- -- 118,233
Proceeds from issuance of common stock........... -- 1,000 394
Repurchase of common stock....................... -- -- (150)
------- -------- --------
Net cash provided by financing activities...... 182 4,924 138,278
------- -------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 76 (54) 17,025
Cash and cash equivalents, beginning of period.... 73 149 95
------- -------- --------
Cash and cash equivalents, end of period.......... $ 149 $ 95 $ 17,120
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
36
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Description:
Overview
CAIS Internet, Inc. (the "Company") is a nationwide provider of broadband
Internet access solutions. The Company operates two business segments: the
visitor-based and multi-family networks segment provides high-speed Internet
access and content solutions for hotels, apartment communities and other
public areas using its patented OverVoice solution and IPORT server software;
and the Internet services segment provides high-speed Internet access and
content 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 3) and changed its name from CGX
Communications, Inc. to CAIS Internet, Inc. The Company's headquarters are in
Washington, D.C.
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.
Risks and Other Important Factors
The Company has devoted substantial resources to the buildout of its
networks and the expansion of its marketing programs. As a result, the Company
has experienced operating losses and negative cash flows. These operating
losses and negative cash flows are expected to continue for additional periods
in the future. There can be no assurance that the Company will become
profitable or generate positive cash flows.
As of December 31, 1999, the Company had cash and cash equivalents, and
short-term investments of approximately $33.6 million. In February 2000, the
Company issued $73.9 million of convertible preferred stock pursuant to a
December 1999 stock purchase agreement for net proceeds of approximately $67.7
million (see Note 10). In May 2000, the Company expects to issue an additional
$26.1 million of convertible preferred stock pursuant to the same stock
purchase agreement for net proceeds of $25.0 million, upon receiving
stockholder approval for such issuances. The Company expects that it will seek
additional financing to meet its planned capital expenditures over the next
year. If such sources of financing are insufficient or unavailable, or if the
Company experiences shortfalls in anticipated revenues or increases in
anticipated expenses, the Company would curtail the planned roll-out of its
services and reduce marketing and research and development activities.
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
and rapid technological change. The Company's future plans are substantially
dependent on the
37
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
successful roll-out of its visitor-based and multi-family networks. Net
revenues generated from visitor-based and multi-family networks were
approximately $3,417,000 for the year ended December 31, 1999. There can be no
assurance that the Company will be successful in its roll-out of services 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:
Consolidated Financial Statements
The consolidated statements include the results of the Company and its
wholly-owned subsidiaries. These results include CAIS, Inc. for all periods
presented, and CAIS Software Solutions ("CAISSoft") formerly known as Atcom,
Inc. ("Atcom") and Business Anywhere USA, Inc. ("Business Anywhere") for the
period from their respective acquisition dates in September, 1999 through
December 31, 1999. All significant inter-company transactions and accounts
have been eliminated.
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 3). 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.
Revenue Recognition
The Company records revenues for all services when the services are provided
to customers. Amounts for services billed in advance of the service period and
cash received in advance of revenues earned are recorded as unearned revenues
and recognized as revenue when earned. Upfront charges in connection with
service contracts are recognized ratably over the contract period. 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 pay for the related
installation fees. Revenues from equipment sales are recorded when delivery of
the related equipment is accepted by the customer. Dial-up access customers
typically subscribe to service on a monthly or annual basis.
Cost of revenues
Cost of revenues include recurring expenses for the long haul bandwidth
lease and local interconnection charges from national and local fiber
providers. It also includes wholesale DSL resale charges, equipment costs and
amortization of DSL install and equipment charges incurred in connection with
term contracts.
Research and Development costs
Research and development costs include internal research and development
activities and external product development agreements. Research and
development costs are expensed as incurred, and were approximately $221,000,
$223,000 and $1,593,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
38
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Non-cash compensation
The Company accounts for its stock option plan under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company has adopted SFAS No.
123, "Accounting for Stock-Based Compensation," for disclosure purposes. The
Company has recognized non-cash compensation expense on certain stock options
granted to management (see Note 10).
Fair Value of Financial Instruments
The carrying amounts for current assets and liabilities, other than the
current portion of notes payable to related parties, approximate their fair
value due to their short maturities. The fair value of notes payable to
related parties cannot be reasonably and practicably estimated due to the
unique nature of the related underlying transactions and terms (see Note 9).
However, given the terms and conditions of these instruments, if these
financial instruments were with unrelated parties, interest rates and payment
terms could be substantially different than the currently stated rates and
terms.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all short-term investments with original maturities of
90 days or less to be cash equivalents. Cash equivalents consist primarily of
commercial paper and money market accounts that are available on demand.
Short-term investments consist of investment-grade commercial paper with
original maturities greater than 90 days. The carrying amounts of cash and
cash equivalents and short-term investments in the accompanying consolidated
balance sheets approximates fair value.
Long-lived assets
Long-lived assets and identifiable assets to be held and used are reviewed
for impairment whenever events or changes in circumstances indicated that the
carrying amount should be addressed. Impairment is measured by comparing the
carrying value to the estimated undiscounted future cash flows expected to
result from the use of the assets and their eventual dispositions. The Company
considers expected cash flows and estimated future operating results, trends,
and other available information in assessing whether the carrying value of the
assets is impaired. The Company believes that no such impairment existed as of
December 31, 1998 and 1999.
The Company's estimates of anticipated net revenues, the remaining estimated
lives of tangible and intangible assets, or both, could be reduced
significantly in the future due to changes in technology, regulation,
available financing, or intense competition. As a result, the carrying amount
of long-lived assets could be reduced materially in the future.
Property and Equipment
Property and equipment is stated at historical cost net of accumulated
depreciation and amortization. Depreciation is provided using the straight-
line method over the estimated useful lives of the assets ranging from three
to five years, or for leasehold improvements, the life of the lease, if
shorter. Costs of additions and improvements are capitalized and repairs and
maintenance are charged to expense as incurred. Upon sale or retirement of
property and equipment, the costs and related accumulated depreciation are
eliminated from the accompanying consolidated balance sheets, and any
resulting gain or loss is reflected in the accompanying consolidated
statements of operations.
Income Taxes
Until the Company's reorganization in October 1998, the federal income tax
obligations of CAIS and Cleartel were passed through to their respective
subchapter S shareholders and partners. Cleartel was subject to state
unincorporated business franchise taxes on any profits in the District of
Columbia.
39
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company accounts for federal, state and local income taxes in accordance
with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred
tax assets and liabilities are computed based on the difference between the
financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. SFAS No. 109 requires that a net deferred tax asset
be reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the net
deferred tax asset will not be realized.
Net Loss Per Share
SFAS No. 128, "Earnings Per Share," requires dual presentation of basic and
diluted earnings per share on the face of the statements of operations. Basic
earnings per share excludes dilution and is computed by dividing income or
loss available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity.
Options to purchase approximately 2,034,000, 2,946,000 and 5,736,000 shares
of common stock in 1997, 1998 and 1999, respectively and warrants to purchase
approximately 390,000 and 1,715,000 shares of common stock in 1998 and 1999,
respectively, were excluded from the computation of diluted loss per share.
Additionally, Series C preferred shares equivalent conversion to 1,250,000
shares of common stock as of December 31, 1999 were excluded from the
computation of diluted loss per share in 1999. The options, warrants and
preferred shares have been excluded from the computation of diluted loss per
share as their inclusion would have an anti-dilutive effect on loss per share.
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 years ended December 31, 1997, 1998 and 1999.
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 significant
impact on its financial statements to date.
Excess of Cost over Net Assets Acquired (Goodwill)
Goodwill and other intangibles were recorded as a result of the acquisitions
by the Company of Capital Area Internet Service, Inc. ("Capital Area") in May
1996, and of Atcom and Business Anywhere in September
40
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999. Goodwill and acquired intangibles are amortized on a straight-line basis
over three years. Amortization of goodwill and intangibles was approximately
$821,000 for both of the years ended December 31, 1997 and 1998, and
$5,133,000 for the year ended December 31, 1999. Goodwill with respect to the
Capital Area acquisition was fully amortized in May 1999.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. For trade
accounts receivable, the risk is limited due to the large number of customers,
the dispersion of those customers across many industries and geographic
regions, and the ability to terminate access on delinquent accounts.
Visitor-based and Multi-family Network Contract Rights
The Company made up-front contract payments to certain contract partners in
connection with entering into long-term master agreements for visitor-based
and multi-family networks in 1999. These contracts give the Company various
installation and marketing rights to provide high-speed Internet services to
customers in hotels and apartment buildings. The net total balance of these
contract rights was approximately $11,153,000 as of December 31, 1999 and is
included in intangible assets in the accompanying consolidated balance sheets.
The contract rights are amortized over the term of the agreements, ranging
from five to seven years. Amortization expense for the year ended December 31,
1999 was approximately $642,000.
Supplemental Cash Flow Information
The following represents supplemental cash flow information for the years
ended December 31, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
Cash paid for interest expense of continuing operations... $246 $412 $1,221
==== ==== ======
Cash paid for interest expense of discontinued
operations............................................... $870 $791 $ 31
==== ==== ======
Equipment acquired under capital leases of continuing
operations............................................... $-- $-- $ 312
==== ==== ======
Equipment acquired under capital leases of discontinued
operations............................................... $-- $228 $ --
==== ==== ======
</TABLE>
41
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Spin-off/Discontinued Operations:
On February 12, 1999, the Company completed a spin-off of Cleartel, its
operator and long-distance services subsidiary, pursuant to which ownership of
Cleartel was transferred to the Company's stockholders. The Company
distributed all of the shares of common stock to its stockholders on a pro
rata basis, and the holders of options to acquire the Company's stock and
warrants were granted stapled rights to acquire shares in Cleartel. For
financial reporting purposes, the Company has presented the results of
operations for Cleartel as discontinued operations. A summary of the statement
of the assets and liabilities of discontinued operations are as follows (in
thousands):
<TABLE>
<CAPTION>
Date of Spin-Off
December 31, 1998 February 12, 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Balance Sheets
Cash....................................... $ 21 $ 1
Accounts receivable, net of allowance for
doubtful accounts of $1,450 and $1,395,
respectively.............................. 2,224 2,129
Notes receivable, current.................. 530 437
Advances receivable from CAIS.............. 5,342 4,941
Prepaid expenses and other assets.......... 53 59
------- ------
Total current assets..................... 8,170 7,567
Property and equipment, net of accumulated
depreciation of $3,142 and $3,201,
respectively.............................. 1,305 1,260
Notes receivable, net of current portion... 607 632
Other noncurrent assets.................... 24 27
------- ------
Total assets............................. $10,106 $9,486
======= ======
Accounts payable and accrued liabilities... $ 5,410 $4,827
Borrowings under receivable-based
financing................................. 2,714 3,027
Current portion of capital leases.......... 81 77
------- ------
Total current liabilities................ 8,205 7,931
Notes payable to related party............. 2,100 1,450
Accrued interest to related party.......... 411 --
Capital leases, net of current portion..... 69 62
Other liabilities.......................... 21 --
------- ------
Total liabilities........................ 10,806 9,443
------- ------
Owners' (deficit) equity................... (700) 43
------- ------
Total liabilities and owners' (deficit)
equity.................................. $10,106 $9,486
======= ======
Statement of Changes in Owners' (Deficit)
Equity
Beginning owners' deficit, December 31,
1998...................................... $ (700)
Conversion of related party debt to
equity.................................... 1,083
Net loss................................... (340)
------
Ending owners' equity, February 12, 1999... $ 43
======
</TABLE>
42
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of results for the discontinued operations are as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statements of Operations:
Net revenues................................... $ 33,959 $ 27,424 $ 2,340
Operating expenses:
Cost of revenues............................. 19,319 17,880 1,748
Selling, general, and administrative......... 11,158 8,996 796
Depreciation and amortization................ 668 519 58
-------- -------- -------
Total operating expenses................... 31,145 27,395 2,602
-------- -------- -------
Income (loss) from operations.................. 2,814 29 (262)
Interest expense, net.......................... 783 734 78
-------- -------- -------
Income (loss) before taxes..................... 2,031 (705) (340)
(Provision) benefit for state taxes............ (108) 34 --
-------- -------- -------
Net income (loss).............................. $ 1,923 $ (671) $ (340)
======== ======== =======
</TABLE>
The results above for the year ended December 31, 1999 reflect the
operations of Cleartel through February 12, 1999, the effective date of the
spin-off.
Income (loss) related to discontinued operations reflect those revenues and
expenses directly incurred by Cleartel and allocations of shared corporate
costs based primarily on methodologies established by management between the
Company and Cleartel to reflect the cost sharing agreement between both
companies.
Through the date of the spin-off of Cleartel in February 1999, 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 years ended December 31, 1997, 1998 and 1999, the Company and
Cleartel shared certain support services such as bookkeeping, information
systems, and advertising and marketing support. After the spin-off of Cleartel
in February 1999, the Company provided these services at cost plus a fixed
percentage until Cleartel replaced those services 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, unaudited):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Bookkeeping, MIS, advertising, and marketing
support....................................... $ 302 $ 227 $ 141
Office lease................................... $ 161 $ 164 $ 40
</TABLE>
4. Acquisitions
In September 1999, the Company acquired the outstanding shares of Atcom
(which it renamed CAIS Software Solutions) for a purchase price of
approximately $42,565,000 including direct aquisition costs of $1,578,000. The
Company issued approximately 2,493,000 shares of common stock valued at $12.38
per share, and options to acquire approximately 842,000 shares of common stock
valued at approximately $10,131,000 based on the Black-Scholes valuation
model. The acquisition was accounted for under the purchase method of
43
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounting for business combinations, and accordingly, the operating results
of CAIS Software Solutions have been included in the Company's consolidated
financial statements from the date of acquisition. The purchase price was
allocated as follows: tangible assets, principally cash, accounts receivable
and property and equipment of approximately $3,163,000; assumed liabilities of
approximately $2,481,000; and intangible assets including intellectual
property of approximately $6,344,000, management resources of approximately
$4,493,000, contracts of approximately $7,036,000 and goodwill of
approximately $24,010,000. The intangible assets including goodwill are being
amortized over three years.
In September 1999, the Company acquired Business Anywhere for a purchase
price of approximately $200,000 in cash and $1,500,000 in the Company's common
stock. The Company issued approximately 122,000 shares of common stock valued
at $12.33 per share. The Company will issue $1,000,000 in additional common
stock at each of the first and second annual anniversaries of the transaction
based upon the fair market value of the stock at that time, provided Business
Anywhere meets certain revenue targets. The Company also incurred
approximately $94,000 for direct acquisition costs. The acquisition was
accounted for under the purchase method of accounting for business
combinations, and accordingly, the operating results of Business Anywhere have
been included in the Company's consolidated financial statements from the date
of acquisition. The purchase price was allocated as follows: tangible assets,
principally cash, accounts receivable and property and equipment of
approximately $658,000; assumed liabilities of approximately $687,000; and
intangible assets including contracts of approximately $1,762,000 and goodwill
of approximately $61,000. The intangible assets including goodwill are being
amortized over three years.
The following pro forma results give effect to the foregoing acquisitions as
if such transactions had been consummated on January 1 of each of the periods
presented (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Net revenues............................................ $ 7,479 $ 12,578
Net loss................................................ $(30,173) $(66,094)
Basic and diluted loss per share........................ $ (2.42) $ (3.53)
</TABLE>
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ -------
<S> <C> <C>
Accounts payable............................................. $3,412 $34,058
Accrued salaries and vacation................................ 186 2,487
Accrued legal settlement..................................... 500 --
Accrued equipment financing fees............................. -- 1,014
Accrued Qwest Indefeasible Right of Use...................... -- 14,521
Other........................................................ 298 1,699
------ -------
$4,396 $53,779
====== =======
</TABLE>
44
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Property and Equipment:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Internet backbone equipment............................... $1,287 $14,841
Hospitality and multi-family equipment and installation
costs.................................................... 802 25,138
Computer hardware and software............................ 384 5,338
Office furniture and fixtures............................. 747 1,877
Leasehold improvements.................................... 207 1,666
Qwest Indefeasible Right of Use........................... -- 44,042
------ -------
3,427 92,902
Less: Accumulated depreciation and amortization........... (789) (2,426)
------ -------
$2,638 $90,476
====== =======
</TABLE>
7. Financing and Debt:
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 warrants have an exercise price of $0.01 per
share and expire on the tenth anniversary after issuance, or September 4,
2008. The warrants fully vested upon closing of the Loan and include certain
anti-dilution provisions. The fair value of the warrants, totaling
approximately $1,226,000, or $3.14 per share, is classified as a component of
additional paid-in capital as of December 31, 1998. The warrants were valued
using a Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 4.55 percent, no dividend yield, expected life of
10 years and expected volatility of 70 percent.
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 $7 million loan was repaid in full from net proceeds from the
IPO. 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.
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, and several amendments. As of December 31, 1999, the Company had
borrowed approximately $2.7 million under this credit facility. Borrowings
outstanding as of December 31, 1999 incur interest expense at rates ranging
from 10.3 to 10.9 percent. The facility requires the Company to meet certain
financial covenants including revenue targets and leverage and debt service
ratios. In addition, on April 1, 1999, the Company and Nortel Networks entered
into an agreement 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 remaining commitment as of December 31, 1999 was $5.3 million for
the initial April 1, 2000 deadline.
45
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, and
several amendments. Under the facility, $50 million is available during the
first two years 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 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
December 31, 1999, the Company had not borrowed under this credit facility.
The Company obtained a waiver from Cisco for financial covenant violations as
of December 31, 1999. Subsequent to year-end, the Company and Cisco amended
the financial covenants of this agreement for the remainder of the term of
this facility.
Deferred debt financing costs represent direct financing costs incurred in
connection with entering into the equipment financing agreements. The Company
accrued debt financing costs of approximately $1.3 million as of December 31,
1999 in connection with completing the Nortel and Cisco lines of credit. The
deferred debt financing costs are being amortized over the terms of the
equipment financing agreements and are included in interest expense. The
amortization was approximately $95,000 for the year ended December 31, 1999.
8. Bank Loan and Interest Rate Swap:
In connection with the acquisition of Capital Area on May 10, 1996, the
Company obtained a $2,000,000 loan from a bank (the "Bank Loan"). Interest on
the Bank Loan accrued at a rate of prime plus one and one-half percent (9.75
percent at that date), with payments on a five-year amortization schedule and
a maturity date of May 10, 1999. The Bank Loan was guaranteed by one of the
principal stockholders of the Company and was secured by investments from
another principal stockholder of the Company.
On October 17, 1996, CAIS entered into an interest rate swap transaction
with the bank, and refinanced the remaining principal balance of approximately
$1,833,000 at that time into a new promissory note. Interest on the refinanced
note was based on the LIBOR rate, plus 2 percent. The bank also entered into a
hedging transaction to control fluctuation in the LIBOR rate, which had the
effect of converting the variable interest rate on the Bank Loan into a fixed
rate of 8.65 percent as of December 31, 1996.
On December 5, 1997, CAIS again refinanced the Bank Loan to increase the
principal balance outstanding at that time of $1,400,000 to the original
$2,000,000, thus netting CAIS $600,000 in cash proceeds. In addition, the
maturity date of the refinanced Bank Loan and the swap agreement was extended
to December 10, 2000.
On September 4, 1998, the entire Bank Loan principal and interest and
interest rate swap totaling $1,782,000 was paid off with proceeds from the
Loan (see Note 7). The amount of interest expense incurred related to the Bank
Loan was $137,000 and $151,000 for the years ended December 31, 1997 and 1998,
respectively.
9. Transactions with Related Parties:
Notes Payable to Related Parties
Notes payable to related parties of $1,515,000 and $1,983,000 as of December
31, 1997 and 1998, respectively, consist of notes payable to stockholders with
interest accruing at annual rates of 10 to 13 percent. In February 1999,
related party notes totaling $4,433,000, including the $1,983,000 outstanding
as of December 31, 1998, the $1,450,000 assumed from Cleartel, and the
$1,000,000 borrowed in 1999, were converted into Series B Cumulative Mandatory
Redeemable Convertible Preferred Stock (see Note 10).
46
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Interest expense of approximately $131,000, $128,000 and $14,000 was
incurred during the years ended December 31, 1997, 1998 and 1999,
respectively, related to related party loans.
In January 1999, a principal stockholder lent $1,000,000 to the Company
under a note which accrued interest quarterly at 10 percent with principal due
on the earlier of thirty days after the closing date of the IPO or March 31,
2000. As described above, the note was converted into Series A cumulative
mandatory redeemable convertible preferred stock in February 1999.
Related Party Leases
During the years ended December 31, 1997 and 1998 and the first two months
of 1999, the Company leased a building in Washington D.C. for their corporate
headquarters from a stockholder. Rent expense of $180,000 was incurred for
this lease for each of the years ended December 31, 1997 and 1998, and $23,000
for the year ended December 31, 1999.
Receivable from Officers
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 percent per annum, with the
interest payable quarterly, and the principal amount due three years from the
date of the loan. In December 1999, the Company advanced a $50,000 unsecured
loan to one of its executives. The loan bears interest at a rate of 7 percent
per annum, with the interest payable quarterly, and the principal amount due
three years from the date of the loan.
Treasury Stock
The Company purchased approximately 13,000 shares of its common stock at
fair market value from a former shareholder of Atcom and current officer of
the Company. The shares are currently being held by the Company.
10. Stockholders' (Deficit) Equity:
Common Stock
On April 22, 1998, an individual invested $1,000,000 in the Company in
exchange for approximately 317,000 shares of common stock. Since the Company
had not yet been reorganized, the investor received a 2.439 percent equity
interest in CAIS and Cleartel, subject to any future corporate restructurings.
In February 1999, the Company increased its authorized common stock from
25,000,000 to 100,000,000 shares of common stock.
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.
47
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Convertible Preferred Stock and Warrants
In February 1999, the Company authorized the issuance of up to 25,000,000
shares of preferred stock, par value $0.01 per share. Of these authorized
shares, 2,827,168 shares have been designated as Series A Convertible
Preferred Stock, par value $0.01 per share (the "Series A Shares") and
1,119,679 shares have been designated as Series B Cumulative Mandatory
Redeemable Convertible Preferred Stock, par value $0.01 per share (the "Series
B Shares").
In February 1999, after the Spin-off, the Company issued 2,827,168 Series A
Shares to an entity controlled by a director of the Company and to a related
party to the investment banking firm that provided the Loan to the Company for
total gross proceeds of $11,500,000, of which $1,500,000 was used to pay
amounts due to Cleartel. The shares automatically converted into common stock
upon the IPO. The Series A Shares were entitled to a liquidation preference
equal to $11,500,000, plus a return of 8 percent per annum thereon, and all
accrued but unpaid dividends thereon. The Company also issued to the
purchasers of the Series A Shares, warrants to purchase a number of shares of
common stock equal to 3.0% of the total number of shares outstanding on a
fully diluted basis at the close of the IPO. The warrants have an exercise
price of $19.00 per share of common stock at the IPO, and vested upon the IPO.
The warrants expire in May 2004. The warrants were valued at $8,157,000 using
the Black-Scholes option pricing model.
In February 1999, after the Spin-off, the Company issued 1,119,679 Series B
Shares to stockholders of the Company, in exchange for indebtedness, including
accrued interest, totaling $4,557,000 payable by the Company to the
stockholders. Upon consummation of the IPO, the Company redeemed for cash
$3,000,000 of the face amount of the Series B Shares, plus accrued dividends
of $104,000, and converted the remaining Series B shares into 81,946 shares of
common stock.
On April 23, 1999, in connection with an amendment to the Company's master
agreement with a hotel 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 the Company's services. 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 valuation model. The
fair value of the warrants has been recorded as an intangible asset and is
being 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 September 1999, the Company issued 125,000 shares of Series C Cumulative
Mandatory Redeemable Convertible Preferred Stock (the "Series C Preferred
Stock") and warrants to acquire 500,000 shares of the Company's common stock
at $12.00 per share to Qwest Communications Corporation ("Qwest") for total
gross proceeds of $15,000,000. The Series C Preferred Stock ranks prior to the
Company's common stock with respect to dividends and rights upon liquidation,
dissolution, or winding up of the Company. Each holder of Series C Preferred
Stock is entitled: (i) to receive, when, as and if declared by the Company's
Board of Directors, cumulative dividends of $10.20 per annum per share; (ii)
to a liquidation preference equal to the sum of $120.00 per share, plus any
accrued but unpaid dividends; (iii) to the number of votes equal to the number
of whole shares of Common Stock into which all of the shares of Series C
Preferred Stock held by such holder are
48
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
convertible; and (iv) to certain demand and piggyback registration rights.
Subject to certain limitations, each share of Series C Preferred Stock is
convertible, at the option of the holder, into such number of fully paid and
nonassessable shares of common stock at the ratio of ten common shares for
each share of Series C Preferred Stock. The Company shall redeem (i) up to
41,667 shares of the Series C Preferred Stock by September 2001; and (ii) the
remaining shares of the Series C Preferred Stock by September 2002.
Approximately $3.9 million of the proceeds received were allocated to the
value of the warrants to acquire 500,000 shares of the Company's common stock
at $12.00 per share. The warrants have been valued at their estimated fair
value of $7.70 per share based on the Black-Scholes valuation model. The
warrants expire on October 28, 2002.
As the Series C Preferred Stock is immediately convertible into common
stock, the discount on the preferred stock (as a result of the allocation of
proceeds to the warrants) was fully accreted on the date of issuance and is
reflected as a dividend on preferred stock in the accompanying financial
statements.
On December 20, 1999, the Company entered into a Preferred Stock Purchase
Agreement ("Purchase Agreement") between CII Ventures LLC, an affiliate of the
private investment firm Kohlberg Kravis Roberts & Co. (KKR). Under the
Purchase Agreement, KKR, through its affiliate, will make a strategic
investment of up to $200 million in the Company. Under a), CII Ventures will
purchase $100 million of the Company's Series D convertible participating
preferred stock ("Series D Shares"). The Series D Shares will be convertible
into common stock of the Company, with an initial conversion price of $16.50
per share, subject to adjustment. The Purchase Agreement also includes a one-
year option for CII Ventures to purchase up to an additional $100 million of
Series E convertible participating preferred stock ("Series E Shares"). The
Series E Shares are convertible into the Company's common stock, with a
conversion price of $20.00 per share, subject to adjustment. The holders of
the Series D and Series E Shares will be entitled to receive dividends,
payable in additional shares, at a rate of 6 percent per annum compounded
quarterly.
Under the executed Stockholders Agreement, KKR has certain rights to board
representation, stock registration and must consent with respect to certain
corporate actions by the Company, including share issuances and mergers and
other business combinations, subject to certain exceptions.
Executive Stock Options
During 1997, the Company issued stock options to two members of executive
management as part of their four-year employment contracts. Since the Company
had not yet been reorganized at the time of the grants, the executives
received options to purchase equal interests in CAIS, Inc. and Cleartel. In
February 1997, one of the members of executive management received options to
acquire approximately 301,000 shares of common stock at an exercise price of
$1.19 per share. One-third of these options vested at May 20, 1999 on the date
of the IPO, while the remaining two-thirds vest at the end of year four of the
employment contract. In September 1997, another member of executive management
received options to acquire approximately 1,733,000 shares of common stock at
an exercise price of $0.97 per share. Approximately 97,000 options fully
vested on April 1, 1999. Of the remaining 1,636,000 options, 75 percent vested
at May 20, 1999 on the date of the IPO, while the remaining 25 percent vest at
the end of employment year four.
As a result of these grants and several other executive management grants,
the Company recorded deferred compensation of approximately $9,607,000 to be
amortized over the vesting period relating to these options. The amount of
deferred compensation was based upon the difference between the estimated fair
market value of the Company at the date of the grants and the applicable
exercise prices. Accordingly, the Company amortized $616,000, $1,426,000 and
$4,892,000 for the years ended December 31, 1997, 1998, and 1999,
respectively, in the consolidated statements of operations.
49
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employee Stock Option Plan
On March 24, 1998, the Company's stockholders approved the 1998 Equity
Incentive Plan (the "Stock Option Plan"). In February 1999, the Stock Option
Plan was amended and currently provides for the grant of both incentive and
nonstatutory stock options to eligible employees and consultants of the
Company. The Stock Option Plan initially reserved 1,500,000 shares of common
stock for issuance; in November 1999, the number of reserved shares was
increased to 5,000,000. Options granted under the Stock Option Plan must have
an exercise price of no less than fair market value of the Company's common
stock at the date of grant and expire ten years after grant date. As of
December 31, 1998 and 1999, approximately 912,000 and 2,689,000 shares,
respectively, were outstanding under the Stock Option Plan. The stock options
outstanding under the Stock Option Plan generally vest over three to four year
periods.
A summary of the Company's aggregate stock option activity and related
information under the Stock Option Plan and the Executive Stock Options is as
follows (in thousands, except per share prices):
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1998 1999
----------------- ----------------- -----------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period.... 2,034 $1.00 2,034 $1.00 2,946 $1.00
Granted................. -- -- 960 3.13 3,200 8.24
Exercised............... -- -- -- -- 185 2.17
Forfeited............... -- -- 48 3.07 225 3.40
----- ----- ----- ----- ----- -----
Options outstanding at
end of period.......... 2,034 $1.00 2,946 $1.66 5,736 $5.35
===== ===== ===== ===== ===== =====
Options exercisable at
end of period.......... -- $ -- -- $ -- 2,397 $1.65
===== ===== ===== ===== ===== =====
</TABLE>
50
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Exercise prices for options outstanding under the Stock Option Plan and for
the Executive Stock Options as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Number of Options Weighted- Weighted-
Outstanding Average Remaining Average Exercise
Range of Exercise Prices (in thousands) Contractual Life in Years Price
- ------------------------ ----------------- ------------------------- ----------------
<S> <C> <C> <C>
$0.36--$0.91............ 490 7.19 $0.68
$0.97--$0.97............ 1,733 7.69 0.97
$0.99--$1.69............ 529 8.17 1.40
$3.07--$3.07............ 653 8.29 3.07
$4.31--$4.31............ 623 9.15 4.31
$11.50--$12.19.......... 825 9.53 11.95
$13.06--$13.50.......... 280 9.85 13.42
$13.87--$13.88.......... 45 9.91 13.88
$14.19--$14.19.......... 110 9.68 14.19
$16.50--$16.50.......... 448 9.96 16.50
----- ---- -----
$0.36--$16.50........... 5,736 8.52 $5.35
===== ==== =====
</TABLE>
The Company has elected to account for stock and stock rights in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and has
adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-
Based Compensation."
Had compensation cost for the Company's employee stock options been
determined based on fair value at the grant date, consistent with the
provisions of SFAS No. 123, the Company's net loss from continuing operations
and loss per share from continuing operations would have been (in thousands,
except per share data):
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- ---------
<S> <C> <C> <C>
Loss from continuing operations pro forma..... $(5,298) $(12,814) $(54,439)
Basic and diluted loss per share from
continuing operations pro forma.............. $ (0.55) $ (1.30) $ (3.21)
</TABLE>
The fair value of options granted in the years ended December 31, 1997, 1998
and 1999 were estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions: risk-free
interest rates of 5.68, 4.55 and 5.59, percent, respectively, no dividend
yield, weighted-average expected lives of the options ranging from 3 to 4
years, and expected volatility of 70 percent for 1997 and 1998 grants, and 88
percent for 1999 grants.
The weighted-average fair value of options granted during the year ended
December 31, 1997, 1998 and 1999 was $2.64, $1.75 and $3.69, respectively. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the estimated service period. The options granted in
1997 were granted below fair market value, while options granted in 1998 and
most of those granted in 1999 were granted at fair market value.
11. Income Taxes:
Until the Company's Reorganization in October 1998, all earnings and losses
were passed through to the individual equity holders. At December 31, 1999,
the Company had net operating loss carryforwards of approximately $41,267,000
for income tax purposes that expire through 2019. Net operating loss
carryforwards are subject to review and possible adjustment by the Internal
Revenue Service and may be limited in the event of changes in ownership
pursuant to Section 382 of the Internal Revenue Code.
51
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's net deferred tax asset as of
December 31, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $1,582 $16,507
Unearned stock compensation.................................... 817 2,774
Allowance for doubtful accounts................................ 635 106
Book over tax goodwill......................................... 190 702
Accrued vacation............................................... 56 178
Other deferred tax assets...................................... 154 54
------ -------
Total deferred tax assets.................................... 3,434 20,321
Deferred tax liabilities:
Basis differences attributable to purchase accounting -- (11,628)
Tax over book depreciation..................................... (84) (975)
------ -------
Net deferred tax asset......................................... 3,350 7,718
Valuation allowance for net deferred tax assets................ (3,350) (7,718)
------ -------
$ -- $ --
====== =======
</TABLE>
The Company has determined that the net deferred tax assets as of December
31, 1998 and 1999 do not satisfy the recognition criteria set forth in SFAS
No. 109. Accordingly, a valuation allowance was recorded against the
applicable net deferred tax assets.
12. Commitments and Contingencies:
Leases
The Company leases office space under noncancellable operating leases, one
of which was from a related party (see Note 9). The Company entered into a new
lease in 1999 for office space for its corporate headquarters. The lease term
commenced in February 1999 for a period of ten years. The initial base annual
rent is approximately $861,000 per year with annual rent escalations of 2
percent each year thereafter. The Company recognizes rental expense on a
straight-line basis over the lease term based on the total lease commitment,
including escalations. Other long-term liabilities as of December 31, 1999
primarily reflect the value of leasehold improvements in the Washington, DC
location paid for by the landlord.
The new building is approximately 45% owned by one of the principal
stockholders of the Company and his wife. The Company believes that the terms
of the lease, including the rental rate, are at least as favorable to the
Company as those which could have been negotiated with an unaffiliated third
party.
In October 1999, the Company entered into a ten year lease for 14,500 square
feet in Arlington, Virginia for its sales and customer support staff. This
lease was amended to 52,000 square feet in early 2000.
The Company's subsidiaries, CAISSoft and Business Anywhere, which were
acquired in September 1999, are currently leasing office space to house their
operations. CAISSoft leases approximately 24,000 square feet of office space
in San Diego, California, while Business Anywhere leases approximately 5,000
square feet in Irvine, California.
52
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Total rental expense for operating leases, including related party rent, was
approximately $300,000, $329,000 and $1,434,000 for the years ended December
31, 1997, 1998 and 1999, respectively.
Minimum future lease payments at December 31, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
2000............................................................... $ 3,387
2001............................................................... 3,689
2002............................................................... 3,500
2003............................................................... 3,196
2004 and thereafter................................................ 15,089
-------
$28,861
=======
</TABLE>
Capital Lease
The Company leases certain office equipment under a noncancelable capital
lease entered into during 1999. Equipment capitalized under the lease as of
December 31, 1999 was approximately $500,000. Future minimum payments for the
capital lease as of December 31, 1999 were approximately $324,000 for the year
ending December 31, 2000, including interest of approximately $12,000.
License and Royalty Agreement
In November 1996, the Company and the corporate inventor of OverVoice (the
"Corporate Inventor") entered into a license agreement that provided the
Company with an option to acquire an exclusive license to use, make, sub-
license or sell the OverVoice technology, subject only to certain geographical
and pre-existing contract limitations described in the license agreement. The
Company paid $50,000 for this option and an additional $50,000 when it
exercised its option to acquire the license in April 1997. Unless the Company
terminates the license agreement, it will remain in effect until the lapse of
the last patent existing at the time of the agreement or any additional
patents filed during the term. Following the exercise of the option, the
Company agreed to expend up to $200,000 for research and development efforts
to design and build a system that incorporated the patented technology, and to
hire the individual inventor of OverVoice ("Individual Inventor") for a two
year consulting contract.
The license agreement calls for royalties to be paid to the Corporate
Inventor equal to a variable percentage of net revenues, depending both upon
the specific type of service provided and the total annual revenue from all
services. The royalty percentage for services in which the Company is an
active participant either by selling proprietary equipment or by selling
Internet services ranges up to 5.5%. In cases where the Company is an inactive
participant and merely sub-licenses its rights, the Corporate Inventor
receives a royalty percentage that ranges from 40-70%. Management plans to
remain an active participant in all or substantially all OverVoice activities
at this time.
The Company had minimum annual royalty obligations to the Corporate Inventor
of $150,000 for 1999 and increasing to a maximum of $250,000 per year during
the term of the agreement, unless the license agreement is terminated at the
Company's option.
In August 1997, the Corporate Inventor and the Company signed an amendment
that states that the Company would advance funds for approved expenses related
to patent applications. As of December 31, 1997, 1998 and 1999, respectively,
the Company has recorded notes receivables for patent fund advances totaling
$38,000, $82,000 and $120,000, respectively. These notes receivable balances
have been partially reserved in the accompanying consolidated balance sheets,
due to the minimum royalty obligations.
53
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In a January 1999 amendment, the Company and the Corporate Inventor agreed
to transfer 50% of the patent ownership to the Company.
Litigation
The Company and the Corporate Inventor were named as defendants in a federal
civil action filed in the Eastern District of New York in September 1998. The
plaintiff alleged patent infringement, unfair competition, breach of contract
and related claims. On January 24, 1999, the parties in this litigation signed
a Settlement Agreement (the "Settlement"). Under the terms of the Settlement,
the Company agreed to pay the plaintiff $500,000 as follows: $250,000 upon
dismissal of this action, $150,000 on or before July 1, 1999, and $100,000 on
or before July 1, 2000. The Company also issued the plaintiff 25,000 shares of
common stock. In exchange, the plaintiff also agreed to modify their exclusive
license agreement with the Corporate Inventor to a nonexclusive agreement. As
a result, the Company now has the right to install the OverVoice technology in
single family residences and food establishments. Along with the cash
settlement, the Company expensed the fair value of the 25,000 shares of common
stock issued in the accompanying statement of operations for the year ended
December 31, 1998.
On March 25, 1999, the Company filed a patent infringement lawsuit against
LodgeNet Entertainment Corp. ("LodgeNet") in Maryland U.S. District Court. The
complaint charged 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. On September 15, 1999 the Company and LodgeNet
entered into a settlement agreement, and on September 16, 1999 the Company
submitted a Stipulation of Dismissal of the lawsuit, under terms satisfactory
to the Company.
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.
Network Capacity
The Company and Qwest entered into a twenty-year Indefeasible Right of Use
("IRU") agreement, dated as of September 28, 1999. The Company purchased
approximately $44 million of capacity on Qwest's fiber network, of which
approximately $14.5 million is included in accrued expenses in the
accompanying consolidated balance sheets as of December 31, 1999. The Qwest
capacity will support the delivery of the Company's network services to 38
metropolitan areas across the United States. The Company also committed to
purchase $10 million of Qwest's communications services over five years. The
IRU agreement terminated the Company's $100 million commitment in the parties'
June 1998 Memorandum of Understanding.
13. Segment Reporting:
The Company has two reportable segments: visitor-based and multi-family
networks ("Networks") and Internet Services (see Note 1). Networks includes
operations related to the Company's provision of broadband Internet services
to hospitality and multi-family properties and also the Company's wholly-owned
subsidiaries, CAIS Software Solutions and Business Anywhere. Internet Services
includes the operations related to the Company's provision of its DSL
services, web hosting, dial up and traditional Internet connectivity
solutions. The accounting principles of the segments are the same as those
applied in the consolidated condensed financial statements. Since Networks is
a new segment, 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 Networks segment's performance is based on the
accumulation of revenues and specific costs identified to Networks operations.
54
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of information about each of the Company's
reportable segments that is used by the Company to measure the segment's
operations (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------
Internet
Services Networks Consolidated
-------- -------- ------------
<S> <C> <C> <C>
Revenues....................................... $ 4,556 $ -- $ 4,556
Depreciation and amortization.................. 1,117 -- 1,117
Interest income (expense), net................. (244) (44) (288)
Segment losses................................. (4,247) (778) (5,025)
Segment assets................................. 1,615 -- 1,615
Expenditures for segment assets................ 556 -- 556
<CAPTION>
Year Ended December 31, 1998
--------------------------------
Internet
Services Networks Consolidated
-------- -------- ------------
<S> <C> <C> <C>
Revenues....................................... $ 5,278 $ 37 $ 5,315
Depreciation and amortization.................. 1,263 7 1,270
Interest income (expense), net................. (778) (323) (1,101)
Segment losses................................. (8,667) (3,590) (12,257)
Segment assets................................. 2,404 882 3,286
Expenditures for segment assets................ 1,537 1,272 2,809
<CAPTION>
Year Ended December 31, 1999
--------------------------------
Internet
Services Networks Consolidated
-------- -------- ------------
<S> <C> <C> <C>
Revenues....................................... $ 7,367 $ 3,417 $ 10,784
Depreciation and amortization.................. 1,463 6,203 7,666
Interest income (expense), net................. 688 347 1,035
Segment losses................................. (34,844) (17,593) (52,437)
Segment assets................................. 66,208 79,788 145,996
Expenditures for segment assets................ 52,370 37,782 90,152
</TABLE>
Approximately $12,000 and $2,174,000 of Internet Service and Networks
revenues, respectively, for the year ended December 31, 1999 represent
equipment sales.
The following is a reconciliation of the reportable segments' losses and
assets to the Company's consolidated totals (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Losses
Total losses for reportable segments.............. $(5,025) $(12,257) $(52,437)
Income (loss) from discontinued operations........ 1,923 (671) (340)
Extraordinary item................................ -- -- (551)
------- -------- --------
Consolidated net loss............................. $(3,102) $(12,928) $(53,328)
======= ======== ========
</TABLE>
55
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
December 31,
----------------
1998 1999
------- --------
<S> <C> <C>
Assets
Total assets for reportable segments...................... $ 3,286 $145,996
Total current assets, excluding reportable segment
assets................................................... 8,493 39,006
Deferred financing and offering costs, net................ 529 1,499
Intangible assets and goodwill, net....................... 277 --
Receivable from officers.................................. -- 450
Noncurrent assets of discontinued operations.............. 1,936 --
------- --------
Consolidated total assets................................. $14,521 $186,951
======= ========
</TABLE>
Major Customer and Geographical Information
For the year ended December 31, 1999, a kiosk terminal customer in the U.S.
represented 13 percent and 14 percent of the Company's consolidated net
revenues and cost of revenues, respectively. Substantially all net revenues
were earned from customers in the United States.
14. Regulatory Matters
At the present time, ISPs like the Company are not subject to direct
regulation by the Federal Communications Commission ("FCC") even though they
provide Internet access through transmission over public telephone lines.
However, as the growth of the Internet industry continues, there has been
considerable discussion and debate about whether the industry should be
subjected to regulation. This regulation could include universal service
subsidies for local telephone services and enhanced communications systems for
schools, libraries and certain health care providers. Local telephone
companies could be allowed to charge ISPs for the use of their local telephone
network to originate calls, similar to charges currently assessed on long
distance telecommunications companies. In addition, many state and local
government officials have asserted the right or indicated a willingness to
impose taxes on Internet-related services and commerce, including sales, use
and excise taxes.
15. Subsequent Events
On January 26, 2000, the Company entered an agreement with Bass to provide
the Company's services to approximately 2,750 properties and 400,000 rooms.
The Company will pay contract rights to individual hotels at a rate of $25 per
room when a hotel contracts for service. Additionally, the Company will
contribute up to approximately $2.2 million in marketing and technology
development funds. The Company issued 63,000 warrants to Bass effective
February 1, 2000 with an exercise price of $40.01 per share.
On February 9, 2000, the Company announced that it had entered into an
agreement with Mid-America to provide the Company's services to approximately
35,000 apartment homes in 110 apartment communities. The Company paid Mid-
America approximately $778,000 for contract rights for installation and
marketing.
On March 15, 2000, CAIS Software Solutions, Inc., a wholly owned subsidiary
of the Company, entered into an agreement to purchase the contracts,
intellectual property, and certain other assets of QuickATM, LLC ("QuickATM")
for a purchase price of $500,000 in cash, and $1,250,000 in the Company's
common stock. The Company issued approximately 40,000 shares of common stock
valued at $31.10 per share.
56
<PAGE>
CAIS INTERNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On March 20, 2000, the Company also entered into an agreement with 3Com
Corporation ("3Com") for the issuance of 20,000 shares of Series G Preferred
Stock for total gross proceeds of $20 million. The Series G Shares are
initially convertible into approximately 556,000 shares of CAIS common stock.
The Company also agreed to purchase $10 million of 3Com equipment over the
next year. The closing of the agreement is subject to the negotiation of a
definitive commercial and marketing agreement and apporoval under the Hart-
Scott-Rodino Antitrust Improvement Act of 1976.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated by reference to our
Proxy Statement to be used in connection with our 2000 Annual Meeting of
Shareholders and to be filed with the Securities and Exchange Commission (the
"Commission") within 120 days after fiscal year end.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to our
Proxy Statement to be used in connection with our 2000 Annual Meeting of
Shareholders and to be filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to our
Proxy Statement to be used in connection with our 2000 Annual Meeting of
Shareholders and to be filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to our
Proxy Statement to be used in connection with our 2000 Annual Meeting of
Shareholders and to be filed with the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
57
<PAGE>
Report of Independent Public Accountants
To CAIS Internet, Inc. and subsidiaries
(formerly CGX Communications, Inc.):
We have audited, in accordance with generally accepted auditing standards in
the United States, the consolidated financial statements of CAIS Internet,
Inc. (a Delaware corporation, formerly CGX Communications, Inc.) and
subsidiaries included in this Form 10-K and have issued our report thereon
dated March 6, 2000 (except with respect to the matters discussed in Note 15
to the consolidated financial statements, which are indicated to have occurred
subsequent to March 6, 2000, as to which the date is March 20, 2000). Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
Vienna, Virginia
March 6, 2000
a. Documents filed as a part of this report.
1. Financial Statements
See Index to Financial Statements on page 30.
2. Financial Statement Schedules
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of
Description Year Expenses Deductions (a) Year
------------------------------- ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
1997.................... Allowance for doubtful accounts $137 $106 $ (64) $179
1998.................... Allowance for doubtful accounts 179 80 (122) 137
1999.................... Allowance for doubtful accounts 137 552 (440) 249
</TABLE>
(a) Represents amounts written off as uncollectible.
58
<PAGE>
3. Exhibits
See Index to Exhibits on page 61.
b. Reports on Form 8-K.
On September 17, 1999, the Company filed a Current Report on Form 8-K with
respect to the acquisition of Atcom on September 2, 1999. On November 12,
1999, the Company filed an amendment on Form 8-K/A for the purpose of
including financial statements and pro forma financial information with
respect to such acquisition.
On December 27, 1999, the Company filed a Current Report on Form 8-K which
included as an Exhibit the Company's press release dated December 21, 1999
announcing that it had signed a definitive agreement with an affiliate of
Kohlberg Kravis Roberts & Co. (KKR), a private investment firm in New York,
under which KKR, through its affiliate, will make a strategic investment of up
to $200 million in the Company.
On March 7, 2000, the Company filed a Current Report on Form 8-K which
included as an Exhibit the Company's press release dated February 28, 2000
announcing it had completed the sale of $73.9 million of Series D convertible
preferred stock to the KKR affiliate. An additional $26.1 million of Series D
convertible preferred stock will be sold upon receipt of shareholder approval
of the issuance of the shares.
59
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on its behalf by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
CAIS Internet, Inc.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Ulysses G. Auger, II Chairman of the Board and March 21, 2000
______________________________________ Chief Executive Officer
Ulysses G. Auger, II (Principal Executive
Officer)
/s/ Barton R. Groh Chief Financial Officer March 21, 2000
______________________________________ (Principal Financial and
Barton R. Groh Accounting Officer)
/s/ S. Theodore Ammon Director March 21, 2000
______________________________________
S. Theodore Ammon
/s/ Ulysses G. Auger, Sr. Director March 21, 2000
______________________________________
Ulysses G. Auger, Sr.
/s/ William M. Caldwell, IV Director March 21, 2000
______________________________________
William M. Caldwell, IV
/s/ Vernon Fotheringham Director March 21, 2000
______________________________________
Vernon Fotheringham
/s/ James H. Greene, Jr. Director March 21, 2000
______________________________________
James H. Greene, Jr.
/s/ Richard F. Levin Director March 21, 2000
______________________________________
Richard F. Levin
/s/ Alexander Navab, Jr. Director March 21, 2000
______________________________________
Alexander Navab, Jr.
</TABLE>
60
<PAGE>
CAIS INTERNET, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- -----------
<C> <S>
*2.1 Agreement of Merger among the Company, CAIS, Inc. and CGX2 Merger
Corp., dated October 2, 1998.
***2.2 Amended and Restated Agreement and Plan of Merger, dated as of August
4, 1999, by and among the Registrant, CIAM Corp., and Atcom, Inc.
***2.3 Amendment No. 1 to the Amended and Restated Agreement and Plan of
Merger, dated as of September 1, 1999, by and among the Registrant,
CIAM Corp., Atcom, Inc.
2.4 Agreement and Plan of Merger, dated as of September 7, 1999, by and
among the Company, Business Anywhere, USA, Inc., and CIBA Merger
Corporation., Kim Kao and Amy Hsiao
*3.2 Certificate of Incorporation: Restated Certificate of Incorporation
of the Company incorporated by reference to Exhibit 3.1 to the
Registration Statement.
*3.4 By-Laws: Amended and Restated By-Laws of the Company incorporated by
reference to Exhibit 3.2 to the Registration Statement.
*4.1 Specimen Common Stock Certificate.
*4.2 Warrant Agreement by and among CAIS Internet, Inc., CAIS, Inc.,
Cleartel Communications, Inc. and ING (U.S.) Capital Corporation,
Inc., dated September 4, 1998.
****4.3 Certificate of Designation of Series C Preferred Stock of CAIS
Internet, Inc.
*4.4 Common Stock Warrant, among CAIS Internet, Inc. and Chancery Lane,
L.P., dated February 19, 1999.
*4.5 Common Stock Warrant, among CAIS Internet, Inc. and CAIS-Sandler
Partners, L.P., dated February 19, 1999.
*4.6 Common Stock Warrant, among CAIS Internet, Inc. and Hilton Hotels
Corporation, dated April 22, 1999.
*4.7 Warrant Agreement, among CAIS Internet, Inc. and Hilton Hotels
Corporation, dated April 22, 1999.
****4.8 Common Stock Warrant, among CAIS Internet, Inc. and U.S. Telesource,
Inc., dated as of October 27, 1999
****4.9 Certified Certificate of Amendment of Certificate of Designation of
Series filed in Delaware.
4.10 Form of Certificate of Designation of Series D Preferred Stock of
CAIS Internet, Inc.
4.11 Form of Certificate of Designation of Series E Preferred Stock of
CAIS Internet, Inc.
4.12 Common Stock Warrant Agreement among CAIS Internet, Inc. and Bass
Hotels & Resorts, Inc. dated February 1, 2000.
p* 10.1 Agreement for Cooperative Use of Communication Patents, Purchase of
an Option to Obtain Intellectual Property Rights, among Inline
Connection Corporation and CAIS, Inc., dated November 5, 1996.
* 10.2 Letter Agreement Extending Option Period provided in the Agreement
for Cooperative Use of Communication Patents, among Inline Connection
Corporation and CAIS, Inc., dated February 28, 1997.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- -----------
<C> <S>
* 10.3 Letter Exercising Option Pursuant to Agreement for Cooperative Use of
Communication Patents, among Inline Connection Corporation and CAIS,
Inc., dated April 4, 1997.
* 10.4 Amended and Restated Employment Agreement, among CAIS, Inc. and Evans
K. Anderson, dated June 3, 1997.
* 10.5 Deed of Lease, among Ramay Family Partnership and CAIS, Inc., dated
July 28, 1997.
* 10.6 Letter Amendment Agreement to Agreement for Cooperative Use of
Communication Patents, among Inline Connection Corporation and CAIS,
Inc., dated August 1, 1997.
* 10.7 Amended and Restated Employment Agreement, among CAIS, Inc. and
William M. Caldwell, IV, dated September 8, 1997.
* 10.8 Letter Amendment Agreement to Agreement for Cooperative Use of
Communication Patents, among Inline Connection Corporation and CAIS,
Inc., dated October 21, 1997.
* 10.9 CAIS Internet Services Agreement, among CAIS, Inc. and Hongkong
Telecom, dated October 24, 1997.
* 10.10 Collaboration on IPORT Market Trial Agreement, among CAIS, Inc. and
Microsoft Corporation, dated February 18, 1998.
* 10.11 Investment Agreement, among the Company, CAIS, Inc. and R. Theodore
Ammon, dated April 22, 1998.
* 10.12 Credit Agreement by ING (U.S.) Capital LLC to the Company, CAIS, Inc.
and certain of the Company's affiliates, dated September 4, 1998.
p* 10.13 CAIS IPORT Integrator License Agreement, among CAIS and ATCOM, Inc.
d/b/a ATCOM/INFO dated September 10, 1998.
* 10.14 Exchange Agreement, among the Company, the limited partners of
Cleartel LP, Cleartel, Inc. and the shareholders of Cleartel, Inc.,
dated October 2, 1998.
* 10.15 Assignment and Assumption Agreement and Release, among the Company,
CAIS, Inc. and William M. Caldwell, IV, dated October 2, 1998.
* 10.16 Assignment and Assumption Agreement and Release, among the Company,
CAIS, Inc. and Evans K. Anderson, dated October 2, 1998.
* 10.17 Employment Agreement, among the Company and Laura Neuman, dated June
29, 1998.
* 10.18 Letter Amendment Agreement to Agreement for Cooperative Use of
Communication Patents, among Inline Connection Corporation and CAIS,
Inc., dated March 4, 1998.
* 10.19 Deed of Lease, among Ramay Family Partnership and CAIS, Inc., dated
May 28, 1998.
p* 10.20 Marketing Associate Solution Alliance Agreement, among CAIS, Inc. and
Unisys Corporation, dated November 11, 1998.
* 10.21 Office Building Lease for 1255 22nd Street, among 1255 22nd Street
Associates Limited Partnership and the Company, dated November 21,
1998.
p* 10.22 Master License Agreement for High Speed Internet Service, among
Hilton Hotels Corporation and CAIS, Inc., dated December 23, 1998.
p* 10.23 Marketing/Administration Fund and Incentive Agreement, among Hilton
Hotels Corporation and CAIS, Inc., dated December 23, 1998.
* 10.24 Application Transfer for Inline PCT Serial No. PCT/US97/12045, among
Inline Connection Corporation and CAIS, Inc., dated January 6, 1999.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
-------- -----------
<C> <S>
* 10.25 Assignment of USSN 08/893,403 and PCT/US97/12045, among Inline
Connection Corporation and CAIS, Inc., dated January 6, 1999.
* 10.26 Settlement Agreement, among CAIS, Inc. and Terk Technologies Corp.,
dated January 24, 1999.
* 10.27 Letter Amendment Agreement to Agreement for Cooperative Use of
Communication Patents among Inline Connection Corporation and CAIS,
Inc., dated January 26, 1999.
* 10.28 Assignment of 50% of Certain Patent Properties, among Inline
Connection Corporation and CAIS, Inc., dated January 26, 1999.
* 10.29 Assignment of Certain Trademarks, among Cleartel Communications, Inc.
and CAIS, Inc., dated February 9, 1999.
* 10.30 The Company's Amended and Restated 1998 Equity Incentive Plan, dated
February 12, 1999.
* 10.31 Amendment No. 1 to Credit Agreement by ING (U.S.) Capital LLC to the
Company, CAIS, Inc. and certain of the Company's affiliates for
$7,000,000, dated February 12, 1999.
p* 10.32 Agreement for High Speed Internet Access Service in Multiple Dwelling
Units, among CAIS, Inc. and OnePoint Communications Corp., dated
February 19, 1999.
* 10.33 Series A Preferred Stock and Warrant Purchase Agreement, among CAIS
Internet, Inc., Chancery Lane, L.P. and CAIS-Sandler Partners, L.P.,
dated February 19, 1999.
* 10.34 Stockholders Agreement among CAIS Internet, Inc., Chancery Lane, L.P.
and CAIS-Sandler Partners, L.P., dated February 19, 1999.
* 10.35 Amendment to Amended and Restated Employment Agreement, among the
Company, CAIS, Inc. and Evans K. Anderson, dated February 22, 1999.
* 10.36 Amendment to Amended and Restated Employment Agreement, among the
Company, CAIS, Inc. and William M. Caldwell, IV, dated February 22,
1999.
** 10.37 Global Purchase Agreement between CAIS, Inc. and Nortel Networks,
Inc., dated April 1, 1999.
p* 10.38 First Amendment to Master License Agreement, among Hilton Hotels
Corporation, CAIS Internet, Inc. and CAIS, Inc. dated April 23, 1999.
p* 10.39 First Amendment to Marketing/Administration Fund and Incentive
Agreement, among Hilton Hotels Corporation and CAIS, Inc., dated
April 23, 1999.
* 10.40 Letter Agreement for the Hilton Hotel Digital Entertainment Fund,
among Hilton Hotels Corporation and CAIS Internet, Inc., dated April
23, 1999.
** 10.41 Credit Agreement by and among CAIS, Inc. and Nortel Networks Inc.,
dated June 4, 1999.
** 10.42 Guaranty Agreement by the Company in favor of Nortel Networks Inc.,
dated June 4, 1999.
** 10.43 Security Agreement by and among CAIS, Inc. and Nortel Networks Inc.,
dated June 4, 1999.
** 10.44 Security Agreement by and among the Company and Cisco Systems Capital
Corporation, dated June 30, 1999.
** 10.45 Security Agreement by and among CAIS, Inc. and Cisco Systems Capital
Corporation, dated June 30, 1999.
** 10.46 Guaranty Agreement by the Company in favor of Cisco Systems Capital
Corporation, dated June 30, 1999.
** 10.47 Credit Agreement by and among CAIS, Inc. and Cisco Systems Capital
Corporation, dated June 30, 1999.
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
---------- -----------
<C> <S>
*** 10.48 Registration Rights and Lock-Up Agreement, dated as of August 4,
1999, by and among the Registrant and the shareholders of Atcom,
Inc. listed therein.
**** 10.49 First Amendment to Credit Agreement, made and entered into
effective September 7, 1999 by and among the Company and Nortel
Networks, Inc.
10.51 Registration Rights and Lock-Up Agreement by and among the
Registrant, Kim Kao and Amy Hsiao, dated as of September 7, 1999.
**** 10.52 Series C Preferred Stock Purchase Agreement between CAIS Internet,
Inc. and U.S. Telesource, Inc. dated September 29, 1999
**** 10.53 First Amendment, dated October 27, 1999, to Registration Rights and
Lock-Up Agreement dated September 29, 1999.
10.54 Form of First Amendment, dated December 2, 1999, to Credit
Agreement by and among CAIS, Inc. and Cisco Systems Capital
Corporation, dated June 30, 1999.
10.55 Form of First Amendment to Guaranty, dated as of December 2, 1999,
between CAIS Internet, Inc. and Cisco Stytems Capital Corporation.
10.56 Borrower Consent for First Amendment to Guaranty Dated December 2,
1999 By and Between CAIS, Inc. and Cisco Systems Capital
Corporation.
10.57 Preferred Stock Purchase Agreement between CAIS, Inc. and CII
Ventures LLC, dated as of December 20, 1999.
10.58 Voting Agreement between CII Ventures LLC and certain holders of
the Registrant's common stock, dated as of December 20, 1999.
10.59 Form of Office Lease by and between CAIS, Inc. and Ames Center,
L.C., dated , 1999.
10.60 Form of Amendment to Office Lease by and between CAIS, Inc. and
Ames Center, L.C., dated November 18, 1999.
10.61 Second Amendment to Office Lease by and between CAIS, Inc. and Ames
Center, L.C., dated March 1, 2000.
10.62 Form of Stockholders Agreement between the Registrant and CII
Ventures LLC, dated as of , 2000.
10.63 Asset Purchase Agreement between the Registrant, CAIS Software
Solutions, Inc., and QuickATM, dated March 15, 2000.
10.64 Form of Registration Rights Agreement, dated as of March 15, 2000
by and among the Registrant and QuickATM, Inc.
10.65 Form of Bill of Sale, Assignment and Assumption Agreement as of
March 15, 2000 by and between CAIS Software Solutions, Inc. and
QuickATM, LLC.
10.66 Second Amendment, dated March 20, 2000, to Credit Agreement by and
among CAIS, Inc. and Cisco Systems Capital Corporation, dated June
30, 1999.
* 21.1 List of Subsidiaries.
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule.
**** 99.1 Financial Statements of Atcom, Inc.
**** 99.2 Unaudited Pro Forma Condensed Combined Financial Information.
</TABLE>
- --------
* Incorporated by reference from the Registration Statement on Form S-1 of
the Registrant (Registration No. 333-72769) filed with the Commission on
May 19, 1999, as amended.
p Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the SEC.
64
<PAGE>
** Incorporated by reference from the Registrant's quarterly report on Form
10-Q filed with the Commission on August 16, 1999.
*** Incorporated by reference from the Registrant's current report on Form 8-K
filed with the Commission on September 17, 1999.
**** Incorporated by reference from the Registrant's amended current report on
Form 8-K/A filed with the Commission on November 12, 1999.
***** Incorporated by reference from the Registrant's quarterly report on 10-Q
filed with the Commission on November 15, 1999.
65
<PAGE>
EXHIBIT 2.4
AGREEMENT AND PLAN OF MERGER
AMONG
CAIS INTERNET, INC.,
BUSINESS ANYWHERE, USA, INC.,
CIBA MERGER CORP.,
KIM KAO
AND
AMY HSIAO
September 7, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
INDEX OF SCHEDULES AND EXHIBITS IV
<S> <C> <C>
ARTICLE I. THE MERGER.......................................... 2
1.1 The Merger.......................................... 2
1.2 The Effective Time.................................. 2
1.3 The Surviving Corporation........................... 2
1.4 Closing............................................. 3
1.5 Supplementary Action................................ 3
1.6 Payment of BAC Debt................................. 3
ARTICLE II. MERGER CONSIDERATION................................ 3
2.1 Consideration....................................... 3
2.2 Mechanics of Exchange............................... 4
2.3 Escrow.............................................. 5
2.4 Dividends; Transfer Taxes........................... 5
2.5 No Fractional Shares................................ 5
2.6 Closing of BAC Transfer Books....................... 5
2.7 Restricted Stock.................................... 6
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BAC AND
THE SHAREHOLDERS.................................... 6
3.1 Corporate Organization; Etc......................... 6
3.2 Capitalization...................................... 6
3.3 Subsidiaries and Affiliates......................... 7
3.4 Authorization; Etc.................................. 7
3.5 No Violation........................................ 7
3.6 Consents and Approvals of Government Authorities.... 8
3.7 Financial Statements and Closing Net Cash Balance... 8
3.8 No Undisclosed Liabilities; Etc..................... 8
3.9 Absence of Certain Changes.......................... 8
3.10 Title to Properties; Encumbrances................... 10
3.11 Plants and Equipment................................ 11
3.12 Leases.............................................. 11
3.13 Intellectual Property............................... 11
3.14 Year 2000 Errors.................................... 12
3.15 Litigation.......................................... 13
3.16 Taxes............................................... 13
3.17 Insurance........................................... 15
i
<PAGE>
3.18 Benefit Plans....................................... 15
3.19 Bank Accounts....................................... 16
3.20 Contracts and Commitments; No Default............... 16
3.21 Inventory........................................... 18
3.22 Accounts Receivable................................. 18
3.23 Executed Sales contracts, Commitments and Claims.... 19
3.24 Labor Difficulties.................................. 19
3.25 Permits and Other Operating Rights.................. 20
3.26 Joint Ventures...................................... 20
3.27 Compliance with Law................................. 20
3.28 Related Transactions................................ 20
3.29 Environmental Liability............................. 20
3.30 Assets and Revenues................................. 21
3.31 Disclosure.......................................... 21
3.32 Knowledge Defined................................... 21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND CAIS.................................... 22
4.1 Corporate Organization; Etc......................... 22
4.2 Authorization, Etc.................................. 22
4.3 No Violation........................................ 22
4.4 Consents and Approvals of Government Authorities.... 23
4.5 Reports and Financial Statements.................... 23
4.6 Tax Matters......................................... 24
4.7 Issuance of Consideration Shares.................... 24
4.8 Disclosure.......................................... 25
ARTICLE V. SHAREHOLDERS' COVENANTS............................. 25
ARTICLE VI. CLOSING............................................. 25
6.1 Closing Conditions of CAIS and the Company.......... 25
6.2 Closing Conditions of BAC and the Shareholders...... 27
6.3 Further Assurances.................................. 28
ARTICLE VII. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS OF BAC AND THE SHAREHOLDERS;
SHAREHOLDERS' INDEMNIFICATION....................... 29
7.1 Survival............................................ 29
7.2 General Indemnity................................... 29
7.3 Tax Indemnity....................................... 29
7.4 General Indemnity Procedures........................ 30
7.5 Tax Indemnity Procedures............................ 31
7.6 Limitations on Indemnification...................... 31
7.7 Treatment of Indemnification Payments............... 32
ii
<PAGE>
7.8 Remedies............................................ 32
7.9 Off-Set............................................. 32
ARTICLE VIII. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS OF CAIS AND THE COMPANY;
INDEMNIFICATION BY CAIS AND THE COMPANY............. 33
8.1 Survival............................................ 33
8.2 Indemnity........................................... 33
8.3 Indemnity Procedures................................ 33
8.4 Limitations on Indemnification...................... 33
ARTICLE IX. NONCOMPETITION...................................... 34
9.1 Noncompetition Agreement............................ 34
9.2 Noncompetition Covenants: Scope and Choice of Law... 35
9.3 Noncompetition Covenants: Assignment by CAIS........ 35
9.4 Noncompetition Covenants: Remedy for Breach......... 35
ARTICLE X. NONDISCLOSURE OF CONFIDENTIAL INFORMATION........... 35
10.1 Nondisclosure....................................... 35
10.2 Nondisclosure Covenants: Remedy for Breach.......... 36
ARTICLE XI. MISCELLANEOUS PROVISIONS............................ 36
11.1 Tax Matters......................................... 36
11.2 Arbitration......................................... 37
11.3 Finders and Brokers................................. 37
11.4 Amendment........................................... 37
11.5 Waiver of Compliance................................ 38
11.6 Expenses; Attorneys' Fee............................ 38
11.7 Survival of Representations and Warranties.......... 38
11.8 Notices............................................. 38
11.9 Assignment; Successors and Assigns.................. 39
11.10 Governing Law....................................... 39
11.11 Counterparts........................................ 40
11.12 Headings............................................ 40
11.13 Entire Agreement.................................... 40
11.14 Public Announcements................................ 40
11.15 Schedules........................................... 40
11.16 Severability........................................ 40
</TABLE>
iii
<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
Exhibits:
- --------
A. Certain Definitions
B. Budget of Surviving Corporation
C. Form of Escrow Agreement
D. Form of Registration Rights and Lock-up Agreement
E. Employment Agreements
F. Hsiao Consulting Agreement
Schedules:
- ---------
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of September ___,
1999, is entered into by and among CAIS Internet, Inc., a Delaware corporation
("CAIS"), CIBA Merger Corp., a Delaware corporation (the "Company"), Business
Anywhere, USA, Inc., a California corporation ("BAC"), Kim Kao ("Mr. Kao") and
Amy Hsiao ("Ms. Hsiao"), the sole shareholders of BAC (Mr. Kao and Ms. Hsiao
together, the "Shareholders").
RECITALS
A. The respective Boards of Directors of each of the Company, CAIS and BAC
have determined that it is in the best interests of their respective companies
and their shareholders that the Company and BAC combine into a single company
through the statutory merger of the Company with and into BAC, with BAC as the
surviving corporation (the "Merger").
B. The Shareholders jointly own all of the issued and outstanding capital
stock of BAC, being 10,000,000 shares of common stock, no par value (the "BAC
Stock").
C. CAIS, as the sole shareholder of the Company, has approved this
Agreement, the Merger and the transactions contemplated by this Agreement
pursuant to action taken by unanimous written consent in accordance with the
requirements of the General Corporation Law of the State of Delaware ("DGCL")
and the Certificate of Incorporation and Bylaws of the Company.
D. Pursuant to the Merger, among other things, the outstanding shares of
BAC Stock shall be exchanged for shares of CAIS common stock, par value $0.01
per share ("CAIS Common Stock").
E. The parties to the Agreement intend that the Merger qualify as a
"reorganization," within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and that BAC, the Company and CAIS will
each be a "party to a reorganization," within the meaning of Section 368(b) of
the Code, with respect to the Merger.
F. Certain capitalized terms used in this Agreement are defined on Exhibit
-------
A.
- -
AGREEMENT
In consideration of the agreements, provisions and covenants set forth
below, BAC, the Company, CAIS and the Shareholders hereby agree as follows:
1
<PAGE>
ARTICLE I.
THE MERGER
1.1 The Merger.
Subject to the terms and conditions of this Agreement, on the Effective
Time (as defined below), the Company shall be merged with and into BAC, BAC
shall be the surviving corporation (sometimes called the "Surviving
Corporation") in such Merger and the separate existence of the Company shall
thereupon cease. The Merger shall have the effects set forth in the DGCL and
the General Corporation Law of the State of California (the "CGCL"). Without
limiting the generality of the foregoing, on the Effective Time, all of the
property, rights, privileges, powers and franchises of the Company and BAC shall
vest in the Surviving Corporation.
1.2 The Effective Time.
The Merger shall become effective when a properly executed certificate or
agreement of merger (the "Agreement of Merger"), in such form as may be agreed
by the parties hereto and as required by the relevant provisions of the CGCL and
the DGCL is duly filed with the Secretary of State of the State of California
and the Secretary of State of the State of Delaware, which filings shall be made
in connection with the closing of the Merger in accordance with Section 1.4 upon
satisfaction or waiver of the conditions set forth in Article VI. When used in
this Agreement, the term "Effective Time" shall mean the date and time at which
such Agreement of Merger has been so filed or at such later time as is provided
in the Agreement of Merger.
1.3 The Surviving Corporation.
(a) The Articles of Incorporation of BAC as in effect at the Effective Time
shall be the Articles of Incorporation of the Surviving Corporation until duly
amended in accordance with applicable law.
(b) The Bylaws of BAC as in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
(c) (i) The directors of the Company at the Effective Time shall be the
initial directors of the Surviving Corporation and shall hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in the manner provided in the Articles of Incorporation and Bylaws
of the Surviving Corporation, or as otherwise provided by law.
(ii) The officers of the Company at the Effective Time shall be the
initial officers of the Surviving Corporation and shall hold office from the
Effective Time until removed or until their respective successors are duly
elected or appointed and qualified in the manner provided in the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
2
<PAGE>
1.4 Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Morrison & Foerster LLP, 555 W.
Fifth Street, Los Angeles, California 90013 at 10:00 a.m., local time, on
September __, 1999 (the "Closing Date"), or as soon thereafter as is reasonably
practical; provided, however, that if all of the other conditions set forth in
-------- -------
Article VI hereof are not satisfied or waived at such date, the Closing Date
shall be the business day following the day on which all such conditions have
been satisfied or waived, or at such other date, time and place as CAIS and BAC
shall agree.
1.5 Supplementary Action.
If, at any time after the Effective Time, any further assignments or
assurances in law or any other things are necessary or desirable to vest or to
perfect or confirm of record in the Surviving Corporation the title to any
property or rights of BAC, or otherwise to carry out the provisions of this
Agreement, the officers and directors of the Surviving Corporation are hereby
authorized and empowered on behalf of BAC in the name of and on behalf of BAC to
execute and deliver any and all things necessary or proper to vest or to perfect
or confirm title to such property or rights in the Surviving Corporation, and
otherwise to carry out the purposes and provisions of this Agreement.
1.6 Payment of BAC Debt.
At Closing, CAIS shall cause BAC to pay off and discharge all indebtedness
of BAC which becomes due by reason of the consummation of the transactions
contemplated by this Agreement, all of which is set forth in Schedule 1.6;
------------
provided, however, that CAIS shall not be obligated to pay off and discharge any
- -------- -------
such indebtedness or amounts in respect thereof (including accrued but unpaid
interest and fees and other costs associated therewith) exceeding Five Hundred
Thousand Dollars ($500,000).
ARTICLE II.
MERGER CONSIDERATION
2.1 Consideration.
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof, and subject to Section 2.7, each share of
-----------
BAC Stock that is issued and outstanding immediately prior to the Effective Time
shall be converted into the right to receive a total consideration equal to the
sum of the Initial Consideration (as defined in Section 2.1(b) below) and,
--------------
subject to the terms and conditions set froth in Sections 2.1(c) and (d) below,
---------------
the Additional Consideration (as defined Section 2.1(d) below) (and, together
--------------
with the Initial Consideration, the "Consideration").
--------------
(b) The initial consideration shall consist of (i) a number of shares of
CAIS Common Stock, equal to (y) One Million Five Hundred Thousand Dollars
($1,500,000) divided by (z) the average closing price of the CAIS Common Stock
on the Nasdaq Stock Market for the ten (10) trading days immediately preceding
the Closing Date (the "Initial Consideration Shares") and
----------------------------
3
<PAGE>
(ii) cash in an aggregate amount of Two Hundred Thousand Dollars ($200,000)
(the "Cash Consideration" and, together with the Initial Consideration Shares,
- ------------------------
"Initial Consideration"). In the event that, on the first day the Initial
---------------------
the Consideration Shares are not subject to the restrictions set forth in
Section 2.7 (the "Expiration Date") the closing price per share of CAIS
- ----------- ---------------
Common Stock is lower than the CAIS Common Stock price per share determined as
set forth in clause (i) above, CAIS shall issue to the Shareholders such number
of additional shares of CAIS Common Stock so that the total number of shares of
CAIS Common Stock issued to the Shareholders pursuant to this Section 2.1(b)
--------------
shall be equal to (i) One Million Five Hundred Thousand Dollars ($1,500,000)
divided by (ii) the average closing price of the CAIS Common Stock on the Nasdaq
Stock Market for the ten (10) trading days immediately preceding the Expiration
Date.
(c) As further consideration for the Merger, CAIS shall issue to the
Shareholders, as soon as practicable after the first annual anniversary date of
the Closing Date (the "First Anniversary Date"), an additional number of shares
----------------------
of CAIS Common Stock equal to (i) One Million Dollars ($1,000,000) divided by
(ii) the average closing price of the CAIS Common Stock on the Nasdaq Stock
Market for the ten (10) trading days immediately preceding the First Anniversary
Date (the "First Additional Consideration"); provided, however, that for the
------------------------------ -------- -------
twelve-month period ending on the First Anniversary Date, the Surviving
Corporation shall have achieved revenues of at least Seven Hundred and Fifty
Thousand Dollars ($750,000) pursuant to the proposed budget set forth in Exhibit
-------
B hereto.
- -
(d) As further consideration for the Merger, CAIS shall issue to the
Shareholders, as soon as practicable after the second annual anniversary
date of the Closing Date (the "Second Anniversary Date"), an additional
-----------------------
number of shares of CAIS Common Stock equal to (i) One Million Dollars
($1,000,000) divided by (ii) the average closing price of the CAIS Common Stock
on the Nasdaq Stock Market for the ten (10) trading days immediately preceding
the Second Anniversary Date (the "Second Additional Consideration"
-------------------------------
and together with the First Additional Consideration, the "Additional
----------
Consideration"); provided, however, that between the First Anniversary Date and
- ------------- -------- -------
the Second Anniversary Date, Surviving Corporation shall have achieved revenues
of at least One Million Dollars ($1,000,000) pursuant to the proposed budget set
forth in Exhibit B hereto.
---------
(e) At the Effective Time, by virtue of the Merger and without any action
on the part of the holder thereof, each share of the common stock of the Company
that is issued and outstanding immediately prior to the Effective Time shall be
converted into and continue as one share of the common stock of the Surviving
Corporation.
2.2 Mechanics of Exchange.
(a) Prior to the Effective Time, the Shareholders shall surrender the
certificate or certificates that immediately prior to the Effective Time
represented the BAC Stock (the "Certificates"), and which were converted
--- ------------
into the right to receive the Consideration, to CAIS for cancellation in
exchange for shares of CAIS Common Stock into which such BAC Stock has been
converted by virtue of the Merger, less the Shareholders' pro rata portion
of the Escrow Amount. It shall be a condition of payment of the
Consideration that the Certificates so surrendered shall be properly
endorsed or otherwise in proper form for transfer to CAIS.
4
<PAGE>
(b) If any certificate for CAIS Common Stock is to be issued in a name
other than that in which the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the Shareholders shall
(i) pay to CAIS any transfer or other taxes required by reason of the issuance
of certificates for such securities in a name other than that of the registered
holder of the Certificate surrendered, or (ii) establish to the satisfaction of
CAIS that such tax has been paid or is not applicable.
2.3 Escrow.
Prior to the Closing, shares of CAIS Common Stock equal to ten percent 10%
of the Initial Consideration Shares shall be delivered to and held in escrow
(the "Escrow Amount") until the First Anniversary Date (subject to any pending
Claims which exist on such date) pursuant to an Escrow Agreement in the form
attached hereto as Exhibit C (the "Escrow Agreement") to secure Claims by
---------
Indemnitees for indemnification pursuant to Article X. Nothing in this Section
2.3 shall be construed as limiting the liability of the Shareholders under
Section 7.6 to the amount of the Escrow Amount deposited into escrow.
2.4 Dividends.
No dividends that are declared on shares of CAIS Common Stock after the
Effective Time (if any) will be paid to the Shareholders until the Shareholders
surrender the Certificates. Upon such surrender, there shall be paid to the
Shareholders any dividends which shall have become payable with respect to such
shares of CAIS Common Stock between the Effective Time and the time of such
surrender. In no event shall the Shareholders be entitled to receive interest
on such dividends.
2.5 No Fractional Shares.
No fraction of a share of CAIS Common Stock shall be issued in the Merger.
In lieu of fractional shares, the Shareholders shall be paid an amount in cash,
without interest, rounded to the nearest cent, determined by multiplying the
fractional interest to which the Shareholders would otherwise be entitled by the
average closing price of CAIS Common Stock computed pursuant to clause (i) of
Section 2.1(b).
2.6 Closing of BAC Transfer Books.
At the Effective Time, the stock transfer books of BAC shall be closed and
no transfer of shares of BAC Stock that were outstanding immediately prior to
the Effective Time shall thereafter be made. At and after the Effective Time,
the holders of shares of BAC Stock to be exchanged for shares of CAIS Common
Stock pursuant to this Agreement shall cease to have any rights as shareholders
of BAC, except for the right to surrender such Certificates in exchange for
shares of CAIS Common Stock as provided hereunder.
2.7 Restricted Stock.
The shares of CAIS Common Stock issued in connection with the Merger
(including the shares issued as part of the Initial Consideration Shares and the
Additional Consideration) will not be registered under the Securities Act of
1933, as amended ("Securities Act"), except as
5
<PAGE>
provided in the Registration Rights and Lock-up Agreement attached hereto as
Exhibit D. Such shares may not
- ---------
be transferred or resold thereafter, except in compliance with the terms of this
Agreement and the other Transactional Agreements and following registration
under the Securities Act or in reliance on an exemption from registration under
the Securities Act.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF BAC AND THE SHAREHOLDERS
Except as set forth in the Disclosure Schedule attached hereto provided by
BAC and the Shareholders as of the date hereof (the "BAC Disclosure Schedule"),
the parts of which are numbered to correspond to the section numbers of this
Agreement, the Shareholders and BAC, jointly and severally, hereby represent and
warrant to the Company and CAIS, as follows:
3.1 Corporate Organization; Etc.
(a) BAC is a corporation duly organized and validly existing under the laws
of California; BAC has not commenced any dissolution proceedings; BAC has full
power and authority (corporate and otherwise) to carry on its business as it is
now being conducted and to own, lease or operate its properties and assets; and,
except as set forth on Schedule 3.1(a), BAC is duly qualified or licensed to do
---------------
to do business as a foreign corporation in good standing in every
jurisdiction in which the character or location of the properties and assets
owned, leased or operated by it or the conduct of its business requires such
licensing or qualification, except where the failure to be so qualified or
licensed does not have a material adverse effect on BAC's business, financial
condition, assets or results of operations (a "BAC Adverse Effect"). A schedule
------------------
attached hereto as Schedule 3.1(a) lists all such jurisdictions in which BAC is
---------------
qualified or licensed to do business.
(b) BAC has delivered to CAIS complete and correct copies of (i) its
Articles of Incorporation, as amended to date, certified by the Secretary of
State of the State of California; and (ii) its Bylaws, as amended to date,
certified by BAC's corporate secretary. The Articles of Incorporation and Bylaws
of BAC are in full force and effect and BAC is in full compliance with the
provisions thereof.
3.2 Capitalization.
As of the date of this Agreement, the authorized capital stock of BAC
consists of Ten Million (10,000,000) shares of BAC Stock. As of the date hereof,
Ten Million (10,000,000) shares of BAC Stock were issued and outstanding. All
issued and outstanding shares of BAC Stock are owned by the Shareholders, free
and clear of any and all mortgages, charges, limitations, liens, security
interests, pledges, encumbrances, restrictions on ownership, adverse claims or
rights or interests of others (collectively, "Encumbrances"). Except as set
forth above or in Schedule 3.2, there are no shares of capital stock or other
------------
securities of BAC outstanding; there are no Warrants or Options of BAC and there
are no contracts, commitments, understandings, arrangements or restrictions
relating to the issuance, sale, transfer or purchase by BAC of any shares of its
capital stock. "Warrants and Options" shall mean all outstanding rights,
-------- -------
subscriptions, warrants, calls, preemptive rights, options or other
agreements of any kind
6
<PAGE>
to purchase or otherwise receive from BAC any shares of the capital stock or any
other security of BAC, and all outstanding securities of any kind convertible
into or exchangeable for such securities. None of the BAC Stock is subject to
any voting agreement, shareholders' agreement, right of first offer or refusal,
proxy agreement or voting trust.
3.3 Subsidiaries and Affiliates.
BAC has no Subsidiaries or Affiliates and does not own any equity interest,
directly or indirectly, in any corporation, partnership, joint venture, firm or
other entity.
3.4 Authorization; Etc.
Each of the Shareholders and BAC has the full legal right and power and all
authority and approvals required to enter into, execute and deliver this
Agreement and the other Transactional Agreements contemplated herein and to
perform fully their respective obligations hereunder and thereunder. This
Agreement, the other Transactional Agreements and the other documents
contemplated hereby have been duly and validly executed and delivered by each of
the Shareholders and BAC and no other corporate or individual action is
necessary. This Agreement, the other Transactional Agreements and the other
documents contemplated hereby are enforceable against the Shareholders and BAC
in accordance with their respective terms, except to the extent limited by
applicable bankruptcy, insolvency or reorganization laws and the application of
equitable principles (whether considered in a proceeding at law or in equity).
3.5 Violation.
Neither the execution and delivery of this Agreement or the other
Transactional Agreements, nor their performance and the consummation of the
transactions contemplated hereby or thereby will (a) violate any provision of
the Articles of Incorporation or Bylaws of BAC, (b) violate, or be in conflict
with, or constitute a default (or an event which, with or without due notice or
lapse of time, or both, would constitute a default) under, or result in the
modification or termination of, or cause or permit the acceleration of the
maturity of any debt, obligation, contract, commitment or other agreement to
which BAC or the Shareholders is a party or by which it or its property may be
bound, (c) result in the creation or imposition of any Encumbrance of any kind,
upon the BAC Stock or upon any property or assets of BAC, or (d) violate any
statute or law or any judgment, decree, order, regulation or rule of any court
or governmental body.
3.6 Consents and Approvals.
Except as set forth in Schedule 3.6, no consent, approval or authorization
------------
of, or declaration, filing or registration with, any governmental body,
regulatory authority or other Person is required in connection with the
execution, delivery and performance of this Agreement, the other Transactional
Agreements or any other document contemplated hereby by BAC or the Shareholders
and the consummation of the transactions contemplated hereby and thereby.
3.7 Financial Statements.
7
<PAGE>
The Shareholders have furnished to CAIS balance sheets of BAC as of
December 31, 1998 (the "December 31, 1998 Balance Sheet") and June 30, 1999 (the
-------------------------------
"June 1999 Balance Sheet") and statements of income, changes in stockholders'
-----------------------
equity and changes in financial position for the twelve months ended December
31, 1998 (the "December 31 1998 Income Statement"), and for the nine months
---------------------------------
ended June 30, 1999 (the "June 1999 Income Statement"). The December 1998
--------------------------
Income Statement and the December 1998 Balance Sheet are referred to
collectively as the "December 1998 Financial Statements," the June 1999 Balance
----------------------------------
Sheet and the June 1999 Income Statement are referred to collectively as the
"June 1999 Financial Statements", and the 1998 Financial Statements and the June
- -------------------------------
1999 Financial Statements are referred to collectively as the "Financial
---------
Statements." True and correct copies of the Financial Statements are attached
- ----------
hereto as Schedule 3.7. The Financial Statements are in accordance with the
------------
books and records of BAC. The December 31, 1998 Balance Sheet and the June 1999
Balance Sheet fairly present the assets, liabilities and financial condition of
BAC as at the respective dates thereof, and the December 31, 1998 Income
Statement and the June 1999 Income Statement fully and fairly present the
results of the operations for the periods therein referred to, all in accordance
with Generally Accepted Accounting Principles ("GAAP") consistently followed
throughout the periods involved.
3.8 No Undisclosed Liabilities; Etc.
Except as set forth in Schedule 1.6 and Schedule 3.8, BAC has no
------------ ------------
liabilities or obligations of any nature (absolute, accrued, contingent or
otherwise, and whether due or to become due, including, without limitation,
accrued vacation) (collectively, the "Liabilities") except (a) Liabilities that
are fully reflected or reserved against in the June 1999 Balance Sheet, which
reserves are appropriate and reasonable and (b) Liabilities incurred in the
ordinary course of business and consistent with past practice since the date of
the June 1999 Balance Sheet that would not in the aggregate result in a material
adverse effect on BAC's business, assets, financial condition or results of
operations (a "BAC Adverse Effect").
3.9 Absence of Certain Changes.
Since the date of the June 1999 Balance Sheet, there have been no material
changes in the condition, financial or otherwise, or any of the Liabilities,
business, prospects or operations of BAC, other than changes in the ordinary
course of business which in the aggregate have not resulted in a BAC Adverse
Effect. Since the date of the June 1999 Balance Sheet, BAC has not, without
specific prior written consent of CAIS:
(a) Suffered any material adverse change in its condition (financial or
otherwise), working capital, assets, liabilities, reserves, business,
operations or prospects;
(b) Suffered any loss, damage, destruction or other casualty materially
and adversely affecting the properties, assets or business of BAC (whether or
not covered by insurance);
(c) Borrowed or agreed to borrow any funds or incurred, or assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
Liability, except Liabilities incurred in the ordinary course of business and
consistent with past practice;
8
<PAGE>
(d) Paid, discharged or satisfied any claims, or Liabilities other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of Liabilities reflected in the June 1999 Balance
Sheet or incurred in the ordinary course of business and consistent with past
practice since the date of the June 1999 Balance Sheet;
(e) Permitted or allowed any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any Encumbrance of any
kind;
(f) Written down the value of any inventory or written off as uncollectible
any notes or lease or accounts receivable, except for write-downs and write-offs
in the ordinary course of business and consistent with past practice, none of
which is material;
(g) Canceled any debts or waived any claims or rights, waived any statute
of limitation, or sold, transferred, or otherwise disposed of any of its
properties or assets (real, personal or mixed, tangible or intangible), except
for a fair consideration in the ordinary course of business and consistent with
past practice;
(h) Licensed, disposed of or permitted to lapse any Intellectual Property
or rights to the use of any trademark, trade name, technology, process, or other
intangible asset, copyright, or disposed of or disclosed to any Person any trade
secret, formula, technology, process or know-how not theretofore a matter of
public knowledge;
(i) Granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit-
sharing or other Plan or commitment) or any increase in the compensation payable
or to become payable to any officer or employee, except for normal periodic
increases made pursuant to BAC's established compensation policies applied on a
basis consistent with that of the prior two years, which policies are briefly
summarized in Schedule 3.9(i);
---------------
(j) Made any bonus payments to directors, officers or employees of BAC,
except for bonuses reserved or accrued on the June 1999 Balance Sheet;
(k) Made any capital expenditure or commitment in excess of $5,000
individually or in excess of $10,000 in the aggregate for additions to property,
plant or equipment;
(l) Declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or, directly or indirectly,
redeemed, purchased or otherwise acquired any shares of its capital stock or
other securities;
(m) Made any change in any method of accounting or accounting practice;
(n) Paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets (real, personal or mixed, tangible or intangible) to,
or entered into any agreement or arrangement with any of its officers or
directors or any Affiliate or Associate of any of its officers or directors,
except for directors' fees, and compensation to officers at rates not exceeding
the average rates of compensation paid during the fiscal quarter ended June 30,
1999;
9
<PAGE>
(o) Paid, loaned or advanced any amount to, or sold, transferred or leased
any properties or assets to any Person, whether by lease, leveraged lease, lease
intended as security, vendor arrangement, loan agreement, note, conditional
sales arrangement, issue of preferred stock or otherwise, except in the ordinary
course of business and consistent with credit procedures and practices of BAC
during the prior year;
(p) Entered into any other transaction, contract or commitment other than
in the ordinary course of business;
(q) Made any material election with respect to Taxes or settled or
compromised any material Tax proceeding or audit;
(r) Except as set forth on Schedule 3.9(r), made any payments, or become
---------------
indebted, to any Person, including without limitation for any legal, investment
banking, consulting or accounting services, in connection with this Agreement
and all related transactions; and
(s) Agreed, whether in writing or otherwise, to take any action described
in this Section 3.9.
-----------
3.10 Title to Properties; Encumbrances.
Except as set forth in Schedule 3.10, BAC has good and marketable title to
-------------
or a valid leasehold interest in all its properties and assets (real, personal
and mixed, tangible and intangible), including, without limitation, all the
properties and assets reflected in the June 1999 Balance Sheet (except for
properties and assets sold since the date of the June 1999 Balance Sheet in the
ordinary course of business and consistent with past practice), and all the
properties and assets purchased or otherwise acquired by BAC since the date of
the June 1999 Balance Sheet. Except as set forth in Schedule 3.10, none of such
-------------
properties and assets reflected in the June 1999 Balance Sheet is subject to any
Encumbrance or variance of any kind. The properties and assets of BAC include
all rights, properties and other assets necessary to permit BAC to conduct its
business in all material respects in the same manner as it is conducted on, and
has been conducted prior to, the date of this Agreement.
3.11 Plants and Equipment.
Except as set forth in Schedule 3.11, the plants, structures and equipment
-------------
of BAC are structurally sound with no material defects and in good operating
condition and repair and are adequate for the uses to which they are being put;
and none of such plants, structures or equipment is in need of maintenance or
repairs except for ordinary, routine maintenance and repairs.
3.12 Leases.
Schedule 3.12(a) contains an accurate and complete list of all leases
-----------------
pursuant to which BAC leases real property, including for each lease a brief
description of BAC's financial obligations under such lease, its expiration date
and renewal terms, and Schedule 3.12(b) contains a complete list and description
-----------------
by generic category of all leases pursuant to which BAC leases personal
property. All such leases are valid, binding and enforceable in accordance with
10
<PAGE>
their terms, and are in full force and effect; except as set forth in such
Schedules 3.12(a) and 3.12(b), there are no existing defaults by BAC or the
- ----------------- -------
other party thereunder; no event of default has occurred which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute a default thereunder; and all lessors under such leases have
consented (where such consent is necessary) to the consummation of the
transactions contemplated by this Agreement.
3.13 Intellectual Property.
(a) Schedule 3.13(a) lists all of the United States and foreign (i)
----------------
patent and patent applications; (ii) registered trademarks and trademark
applications; (iii) registered copyrights and applications for copyright
registration; (iv) mask work registrations and applications to register mask
works; and (v) any other Intellectual Property of BAC that is the subject of an
application to, or certificate or registration issued by any governmental body
or other public legal authority, or that is owned by or exclusively licensed to
BAC. The registrations of the Intellectual Property of BAC listed on Schedule
--------
3.13(a) are valid and subsisting, all necessary registration and renewal fees in
- -------
connection with such registrations have been filed with the relevant patent,
copyright and trademark authorities in the United States for the purposes of
maintaining such registrations. BAC has complied with all applicable disclosure
requirements and neither BAC nor the Shareholders nor any named inventor or
assignee has committed any fraudulent act in the application for or maintenance
of any patent trademark or copyright of BAC.
(b) BAC owns and has good and exclusive title to each item of Intellectual
Property of BAC listed on Schedule 3.13(a) above free and clear of any
----------------
Encumbrances. BAC owns, or has the right to use or operate under, all
Intellectual Property of BAC listed on Schedule 3.13(a). No Intellectual
----------------
Property of BAC or product and/or technology of BAC is subject to any order
restricting in any material manner the use or licensing thereof by BAC.
(c) The contracts, licenses and agreements listed on Schedule 3.13(c)
----------------
include all contracts, licenses and agreements, with respect to any Intellectual
Property, to which BAC is a party which (i) still require performance of
services, delivery of materials or ongoing royalties or similar payments by BAC,
(ii) still require performance of services, delivery of materials or ongoing
royalties or similar payments to the benefit of BAC or (iii) require the
performance of services, delivery of materials or ongoing royalties or similar
payment either by BAC or to the benefit of BAC and included indemnification
obligations of BAC or the performance of nondisclosure obligations. Except
pursuant to agreements listed on Schedule 3.13(c), (i) no Person has any rights
----------------
to use any of the Intellectual Property of BAC; and (ii) BAC has neither granted
to any Person, nor authorized any Person to retain, any rights in the
Intellectual Property of BAC.
(d) The contracts, licenses and agreements listed on Schedule 3.13(c) are
----------------
in full force and effect. There are no contracts, licenses and agreements
between BAC and any other Person with respect to Intellectual Property of BAC
with respect to which there is any dispute known to BAC or the Shareholders
regarding the scope of such agreement, or performance under such agreement
including any payments to be made or received by BAC thereunder. The
consummation of the transactions contemplated by this Agreement and the other
Transactional Agreements will neither violate nor result in the breach,
modification, cancellation, termination,
11
<PAGE>
or suspension of the contracts, licenses and agreements listed on Schedule
--------
3.13(c) or alter or impair any of BAC's rights to its Intellectual Property.
- -------
BAC is in compliance with, and has not breached any term of, any of such
contracts, licenses and agreements.
(e) The Intellectual Property of BAC does not infringe the Intellectual
Property of any Person. The operation of BAC's business as it currently is
conducted, including its design, development, manufacture and sale of its
products and/or technology, including products and/or technology currently under
development, and provision of services, does not infringe the Intellectual
Property of any other Person. To the knowledge of BAC and the Shareholders, no
officer, director, employee or consultant of BAC is infringing or
misappropriating the Intellectual Property of any other Person in the course of
performing his or her duties for BAC. Neither BAC nor the Shareholders has
received notice from any Person that the operation of BAC's business, including
its design, development, manufacture and sale of its products and/or technology
(including with respect to products and/or technology currently under
development) and provision of services, infringes the Intellectual Property of
any Person.
(f) Except as set forth in Schedule 3.13(f), to the knowledge of BAC and
----------------
the Shareholders, no Person is infringing or misappropriating any of the
Intellectual Property of BAC.
(g) There are no material claims asserted or, to the knowledge of BAC and
the Shareholders, threatened against BAC related to any product or service of
BAC. To the knowledge of BAC and the Shareholders, there are no material claims
asserted or threatened against any customer of BAC, related to any product or
service of BAC.
3.14 Year 2000 Errors.
(a) Schedule 3.14(a) describes the actions that BAC has taken with
----------------
respect to the possibility of the occurrence of Year 2000 Errors in its business
operations.
(b) Schedule 3.14(b) contains a complete and accurate list of all Year
----------------
2000 Errors of which BAC or the Shareholders are aware.
(c) The products and/or technology manufactured, licensed, sold or
otherwise distributed by BAC shall function without, and shall not contain, any
Year 2000 Errors.
(d) To the knowledge of BAC and the Shareholders, none of the software used
in the business of, or manufactured, licensed, sold or otherwise distributed by,
BAC contains any virus, logic bomb, time bomb, worm, undisclosed protect codes
or other harmful code which might have a significant adverse effect on the
processing of data or the use of the software.
3.15 Litigation.
There is no legal, administrative, arbitration or other proceeding, claim,
or action of any nature, or any investigation relating thereto, that currently
exists or is pending or, to the knowledge of BAC and the Shareholders, is
threatened against or involving BAC or which questions or challenges the
validity of this Agreement, the other Transactional Agreements or any action
taken or to be taken by the Shareholders or BAC pursuant hereto or thereto, or
in
12
<PAGE>
connection with the transactions contemplated hereby and thereby; and neither
the Shareholders nor BAC know or have any reason to know of any valid basis for
any such proceeding, claim, or action of any nature or investigation. BAC is
not subject to any judgment, order or decree entered in any lawsuit or
proceeding which has had or may have an adverse effect on its business practices
or on its ability to acquire any property or conduct its business in any area.
3.16 Taxes.
(a) Except as described in Schedule 3.16, all Tax Returns required to be
-------------
filed by or on behalf of BAC ("BAC Returns") have been duly filed on a timely
basis, or requests for extensions to file the BAC Returns have been timely
filed, granted and have not expired, and the BAC Returns are true, complete and
correct in all material respects. Except for Taxes described in Schedule 3.16,
-------------
all Taxes due with respect to periods ending on or prior to the Closing Date,
whether or not required to be shown on a BAC Return, have been or will be paid
in full on a timely basis. Except as set forth in Schedule 3.16, BAC has
-------------
withheld and paid over all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto, in connection
with amounts paid or owing to any employee, creditor, independent contractor, or
other third party. Except as set forth in Schedule 3.16, there are no
-------------
Encumbrances on any of the assets of BAC with respect to Taxes, other than liens
for Taxes not yet due and payable or for Taxes that BAC is contesting in good
faith through appropriate proceedings and for which appropriate reserves have
been established.
(b) Except for Taxes described in Schedule 3.16, the reserves for Taxes
-------------
reflected on the June 1999 Balance Sheet are adequate for the payment of all
Taxes payable by BAC for all taxable periods and portions thereof accrued
through the date of the June 1999 Balance Sheet, and such reserves will continue
to be established in accordance with past practice with respect to Taxes payable
for any taxable period or portion thereof ending on or prior to the Closing
Date.
(c) BAC has made available to CAIS true and complete copies of (i) relevant
portions of income tax audit reports, statements of deficiencies, closing or
other agreements received by or on behalf of BAC relating to Taxes and (ii) all
federal and state income or franchise tax returns for BAC for all periods ending
on or after October 1, 1997. BAC has never been a member of an affiliated group
filing consolidated returns. BAC does not do business in or derive income from
any state, local, territorial or foreign taxing jurisdiction of a nature that
would require the filing of Tax Returns other than those for which all Tax
Returns have been furnished to CAIS.
(d) The Tax Returns of BAC have never been audited by a governmental body
or taxing authority, nor is any such audit in process, pending or threatened. No
deficiencies exist or have been asserted or are expected to be asserted with
respect to Taxes of BAC, and BAC has not received and does not expect to receive
notice that it has not filed a Tax Return or paid Taxes required to be filed or
paid by it. There is no action or proceeding pending for the assessment or
collection of Taxes to which BAC is a party, nor has such an action been
asserted or, to the knowledge of BAC and the Shareholders, threatened against
BAC or any of its assets. No waiver or extension of any statute of limitations
is in effect with respect to Taxes or Tax Returns of BAC. BAC has disclosed on
its federal income tax returns all positions taken therein that could give rise
to a substantial understatement penalty within the meaning of Code Section 6662.
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(e) BAC is not and has never been a party to any agreement providing for
sharing, indemnification or allocation of Taxes, whether formal or informal. BAC
is not liable for Taxes incurred by any individual or entity either as a
transferee, pursuant to Treasury Regulation Section 1.1502-6, or pursuant to any
other provision of federal, territorial, state, local or foreign law or
regulations.
(f) BAC is not, nor has it ever been, an "S" corporation, within the
meaning of Section 1361(a)(1) of the Code, for federal, state or local income
tax purposes.
(g) BAC is not a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity
and Fiscal Responsibility Act of 1982. BAC is not, and has not been at any time
during the five-year period ending on the Closing Date, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code. BAC has not given a consent under Section 341(f) of the Code. BAC will not
be required to include in a taxable period ending after the Closing Date taxable
income attributable to income that economically accrued in a taxable period
ending on or prior to the Closing Date as a result of the installment method of
accounting, the completed contract method of accounting, the cash method of
accounting or otherwise. BAC has not agreed, nor is it required, to make any
adjustment under Code Section 481(a) by reason of a change in accounting method
or otherwise. BAC has not participated in an international boycott as defined in
Code Section 999. BAC does not have a permanent establishment in any foreign
country, as defined in any applicable Tax treaty or convention between the
United States of America and such foreign country, and BAC is not a party to any
joint venture, partnership or other agreement, contract or arrangement (either
in writing or verbally, formally or informally) which could be treated as a
partnership for federal income tax purposes. BAC has not been involved in a
spin-off, split-off or split-up transaction within the five-year period ending
on the Closing Date. BAC is not currently and has never been subject to the
reporting and record maintenance requirements of Section 6038A of the Code.
(h) BAC has no net operating losses or other Tax attributes presently
subject to limitation under Code Sections 382, 383, or 384.
(i) BAC has not entered into any compensatory agreements with respect to
the performance of services which payment thereunder would (i) result in a
nondeductible expense to BAC pursuant to Section 280G of the Code or an excise
tax to the recipient of such payment pursuant to Section 4999 of the Code or
(ii) not be deductible under Section 162 of the Code by reason of being
unreasonable in amount.
(j) BAC has not been involved in a spin-off, split-off or split-up
transaction within the preceding five years.
14
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3.17 Insurance.
Schedule 3.17 contains an accurate and complete description of all policies
-------------
of fire, liability, worker's compensation and other forms of insurance owned or
held by BAC. All such policies are in full force and effect; are, to the
knowledge of BAC and the Shareholders, sufficient for compliance with all
requirements of law and of all agreements to which BAC is a party; are valid,
outstanding and enforceable policies; provide insurance coverage for the assets
and operations of BAC to the extent and in amounts customary in the industry;
and will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement.
3.18 Benefit Plans.
(a) Schedule 3.18 lists (i) all "employee benefit plans" within the
-------------
meaning of Section 3(3) of ERISA, (ii) all employment agreements, including, but
not limited to, any individual benefit arrangement, policy or practice with
respect to any current or former employee or director of BAC or Member of the
Controlled Group, and (iii) all other employee benefit, bonus or other incentive
compensation, stock option, stock purchase, stock appreciation, severance pay,
lay-off or reduction in force, change in control, sick pay, vacation pay, salary
continuation, retainer, leave of absence, educational assistance, service award,
employee discount, fringe benefit plans, arrangements, policies or practices,
whether legally binding or not, to which BAC or any Member of the Controlled
Group maintains, contributes to or has any obligation to or Liability for
(collectively, the "Plans"). Each Plan provides that it may be amended or
-----
terminated at any time and, except for benefits protected under Section 411(d)
of the Code, all benefits payable to current or terminated employees or any
beneficiary may be amended or terminated by BAC at any time without Liability.
(b) None of the Plans is a Defined Benefit Plan or a Multiemployer Plan and
neither BAC nor any Member of the Controlled Group has ever (i) sponsored,
maintained or contributed to, or been obligated to contribute to, a Defined
Benefit Plan or (ii) contributed to, or been obligated to contribute to, a
Multiemployer Plan.
(c) BAC does not maintain or contribute to any welfare benefit plan that
provides health benefits to an employee after the employee's termination of
employment or retirement except as required under Section 4980B of the Code
and Sections 601 through 608 of ERISA.
(d) Each Plan which is an "employee benefit plan", as defined in Section
3(3) of ERISA, has complied in all material respects since its inception by its
terms and in operation with the requirements provided by any and all statutes,
orders or governmental rules or regulations currently in effect and applicable
to the Plan, including but not limited to ERISA and the Code. BAC is not subject
to a risk of Liability to any governmental body, including, without limitation,
excise taxes or civil penalties, as the result of the application of any
provision of ERISA or the Code. No investigations or audits by a governmental
body, or other actions, demands, proposals, negotiations or claims with respect
to any Plan have occurred, or are pending, threatened or imminent against any
employer who is participating (or who has participated) in any Plan or any
fiduciary (as defined in Section 3(21) of ERISA) of the Plan or which otherwise
concern matters covered or that would be covered by the Plans. Neither BAC,
15
<PAGE>
the Shareholders nor any fiduciary with respect to any Plan, has any knowledge
of any facts that could give rise to any such action, demand, proposal,
negotiation or claim.
(e) The Internal Revenue Service has determined that each Plan intended to
qualify under Section 401(a) of the Code so qualifies as of the last day of the
"TRA 86 Remedial Amendment Period," as such period is defined in Section 3.02 of
Revenue Procedure 96-55 and each trust maintained pursuant thereto is exempt
from taxation under Section 501 of the Code. Nothing has occurred since the date
of the Internal Revenue Service's favorable determination letter that could
adversely affect the qualification of the Plan and its related trust.
(f) True, correct and complete copies of (i) all documents creating or
evidencing any Plan listed in Schedule 3.18, (ii) all reports, forms and other
-------------
documents required to be filed with any governmental body (including, without
limitation, summary plan descriptions, Forms 5500 and summary annual reports for
all plans subject to ERISA), and (iii) the latest favorable letters of
determination from the Internal Revenue Service with respect to the Plans that
are intended to qualify under Section 401(a) of the Code have been delivered to
CAIS.
(g) All expenses and Liabilities relating to all of the Plans described in
Schedule 3.18 have been, and will on the Closing Date be, fully and properly
- -------------
accrued on the BAC's books and records and disclosed on the Financial Statements
and such Plans have no unfunded liabilities not reflected on such Financial
Statements.
3.19 Bank Accounts.
Schedule 3.19 sets forth the names and locations of all banks, trust
-------------
companies, savings and loan associations and other financial institutions at
which BAC maintains accounts of any nature and the names of all persons
authorized to draw thereon or make withdrawals therefrom.
3.20 Contracts and Commitments; No Default.
(a) Except as set forth in Schedule 3.20(a):
----------------
(i) BAC has no employment agreement with any officer, employee or
agent, nor any agreement that contains any severance or
termination pay Liabilities or obligations;
(ii) BAC has no collective bargaining or union contracts or
agreements;
(iii) BAC has no employee to whom it is paying aggregate direct
remuneration at the annual rate of more than Twenty-Five
Thousand Dollars ($25,000) for services rendered or
commissions at a rate, which based on sales by such employee
during the last fiscal year, would exceed Twenty-Five
Thousand Dollars ($25,000);
(iv) BAC is not restricted by agreement from carrying on its
business or any part thereof anywhere in the world or from
competing in any line of business with any Person;
16
<PAGE>
(v) BAC has no obligation for borrowed money, including
guarantees of or agreements to acquire any such debt
obligation of others;
(vi) BAC has no outstanding loan to any Person;
(vii) BAC has no Liability as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the
obligation of any other Person;
(viii) BAC is not subject to any obligation or requirement to
provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any Person
whether under a loan agreement, note or otherwise;
(ix) BAC is not a party to any agreement, contract, commitment or
loan to which any officer or director or any Affiliate or
Associate of BAC or its officers and directors is a party;
(x) BAC is not a party to any purchase or sale contract or
agreement that continues for a period of more than twelve
months (including periods covered by any option to renew by
either party);
(xi) BAC is not a lessor under any lease, lease intended as
security, an owner participant in any leveraged lease
transaction or party to a vendor arrangement or conditional
sales agreement;
(xii) BAC has not given any irrevocable power of attorney to any
Person for any purpose whatsoever, except the appointment of
agents to accept service of process;
(xiii) There are no outstanding sales or purchase contracts,
commitments or proposals of BAC that will result in any loss
exceeding Five Thousand Dollars ($5,000.00) upon completion
or performance thereof, after allowance for direct
distribution expenses; and
(xiv) Except for agreements, contracts, commitments or restrictions
referred to in subsections 3.20(a)(i)-(xiii) or elsewhere
-----------------------------
specifically disclosed pursuant to this Agreement, BAC has no
agreements, contracts, commitments or restrictions that are
material to its business, operations or prospects (for the
purpose of this subsection, any agreement, contract,
commitment or restriction may be deemed "immaterial" if it
may be canceled on thirty (30) days' notice without premium,
penalty or forfeiture and it calls for fixed and/or
contingent payments thereunder of less than $5,000 per year).
(b) True and complete copies of all documents (including all amendments
thereto) referred to in Section 3.20(a) have been delivered to CAIS. Schedule
--------------- --------
3.20(b) contains a list of employees of BAC and their annual compensation and
- -------
job descriptions. All contracts,
17
<PAGE>
agreements, commitments or restrictions referred to in Section 3.20(a) are valid
---------------
and enforceable in accordance with their respective terms, except to the extent
limited by applicable bankruptcy, insolvency or reorganization laws, or the
application of equitable principles (whether considered in a proceeding at law
or in equity). BAC is not in default in the performance of any of its
obligations thereunder, no event of default has occurred which (whether with or
without notice, lapse of time, or both, or the happening or the occurrence of
any other event) would constitute a default thereunder and, to the knowledge of
BAC and the Shareholders, all other parties thereto are not in default
thereunder and have no counterclaims, offsets and defenses with respect thereto.
3.21 Inventory.
Except as set forth in Schedule 3.21, all inventory of BAC, whether or not
-------------
reflected in the June 1999 Balance Sheet, consists of a quality and quantity
useable and sellable in the ordinary course of business, except for items of
obsolete material and materials of below standard quality, all of which have
been written down in the June 1999 Balance Sheet to net realizable market value
or for which adequate reserves have been provided therein. The quantities of
each type of inventory (whether raw materials, work-in-process, or finished
goods) of BAC are not excessive, but are reasonable in the present circumstances
of its business.
3.22 Accounts Receivable.
Except as set forth in Schedule 3.22, all accounts receivable of BAC,
-------------
whether or not reflected in the June 1999 Balance Sheet, represent sales
actually made in the ordinary course of business, and are current and the
Shareholders and BAC reasonably believe are collectible net of any reserves
shown on the June 1999 Balance Sheet (which reserves are adequate and were
calculated consistent with past practice). Subject to such reserves, each of
the accounts receivable either has been collected in full or, in accordance with
past experience by BAC, will be collected in full, without any setoff.
3.23 Executed Sales Contracts, Commitments and Claims.
Each existing sales contract and executed license agreement to which BAC is
a party is valid and enforceable in accordance with its respective terms (except
to the extent limited by applicable bankruptcy, insolvency or reorganization
laws or the application of equitable principles, whether considered in a
proceeding at law or in equity), BAC is not in default in the performance of any
of its obligations thereunder, no event of default has occurred which (whether
with or without notice, lapse of time, or both, or the happening or the
occurrence of any other event) would constitute a default thereunder and, to the
knowledge of BAC and the Shareholders, all other parties thereto are not in
default thereunder and have no counterclaims, offsets and defenses with respect
thereto. Each executed sales contract and executed license agreement that is
anticipated to involve, after the Closing Date, the payment to BAC or the
payment by BAC of more than One Thousand Dollars ($1,000.00) is valid and
enforceable in accordance with its respective terms, except to the extent
limited by applicable bankruptcy, insolvency or reorganization laws, or the
application of equitable principles (whether considered in a proceeding at law
or in equity). BAC is not in default in the performance of any of its
obligations thereunder, no event of default has occurred which (whether with or
without notice,
18
<PAGE>
lapse of time, or both, or the happening or the occurrence of any other event)
would constitute a default thereunder and, to the knowledge of BAC and the
Shareholders, all other parties thereto are not in default thereunder and have
no counterclaims, offsets and defenses with respect thereto. The aggregate of
all contracts or commitments for the purchase of products by BAC does not exceed
Ten Thousand Dollars ($10,000.00), all of which contracts and commitments were
made in the ordinary course of business. As of the date of this Agreement,
neither BAC nor the Shareholders have received any notice of any claims against
BAC to return in excess of an aggregate of One Thousand Dollars ($1,000.00) of
products by reason of alleged overshipments, defective products or otherwise, or
of products in the hands of customers or distributors under an understanding
that such products would be returnable. As of the date of this Agreement,
neither BAC nor the Shareholders have received any notice of any claims against
BAC in excess of an aggregate of One Thousand Dollars ($1,000.00) relating to
services BAC has provided to customers.
3.24 Labor Difficulties.
BAC is and has been in material compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including, without limitation, any such laws
respecting employment discrimination and occupational safety and health
requirements, and, is not engaged in any unfair labor practice. There is no
unfair labor practice complaint against BAC pending or, to the knowledge of BAC
and Shareholders, threatened before the National Labor Relations Board. BAC has
not experienced any material work stoppage or other material labor difficulty.
3.25 Permits and Other Operating Rights.
Except as set forth in Schedule 3.25, BAC does not require the consent of
-------------
any Person to permit it to operate its business in the manner in which it
currently is being conducted, and possesses all permits and other authorizations
from third Persons, including without limitation, federal, foreign, state and
local governmental bodies, currently required by applicable provisions of law,
including statutes, regulations and existing judicial decisions, and by the
property and contract rights of third Persons, necessary to permit it to operate
its business in the manner in which it currently is being conducted. Schedule
--------
3.25 contains a complete list of all export licenses granted to and applied for
- ----
by BAC.
3.26 Joint Ventures.
Schedule 3.26(a) sets forth a list of all written agreements relating to
----------------
joint ventures between BAC and any other Person and Schedule 3.26(b) sets forth
----------------
a true and complete description of the material terms and conditions of each
such written agreement. Except to the extent set forth in such Schedules
---------
3.26(a) and 3.26(b), there has been no adverse change in the business
- -------------------
relationship of BAC with any joint venturer named in such Schedules.
3.27 Compliance with Law.
Except as set forth on Schedule 3.27, BAC is in material compliance with
-------------
all laws, regulations and orders applicable to its business. BAC has not
received any notification that it is in violation of any such laws, regulations
or orders and no such violation exists.
19
<PAGE>
3.28 Related Transactions.
Except as set forth in Schedule 3.28, there is no transaction or
-------------
arrangement currently existing and during the last three years there has been no
transaction or arrangement, in which BAC is or was a party and in which the
Shareholders, any director or officer of BAC or any Affiliate or Associate
thereof have or have had a direct or indirect interest.
3.29 Environmental Liability.
Without limiting Section 3.27, at all times BAC has been in compliance, in
------------
all material respects, with all applicable environmental laws adopted, imposed
or promulgated by any governmental body or regulatory entity having jurisdiction
over BAC's offices at 2915 S. Daimler Street, Santa Ana, California, 92705 (the
"Facility"). Neither BAC nor, to the knowledge of BAC and the Shareholders, any
portion of the Facility is in violation of any federal, state or local law,
ordinance, regulation or order relating to industrial hygiene, worker safety,
environmental protection, Hazardous Materials or waste or toxic materials.
Prior to the date hereof, there has been no spill, release or discharge of any
Hazardous Materials in connection with BAC's operation on, under or about the
Facility. No current use of the Facility, to the knowledge of BAC and the
Shareholders, constitutes a public or private nuisance. All environmental
licenses, permits, approvals and governmental authorizations material to and
required for the BAC business have been obtained by BAC and are in full force
and effect. Any handling, transportation, storage, treatment or use of
Hazardous Materials by BAC on or about the Facility has been in compliance with
all laws, regulations and orders relating to Hazardous Materials. To the best
knowledge of BAC and Shareholders, the Facility, including, without limitation,
the soil and groundwater on or under the Facility, is free of Hazardous
Materials. No notification of release of Hazardous Materials pursuant to
applicable law has been received by BAC as to any of such premises. No wastes
generated by BAC have ever been sent directly or indirectly to any site listed
or formally proposed for listing on a federal or state list of Hazardous
Materials sites requiring investigation or clean-up. BAC has not received from
any governmental body or other Person any requests for information, notices of
claim, demand letters, or other notification that they or it are or is or may be
potentially responsible with respect to any investigation or clean-up of
Hazardous Materials. BAC is not aware of any fact or circumstance that could
reasonably be expected to involve BAC or CAIS in any environmental litigation or
impose any material environmental liability upon BAC or CAIS in respect of BAC's
business.
3.30 Assets and Revenues.
The Shareholders are the "ultimate parent entities" of BAC as such term is
defined in 16 C.F.R. Section 801.1(a)(3). The Shareholders, on an aggregated
basis, do not (i) have assets having an aggregate book value of $10 million or
more (determined in accordance with 16 C.F.R. Section 801.11(d)) based on its
recent regularly prepared balance sheet or (ii) control (as defined in 16 C.F.R.
Section 801.1(b)) Entities with sales of $10 million or more in such controlled
Entities' most recent fiscal year. This representation and warranty is made
solely for the purpose of determining the applicability to the transactions
contemplated by this Agreement of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
20
<PAGE>
3.31 Disclosure.
No representations or warranties by the Shareholders or BAC in this
Agreement and no statement contained in any document (including, without
limitation, the Financial Statements and all relevant Schedules), certificate,
or other writing furnished or to be furnished by the Shareholders or BAC, on the
one hand, to CAIS or the Company, on the other hand, pursuant to the express
provisions hereof, contain or will contain any untrue statement of material fact
or omit or will omit to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.
3.32 Knowledge Defined.
As used herein, the phrase "to the knowledge of BAC," "to the knowledge of
the Shareholders" or "to BAC's knowledge" (or words of similar import) shall
mean the actual knowledge after due inquiry of the Shareholders and all officers
and directors of BAC. The term "due inquiry" is hereby defined to mean such
inquiry by the applicable Person as such Person would normally be reasonably
expected to make in the ordinary course of his or her regular and usual duties
as either an owner, director or officer, as the case may be, of BAC.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND CAIS
Except as set forth in the Disclosure Schedule attached hereto provided by
CAIS as of the date hereof (the "CAIS Disclosure Schedule"), the parts of which
are numbered to correspond to the section numbers of this Agreement, the Company
and CAIS, jointly and severally, hereby represent and warrant to BAC and the
Shareholders, as follows:
4.1 Corporate Organization; Etc.
CAIS is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authorization, Etc.
CAIS and the Company have full corporate power and authority to enter into
this Agreement and to carry out the transactions contemplated hereby. This
Agreement and the other documents to be executed by CAIS and the Company
pursuant to the terms hereof and their execution and delivery to BAC and the
Shareholders have been duly authorized by the Boards of Directors of CAIS and
the Company. CAIS and the Company have the full legal right and power and all
authority and approvals required to enter into, execute and deliver this
Agreement and the other documents contemplated herein and to perform fully their
obligations hereunder and thereunder. This Agreement, the other Transactional
Agreements and the other documents contemplated hereby have been duly and
validly executed and delivered by CAIS and the Company and no other corporate
action is necessary. This Agreement, the other Transactional Agreements and the
other documents contemplated hereby constitute valid and binding obligations of
CAIS and the Company enforceable in accordance with their respective terms,
21
<PAGE>
except to the extent limited by applicable bankruptcy, insolvency or
reorganization laws and the application of equitable principles (whether
considered in a proceeding at law or in equity). The Consideration Shares have
been duly and validly reserved, and when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and shall not be subject to any Encumbrances of any kind.
4.3 No Violation.
Neither the execution and delivery of this Agreement or the other
Transactional Agreements by CAIS and the Company nor the performance hereof or
thereof by CAIS and the Company and the consummation of the transactions
contemplated hereby will (a) violate any provision of the Certificate of
Incorporation or Bylaws of CAIS or the Company, (b) violate, or be in conflict
with, or constitute a default (or an event which, with or without due notice or
lapse of time, or both, would constitute a default) under, or result in the
modification or termination of, or cause or permit the acceleration of the
maturity of any material debt, obligation, contract, commitment or other
material agreement to which CAIS or the Company is a party or by which it or its
property may be bound, (c) result in the creation or imposition of any
Encumbrance of any kind, upon the Initial Consideration Shares or the Additional
Consideration, or upon any material property or assets of CAIS or the Company,
or (d) violate in any material respect any statute or law or any judgment,
decree, order, regulation or rule of any court or governmental body applicable
to CAIS or the Company.
4.4 Consents and Approvals of Government Authorities.
Except for any filings required pursuant to applicable federal and state
securities laws or as set forth in Schedule 4.4 of the CAIS Disclosure Schedule,
no consent, approval or authorization of, or declaration, filing or registration
with, any governmental body, regulatory authority or third Person is required in
connection with the execution, delivery and performance of this Agreement or any
other document contemplated hereby by CAIS and the Company and the consummation
of the transactions contemplated thereby.
4.5 Reports and Financial Statements.
CAIS has filed all reports required to be filed with the U.S. Securities
Exchange Commission ("SEC") pursuant to the Securities Act and the Securities
Exchange Act of 1934, as amended ("Exchange Act"), since its initial public
offering on May 20, 1999 (all such reports, including those to be filed prior to
the Closing Date and all registration statements and prospectuses filed by CAIS
with the SEC in connection with the Company's initial public offering, are
collectively referred to as the "CAIS SEC Reports"), and has previously
----------------
furnished or made available to the Shareholders true and complete copies of all
CAIS SEC Reports filed, if any, with respect to periods ending after May 20,
1999 (including any exhibits thereto) and will promptly deliver to the
Shareholders any CAIS SEC Reports filed between the date hereof and the Closing
Date. All of such CAIS SEC Reports complied at the time they were filed and
declared effective, if applicable, in all material respects with applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations thereunder. None of such CAIS SEC Reports, as of their respective
dates (as amended through the date hereof), contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
22
<PAGE>
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited financial
statements of CAIS included in the CAIS SEC Reports comply in all material
respects with the published rules and regulations of the SEC with respect
thereto, and such audited financial statements (i) were prepared from the books
and records of CAIS, (ii) were prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated therein or in the notes or
schedules thereto) and (iii) present fairly the financial position of CAIS as of
the dates thereof and the results of operations and cash flows for the periods
then ended. The unaudited financial statements included in the CAIS SEC Reports
comply in all material respects with the published rules and regulations of the
SEC with respect thereto; and such unaudited financial statements (i) were
prepared from the books and records of CAIS, (ii) were prepared in accordance
with GAAP, except as otherwise permitted under the Exchange Act and the rules
and regulations thereunder, on a consistent basis (except as may be indicated
therein or in the notes or schedules thereto) and (iii) present fairly the
financial position of CAIS as of the dates thereof and the results of operations
and cash flows (or changes in financial condition) for the periods then ended,
subject to normal year-end adjustments and any other adjustments described
therein or in the notes or schedules thereto. The foregoing representations and
warranties shall also be deemed to be made with respect to all filings made with
the SEC on or before the Closing Date.
4.6 Tax Matters.
(a) Prior to the Merger, CAIS will be in control of the Company within the
meaning of Section 368(c) of the Code.
(b) CAIS has no plan or intention to cause BAC to issue, after the Closing
Date, additional shares of BAC stock or take any other action that would
result in CAIS losing control of BAC within the meaning of Section 368(c)
of the Code.
(c) Neither CAIS, nor any Person related to CAIS (within the meaning of
Treasury Regulation Section 1.368-1(e)(3)), has any plan or intention to
reacquire any of its stock issued pursuant to this Agreement.
(d) CAIS has no plan or intention to liquidate BAC; to merge BAC with or
into another corporation; to cause BAC to sell or otherwise dispose of the stock
of BAC; or to cause BAC to sell or otherwise dispose of any of its assets or of
any of the assets acquired from the Company, except for dispositions made in the
ordinary course of business and which are permitted under this Agreement.
(e) After the Closing Date, CAIS intends that BAC will continue its
historic business or use a significant portion of its historic business assets
in a business.
(f) There is no intercorporate indebtedness existing between CAIS and BAC
or between the Company and BAC.
(g) CAIS agrees to comply with Treasury Regulation Section 1.368-3
regarding records to be kept and information to be filed with the relevant Tax
Returns.
23
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(h) In the Merger, shares of BAC Stock representing control of BAC, as
defined in section 368(c) of the Code, will be exchanged solely for voting stock
of CAIS. For purposes of this representation, shares of BAC Stock exchanged for
cash or other property originating with CAIS will be treated as outstanding BAC
Stock on the Closing Date.
(i) The Company has not incurred any Liabilities or obligations other than
those arising under this Agreement and the other Transactional Agreements.
(j) Neither CAIS nor the Company shall pay any expenses of BAC or the
Shareholders incurred in connection with the Merger.
4.7 Issuance of Consideration Shares.
Subject to the accuracy and completeness of BAC's and the Shareholders'
representations and warranties in Article III and in the Registration Rights and
Lock-up Agreement attached hereto as Exhibit D, the offer, sale and issuance of
the Consideration Shares as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act and all state securities laws,
and neither CAIS nor anyone acting on its behalf will take any action hereafter
that would cause the loss of such exemption.
4.8 Disclosure.
No representations or warranties by CAIS or the Company in this Agreement
and no statement contained in any document (including, without limitation, any
CAIS financial statements and all relevant Schedules), certificate, or other
writing furnished or to be furnished by CAIS or the Company, on the one hand, to
BAC or the Shareholders, on the other hand, pursuant to the express provisions
hereof, contain or will contain any untrue statement of material fact or omit or
will omit to state any material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE V.
SHAREHOLDERS' COVENANTS
To the extent that the transactions contemplated herein shall require the
consent of the other party to any BAC contract, license, lease, agreement or
commitment (including the Facility lease) or the consent of any other Person,
the Shareholders agree to take, and to cause BAC to take, all reasonable actions
as are necessary to obtain all such consents prior to the Closing Date. If any
such consent is not obtained, the Shareholders agree to continue such efforts
after the Closing Date and until such consent is obtained and to cooperate with
CAIS, the Company and BAC in any reasonable arrangement (such as subcontracting,
sublicensing or subleasing) designed to provide for the Surviving Corporation
all of the benefits of BAC under such contract, license, lease, agreement or
commitment, as the case may be (including enforcement at the cost to, and for
the benefit of, the Surviving Corporation and any and all rights of BAC or the
Shareholders arising out of the breach or cancellation of such contract,
license, lease, agreement or commitment).
24
<PAGE>
ARTICLE VI.
CLOSING
6.1 Closing Conditions of CAIS and the Company.
The obligations of CAIS and the Company to effect the Closing and
consummate the Merger are subject to the satisfaction (or waiver by CAIS) of
each of the following conditions:
(a) At or prior to the Closing, the Shareholders or BAC shall deliver to
CAIS:
(i) certificates evidencing the BAC Stock, accompanied by duly
executed blank stock powers;
(ii) such certificates of the Shareholders and BAC as may be
reasonably requested by CAIS including a certificate, dated the
Closing Date, duly executed by the Shareholders and BAC,
certifying that (A) each of the representations and warranties
made by the Shareholders and BAC in this Agreement and in the
other Transactional Agreements was accurate in all material
respects as of the date of the Agreement and is accurate in all
material respects as of the Closing Date as if made on the
Closing Date, (B) each of the covenants and obligations that the
Shareholders and BAC are required to have complied with or
performed pursuant to this Agreement and the other Transactional
Agreements at or prior to the Closing has been duly complied with
and performed in all material respects, and (C) each of the
conditions set forth in Article VI has been satisfied in all
respects;
(iii) an opinion of Stradling Yocca Carlson & Rauth, counsel to the
Shareholders and BAC, dated the Closing Date, in form and
substance satisfactory to CAIS;
(iv) duly executed and binding employment agreements between the
Surviving Corporation and Mr. Kao and Mr. Kwan, in substantially
the form of Exhibit E hereto (the "Employment Agreements");
---------
(v) a duly executed and binding consulting agreement between the
Surviving Corporation and Ms. Hsiao in substantially the form of
Exhibit F hereto (the "Consulting Agreement");
---------
(vi) a duly executed and binding Escrow Agreement;
(vii) evidence satisfactory to CAIS that all indebtedness due and
payable by BAC, including all indebtedness due to the
Shareholders or to any Affiliate or Associate of the Shareholders
has been fully discharged;
(viii) a duly executed Certificate of Merger;
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(ix) a duly executed Agreement of Merger;
(x) a duly executed and binding Registration Rights and Lock-up
Agreement substantially in this form attached as Exhibit D
---------
hereto;
(xi) copies of resolutions of BAC, certified by a Secretary, Assistant
Secretary or other appropriate officer of BAC, authorizing the
execution, delivery and performance of this Agreement, the other
Transactional Agreements and the Merger; and copies of written
consents of the Shareholders, certified by a Secretary, Assistant
Secretary or other appropriate officer of BAC, authorizing the
execution, delivery and performance of this Agreement, the other
Transactional Agreements and the Merger; and
(xii) a good standing certificate from the State of California with
respect to BAC.
(b) The representations and warranties of the Shareholders and BAC in this
Agreement and in the other Transactional Agreements shall have been true and
correct as of the date of this Agreement and shall be true and correct on and as
of the Closing, and all of the covenants and obligations that the Shareholders
and BAC are required to comply with or to perform pursuant to this Agreement and
the other Transactional Agreements at or prior to the Closing shall have been
duly complied with and performed in all material respects.
(c) No preliminary or permanent injunction or other order by any federal,
state or foreign court of competent jurisdiction which prohibits the
consummation of this Agreement and the other Transactional Agreements shall have
been issued and remain in effect. No statute, rule, regulation, executive order,
stay, decree, or judgment shall have been enacted, entered, issued, promulgated
or enforced by any court or governmental authority which prohibits or restricts
the consummation of the transactions contemplated by this Agreement and the
other Transactional Agreements.
(d) There shall not have been any material adverse change in BAC's
business, condition, assets, Liabilities, operations or financial performance
since the date of this Agreement.
(e) Since the date of this Agreement, there shall not have been commenced
or threatened against BAC, or against any Affiliate or Associate of BAC, any
proceeding (i) involving any challenge to, or seeking damages or other relief in
connection with, the Agreement, or (ii) that may have the effect of preventing,
delaying, making illegal or otherwise interfering with this Agreement or having
a material adverse effect on BAC.
(f) No Person shall have made or threatened any claim asserting that such
Person (i) may be the holder or the beneficial owner of, or may have the right
to acquire or to obtain beneficial ownership of, any capital stock or other
securities of BAC, or (ii) may be entitled to all or any portion of the
consideration to be issued in connection with this Agreement.
26
<PAGE>
(g) Neither the consummation nor the performance of the transactions
contemplated by this Agreement and the other Transactional Agreements will,
directly or indirectly (with or without notice or lapse of time), contravene or
conflict with or result in a violation of, or cause CAIS or the Company or any
Affiliate thereof to suffer any material adverse consequence under any
applicable law.
6.2 Closing Conditions of BAC and the Shareholders.
The obligations of BAC and the Shareholders to effect the Closing and
consummate the Merger are subject to the satisfaction (or waiver by BAC and the
Shareholders) of each of the following conditions:
(a) At the Closing, CAIS shall deliver to BAC and the Shareholders the
following:
(i) the Initial Consideration as set forth in Section 1.2(a);
--------------
(ii) duly executed and binding Employment Agreements and
Consulting Agreement;
(iii) a duly executed and binding Escrow Agreement;
(iv) resolutions of the Boards of Directors of CAIS and the
Company authorizing the consummation of the transactions
contemplated hereby, certified by the Secretary of CAIS and
the Company;
(v) a duly executed Certificate of Merger;
(vi) a duly executed Agreement of Merger;
(vii) a duly executed and binding Registration Rights and Lock-up
Agreement substantially in the form attached as Exhibit D
hereto; and
(viii) good standing certificates from the State of Delaware with
respect to CAIS and the Company.
(b) The representations and warranties of CAIS and the Company in this
Agreement and the other Transactional Agreements shall have been true and
correct as of the date of this Agreement and shall be true and correct on and as
of the Closing, and all of the covenants and obligations that CAIS and the
Company are required to comply with or to perform pursuant to this Agreement and
the other Transactional Agreements at or prior to the Closing shall have been
duly complied with and performed in all material respects.
(c) No preliminary or permanent injunction or other order by any federal,
state or foreign court of competent jurisdiction which prohibits the
consummation of this Agreement and the other Transactional Agreements shall have
been issued and remain in effect. No statute, rule, regulation, executive order,
stay, decree, or judgment shall have been enacted, entered, issued, promulgated
or enforced by any court or governmental authority which prohibits or restricts
the
27
<PAGE>
consummation of the transactions contemplated by this Agreement and the other
Transactional Agreements.
(d) Neither the consummation nor the performance of the transactions
contemplated by this Agreement and the other Transactional Agreements will,
directly or indirectly (with or without notice or lapse of time), contravene or
conflict with or result in a violation of, or cause BAC or any Affiliate thereof
to suffer any material adverse consequence under any applicable law.
6.3 Further Assurances.
Each of the parties hereto agrees that it will, from time to time after the
date of the Agreement, execute and deliver such other certificates, documents
and instruments and take such other action as may be reasonably requested by the
other party to carry out the actions and transactions contemplated by this
Agreement, including the closing conditions described in this Article VI.
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS OF BAC AND THE SHAREHOLDERS;
SHAREHOLDERS' INDEMNIFICATION
7.1 Survival.
The representations, warranties and covenants of the Shareholders and BAC
contained in this Agreement or in any certificate or schedule or instrument
delivered pursuant hereto, shall survive until the First Anniversary Date,
except that the Shareholders' representations and warranties in Sections 3.2,
-------------
3.4 and 3.16 hereof shall survive until any Liability thereunder is barred by
- ------------
all applicable statutes of limitations, including waivers and extensions
thereof.
7.2 General Indemnity.
The Shareholders (also referred to herein collectively as the
"Indemnitors"), jointly and severally, indemnify and hold the Company, the
Surviving Corporation, CAIS, and their respective successors, assigns, officers,
directors and employees (the "Indemnitee" or "Indemnitees"), harmless from and
against any and all Liabilities, obligations, losses, claims, damage, cost,
charges or other expenses of every kind and character (including, but not
limited to, attorneys' fees and litigation costs), which may accrue or be
sustained by an Indemnitee arising out of or as a result of any of the
warranties, representations or covenants of BAC or the Shareholders contained in
this Agreement being incorrect, untrue or breached. An Indemnitee may assign to
another Indemnitee, without Indemnitors' consent, its right for indemnification,
arising under any provision of this Article VII, with respect to a loss of any
-----------
nature.
28
<PAGE>
7.3 Tax Indemnity.
(a) From and after the Closing Date until the statutory period of
limitations (taking into account any extensions or waivers thereof) for the
assessment of Taxes covered by this Section 7.3 has expired, the Indemnitors
-----------
shall protect, defend, indemnify and hold harmless Indemnitees from any and all
Taxes which are imposed on BAC in respect of its income, business, property or
operations or for which BAC may otherwise be liable (i) for any taxable period
ending prior to the Closing Date and for any Pre-Closing Period (as defined and
determined in Section 7.3(b)), (ii) resulting by reason of the
--------------
several liability of BAC pursuant to Treasury Regulations section 1.1502-6 or
any analogous state, local or foreign law or regulation or by reason of BAC
having been a member of any consolidated, combined or unitary group on or prior
to the Closing Date, (iii) in respect of any date after the Closing Date ("Post-
----
Closing Period"), where such Taxes are attributable to events, transactions,
- ---------------
sales, deposits, services or rentals occurring, received or performed in a Pre-
Closing Period that are properly allocable to a Pre-Closing Period, (iv) in
respect of any Post-Closing Period, attributable to any change in accounting
method employed by BAC during any of its two (2) previous taxable years, (v) in
respect of any Post-Closing Period, attributable to any items of income or gain
of a partnership reporting BAC as a partner, to the extent such items are
properly attributable to periods of the partnership ending on or before the
Closing Date, or (vi) resulting from the breach of the Shareholders'
representations and warranties set forth in Section 3.16 (Taxes) hereof;
------------
provided, however, that the Indemnitors' Liability under the foregoing
- -----------------
provisions of this Section 7.3 shall be reduced as to any item to the
-----------
extent that such item was specifically and fully reserved for in the June
1999 Financial Statements.
(b) In order appropriately to apportion any of these Taxes relating to a
period that includes (but that would not, but for this section, close on) the
Closing Date ("Straddle Period"), the parties hereto will, to the extent
permitted by applicable law, elect with the relevant taxing authorities to treat
for all purposes the Closing Date as the last day of a taxable period of BAC,
and such period shall be treated as the "Pre-Closing Period" for
------------------
purposes of this Agreement. In any case where applicable law does not permit BAC
to treat the Closing Date as the last day of a taxable period, then for purposes
of this Agreement, the portion of such Taxes that is attributable to the
operations of BAC for the Pre-Closing Period shall be (i) in the case of Taxes
that are not based on income or gross receipts, the total amount of such Taxes
for the period in question multiplied by a fraction, the numerator of which is
the number of days in the period prior to and including the Closing Date, and
the denominator of which is the total number of days in the entire period in
question, and (ii) in the case of Taxes that are based on income or gross
receipts, the Taxes that would be due with respect to the period based on
closing of the books.
7.4 General Indemnity Procedures.
(a) In the event that at any time or from time to time after the Closing
Date an Indemnitee shall sustain a loss of any nature whatsoever against which
such Indemnitee is indemnified under this Agreement, such Indemnitee shall
notify the Indemnitors in writing of any such loss so sustained. The Indemnitors
agree to pay such Indemnitee the amount of such loss so sustained within thirty
(30) days after transmittal of such notice, subject to his right to contest any
claim which has not yet resulted in a loss, as hereinafter provided in Section
-------
7.4(b); provided, that if the Indemnitors, in good faith, and within thirty
- ----------------
(30) days of receipt of the
29
<PAGE>
written notice from the Indemnitee seeking indemnification, notify in writing
the Indemnitee of his objections to the claim for indemnification, the rights of
the Indemnitee seeking indemnification with respect to such claim shall be
determined by binding arbitration pursuant to the procedures set forth in
Section 11.2 hereof.
- ------------
(b) An Indemnitee shall promptly notify the Indemnitors of the existence of
any claim, demand, or other matter involving Liabilities to third parties to
which the Indemnitors' indemnification obligations would apply and shall give
the Indemnitors a reasonable opportunity to defend the same or prosecute such
action to conclusion or settlement satisfactory to the Indemnitee at the
Indemnitors' own expense and with counsel of the Indemnitors' own selection (who
shall be approved by the Indemnitee, which approval shall not be unreasonably
withheld); provided that the Indemnitee
--------
shall at all times also have the right to fully participate in the defense at
its own expense. If the Indemnitors shall, within a reasonable time after said
notice, fail to defend, the Indemnitee shall have the right, but not the
obligation, to undertake the defense of, and to compromise or settle (exercising
reasonable business judgment) the claim or other matter on behalf, for the
account, and at the risk and expense of the Indemnitors. Except as provided in
the preceding sentence, the Indemnitee shall not compromise or settle the claim
or other matter without the prior written consent of the Indemnitors, which
shall not be unreasonably withheld. If the claim is one that cannot by its
nature be defended solely by the Indemnitors, the Indemnitee shall make
available all information and assistance that the Indemnitor may reasonably
request; provided that any
--------
associated, reasonable expenses shall be paid by the Indemnitors. The amount of
any claim under this Article VII to which the Indemnitor's
-----------
obligations may apply may be withheld by CAIS from any Additional Consideration
payment owing to the Shareholders under Section 2.1 pending settlement or
-----------
compromise of such claim or final judgment being rendered thereon. Pursuant to
the terms of the Escrow Agreement, Indemnitee may also bring claims for any
indemnification arising under this Article VII against the Escrow Amount.
-----------
(c) If the Indemnitors contest or challenge any claim or action asserted
against Indemnitee referred to in this Article, they shall do so at their
-------
own cost and expense, holding Indemnitee harmless from and against all costs,
fees, expenses, debts, Liabilities and charges in connection with such contest;
shall diligently defend against any such claim; and shall hold Indemnitee's
business and assets free and harmless from any attachment, execution, judgment,
lien or other legal process.
(d) Notwithstanding the foregoing provisions of this Section 7.4, the
-----------
procedure for indemnity with respect to Taxes shall be governed by Section 7.5.
-----------
7.5 Tax Indemnity Procedures.
CAIS will, as to any Taxes in respect of which the Indemnitors have agreed
to indemnify Indemnitees, promptly inform the Indemnitors of, and permit the
participation of the Indemnitors in, any investigation, audit or other
proceeding by or with the Internal Revenue Service or any other taxing authority
empowered to administer or enforce such a Tax and will not consent to the
settlement or final determination in such proceeding without the prior written
consent of the Indemnitors (which consent will not be unreasonably withheld).
30
<PAGE>
7.6 Limitations on Indemnification.
Notwithstanding the foregoing, the right to indemnification under this
Article VII shall be subject to the following terms:
- -----------
(a) No indemnification shall be payable pursuant to this Article VII
-----------
unless and until the amount of all claims for indemnification pursuant to this
Article VII exceeds Ten Thousand Dollars ($10,000) in the aggregate, whereupon
- -----------
indemnification pursuant to such Section shall be payable for all losses,
including the first Ten Thousand Dollars ($10,000), in accordance with the terms
hereof; provided, however, that the total liability for indemnification pursuant
to this Article VII shall not exceed, in the aggregate, the aggregate amount of
the Consideration paid to the Shareholders pursuant to this Agreement, net of
any taxes paid or due and payable by the Shareholders with respect thereto.
Notwithstanding anything to the contrary herein or in the Escrow Agreement, none
of the provisions of this Agreement or of any other Transactional Agreement
shall in any manner limit the liability of BAC or the Shareholders or any Person
who is or was a director, officer, employee or agent of BAC prior to the
Effective Time, with respect to (i) fraud, (ii) intentional misrepresentation,
(iii) criminal matters or (iv) indemnification with respect to Taxes as set
forth in Section 7.3 above.
(b) No indemnification shall be payable pursuant to this Article VII, or
-----------
the indemnification obligation shall be reduced, in respect of any claim for
breach of any of the warranties, representations or covenants in this
Agreement, if and to the extent specific provision or specific reserve for
or in respect of the Liability or other matter giving rise to the claim has
been made in the June 1999 Financial Statements, except that this
limitation shall not apply to the indemnity with respect to Taxes set forth
in Section 7.3.
-----------
(c) In determining the amount of any indemnity, there shall be taken into
account any insurance proceeds or other similar recovery or offset realized,
directly or indirectly, by the party to be indemnified.
(d) In the event that the Shareholders are obliged to indemnify CAIS
or the Company for any Liabilities, obligations, losses, claims, damages, costs,
charges or other expenses under this Article VII, the amount of any such
-----------
Liabilities, obligations, losses, claims, damages, costs, charges or other
expenses, to the extent they reduce BAC's revenues, shall be disregarded (i.e.,
they shall be "added back") when determining the amount of BAC's revenues for
purposes of Sections 2.1(c) and (d).
7.7 Treatment of Indemnification Payments.
All payments pursuant to this Article VII will be, and will be treated as,
adjustments to the purchase price for the BAC Stock.
7.8 Remedies.
The rights and remedies of CAIS and the Company to indemnification under
this Article VII shall (except as provided in Sections 9.4 and 10.2, and except
-----------
with respect to Liabilities for (i) fraud, (ii) intentional misrepresentation or
(iii) criminal matters) be the sole and exclusive rights and remedies that CAIS
and the Company have against the Shareholders for Liabilities,
31
<PAGE>
obligations, losses, claims, damages, costs, charges or other expenses arising
out of or resulting from any of the warranties, representations or covenants of
BAC or the Shareholders contained in this Agreement being incorrect, untrue or
breached.
7.9 Off-Set.
In addition to any other rights of off-set or other rights CAIS or the
Company may have at common law or otherwise, CAIS or the Company may off-set any
obligation to pay any amount due to the Shareholders, including without
limitation the Additional Consideration, against any indemnity payment due to
CAIS or the Company hereunder.
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS OF CAIS AND THE COMPANY; INDEMNIFICATION
BY CAIS AND THE COMPANY
8.1 Survival.
The representations, warranties and covenants of CAIS and the Company
contained in this Agreement or in any certificate or schedule or instrument
delivered pursuant hereto, shall survive until the First Anniversary Date,
except the representation in Section 4.2 shall survive until any Liability
-----------
thereunder is barred by all applicable statutes of limitation, including waivers
and extensions thereof.
8.2 Indemnity.
CAIS and the Company (also referred to herein as "CAIS Indemnitor") agree
to indemnify, and hold the Shareholders and BAC and their successors and
permitted assigns harmless from and against any and all Liabilities,
obligations, losses, claims, damage, cost, charges or other expenses of every
kind and character (including but not limited to attorneys' fees and litigation
costs), which may accrue or be sustained by the Shareholders or BAC arising out
of or any of the warranties, representations or covenants of CAIS or the Company
contained in this Agreement being incorrect, untrue or breached.
8.3 Indemnity Procedures.
In the event that at any time or from time to time after the Closing Date,
the Shareholders shall sustain a loss of any nature whatsoever against which the
Shareholders are indemnified under this Agreement, the Shareholders shall notify
CAIS in writing of any such loss so sustained, and CAIS shall within thirty (30)
days after transmittal of such notice pay to the Shareholders the amount of such
loss so sustained, subject to its right to contest any claim which has not yet
resulted in a loss, in a manner similar to the provisions of Section 7.4(b)
---------------
hereof; provided that if the CAIS shall, in good faith, notify the Shareholders
--------
in writing of its objections to a claim of indemnification within thirty (30)
days of receipt of the written notice from the Shareholders seeking
indemnification, the rights of the Shareholders seeking indemnification
32
<PAGE>
with respect to such indemnification claim shall be determined by binding
arbitration pursuant to the procedures set forth in Section 11.2.
8.4 Limitations on Indemnification.
Notwithstanding the foregoing, no indemnification shall be payable pursuant
to this Article VIII unless and until the amount of all claims for
------------
indemnification pursuant to this Article exceeds Ten Thousand Dollars ($10,000)
-------
in the aggregate, whereupon indemnification pursuant to such Section shall be
payable for all losses, including the first Ten Thousand Dollars ($10,000), in
accordance with the terms hereof; provided, however, that the total liability
for indemnification pursuant to this Article VIII shall not exceed, in the
------------
aggregate, the aggregate amount of the Consideration paid to the Shareholders
pursuant to this Agreement, net of any taxes paid or payable by the Shareholders
with respect thereto. Notwithstanding anything to the contrary herein or in the
Escrow Agreement, none of the provisions of this Agreement or any other
Transactional Agreements shall in any manner limit the liability of CAIS or the
Company or any Person who is or was a director, officer, employee or agent of
CAIS or the Company, with respect to (i) fraud, (ii) intentional
misrepresentation or (iii) criminal matters.
8.5 Remedies.
The rights and remedies of BAC and the Shareholders to indemnification
under this Article VIII, shall (except with respect to Liabilities for (i)
------------
fraud, (ii) intentional misrepresentation or (iii) criminal matters) be the sole
and exclusive rights and remedies that BAC and the Shareholders have against
CAIS or the Company for Liabilities, obligations, losses, claims, damages,
costs, charges or other expenses arising out of or resulting from any of the
warranties, representations or covenants of CAIS or the Company contained in
this Agreement being incorrect, untrue or breached.
ARTICLE IX.
NONCOMPETITION
9.1 Noncompetition Agreements.
During the period commencing with the Closing Date and ending on the later
of (a) the third anniversary of the Closing Date and (b) six months after the
termination or expiration of the Employment Agreement to which Kim Kao is a
party, Kim Kao shall not engage in any Competitive Activity in the Territory.
During the period commencing with the Closing Date and ending on the later of
(a) the third anniversary of the Closing Date and (b) six months after the
termination or expiration of the Consulting Agreement to which Amy Hsiao is a
party, Amy Hsiao shall not engage in any Competitive Activity in the Territory.
"Competitive Activity" shall mean directly or indirectly (or having any interest
--------------------
in, or performing any services for, any Person directly or indirectly) (a)
engaging in any activity that is the same as, similar to, or competitive with
any activity now engaged in by BAC, (b) employing, soliciting for employment,
or, except for general letters of recommendation, general employment
advertising, or upon inquiry by a potential new employer, recommending for
employment any Person
33
<PAGE>
employed by BAC or by any Affiliate of BAC during such Person's employment with
BAC (or any Affiliate) or for one year thereafter, or (c) diverting or
attempting to divert from BAC or any Affiliate any business of any kind in which
BAC is now engaged, including, without limitation, the solicitation of or
interference with any suppliers, contractors, or customers. "Territory" shall
---------
mean every state, territory, country, or jurisdiction in which BAC or any
Affiliate has carried on business prior to the Closing Date. Notwithstanding the
foregoing, the provisions of this Section 9.1 shall not
-----------
prevent the Shareholders from owning, in the aggregate, up to five percent (5%)
of the total shares of all classes of stock outstanding of any corporation
having securities listed on the New York Stock Exchange, the American Stock
Exchange, or traded on Nasdaq.
9.2 Noncompetition Covenants; Scope and Choice of Law.
It is the understanding of the parties that the scope of the covenants
contained in this Article IX, both as to time and area covered, are necessary to
protect the rights of CAIS and the goodwill that is a part of the business
represented by the assets of BAC to be acquired by CAIS. It is the parties'
intention that these covenants be enforced to the greatest extent (but to no
greater extent) in time, area, and degree of participation as is permitted by
the law of that jurisdiction whose law is found to be applicable to any acts in
breach of these covenants. It being the purpose of this Agreement to govern
competition by the Shareholders in the Territory, these covenants shall be
governed by and construed according to that law (from among those jurisdictions
arguably applicable to this Agreement and those in which a breach of this
Agreement is alleged to have occurred or to be threatened) which best gives them
effect.
9.3 Noncompetition Covenants; Assignment by CAIS.
The parties agree that the covenants of the Shareholders not to compete
contained in this Article IX may be assigned by CAIS to any Person to whom may
----------
be transferred the business of BAC by the sale or transfer of its business and
assets or otherwise. It is the parties' intention that these covenants of the
Shareholders shall inure to the benefit of any Person that may succeed to the
business and assets of BAC (acquired by CAIS under this Agreement) with the same
force and effect as if these covenants were made directly with such successor.
9.4 Noncompetition Covenants; Remedy for Breach.
The parties agree that, in the event of breach or threatened breach of the
Shareholders' covenants in this Article IX, the damage or imminent damage to the
----------
value and the goodwill of CAIS will be irreparable and extremely difficult to
estimate, making any remedy at law or in damages inadequate. Accordingly, the
parties agree that CAIS shall be entitled to injunctive relief against the
Shareholders in the event of any breach or threatened breach of any of such
covenants by the Shareholders, in addition to any other relief (including
damages) available to CAIS under this Agreement or under law.
ARTICLE X.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 Nondisclosure
34
<PAGE>
The Shareholders and BAC recognize and acknowledge that they have had in
the past, currently have, and in the future may possibly have, access to certain
Confidential Information of CAIS that is valuable, special and unique assets of
CAIS's business. The Shareholders and BAC agree that they will not disclose
such Confidential Information to any Person for any purpose or reason
whatsoever, except (a) to authorized representatives of CAIS, and (b) to counsel
and other advisers to the Shareholders and BAC, provided that such advisers
agree to the confidentiality provisions of this Section 10.1, unless (i) such
------------
information becomes available to or known by the public generally through no
fault of the Shareholders or BAC, (ii) disclosure is required by law or the
order of any governmental body under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the Shareholders or BAC
shall give prior written notice thereof to CAIS and provide CAIS with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. Nothing herein shall be construed as
prohibiting CAIS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages.
10.2 Nondisclosure Covenants; Remedy for Breach.
The parties agree that, in the event of breach or threatened breach of the
Shareholders' and BAC's covenants in this Article X, the damage or imminent
---------
damage to the value and the goodwill of CAIS will be irreparable and extremely
difficult to estimate, making any remedy at law or in damages inadequate.
Accordingly, the parties agree that CAIS shall be entitled to injunctive relief
against the Shareholders and BAC in the event of any breach or threatened breach
of any of such covenants by the Shareholders or BAC, in addition to any other
relief (including damages) available to CAIS under this Agreement or under law.
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1 Tax Matters.
(a) The Shareholders shall be responsible for sales, use and transfer
taxes, including, but not limited to, any value added, stock transfer, gross
receipts, stamp duty and real, personal or intangible property transfer taxes,
due by reason of the consummation of the transactions hereunder, including, but
not limited to, any interest or penalties in respect thereof incurred in
connection with the Merger. At their sole cost and expense, the Shareholders
shall prepare and timely file and pay amounts owed with respect to BAC Returns
not already filed for all Tax periods ending on or before the Closing Date and
the Shareholders shall pay any and all Taxes due thereon that are not reserved
for on the June 1999 Financial Statements. All such BAC Returns shall be
prepared in a manner consistent with previously filed BAC Returns. The
Shareholders shall send a copy of all such BAC Returns to CAIS for review and
comment and, if required, appropriate execution, at least fifteen days prior to
the filing thereof. CAIS and BAC shall cooperate with the Shareholders as
necessary with respect to the preparation and filing of the BAC Returns in
accordance with this Section 11.1(a).
35
<PAGE>
(b) CAIS shall prepare, and shall have ultimate discretion with respect to,
(i) all Tax Returns of BAC for any taxable period that begins after the Closing
Date (and the payment of all Taxes reported on any such Tax Return), and (ii)
the preparation and filing of any Tax Return for any Straddle Period (the
"Straddle Tax Returns"), if any; provided, however, that in the case of any
--------
Straddle Tax Return, the preparation and filing of such Return shall be subject
to review and approval of the Shareholders (which approval shall not be
unreasonably withheld). Notwithstanding the foregoing but subject to Section
11.1(c) and (d), CAIS and BAC shall not, without the prior written consent of
the Shareholders, be entitled to settle either administratively or after the
commencement of litigation any claim for Taxes which would adversely affect the
liability for Taxes of the Shareholders or BAC for any periods ending prior to
the Closing Date or their portion of any Straddle Period that result from the
reduction of asset basis or cost adjustments, the lengthening of any
amortization or depreciation periods, the denial of amortization or depreciation
deductions, or the reduction of loss or credit carryforwards. Such consent shall
not be unreasonably withheld.
(c) CAIS and the Shareholders shall each have the right to represent BAC
in connection with any litigation or claim regarding a Straddle Tax Return and
each shall have discretion with respect to any Tax audit (including the
execution of any waiver of limitation with respect to any Tax audit) relating to
any Tax Return required to be prepared by such party hereunder.
(d) The Shareholders and CAIS shall provide the other party with such
assistance, information and records and access to BAC's officers, directors,
employees and agents as may be reasonably requested by the other party in
connection with the preparation of any Tax Return or any audit or other
proceeding relating to the Taxes of BAC or the Shareholders.
11.2 Arbitration.
Any dispute or disagreement arising hereunder shall, at the demand of any
party to this Agreement, be referred to and decided by binding arbitration.
Such arbitration shall be held in Orange County, California and it shall be
conducted under the then current commercial arbitration rules of the American
Arbitration Association ("AAA"). Three arbitrators shall be chosen from an AAA
panel in accordance with AAA rules and procedures. The arbitrators in such
arbitration shall have the power to grant injunctive relief, in accordance with
the terms of this Agreement. The award rendered through arbitration shall be
final and binding upon the parties and judgment thereon may be entered in any
court of competent jurisdiction for execution.
11.3 Finders and Brokers.
Except as set forth in Schedule 11.3, each party hereby represents and
-------------
warrants to the others that neither it nor its representatives have taken, nor
will they take, any action that would cause the other parties hereto to have any
obligation or liability to any Person for or made any arrangements for the
payment of any finders' fees, brokerage fees, investment banking fees,
consulting fees, agents' commissions, or like payments in connection with the
transactions contemplated hereby. Each party shall indemnify and hold harmless
the others from any claim that is asserted by any Person for such fees,
commissions or like payments with respect to this
36
<PAGE>
Agreement arising from any act, representation or promise of the indemnifying
party or its representative.
11.4 Amendment.
Subject to applicable law, this Agreement may only be amended or
supplemented by written agreement of the Shareholders, BAC, the Company and
CAIS.
11.5 Waiver of Compliance
Any failure of BAC or the Shareholders, on the one hand, or CAIS or the
Company, on the other, to comply with any provision of this Agreement may be
expressly waived in writing by CAIS or the Shareholders, respectively, but such
waiver or failure to insist upon strict compliance with such provision shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. No failure to exercise and no delay in exercising any right, remedy,
or power hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, or power hereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy, or power
provided herein or by law or in equity. The waiver by any party of the time for
performance of any act or condition hereunder does not constitute a waiver of
the act or condition itself.
11.6 Expenses; Attorneys' Fee.
Each party shall pay all expenses incurred by it or on its behalf in
connection with this Agreement or any transaction contemplated hereby, except as
expressly provided in Section 1.6. Any transfer or similar tax in connection
-----------
with the sale of the BAC Stock to CAIS shall be paid by the Shareholders.
11.7 Survival of Representations and Warranties.
The respective representations and warranties of each party contained
herein shall not be deemed waived or otherwise affected by any investigation
made by or on behalf of the other party and such representations and warranties
shall survive the Closing and the consummation of the Merger contemplated hereby
for the periods specified herein. All statements contained in this Agreement or
in any schedule, exhibit or certificate delivered pursuant hereto shall be
deemed representations or warranties, as the case may be (as such terms are used
in this Agreement), of the party making such statements.
11.8 Notices.
All notices, demands, and other communications required or permitted
hereunder shall be made in writing and shall be deemed to have been duly given
if delivered by hand, against receipt, or mailed, postage prepaid, certified or
registered mail, return receipt requested, or sent by a recognized air courier
service, and addressed as follows:
To CAIS or the Company:
37
<PAGE>
CAIS Internet, Inc.
1255 22nd Street
Washington, D.C. 20037
Attn: Ulysses G. Auger, II
38
<PAGE>
With a copy to:
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006-1888
Attn: Morris F. DeFeo, Jr.
To Shareholders or BAC:
Business Anywhere USA, Inc.
2915 S. Daimler Street
Santa Ana, California 92705
Attn: Kim Kao
With a copy to:
Stradling Yocca Carlson & Rauth
600 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Attn: Bruce Feuchter
Notice of change of address shall be effective only when done in accordance with
this Section 11. All notices complying with this Section shall be deemed to
----------
have been received on the date of delivery.
11.9 Assignment; Successors and Assigns
Except as otherwise provided herein, each party agrees that it will not
assign, sell, transfer, delegate, or otherwise dispose of, whether voluntarily
or involuntarily, or by operation of law, any right or obligation under this
Agreement, except that CAIS may assign its rights and obligations (other than
the obligation to issue the Consideration Shares) to an Affiliate, without BAC's
or the Shareholders' consent. Any purported assignment, transfer, or delegation
in violation of this Section shall be null and void. Subject to the foregoing
limits on assignment and delegation, this Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
permitted assigns. Except for those enumerated above, this Agreement does not
create, and shall not be construed as creating, any rights or claims enforceable
by any Person or not a party to this Agreement.
11.10 Governing Law.
Subject to the provisions of Article IX hereof, the validity,
interpretation, enforceability, and performance of this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
excluding its conflict of laws principles.
39
<PAGE>
11.11 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
11.12 Headings.
The headings of the Sections and Articles of this Agreement and Table of
Contents are for reference purposes only and shall not constitute a part hereof
or affect the meaning or interpretation of this Agreement.
11.13 Entire Agreement.
The parties intend that the terms of this Agreement, including the
Disclosure Schedules and other documents referred to herein and any other
agreements delivered at the Closing, shall be the final expression of their
agreement with respect to the subject matter hereof and may not be contradicted
by evidence of any prior or contemporaneous agreement, arrangement or
understanding. The parties further intend that this Agreement shall constitute
the complete and exclusive statement of its terms and that no extrinsic evidence
whatsoever may be introduced in any judicial, administrative, or other legal
proceeding involving this Agreement.
11.14 Public Announcements.
The Shareholders, BAC and CAIS hereby agree that they will consult with
each other before issuing any press releases or otherwise making any public
statements with respect to this Agreement or the transactions contemplated
hereby.
11.15 Schedules.
Schedules to be prepared by any party, as appropriate, shall be designated
by section number, with such section number corresponding to the section numbers
of this Agreement. Disclosure in any Schedule shall only constitute disclosure
for purposes of the corresponding section of the Agreement and not for any other
purpose.
11.16 Severability.
If any provision of this Agreement, or the application thereof to any
Person, place, or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable, or void, the remainder of this
Agreement and such provisions as applied to other Persons, places, and
circumstances shall remain in full force and effect.
40
<PAGE>
The parties have caused this Agreement and Plan of Merger to be duly
executed, as of the date first above written.
CAIS INTERNET, INC.
By: /s/ Ulysses G. Auger, II
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
BUSINESS ANYWHERE, USA, INC.
By: /s/ Kim Kao
-------------------------------------
Kim Kao
President and Chief Executive Officer
CIBA MERGER CORP.
By: /s/ Ulysses G. Auger, II
------------------------------------
Name:
-------------------------------
Title:
------------------------------
KIM KAO, Shareholder
/s/ Kim Kao
------------------------------------
AMY HSIAO, Shareholder
/s/ Amy Hsiao
------------------------------------
41
<PAGE>
Exhibit 4.10
CERTIFICATE OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
SERIES D CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
CAIS INTERNET, INC.
CAIS Internet, Inc., a Delaware corporation (the "Company"), acting
-------
pursuant to Section 151 of the General Corporation Law of Delaware, does hereby
submit the following Certificate of Designation of Series and Determination of
Rights and Preferences of its Series D Convertible Participating Preferred
Stock.
FIRST: The name of the Company is CAIS Internet, Inc.
SECOND: By unanimous consent of the Board of Directors of the Company
(the "Board"), dated as of December 20, 1999, the following resolutions were
duly adopted:
WHEREAS, the Amended and Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation") authorizes 25,000,000 shares of
----------------------------
preferred stock, par value $.01 per share (the "Preferred Stock"), issuable from
---------------
time to time in one or more series;
WHEREAS, the Board is authorized, subject to certain limitations
prescribed by law and certain provisions of the Certificate of Incorporation, to
establish and fix the number of shares to be included in any series of Preferred
Stock and the designation, rights, preferences, powers, restrictions and
limitations of the shares of such series; and
WHEREAS, the Board deems it advisable to establish a series of
Preferred Stock, designated as Series D Convertible Participating Preferred
Stock, par value $.01 per share.
NOW, THEREFORE, BE IT RESOLVED, that the series of Preferred Stock
designated as Series D Convertible Participating Preferred Stock is hereby
authorized and established; and
FURTHER, RESOLVED, that the Board does hereby fix and determine the
designation, rights, preferences, powers, restrictions and limitations of the
Series D Convertible Participating Preferred Stock as follows:
Section 1. Designation; Rank.
This series of cumulative convertible participating Preferred Stock
shall be designated and known as the "Series D Convertible Participating
Preferred Stock" (hereinafter in this Certificate of Designation called the
"Series D Preferred Stock"). The number of shares constituting the Series D
------------------------
Preferred Stock shall be 9,620,393 shares (including 2,477,536 shares of Series
D Preferred Stock reserved exclusively for the payment of dividends pursuant to
<PAGE>
Section 2).
The Series D Preferred Stock shall, with respect to dividends and
rights upon liquidation, dissolution or winding up, whether voluntary or
involuntary, rank (i) senior to the common stock of the Company, par value $.01
per share (the "Common Stock"), and to each other class of capital stock or
------------
series of Preferred Stock or other equity-linked security established after the
date on which the first share of Series D Preferred Stock is issued by the
Company under this Certificate of Designation (the "Original Issue Date") by the
-------------------
Board the terms of which do not expressly provide that it ranks senior to or on
a parity with the Series D Preferred Stock as to dividends and rights upon
liquidation, dissolution or winding up, whether voluntary or involuntary
(collectively referred to with the Common Stock as "Junior Securities"); (ii) on
-----------------
parity with any additional shares of Series D Preferred Stock issued by the
Company in the future, any shares of Series E Convertible Participating
Preferred Stock (the "Series E Preferred Stock") issued by the Company pursuant
------------------------
to the irrevocable option (the "Purchase Option") to purchase Option Shares (as
---------------
defined in the Preferred Stock Purchase Agreement, dated as of December 20, 1999
(the "Purchase Agreement"), between the Company and CII Ventures LLC, a Delaware
------------------
limited liability company (the "Investor Stockholder")) and any other class of
--------------------
capital stock or series of Preferred Stock or other equity-linked security
issued by the Company established after the Original Issue Date by the Board,
the terms of which expressly provide that it will rank on a parity with the
Series D Preferred Stock as to dividends and rights upon liquidation,
dissolution or winding up, whether voluntary or involuntary (collectively
referred to as "Parity Securities"); and (iii) junior to the Company's Series C
-----------------
Convertible Preferred Stock ("Series C Preferred Stock") and to each class of
------------------------
capital stock or series of Preferred Stock or other equity-linked security
issued by the Company after the Original Issue Date by the Board the terms of
which expressly provide that it will rank senior to the Series D Preferred Stock
as to dividends and rights upon liquidation, dissolution or winding up, whether
voluntary or involuntary (collectively referred to as "Senior Securities").
-----------------
Section 2. Dividends.
(a) The holders of outstanding shares of Series D Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors, out
of the assets of the Company which are, by law, available for such payment,
cumulative dividends, payable in additional shares of Series D Preferred Stock,
at a rate per annum equal to 6.0% of the sum of (i) $14.00 per share (the
"Original Series D Issue Price") and (ii) all compounded accrued and unpaid
-----------------------------
dividends on such share of Series D Preferred Stock from the Original Issue
Date, in each case, as adjusted for any stock dividends, combinations or splits
or similar events with respect to the shares. Such dividends shall be paid and
compounded quarterly on the fifteenth day of December, March, June and September
in each year commencing with a payment on March 15, 2000 of dividends accrued
from the Original Issue Date. Each such dividend shall be payable to the holders
of record of shares of Series D Preferred Stock as they appear on the share
register of the Company on the corresponding Record Date. As used herein, the
term "Record Date" means, with respect to the dividend payable on March 15, June
-----------
15, September 15 and December 15, respectively of each year, the preceding
February 28, May 31, August 31 and November 30, or such other record date, not
more than 60 days or less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board.
<PAGE>
(b) The amount of dividends payable for each full dividend period for
the Series D Preferred Stock shall be computed by dividing the annual 6.0% rate
by four. The amount of dividends payable for the initial dividend period, or any
other period shorter or longer than a full dividend period, on the Series D
Preferred Stock shall be computed on the basis of twelve 30-day months and a
360-day year.
(c) Dividends on the Series D Preferred Stock shall accumulate and
compound quarterly whether or not the Company has earnings or profits, whether
or not there are funds legally available for payment of such dividends and
whether or not dividends are declared. Dividends will accumulate and compound
quarterly to the extent they are not paid. The Company shall take all actions
required or permitted under the General Corporation Law of Delaware to permit
the payment of dividends on the Series D Preferred Stock and shall declare and
pay such dividends to the extent there are funds legally available therefor.
(d) So long as any shares of the Series D Preferred Stock are
outstanding, except as described in the next succeeding sentence, unless full
cumulative dividends on all outstanding shares of Series D Preferred Stock for
all past dividends have contemporaneously been declared and paid in full or
declared and consideration sufficient for the payment thereof set apart for such
payment on the Series D Preferred Stock, then: (A) no dividend shall be declared
or paid upon, or any sum set apart for the payment of dividends upon, any shares
of Parity Securities; (B) no other distribution shall be declared or made upon,
or any sum set apart for the payment of any distribution upon, any shares of
Parity Securities; (C) no shares of Parity Securities shall be purchased,
redeemed or otherwise acquired or retired for value (except by conversion into
or an exchange for shares of Junior Securities) by the Company or any entity as
to which the Company owns, directly or indirectly, more than 50% of such
entity's stock (or similar voting interests) entitled to vote generally in the
election of directors (or other governing body) (a "Subsidiary"); and (D) no
----------
monies shall be paid into or set apart or made available for a sinking or other
like fund for the purchase, redemption or other acquisition or retirement for
value of any shares of Parity Securities by the Company or any of its
Subsidiaries. If at any time the Company pays less than the total amount of
dividends then accrued with respect to the Series D Preferred Stock, such
payment shall be distributed ratably among the holders of Series D Preferred
Stock based upon the aggregate accrued but unpaid dividends on the Series D
Preferred Stock held by each holder. When dividends are not paid in full or
consideration sufficient for such payment is not set apart, as aforesaid, all
dividends declared upon any other class or series of Parity Securities shall be
declared ratably in proportion to the respective amounts dividends accumulated
and unpaid on the Series D Preferred Stock and accumulated and unpaid on such
Parity Securities.
(e) Unless full cumulative dividends on all outstanding shares of
Series D Preferred Stock for all past dividends have been declared and paid in
full or declared and consideration sufficient for the payment thereof set apart
for such payment on the Series D Preferred Stock, then: (A) no dividend (other
than a dividend payable solely in shares of any Junior Securities) shall be
declared or paid upon, or any sum set apart for the payment of dividends upon,
any shares of Junior Securities; (B) no other distribution shall be declared or
made upon, or any sum set apart for the payment of any distribution upon, any
shares of Junior Securities; (C) no shares of Junior Securities shall be
purchased, redeemed or otherwise acquired or retired for value
<PAGE>
(excluding an exchange for shares of other Junior Securities) by the Company or
any of its Subsidiaries; and (D) no monies shall be paid into or set apart or
made available for a sinking or other like fund for the purchase, redemption or
other acquisition or retirement for value of any shares of Junior Securities by
the Company or any of its Subsidiaries. Holders of Series D Preferred Stock will
not be entitled to any dividends, whether payable in cash, property or stock, in
excess of the full cumulative dividends as herein described.
(f) In addition, when and if the Board of Directors shall declare a
dividend payable with respect to the then outstanding shares of Common Stock,
the holders of the Series D Preferred Stock shall be entitled to the amount of
dividends per share as would be payable on the largest number of whole shares of
Common Stock into which each share of Series D Preferred Stock could then be
converted pursuant to Section 5 hereof. Any such declared and unpaid dividends
will be payable upon a liquidation, dissolution or winding up, whether voluntary
or involuntary, first to the holders of Series D Preferred Stock and then to the
holders of Common Stock.
Section 3. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of any Junior Securities, the holders of Series D Preferred
Stock shall be entitled to be paid out of the remaining assets of the Company
legally available for distribution with respect to each share of Series D
Preferred Stock an amount in cash equal to the greater of (i) the sum of (A) the
Original Series D Issue Price per share plus (B) any compounded accrued but
unpaid dividends thereon (whether or not declared, whether or not funds of the
Company are legally available for the payment of dividends and whether or not
such dividends have been declared by the Board), in each case as adjusted for
any stock dividends, combinations or splits or similar events with respect to
such shares or (ii) an amount equal to the amount the holders of Series D
Preferred Stock would have received upon liquidation, dissolution or winding up
had such holders converted their shares of Series D Preferred Stock in
accordance with the terms of Section 5, and any accrued but unpaid dividends
thereon, into shares of Common Stock (such greater amount, the "Liquidation
-----------
Preference"). If upon any such liquidation, dissolution or winding up of the
- ----------
Company, the remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series D
Preferred Stock the full Liquidation Preference and the holders of all Parity
Securities the full liquidation preference thereof, the holders of shares of
Series D Preferred Stock and any such other Parity Securities shall share
ratably in any distribution of the remaining assets of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After payment in full of the Liquidation Preference, the remaining
assets of the Company legally available for distribution, if any, shall be
distributed to the holders of any Junior Securities.
(c) The value of any property not consisting of cash which is
distributed by the Company to the holders of the Series D Preferred Stock
pursuant to Section 3(a) or otherwise
<PAGE>
will equal the Fair Market Value (as defined below) thereof. For purposes
hereof, the "Fair Market Value" of any property shall mean the fair market value
-----------------
thereof as determined in good faith by the Board; provided, however, that the
value of any securities will be determined as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to
be the average of the closing prices of the
securities on such quotation system over the thirty
(30) day period ending three (3) days prior to the
closing;
(B) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or
sale prices (whichever is applicable) over the
thirty (30) day period ending three (3) days prior
to the closing; and
(C) If there is no active public market, the value shall
be the fair market value thereof, as mutually
determined by the Board and the holders of at least
a majority of the voting power of all then
outstanding shares of Series D Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free
marketability (other than restrictions arising solely by
virtue of a stockholder's status as an Affiliate (as
defined in Section 7) or former Affiliate) shall be to
make an appropriate discount from the market value
determined as above in (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually
determined by the Board and the holders of at least a
majority of the voting power of all then outstanding
shares of Series D Preferred Stock and Series E Preferred
Stock, voting together as a single class.
(d) For purposes of this paragraph 3, holders of a majority of the
voting power of the outstanding shares of Series D Preferred Stock and Series E
Preferred Stock, voting together as a single class, may designate that (1) a
merger or consolidation of the Company with or into another Person (as defined
in Section 7) where (A) the stockholders of the Company immediately prior to
such transaction in the aggregate cease to own at least 50% of the voting
securities of the entity surviving or resulting from such transaction (or
ultimate parent thereof) or (B) any Person becomes the beneficial owner of more
than 50% of the voting securities of the entity surviving or resulting from such
transactions (or ultimate parent thereof) or (2) a sale, lease, transfer or
other disposition of all or substantially all of the Company's assets or stock
of its Subsidiaries shall be deemed a liquidation, dissolution or winding up of
the Company with respect to the Series D Preferred Stock, and holders of shares
of Series D Preferred Stock shall be entitled to payment of the Liquidation
Preference in accordance with this Section 3.
<PAGE>
Section 4. Voting Rights.
(a) Each holder of outstanding shares of Series D Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which all of the shares of Series D Preferred Stock held by
such holder are convertible (as adjusted from time to time pursuant to Section 5
hereof), at each meeting of stockholders of the Company (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Company for their action or consideration. Except as
provided by law or by the express provisions hereof, holders of Series D
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) Subject to Section 4(c), unless otherwise provided by law, the
vote or written consent of the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock and Series E Preferred Stock,
voting together as a single class, shall be necessary for effecting or
validating the following actions:
(i) any amendment, alteration or change to the rights,
preferences, privileges or powers of Series D Preferred
Stock in any manner that adversely affects the shares of
such series;
(ii) any increase or decrease in the total number of authorized
or issued shares of Series D Preferred Stock;
(iii) any authorization, creation (by way of reclassification or
otherwise) or issuance of any Senior Securities, Parity
Securities or Junior Securities, other than (1) the
issuance of additional shares of Series D Preferred Stock
pursuant to Section 2 hereof or any shares of Series E
Preferred Stock to be issued to the Investor Stockholder
pursuant to the Purchase Option or pursuant to Section 2
of the Certificate of Designation establishing the Series
E Preferred Stock, (2) the issuance of Parity Securities
or Junior Securities with a total aggregate value of not
more than $30 million (in addition to the securities
described in clauses (1), (3), (4) and (5) of this
subsection (iii) and in addition to any Parity Securities
or Junior Securities the issuance of which has been
approved by the holders of the Series D Preferred Stock
and Series E Preferred Stock pursuant to this subsection
(iii)), (3) the issuance of Parity Securities or Junior
Securities as consideration in any transaction of the type
described in clause (iv) of this Section 4(b) which does
not require the consent of the holders of the Series D
Preferred Stock or Series E Preferred Stock or to which
such holders have consented, (4) Common Stock issued upon
the conversion or exercise of the securities described in
Sections 5(d)(i)(C)(3), 5(d)(i)(C)(5) and 5(d)(i)(C)(7) in
accordance with the terms of such securities, and (5) the
Reserved Employee Shares (as defined in Section
5(d)(i)(D));
(iv) (A) any merger or consolidation with or into any other
Person, or any acquisition of another Person, whether in a
single transaction or series of
<PAGE>
related transactions, other than Exempt Acquisitions (as
defined in Section 7) or (B) any proposed transaction or
series of related transactions involving a Change of
Control (as defined in Section 7) of the Company;
(v) any redemption, acquisition or other purchase of any share
of Common Stock or Preferred Stock of the Company with an
aggregate redemption or purchase price in excess of $10
million, unless, in the case of any Preferred Stock, such
redemption, acquisition or purchase is required by the
terms of such Preferred Stock or, in the case of the
Hilton Warrant (as defined in Section 5(d)(i)(C)(5)), such
redemption, acquisition or purchase is required by the
terms of the Hilton Warrant;
(vi) any sale of a Subsidiary's securities to any third party
(other than the Company or any other wholly owned
Subsidiary of the Company);
(vii) any amendment, repeal or alteration of the Company's
Certificate of Incorporation or Amended and Restated
Bylaws in a manner that adversely affects the holders of
the Series D Preferred Stock; provided that no increase in
the number of authorized shares of Common Stock or
Preferred Stock shall, per se, be deemed to adversely
affect such holders;
(viii) any sale or transfer of any of the technology or other
intellectual property, to any other Person other than in
the ordinary course of business; or
(ix) any arrangement or contract to do any of the foregoing.
(c) Except as otherwise set forth below, the consent rights of the
holders of the Series D Preferred Stock and the Series E Preferred Stock set
forth in Section 4(b) shall continue until such time as no shares of Series D
Preferred Stock or Series E Preferred Stock are outstanding:
(i) At such time as the Investor Stockholder, together with
its Affiliates:
(A) shall cease to own at least 10% of the outstanding Common
Stock (determined with respect to the Series D Preferred
Stock and the Series E Preferred Stock and any other
Equity Securities (as defined in Section 7) owned by the
Investor Stockholder and its Affiliates that are
convertible into, or exchangeable or exercisable for
Common Stock, on an as-converted, exchanged or exercised
basis (any determination made in accordance with the
foregoing shall hereinafter be referred to as "as
--
converted")), the holders of the Series D
---------
Preferred Stock and the Series E Preferred Stock shall
cease to have the consent rights set forth in clauses
(iii), (iv) (except with respect to clause (B) thereof),
(vi) (except where such a sale would constitute a Change
of Control) and (viii) of Section 4(b); and
<PAGE>
(B) shall either (A) cease to own at least 5% of the
outstanding Common Stock as converted or (B) cease to have
the right to designate an Investor Director pursuant to
Section 2.1 of the Stockholders Agreement (as defined in
Section 4(d)) as a result of a Transfer (as defined in the
Stockholders Agreement) of such rights in accordance with
Section 3.1(b)(i) of the Stockholders Agreement or in
accordance with Section 2.7(a) of the Stockholders
Agreement, the holders of the Series D Preferred Stock and
the Series E Preferred Stock shall cease to have the
consent rights set forth in Section 4(b) except for those
set forth in clauses (i), (ii), (vii) and (ix) (in the
case of clause (ix), however, only as it relates to
clauses (i), (ii) and (vii)) thereof. For the purposes of
this Section 4(c)(i), "Common Stock" shall include any
securities issued in respect thereof, or in substitution
therefor, in connection with any stock split, dividend or
combination, or any reclassification, recapitalization,
merger, consolidation, exchange or other similar
reorganization.
(ii) Notwithstanding Section 4(c)(i), the consent rights of the
holders of the Series D Preferred Stock and the Series E
Preferred Stock set forth in Section 4(b) (except for
those rights specified in clauses (i), (ii), (vii) and
(ix) (in the case of clause (ix), however, only as it
relates to clauses (i), (ii) and (vii)), which shall
continue until such time as no shares of Series D
Preferred Stock or Series E Preferred Stock are
outstanding) shall terminate at such time as the Investor
Stockholder and its Affiliates shall cease to own a
majority of the outstanding shares of the Series D
Preferred Stock and the Series E Preferred Stock, taken as
a whole.
(d) If an "Event of Default" specified in clauses (A), (B), (C) or
(E) of Section 6(b)(v) shall exist, the number of directors constituting the
Company's Board shall be increased to a number so that after the newly created
vacancies are filled by the holders of the shares of Series D Preferred Stock
and Series E Preferred Stock, as provided in the next succeeding sentence, such
number of directors, together with the directors designated pursuant to Section
2.1 of the Stockholders Agreement, dated as of the date hereof (the
"Stockholders Agreement"), among the Company, the Investor Stockholder and the
----------------------
other stockholders signatory thereto shall constitute a majority of the Board.
The holders of a majority of the outstanding shares of Series D Preferred Stock
and Series E Preferred Stock, voting together as a single class, shall be
entitled to elect such number of additional directors to the Board necessary to
fill the vacancies created pursuant to the preceding sentence. Such right may be
exercised initially either at a special meeting of the holders of Series D
Preferred Stock and Series E Preferred Stock or at any annual meeting of
stockholders held for purposes of electing directors, and thereafter at such
annual meetings. If any director so elected by the holders of Series D Preferred
Stock and Series E Preferred Stock shall cease to serve as a director before his
or her term shall expire, the holders of the Series D Preferred Stock and Series
E Preferred Stock, voting together as a single class, then outstanding may, at a
special meeting of the holders, elect a successor to hold office for the
unexpired term of the director whose place shall be vacant. Whenever any such
Event of Default ceases to exist, then the right of the holders of the Series D
Preferred Stock and the Series E Preferred Stock to elect such additional
directors shall cease (but subject always to the same provisions for the
<PAGE>
vesting of such voting rights in the case of any future Events of Default), and
the term of office of any Person elected as director by the holders of the
Series D Preferred Stock and Series E Preferred Stock pursuant to this
subsection 4(d) shall forthwith terminate and the number of directors
constituting the Board shall be reduced accordingly.
Section 5. Conversion Rights.
The holders of the Series D Preferred Stock and the Company shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert.
----------------
(i) Each share of Series D Preferred Stock shall be
convertible, at the option of the holder thereof, at
any time and from time to time, subject to compliance
with this Section 6, into fully paid and nonassessable
shares of Common Stock at the then effective Conversion
Rate (as defined below) (each such conversion, an
"Optional Conversion"). The Conversion Rate shall equal
-------------------
an amount determined by dividing (i) the Original
Series D Issue Price, plus any compounded accrued and
unpaid dividends (whether or not declared, whether or
not funds of the Company are legally available for the
payment of dividends and whether or not such dividends
have been declared by the Board) on such shares of
Series D Preferred Stock, by (ii) the Conversion Price
(as defined below) in effect at the time of conversion.
The Conversion Price at which shares of Common Stock
shall be deliverable upon conversion of Series D
Preferred Stock without the payment of additional
consideration by the holder thereof (the "Conversion
----------
Price") shall initially be $16.50. Such initial
-----
Conversion Price and the rate at which shares of Series
D Preferred Stock may be converted into shares of
Common Stock, shall be subject to adjustment as
provided below.
(ii) Commencing on the fifth anniversary of the Original
Issue Date, upon the written election of the Board and
written notice to the holders of Series D Preferred
Stock, each share of Series D Preferred Stock then
outstanding shall be converted automatically into fully
paid and nonassessable shares of Common Stock at the
then effective Conversion Rate; provided the Board
makes this election and provides written notice of its
election to the holders of the Series D Preferred Stock
within 60 days of the fifth anniversary of the Original
Issue Date.
(iii) In the event of a liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, as
set forth in Section 3 above, the Conversion Rights
shall terminate at the close of business on the first
full day preceding the date fixed for the payment of
any amounts distributable on liquidation to the holders
of Series D Preferred Stock.
<PAGE>
(b) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Series D Preferred Stock. In lieu of fractional
shares, the Company shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) In order to convert shares of Series D Preferred Stock into
shares of Common Stock, the holder shall surrender the
certificate or certificates for such shares of Series D
Preferred Stock at the office of the transfer agent (or at
the principal office of the Company if the Company serves as
its own transfer agent), together with, in the case of an
Optional Conversion, written notice that such holder elects
to convert all or any number of the shares represented by
such certificate or certificates. Such notice shall state the
number of shares of Series D Preferred Stock which the holder
seeks to convert. If required by the Company, certificates
surrendered for conversion shall be endorsed or accompanied
by a written instrument or instruments of transfer, in form
reasonably satisfactory to the Company, duly executed by the
registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice
by the transfer agent or the Company shall be the conversion
date ("Conversion Date"). As soon as practicable after the
---------------
Conversion Date, the Company shall promptly issue and deliver
at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder
is entitled. Such conversion shall be deemed to have been
made at the close of business on the date of such surrender
of the certificate representing the shares of Series D
Preferred Stock to be converted, and the Person entitled to
receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
(ii) The Company shall at all times during which the Series D
Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, for the
purpose of effecting the conversion of the Series D Preferred
Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series D Preferred Stock.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series
D Preferred Stock, the Company will take any corporate action
which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iii) All shares of Series D Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer
be deemed to be outstanding and all rights with respect to
such shares, including the rights,
<PAGE>
11
if any, to receive dividends, notices and to vote, shall
immediately cease and terminate on the Conversion Date, except
only the right of the holders thereof to receive shares of Common
Stock in exchange therefor, and if applicable, cash for any
fractional shares of Common Stock. Any shares of Series D
Preferred Stock so converted shall be retired and canceled and
shall not be reissued as Series D Preferred Stock, and the
Company may from time to time take such appropriate action as may
be necessary to reduce the number of shares of authorized Series
D Preferred Stock accordingly.
(iv) If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933,
as amended, the conversion may, at the option of any holder
tendering Series D Preferred Stock for conversion, be conditioned
upon the closing with the underwriter of the sale of securities
pursuant to such offering, in which event the Person(s) entitled
to receive the Common Stock issuable upon such conversion of the
Series D Preferred Stock shall not be deemed to have converted
such Series D Preferred Stock until immediately prior to the
closing of the sale of securities.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Subsection 5(d), the
-------------------
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
------
for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding the Reserved Employee
Shares.
(B) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common
Stock.
(C) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Subsection 5(d)(iii)
below, deemed to be issued) by the Company after the
Original Issue Date, other than Reserved Employee Shares and
other than shares of Common Stock issued or issuable:
(1) as a dividend or distribution on Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred
Stock;
(2) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock excluded from
the definition by the foregoing clause (1);
<PAGE>
12
(3) upon conversion of shares of Series C Preferred Stock
or Series D Preferred Stock;
(4) upon exercise of the Purchase Option or upon conversion
of the shares of Series E Preferred Stock;
(5) pursuant to warrants issued by the Company pursuant to
(a) the Common Stock Warrant dated as of October 27,
1999 and the Series C Preferred Stock Purchase
Agreement, dated as of September 29, 1999 between the
Company and U.S. Telesource, Inc., (b) the Warrant
Agreement dated as of September 4, 1998 among the
Company, Cleartel Communications, Inc., CAIS, Inc. and
ING (U.S.) Capital Corporation, Inc., (c) the Series A
Preferred Stock and Warrant Purchase Agreement dated as
of February 19, 1999 among the Company and the several
purchasers set forth therein; and (d) the Warrant to
Purchase Common Stock issued pursuant to the First
Amendment to the Master License Agreement, dated as of
April 23, 1999, among the Company, CAIS, Inc., and
Hilton Hotels Corporation (the "Hilton Warrant");
--------------
(6) pursuant to Rights issued or sold to strategic partners
after the date hereof which are exercisable,
exchangeable or convertible into up to 1,000,000
Additional Shares of Common Stock (as appropriately
adjusted for any stock dividends, combinations, splits
or the like);
(7) Additional Shares of Common Stock issued to the former
shareholders of Atcom, Inc. and Business Anywhere USA,
Inc. in accordance with the terms of the Amended and
Restated Agreement and Plan of Merger, dated as of
August 4, 1999, among the Company, CIAM Corp. and
Atcom, Inc., as amended by Amendment No. 1, dated as of
September 1, 1999, and as further amended by Amendment
No. 2, dated as of November 19, 1999, and the Agreement
and Plan of Merger, dated as of September 7, 1999,
among the Company, Business Anywhere USA, Inc., CIBA
Merger Corp., Kim Kao and Amy Hsiao, respectively; and
(8) any other shares of Common Stock issued or deemed
issued that the holders of a majority of the then
outstanding shares of the Series D Preferred Stock and
Series E Preferred Stock, voting together as a single
class, vote to exclude such shares from the definition
of Additional Shares of Common Stock.
<PAGE>
13
(D) "Reserved Employee Shares" shall mean shares reserved, as of
------------------------
the date hereof, for issuance upon the exercise of
outstanding options to purchase up to 5,601,825 shares of
Common Stock plus options to acquire up to 947,671 shares of
Common Stock to be issued under the Company's Amended and
Restated 1998 Equity Incentive Plan as in effect on December
20, 1999 and shares of Common Stock to be issued upon
exercise of such options (as appropriately adjusted for any
stock dividends, combinations, splits or the like).
(E) "Rights to Acquire Common Stock" (or "Rights") shall mean
------------------------------ ------
all rights issued by the Company to acquire Common Stock
whether by exercise of a warrant, option or similar call, or
conversion of any existing instruments, in either case for
consideration fixed, in amount or by formula, as of the date
of issuance.
(ii) No Adjustment of Conversion Price. No adjustment in the number of
---------------------------------
shares of Common Stock into which the Series D Preferred Stock is
convertible shall be made, by adjustment in the applicable
Conversion Price thereof, unless the Fair Market Value of the
consideration per share (determined pursuant to subsection
5(d)(v) below) received by the Company for an Additional Share of
Common Stock issued or deemed to be issued by the Company is less
than 95% of the Fair Market Value per share of the Common Stock
immediately prior to the issue of such additional shares, or if
prior to such issuance, the Company receives written notice from
the holders of at least a majority of the then outstanding shares
of Series D Preferred Stock and Series E Preferred Stock, voting
together as a single class, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares
of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock. If the Company at any time or from time to time after the
-----
Original Issue Date issues any Options or Convertible Securities
or Rights to Acquire Common Stock, then the maximum number of
shares of Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise
of such Options, Rights to Acquire Common Stock or, in the case
of Convertible Securities, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue; provided,
however, that Additional Shares of Common Stock shall not be
deemed to have been issued unless the Fair Market Value of the
consideration per share (determined pursuant to Subsection
5(d)(v) hereof) received by the Company for such Additional
Shares of Common Stock would be less than 95% of the Fair Market
Value per share of Common Stock on the
<PAGE>
14
date of and immediately prior to such issue, or such record date,
as the case may be, and provided, further, that in any such case:
(A) No further adjustment in the Conversion Price shall be made
upon the subsequent issue of shares of Common Stock upon the
exercise of such Options, Rights or conversion or exchange
of such Convertible Securities;
(B) Upon the expiration or termination of any unexercised
Option, Right or Convertible Security, the Conversion Price
shall be adjusted immediately to reflect the applicable
Conversion Price which would have been in effect had such
Option, Right or Convertible Security (to the extent
outstanding immediately prior to such expiration or
termination) never been issued; and
(C) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of
any Option, Right or Convertible Security, including, but
not limited to, a change resulting from the anti-dilution
provisions thereof, the Conversion Price then in effect
shall forthwith be readjusted to such Conversion Price as
would have obtained had the Conversion Price adjustment that
was originally made upon the issuance of such Option, Right
or Convertible Security which were not exercised or
converted prior to such change been made upon the basis of
such change, but no further adjustment shall be made for the
actual issuance of Common Stock upon the exercise or
conversion of any such Option, Right or Convertible
Security.
(iv) Adjustment of Conversion Price upon Issuance of Additional Shares
-----------------------------------------------------------------
of Common Stock. If the Company shall at any time after the
---------------
Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Subsection 5(d)(iii), but excluding shares issued as
a dividend or distribution as provided in subsection 5(f) or upon
a stock split or combination as provided in subsection 5(e)),
without consideration, or for a consideration per share less than
95% of the Fair Market Value per share of Common Stock on the
date of and immediately prior to such issue, or without the
requisite number of notices contemplated by subsection 5(d)(ii)
hereof, then and in such event, the Conversion Price shall be
reduced, concurrently with such issuance, to a price (calculated
to the nearest cent) determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the sum of
(A) the number of shares of Common Stock outstanding, on a fully
diluted basis, immediately prior to such issuance plus (B) the
number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at 95%
of
<PAGE>
15
the Fair Market Value per share of Common Stock and the
denominator of which shall be the sum of (1) the number of shares
of Common Stock outstanding immediately prior to such issuance
plus (2) the number of such Additional Shares of Common Stock so
issued.
Notwithstanding the foregoing, the applicable Conversion Price
shall not be reduced if the amount of such reduction would be an
amount less than $.01, but any such amount shall be carried
forward and reduction with respect thereto made at the time of
and together with any subsequent reduction which, together with
such amount and any other amount or amounts so carried forward,
shall aggregate $.01 or more.
(v) Determination of Consideration. For purposes of this Subsection
------------------------------
5(d), "Fair Market Value" of the consideration received by the
-----------------
Company for the issue of any Additional Shares of Common Stock
shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(1) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding
amounts paid or payable for accrued interest or accrued
dividends;
(2) insofar as it consists of property other than cash, be
computed at the Fair Market Value thereof at the time
of such issue, as determined in good faith by the
Board; and
(3) in the event Additional Shares of Common Stock are
issued together with other shares or securities or
other assets of the Company for consideration which
covers both, be the proportion of such consideration so
received, computed as provided in clauses (1) and (2)
above, as determined in good faith by the Board.
(B) Options, Rights and Convertible Securities. The
------------------------------------------
consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been issued
pursuant to subsection 5(d)(iii), relating to Options,
Rights and Convertible Securities, shall be determined by
dividing
(1) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options,
Rights or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of
<PAGE>
16
such consideration) payable to the Company upon the
exercise of such Options, Rights or the conversion or
exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the
exercise of such Options, Rights or the conversion or
exchange of such Convertible Securities.
(e) Adjustment for Stock Splits and Combinations. If the Company shall at
--------------------------------------------
any time or from time to time after the Original Issue Date effect a subdivision
of the outstanding Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased. If the Company shall
at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event the
--------------------------------------------------
Company at any time or from time to time after the Original Issue Date shall
make or issue a dividend or other distribution payable in Additional Shares of
Common Stock, then and in each such event the Conversion Price shall be
decreased as of the time of such issuance, by multiplying such Conversion Price
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding, on a fully diluted basis, immediately prior to such
issuance and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
such Additional Shares of Common Stock issuable in payment of such dividend or
distribution; provided that no such adjustment shall be made if the holders of
the Series D Preferred Stock receive such dividend or distribution in accordance
with the terms of Section 2(f).
(g) Adjustments for Other Dividends and Distributions. In the event the
-------------------------------------------------
Company at any time, or from time to time after the Original Issue Date shall
make or issue, a dividend or other distribution payable in securities of the
Company other than shares of Common Stock or other assets or properties, then
and in each such event provision shall be made so that the holders of shares of
the Series D Preferred Stock shall receive upon conversion thereof in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Company or other assets or properties that they would have
received had their Series D Preferred Stock been converted into Common Stock on
the date of such event and had thereafter, during the period from the date of
such event to and including the Conversion Date, retained such securities
receivable by them as aforesaid during such period given application to all
adjustments called for during such period, under this paragraph with respect to
the rights of the holders of the Series D Preferred Stock; provided that no such
adjustment shall be made if the holders of the Series D Preferred Stock receive
such dividend or distribution in accordance with the terms of Section 2(f).
<PAGE>
17
(h) Adjustment for Reclassification, Exchange or Substitution. If the
---------------------------------------------------------
Common Stock issuable upon the conversion of the Series D Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares, stock dividend or
reorganization, reclassification, merger, consolidation or asset sale provided
for elsewhere in this Section 5), then and in each such event the holder of each
share of Series D Preferred Stock (whether then outstanding or thereafter
issued) shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which all such shares of Series D Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein or with respect to such other securities or property by the terms
thereof.
(i) Reorganizations, Mergers, Consolidations or Asset Sales. If at any
-------------------------------------------------------
time after the Original Issue Date there is a merger, consolidation,
recapitalization, sale of all or substantially all of the Company's assets or
reorganization involving the Common Stock (collectively, a "Capital
-------
Reorganization") (other than a merger, consolidation, sale of assets,
- --------------
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as part of
such Capital Reorganization, provision will be made so that the holders of
Series D Preferred Stock (whether then outstanding or thereafter issued) will
thereafter be entitled to receive upon conversion of the Series D Preferred
Stock the number of shares of stock or other securities or property of the
Company to which a holder of the number of shares of Common Stock deliverable
upon conversion would have been entitled on such Capital Reorganization, subject
to adjustment in respect to such stock or securities by the terms thereof. In
any such case, appropriate adjustment will be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of Series
D Preferred Stock after the Capital Reorganization to the end that the
provisions of this Section 5 (including adjustment of the Conversion Price then
in effect and the number of shares issuable upon conversion of the Series D
Preferred Stock) will be applicable after that event and be as nearly equivalent
as practicable. In the event that the Company is not the surviving entity of any
such Capital Reorganization, each share of Series D Preferred Stock shall become
shares of preferred stock of such surviving entity, with the same powers, rights
and preferences as provided herein.
(j) No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series D Preferred Stock against impairment to the extent required hereunder.
Nothing in this Section 5 shall affect the continued accrual of dividends on the
Series D Preferred Stock in accordance with the terms of this Certificate of
Designation.
<PAGE>
18
(k) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder, if
any, of Series D Preferred Stock outstanding a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based and shall file a copy of such certificate
with its corporate records. The Company shall, upon the reasonable written
request of any holder of Series D Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of Series D Preferred
Stock. Despite such adjustment or readjustment, the form of each or all Series D
Preferred Stock certificates, if the same shall reflect the initial or any
subsequent Conversion Price, need not be changed in order for the adjustments or
readjustments to be valid in accordance with the provisions of this Certificate
of Designation, which shall control.
(l) Notice of Record Date. In the event
---------------------
(i) that the Company declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock
or other securities of the Company;
(ii) that the Company subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or
stock distribution thereon);
(iv) of any Capital Reorganization; or
(v) of the involuntary or voluntary dissolution, liquidation
or winding up of the Company;
then the Company shall cause to be filed at its principal office
or at the office of the transfer agent of the Series D Preferred
Stock, and shall cause to be mailed to the holders of the Series D
Preferred Stock at their last addresses as shown on the records of the
Company, or such transfer agent, at least 10 days prior to the record
date specified in (A) below or 20 days prior to the date specified in
(B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
<PAGE>
19
(B) the date on which such reclassification, Capital
Reorganization, dissolution, liquidation or winding
up is expected to become effective, and the date as
of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares
of Common Stock for securities or other property
deliverable upon such reclassification, Capital
Reorganization, dissolution or winding up.
Section 6. Mandatory Redemption.
--------------------
(a) Upon the occurrence of a Mandatory Redemption Event (as defined
below) at the option and written election of the holders of a majority of the
voting power of the outstanding shares of the Series D Preferred Stock (a
"Redemption Demand"), the Company shall redeem all outstanding shares of Series
-----------------
D Preferred Stock, out of funds of the Company legally available therefor, at a
redemption price per share (the "Redemption Price") equal to the greater of (i)
----------------
the sum of (A) the Original Series D Issue Price plus (B) any compounded accrued
and unpaid dividends thereon (whether or not declared, whether or not funds of
the Company are legally available for the payment of dividends and whether or
not such dividends have been declared by the Board), in each case as adjusted
for any stock dividends, combinations or splits or similar events with respect
to such shares and (ii) the Fair Market Value (as defined in Section 3(c)) of
the number of shares of Common Stock issuable upon conversion of such shares of
Series D Preferred Stock if converted in accordance with the terms of Section 5
of this Certificate of Designation as of the Redemption Date (as defined below).
The redemption under this Section 6 shall take place on a date (the "Redemption
Date") that is no later than 30 days after the receipt by the Company of the
Redemption Demand.
(b) The following events shall constitute a "Mandatory Redemption
--------------------
Event" for purposes hereof:
- -----
(i) the fifth anniversary of the Original Issuance Date;
provided that the holders of the Series D Preferred Stock
make the election described in subsection 6(a) within 60
days of such fifth anniversary;
(ii) a Change of Control occurs;
(iii) a sale, transfer, lease, assignment, conveyance or other
disposition of all or substantially all of the assets of
the Company to any other Person;
(iv) the execution of, or entering into by the Company, an
agreement to do any of the above; or
(v) any of the following events occurs, each of which shall
constitute an "Event of Default":
----------------
(A) failure by the Company to pay any dividend on the
Series D Preferred Stock when due or to make any
required liquidation or
<PAGE>
20
redemption payment and such failure continues for a
period of 5 days;
(B) failure by the Company to perform or observe in any
material respect any Material Covenant (as defined in
the Purchase Agreement) of the Company contained in
the Purchase Agreement, and such failure continues
for 30 days after written notice thereof shall have
been given to the Company by the holders of at least
25% of the then outstanding shares of Series D
Preferred Stock;
(C) any representation or warranty of the Company set
forth in Section 3.3, 3.5, 3.6 and 3.9 in the
Purchase Agreement was not accurate or complete in
all material respects as of the time such
representation or warranty was made;
(D) (1) failure by the Company or any Subsidiary to make
payment due on any indebtedness or other security
with an aggregate principal amount or liquidation
preference in excess of $1,000,000 prior to the
expiration of the grace period provided in such
indebtedness or other security, and/or (2) default by
the Company or any Subsidiary under any financing
agreement under which the Company or any Subsidiary
has outstanding indebtedness with an aggregate
principal amount in excess of $1,000,000 which
default would permit the holder thereof pursuant to
the terms of such agreement to accelerate such
indebtedness;
(E) (i) the Company's voluntary or involuntary
bankruptcy, receivership, assignment for the benefit
of creditors, liquidation which, in the case of any
such involuntary proceeding, has not been discharged
or stayed within 60 days after the commencement
thereof, or (ii) acceleration of third party
obligations or unsatisfied judgments in excess of
$500,000 of, by or on behalf of the Company which
obligations shall not have been satisfied or
discharged or which judgments have not been
satisfied, discharged or stayed within 30 days
thereafter.
(c) At least twenty (20) days prior to the Redemption Date, the
Company shall send a notice (the "Redemption Notice") of such redemption to be
-----------------
effected to all holders of record (at the close of business on the business day
next preceding the day on which notice is given) of the outstanding Series D
Preferred Stock specifying the number of shares to be redeemed from such holder,
the Redemption Date, the Redemption Price and the place at which payment may be
obtained.
(d) On or prior to the Redemption Date, the Company shall deposit the
Redemption Price of all shares to be redeemed as of such date with a bank or
trust company having aggregate capital and surplus in excess of $50,000,000, as
a trust fund, with irrevocable instructions and
<PAGE>
21
authority to the bank or trust company to pay, upon receipt of notice from the
Company that such holder has surrendered the Series D Preferred Stock share
certificates in accordance with Section 6(e), the Redemption Price of the shares
to their respective holders. Any moneys deposited by the Company pursuant to
this Section 6(d) for the redemption of shares thereafter converted into shares
of Common Stock pursuant to Section 5 hereof no later than the fifth (5th) day
preceding the Redemption Date shall be returned to the Company forthwith upon
such conversion. The balance of any funds deposited by the Company pursuant to
this Section 6(d) remaining unclaimed at the expiration of one (1) year
following such Redemption Date shall be returned to the Company promptly upon
its written request.
(e) On such Redemption Date, each holder of shares of Series D
Preferred Stock to be redeemed shall surrender such holder's certificates
representing such shares to the Company in the manner and at the place
designated in the Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the Person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by such certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares which new certificate shall entitle the
holder thereof to all the powers, preferences and rights of a holder of such
shares. From and after such Redemption Date, unless there shall have been a
default in payment of the Redemption Price or the Company is unable to pay the
Redemption Price due to not having sufficient legally available funds, all
rights of the holder of such shares as a holder of Series D Preferred Stock
(except the right to receive the Redemption Price without interest upon
surrender of their certificates), shall cease and terminate with respect to such
shares; provided that in the event that shares of Series D Preferred Stock are
not redeemed due to a default in payment by the Company or because the Company
does not have sufficient legally available funds, such shares of Series D
Preferred Stock shall remain outstanding and shall be entitled to all of the
rights and preferences provided herein.
(f) Shares subject to redemption pursuant to this Section 6 shall be
redeemed from each holder of Series D Preferred Stock on a pro rata basis.
(g) If upon any Redemption Date the assets of the Company available
for redemption are insufficient to pay the redeeming holders of outstanding
shares of Series D Preferred Stock the full amounts to which they are entitled,
all shares of the Series D Preferred Stock will be redeemable for cash upon
demand. The shares of Series D Preferred Stock not redeemed shall remain
outstanding and be entitled to all the powers, preferences and rights provided
herein. At any time thereafter when additional funds of the Company are legally
available for the redemption of shares of Series D Preferred Stock, such funds
will immediately be used to redeem the balance of the shares which the Company
has become obligated to redeem on any Redemption Date but which it has not
redeemed.
(h) The Company will not enter into any contract or agreement (whether
verbal or written) restricting or impairing its ability to redeem shares of the
Series D Preferred Stock in accordance with this Section 6.
<PAGE>
22
Section 7. Additional Definitions. For purposes of this Certificate
----------------------
of Designation, the following terms shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person
---------
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, for so
long as such Person remains so associated to the specified Person;
(b) "beneficial owner" or "beneficially own" has the meaning given
---------------- ----------------
such term in Rule 13d-3 under the Exchange Act and a Person's beneficial
ownership of voting securities shall be calculated in accordance with the
provisions of such Rule; provided, however, that for purposes of determining
-------- -------
beneficial ownership, a Person shall be deemed to be the beneficial owner of any
security which may be acquired by such Person whether within 60 days or
thereafter, upon the conversion, exchange or exercise of any warrants, options,
rights or other.
(c) "Capital Stock" means, with respect to any Person at any time, any
-------------
and all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of capital stock, partnership
interests (whether general or limited) or equivalent ownership interests in or
issued by such Person, and with respect to the Company includes, without
limitation, any and all shares of Common Stock, the Series D Preferred Stock and
the Series E Preferred Stock.
(d) "Change of Control" means (i) during any period of two consecutive
-----------------
years, individuals who at the beginning of such period constituted the directors
of the Company (together with any new directors whose election by such directors
or whose nomination for election by the stockholders of the Company 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 directors then in office, (ii) any merger or consolidation with
or into any other entity or any other similar transaction, whether in a single
transaction or series of related transactions where (A) the stockholders of the
Company immediately prior to such transaction in the aggregate cease to own at
least 50% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent thereof) or (B) any Person becomes the
beneficial owner of more than 50% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent thereof),
(iii) any transaction or series of related transactions in which in excess of
50% of the Company's voting power is transferred to any Person, (iv) the sale,
transfer, lease, assignment, conveyance, exchange, mortgage or other disposition
of all or substantially all of the assets of the Company and its Subsidiaries,
or (v) any liquidation, dissolution or winding-up of the Company;
(e) "Equity Securities" means any and all shares of Capital Stock of
-----------------
the Company, securities of the Company convertible into, or exchangeable or
exercisable for, such shares, and options, warrants or other rights to acquire
such shares (including the Purchase Option).
(f) "Exempt Acquisition" means any acquisition (whether through
------------------
merger, consolidation or otherwise) (i) which has a purchase price (including
any assumed indebtedness
<PAGE>
23
and valuing any non-cash consideration at its Fair Market Value, as defined in
Section 3(c)) of less than 5% of the market capitalization (as reflected by the
aggregate Fair Market Value of the outstanding Common Stock) of the Company as
of the date of the execution of the definitive agreement relating thereto and
(ii) which, together with all other Exempt Acquisitions, has an aggregate
purchase price (including any assumed indebtedness and valuing any non-cash
consideration at its Fair Market Value) of not more than $50.0 million (which
amount, for the purposes of Section 4(b)(iv)(A) shall be measured from December
21, 1999);
(g) "Group" has the meaning assigned to such term in Section 13(d)(3)
-----
of the Securities Exchange Act of 1934, as amended;
(h) "Investor Director" means any member of the Board designated by
-----------------
the Investor Stockholder pursuant to Section 2.1 of the Stockholders Agreement;
(i) "Person" means any individual, corporation, limited liability
------
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivisions thereof or any Group comprised of two or more of the
foregoing.
[Signatures appear on the following page]
<PAGE>
24
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be executed this ___ day of February, 2000.
CAIS INTERNET, INC.
By: __________________________________
Name:
Title:
ATTEST:
______________________________
<PAGE>
Exhibit 4.11
CERTIFICATE OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
SERIES E CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
CAIS INTERNET, INC.
CAIS Internet, Inc., a Delaware corporation (the"Company"), acting pursuant
-------
to Section 151 of the General Corporation Law of Delaware, does hereby submit
the following Certificate of Designation of Series and Determination of Rights
and Preferences of its Series E Convertible Participating Preferred Stock.
FIRST: The name of the Company is CAIS Internet, Inc.
SECOND: By unanimous consent of the Board of Directors of the Company (the
"Board"), dated as of December 20, 1999, the following resolutions were duly
-----
adopted:
WHEREAS, the Amended and Restated Certificate of Incorporation of the
Company (the "Certificate of Incorporation") authorizes 25,000,000 shares of
----------------------------
preferred stock, par value $.01 per share (the "Preferred Stock"), issuable from
---------------
time to time in one or more series;
WHEREAS, the Board is authorized, subject to certain limitations prescribed
by law and certain provisions of the Certificate of Incorporation, to establish
and fix the number of shares to be included in any series of Preferred Stock and
the designation, rights, preferences, powers, restrictions and limitations of
the shares of such series; and
WHEREAS, the Board deems it advisable to establish a series of Preferred
Stock, designated as Series E Convertible Participating Preferred Stock, par
value $.01 per share.
NOW, THEREFORE, BE IT RESOLVED, that the series of Preferred Stock
designated as Series E Convertible Participating Preferred Stock is hereby
authorized and established; and
FURTHER, RESOLVED, that the Board does hereby fix and determine the
designation, rights, preferences, powers, restrictions and limitations of the
Series E Convertible Participating Preferred Stock as follows:
Section 1. Designation; Rank.
<PAGE>
This series of cumulative convertible participating Preferred Stock shall
be designated and known as the "Series E Convertible Participating Preferred
Stock" (hereinafter in this Certificate of Designation called the "Series E
--------
Preferred Stock"). The number of shares constituting the Series E Preferred
- ---------------
Stock shall be 9,620,393 shares (including 2,477,536 shares of Series E
Preferred Stock reserved exclusively for the payment of dividends pursuant to
Section 2).
The Series E Preferred Stock shall, with respect to dividends and rights
upon liquidation, dissolution or winding up, whether voluntary or involuntary,
rank (i) senior to the common stock of the Company, par value $.01 per share
(the "Common Stock"), and to each other class of capital stock or series of
------------
Preferred Stock or other equity-linked security established after the date on
which the first share of Series E Preferred Stock is issued by the Company under
this Certificate of Designation (the "Original Issue Date") by the Board the
-------------------
terms of which do not expressly provide that it ranks senior to or on a parity
with the Series E Preferred Stock as to dividends and rights upon liquidation,
dissolution or winding up, whether voluntary or involuntary (collectively
referred to with the Common Stock as "Junior Securities"); (ii) on parity with
-----------------
any additional shares of Series E Preferred Stock issued by the Company in the
future pursuant to the irrevocable option (the "Purchase Option") to purchase
---------------
Option Shares (as defined in the Preferred Stock Purchase Agreement, dated as of
December 20, 1999 (the "Purchase Agreement") between the Company and CII
------------------
Ventures LLC, a Delaware limited liability company (the "Investor
--------
Stockholder")), any shares of Series D Convertible Participating Preferred Stock
(the "Series D Preferred Stock") issued by the Company and any other class of
------------------------
capital stock or series of Preferred Stock or other equity-linked security
issued by the Company established after the Original Issue Date by the Board,
the terms of which expressly provide that it will rank on a parity with the
Series E Preferred Stock as to dividends and rights upon liquidation,
dissolution or winding up, whether voluntary or involuntary (collectively
referred to as "Parity Securities"); and (iii) junior to the Company's Series C
-----------------
Convertible Preferred Stock ("Series C Preferred Stock") and to each class of
------------------------
capital stock or series of Preferred Stock or other equity-linked security
issued by the Company after the Original Issue Date by the Board the terms of
which expressly provide that it will rank senior to the Series E Preferred Stock
as to dividends and rights upon liquidation, dissolution or winding up, whether
voluntary or involuntary (collectively referred to as "Senior Securities").
-----------------
Section 2. Dividends.
(a) The holders of outstanding shares of Series E Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors, out of
the assets of the Company which are, by law, available for such payment,
cumulative dividends, payable in additional shares of Series E Preferred Stock,
at a rate per annum equal to 6.0% of the sum of (i) $14.00 per share (the
"Original Series E Issue Price") and (ii) all compounded accrued and unpaid
- ------------------------------
dividends on such share of Series E Preferred Stock from the Original Issue
Date, in each case, as adjusted for any stock dividends, combinations or splits
or similar events with respect to the shares. Such dividends shall be paid and
compounded quarterly on the fifteenth day of December, March, June and September
in each year commencing with a payment on the first such payment date following
the Original Issue Date with respect to any shares of Series E Preferred Stock
of dividends accrued from the Original Issue Date. Each such dividend shall be
payable to the
<PAGE>
holders of record of shares of Series E Preferred Stock as they appear on the
share register of the Company on the corresponding Record Date. As used herein,
the term "Record Date" means, with respect to the dividend payable on March 15,
-----------
June 15, September 15 and December 15, respectively of each year, the preceding
February 28, May 31, August 31 and November 30, or such other record date, not
more than 60 days or less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board.
(b) The amount of dividends payable for each full dividend period for the
Series E Preferred Stock shall be computed by dividing the annual 6.0% rate by
four. The amount of dividends payable for the initial dividend period, or any
other period shorter or longer than a full dividend period, on the Series E
Preferred Stock shall be computed on the basis of twelve 30-day months and a
360-day year.
(c) Dividends on the Series E Preferred Stock shall accumulate and
compound quarterly whether or not the Company has earnings or profits, whether
or not there are funds legally available for payment of such dividends and
whether or not dividends are declared. Dividends will accumulate and compound
quarterly to the extent they are not paid. The Company shall take all actions
required or permitted under the General Corporation Law of Delaware to permit
the payment of dividends on the Series E Preferred Stock and shall declare and
pay such dividends to the extent there are funds legally available therefor.
(d) So long as any shares of the Series E Preferred Stock are outstanding,
except as described in the next succeeding sentence, unless full cumulative
dividends on all outstanding shares of Series E Preferred Stock for all past
dividends have contemporaneously been declared and paid in full or declared and
consideration sufficient for the payment thereof set apart for such payment on
the Series E Preferred Stock, then: (A) no dividend shall be declared or paid
upon, or any sum set apart for the payment of dividends upon, any shares of
Parity Securities; (B) no other distribution shall be declared or made upon, or
any sum set apart for the payment of any distribution upon, any shares of Parity
Securities; (C) no shares of Parity Securities shall be purchased, redeemed or
otherwise acquired or retired for value (except by conversion into or an
exchange for shares of Junior Securities) by the Company or any entity as to
which the Company owns, directly or indirectly, more than 50% of such entity's
stock (or similar voting interests) entitled to vote generally in the election
of directors (or other governing body) (a "Subsidiary"); and (D) no monies shall
----------
be paid into or set apart or made available for a sinking or other like fund for
the purchase, redemption or other acquisition or retirement for value of any
shares of Parity Securities by the Company or any of its Subsidiaries. If at any
time the Company pays less than the total amount of dividends then accrued with
respect to the Series E Preferred Stock, such payment shall be distributed
ratably among the holders of Series E Preferred Stock based upon the aggregate
accrued but unpaid dividends on the Series E Preferred Stock held by each
holder. When dividends are not paid in full or consideration sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon any other
class or series of Parity Securities shall be declared ratably in proportion to
the respective amounts dividends accumulated and unpaid on the Series E
Preferred Stock and accumulated and unpaid on such Parity Securities.
(e) Unless full cumulative dividends on all outstanding shares of Series E
Preferred Stock for all past dividends have been declared and paid in full or
declared and consideration
<PAGE>
sufficient for the payment thereof set apart for such payment on the Series E
Preferred Stock, then: (A) no dividend (other than a dividend payable solely in
shares of any Junior Securities) shall be declared or paid upon, or any sum set
apart for the payment of dividends upon, any shares of Junior Securities; (B) no
other distribution shall be declared or made upon, or any sum set apart for the
payment of any distribution upon, any shares of Junior Securities; (C) no shares
of Junior Securities shall be purchased, redeemed or otherwise acquired or
retired for value (excluding an exchange for shares of other Junior Securities)
by the Company or any of its Subsidiaries; and (D) no monies shall be paid into
or set apart or made available for a sinking or other like fund for the
purchase, redemption or other acquisition or retirement for value of any shares
of Junior Securities by the Company or any of its Subsidiaries. Holders of
Series E Preferred Stock will not be entitled to any dividends, whether payable
in cash, property or stock, in excess of the full cumulative dividends as herein
described.
(f) In addition, when and if the Board of Directors shall declare a
dividend payable with respect to the then outstanding shares of Common Stock,
the holders of the Series E Preferred Stock shall be entitled to the amount of
dividends per share as would be payable on the largest number of whole shares of
Common Stock into which each share of Series E Preferred Stock could then be
converted pursuant to Section 5 hereof. Any such declared and unpaid dividends
will be payable upon a liquidation, dissolution or winding up, whether voluntary
or involuntary, first to the holders of Series E Preferred Stock and then to the
holders of Common Stock.
Section 3. Liquidation Preference.
(a) Upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of any Junior Securities, the holders of Series E Preferred
Stock shall be entitled to be paid out of the remaining assets of the Company
legally available for distribution with respect to each share of Series E
Preferred Stock an amount in cash equal to the greater of (i) the sum of (A) the
Original Series E Issue Price per share plus (B) any compounded accrued but
unpaid dividends thereon (whether or not declared, whether or not funds of the
Company are legally available for the payment of dividends and whether or not
such dividends have been declared by the Board), in each case as adjusted for
any stock dividends, combinations or splits or similar events with respect to
such shares or (ii) an amount equal to the amount the holders of Series E
Preferred Stock would have received upon liquidation, dissolution or winding up
had such holders converted their shares of Series E Preferred Stock in
accordance with the terms of Section 5, and any accrued but unpaid dividends
thereon, into shares of Common Stock (such greater amount, the "Liquidation
-----------
Preference"). If upon any such liquidation, dissolution or winding up of the
- ----------
Company, the remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series E
Preferred Stock the full Liquidation Preference and the holders of all Parity
Securities the full liquidation preference thereof, the holders of shares of
Series E Preferred Stock and any such other Parity Securities shall share
ratably in any distribution of the remaining assets of the Company in proportion
to the respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
<PAGE>
(b) After payment in full of the Liquidation Preference, the remaining
assets of the Company legally available for distribution, if any, shall be
distributed to the holders of any Junior Securities.
(c) The value of any property not consisting of cash which is distributed
by the Company to the holders of the Series E Preferred Stock pursuant to
Section 3(a) or otherwise will equal the Fair Market Value (as defined below)
thereof. For purposes hereof, the "Fair Market Value" of any property shall mean
-----------------
the fair market value thereof as determined in good faith by the Board;
provided, however, that the value of any securities will be determined as
follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
(A) If traded on a securities exchange or through the Nasdaq
National Market, the value shall be deemed to be the average
of the closing prices of the securities on such quotation
system over the thirty (30) day period ending three (3) days
prior to the closing;
(B) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period
ending three (3) days prior to the closing; and
(C) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined by the
Board and the holders of at least a majority of the voting
power of all then outstanding shares of Series E Preferred
Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status
as an Affiliate (as defined in Section 7) or former Affiliate)
shall be to make an appropriate discount from the market value
determined as above in (i)(A), (B) or (C) to reflect the
approximate fair market value thereof, as mutually determined by
the Board and the holders of at least a majority of the voting
power of all then outstanding shares of Series E Preferred Stock
and Series D Preferred Stock, voting together as a single class.
(d) For purposes of this paragraph 3, holders of a majority of the voting
power of the outstanding shares of Series E Preferred Stock and Series D
Preferred Stock, voting together as a single class, may designate that (1) a
merger or consolidation of the Company with or into another Person (as defined
in Section 7) where (A) the stockholders of the Company immediately prior to
such transaction in the aggregate cease to own at least 50% of the voting
securities of the entity surviving or resulting from such transaction (or
ultimate parent thereof) or (B) any Person becomes the beneficial owner of more
than 50% of the voting securities of the entity surviving or resulting from such
transactions (or ultimate parent thereof) or (2) a sale, lease, transfer or
other
<PAGE>
disposition of all or substantially all of the Company's assets or stock
of its Subsidiaries shall be deemed a liquidation, dissolution or winding up of
the Company with respect to the Series E Preferred Stock, and holders of shares
of Series E Preferred Stock shall be entitled to payment of the Liquidation
Preference in accordance with this Section 3.
Section 4. Voting Rights.
(a) Each holder of outstanding shares of Series E Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which all of the shares of Series E Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 5
hereof), at each meeting of stockholders of the Company (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Company for their action or consideration. Except as
provided by law or by the express provisions hereof, holders of Series E
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) Subject to Section 4(c), unless otherwise provided by law, the vote or
written consent of the holders of at least a majority of the then outstanding
shares of Series E Preferred Stock and Series D Preferred Stock, voting together
as a single class, shall be necessary for effecting or validating the following
actions:
(i) any amendment, alteration or change to the rights, preferences,
privileges or powers of Series E Preferred Stock in any manner
that adversely affects the shares of such series;
(ii) any increase or decrease in the total number of authorized or
issued shares of Series E Preferred Stock;
(iii) any authorization, creation (by way of reclassification or
otherwise) or issuance of any Senior Securities, Parity
Securities or Junior Securities, other than (1) the issuance of
additional shares of Series E Preferred Stock pursuant to Section
2 hereof or any shares of Series D Preferred Stock to be issued
to the Investor Stockholder pursuant to Section 2 of the
Certificate of Designation establishing the Series D Preferred
Stock, (2) the issuance of Parity Securities or Junior Securities
with a total aggregate value of not more than $30 million (in
addition to the securities described in clauses (1), (3), (4) and
(5) of this subsection (iii) and in addition to any Parity
Securities or Junior Securities the issuance of which has been
approved by the holders of the Series E Preferred Stock and
Series D Preferred Stock pursuant to this subsection (iii)), (3)
the issuance of Parity Securities or Junior Securities as
consideration in any transaction of the type described in clause
(iv) of this Section 4(b) which does not require the consent of
the holders of the Series E Preferred Stock or Series D Preferred
Stock or to which such holders have consented, (4) Common Stock
issued upon the conversion or exercise of the securities
described in Sections 5(d)(i)(C)(3), 5(d)(i)(C)(5) and
5(d)(i)(C)(7) in accordance with
<PAGE>
the terms of such securities, and (5) the Reserved Employee
Shares (as defined in Section 5(d)(i)(D));
(iv) (A) any merger or consolidation with or into any other Person,
or any acquisition of another Person, whether in a single
transaction or series of related transactions, other than
Exempt Acquisitions (as defined in Section 7) or (B) any
proposed transaction or series of related transactions
involving a Change of Control (as defined in Section 7) of the
Company;
(v) any redemption, acquisition or other purchase of any share of
Common Stock or Preferred Stock of the Company with an
aggregate redemption or purchase price in excess of $10
million, unless, in the case of any Preferred Stock, such
redemption, acquisition or purchase is required by the terms of
such Preferred Stock or, in the case of the Hilton Warrant (as
defined in Section 5(d)(i)(C)(5)), such redemption, acquisition
or purchase is required by the terms of the Hilton Warrant;
(vi) any sale of a Subsidiary's securities to any third party (other
than the Company or any other wholly owned Subsidiary of the
Company);
(vii) any amendment, repeal or alteration of the Company's
Certificate of Incorporation or Amended and Restated Bylaws in
a manner that adversely affects the holders of the Series E
Preferred Stock; provided that no increase in the number of
authorized shares of Common Stock or Preferred Stock shall,
per se, be deemed to adversely affect such holders;
(viii) any sale or transfer of any of the technology or other
intellectual property, to any other Person other than in the
ordinary course of business; or
(ix) any arrangement or contract to do any of the foregoing.
(c) Except as otherwise set forth below, the consent rights of the holders
of the Series E Preferred Stock and the Series D Preferred Stock set forth in
Section 4(b) shall continue until such time as no shares of Series E Preferred
Stock or Series D Preferred Stock are outstanding:
(i) At such time as the Investor Stockholder, together with its
Affiliates:
(A) shall cease to own at least 10% of the outstanding Common Stock
(determined with respect to the Series E Preferred Stock and
the Series D Preferred Stock and any other Equity Securities
(as defined in Section 7) owned by the Investor Stockholder and
its Affiliates that are convertible into, or exchangeable or
exercisable for Common Stock, on an as-converted, exchanged or
exercised basis (any determination made in accordance with the
foregoing shall hereinafter be referred to as "as converted")),
------------
the holders of the Series E Preferred Stock and the Series D
Preferred Stock shall cease to have the consent rights set
forth in clauses
<PAGE>
(iii), (iv) (except with respect to clause (B) thereof), (vi)
(except where such a sale would constitute a Change of Control)
and (viii) of Section 4(b); and
(B) shall either (A) cease to own at least 5% of the outstanding
Common Stock as converted or (B) cease to have the right to
designate an Investor Director pursuant to Section 2.1 of the
Stockholders Agreement (as defined in Section 4(d)) as a result
of a Transfer (as defined in the Stockholders Agreement) of
such rights in accordance with Section 3.1(b)(i) of the
Stockholders Agreement or in accordance with Section 2.7(a) of
the Stockholders Agreement, the holders of the Series E
Preferred Stock and the Series D Preferred Stock shall cease to
have the consent rights set forth in Section 4(b) except for
those set forth in clauses (i), (ii), (vii) and (ix) (in the
case of clause (ix), however, only as it relates to clauses
(i), (ii) and (vii)) thereof. For the purposes of this Section
4(c)(i), "Common Stock" shall include any securities issued in
respect thereof, or in substitution therefor, in connection
with any stock split, dividend or combination, or any
reclassification, recapitalization, merger, consolidation,
exchange or other similar reorganization.
(ii) Notwithstanding Section 4(c)(i), the consent rights of the
holders of the Series E Preferred Stock and the Series D
Preferred Stock set forth in Section 4(b) (except for those
rights specified in clauses (i), (ii), (vii) and (ix) (in the
case of clause (ix), however, only as it relates to clauses
(i), (ii) and (vii)), which shall continue until such time as
no shares of Series E Preferred Stock or Series D Preferred
Stock are outstanding) shall terminate at such time as the
Investor Stockholder and its Affiliates shall cease to own a
majority of the outstanding shares of the Series E Preferred
Stock and the Series D Preferred Stock, taken as a whole.
(d) If an "Event of Default" specified in clauses (A), (B), (C) or (E) of
Section 6(b)(v) shall exist, the number of directors constituting the Company's
Board shall be increased to a number so that after the newly created vacancies
are filled by the holders of the shares of Series E Preferred Stock and Series D
Preferred Stock, as provided in the next succeeding sentence, such number of
directors, together with the directors designated pursuant to Section 2.1 of the
Stockholders Agreement, dated as of [ ], 2000 (the "Stockholders Agreement"),
----------------------
among the Company, the Investor Stockholder and the other stockholders signatory
thereto shall constitute a majority of the Board. The holders of a majority of
the outstanding shares of Series E Preferred Stock and Series D Preferred Stock,
voting together as a single class, shall be entitled to elect such number of
additional directors to the Board necessary to fill the vacancies created
pursuant to the preceding sentence. Such right may be exercised initially either
at a special meeting of the holders of Series E Preferred Stock and Series D
Preferred Stock or at any annual meeting of stockholders held for purposes of
electing directors, and thereafter at such annual meetings. If any director so
elected by the holders of Series E Preferred Stock and Series D Preferred Stock
shall cease to serve as a director before his or her term shall expire, the
holders of the Series E Preferred Stock and Series D Preferred Stock, voting
together as a single class, then outstanding
<PAGE>
may, at a special meeting of the holders, elect a successor to hold office for
the unexpired term of the director whose place shall be vacant. Whenever any
such Event of Default ceases to exist, then the right of the holders of the
Series E Preferred Stock and the Series D Preferred Stock to elect such
additional directors shall cease (but subject always to the same provisions for
the vesting of such voting rights in the case of any future Events of Default),
and the term of office of any Person elected as director by the holders of the
Series E Preferred Stock and Series D Preferred Stock pursuant to this
subsection 4(d) shall forthwith terminate and the number of directors
constituting the Board shall be reduced accordingly.
Section 5. Conversion Rights.
The holders of the Series E Preferred Stock and the Company shall have
conversion rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert.
----------------
(i) Each share of Series E Preferred Stock shall be convertible,
at the option of the holder thereof, at any time and from time
to time, subject to compliance with this Section 6, into fully
paid and nonassessable shares of Common Stock at the then
effective Conversion Rate (as defined below) (each such
conversion, an "Optional Conversion"). The Conversion Rate
-------------------
shall equal an amount determined by dividing (i) the Original
Series E Issue Price, plus any compounded accrued and unpaid
dividends (whether or not declared, whether or not funds of
the Company are legally available for the payment of dividends
and whether or not such dividends have been declared by the
Board) on such shares of Series E Preferred Stock, by (ii) the
Conversion Price (as defined below) in effect at the time of
conversion. The Conversion Price at which shares of Common
Stock shall be deliverable upon conversion of Series E
Preferred Stock without the payment of additional
consideration by the holder thereof (the "Conversion Price")
----------------
shall initially be $20.00. Such initial Conversion Price and
the rate at which shares of Series E Preferred Stock may be
converted into shares of Common Stock, shall be subject to
adjustment as provided below.
(ii) Commencing on the fifth anniversary of the Original Issue
Date, upon the written election of the Board and written
notice to the holders of Series E Preferred Stock, each share
of Series E Preferred Stock then outstanding shall be
converted automatically into fully paid and nonassessable
shares of Common Stock at the then effective Conversion Rate;
provided the Board makes this election and provides written
notice of its election to the holders of the Series E
Preferred Stock within 60 days of the fifth anniversary of the
Original Issue Date.
(iii) In the event of a liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, as set forth in
Section 3 above, the
<PAGE>
Conversion Rights shall terminate at the close of business on
the first full day preceding the date fixed for the payment of
any amounts distributable on liquidation to the holders of
Series E Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Series E Preferred Stock. In lieu of fractional
shares, the Company shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) In order to convert shares of Series E Preferred Stock into
shares of Common Stock, the holder shall surrender the
certificate or certificates for such shares of Series E
Preferred Stock at the office of the transfer agent (or at the
principal office of the Company if the Company serves as its
own transfer agent), together with, in the case of an Optional
Conversion, written notice that such holder elects to convert
all or any number of the shares represented by such
certificate or certificates. Such notice shall state the
number of shares of Series E Preferred Stock which the holder
seeks to convert. If required by the Company, certificates
surrendered for conversion shall be endorsed or accompanied by
a written instrument or instruments of transfer, in form
reasonably satisfactory to the Company, duly executed by the
registered holder or his, her or its attorney duly authorized
in writing. The date of receipt of such certificates and
notice by the transfer agent or the Company shall be the
conversion date ("Conversion Date"). As soon as practicable
---------------
after the Conversion Date, the Company shall promptly issue
and deliver at such office to such holder a certificate or
certificates for the number of shares of Common Stock to which
such holder is entitled. Such conversion shall be deemed to
have been made at the close of business on the date of such
surrender of the certificate representing the shares of Series
E Preferred Stock to be converted, and the Person entitled to
receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
(ii) The Company shall at all times during which the Series E
Preferred Stock shall be outstanding, reserve and keep
available out of its authorized but unissued stock, for the
purpose of effecting the conversion of the Series E Preferred
Stock, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series E Preferred Stock. Before
taking any action which would cause an adjustment reducing the
Conversion Price below the then par value of the shares of
Common Stock issuable upon conversion of the Series E
Preferred Stock, the Company will take any corporate action
which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.
<PAGE>
(iii) All shares of Series E Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer
be deemed to be outstanding and all rights with respect to such
shares, including the rights, if any, to receive dividends,
notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor,
and if applicable, cash for any fractional shares of Common
Stock. Any shares of Series E Preferred Stock so converted
shall be retired and canceled and shall not be reissued as
Series E Preferred Stock, and the Company may from time to time
take such appropriate action as may be necessary to reduce the
number of shares of authorized Series E Preferred Stock
accordingly.
(iv) If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities
Act of 1933, as amended, the conversion may, at the option of
any holder tendering Series E Preferred Stock for conversion,
be conditioned upon the closing with the underwriter of the
sale of securities pursuant to such offering, in which event
the Person(s) entitled to receive the Common Stock issuable
upon such conversion of the Series E Preferred Stock shall not
be deemed to have converted such Series E Preferred Stock until
immediately prior to the closing of the sale of securities.
(d) Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
(i) Special Definitions. For purposes of this Subsection 5(d), the
-------------------
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
------
subscribe for, purchase or otherwise acquire Common Stock
or Convertible Securities, excluding the Reserved Employee
Shares.
(B) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common
Stock.
(C) "Additional Shares of Common Stock" shall mean all shares
---------------------------------
of Common Stock issued (or, pursuant to Subsection
5(d)(iii) below, deemed to be issued) by the Company after
the Original Issue Date, other than Reserved Employee
Shares and other than shares of Common Stock issued or
issuable:
(1) as a dividend or distribution on Series C Preferred
Stock, Series E Preferred Stock or Series D Preferred
Stock;
<PAGE>
(2) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock excluded
from the definition by the foregoing clause (1);
(3) upon conversion of shares of Series C Preferred Stock
or Series D Preferred Stock;
(4) upon any further exercise of the Purchase Option or
upon conversion of the shares of Series E Preferred
Stock;
(5) pursuant to warrants issued by the Company pursuant
to (a) the Common Stock Warrant dated as of October
27, 1999 and the Series C Preferred Stock Purchase
Agreement, dated as of September 29, 1999 between the
Company and U.S. Telesource, Inc., (b) the Warrant
Agreement dated as of September 4, 1998 among the
Company, Cleartel Communications, Inc., CAIS, Inc.
and ING (U.S.) Capital Corporation, Inc., (c) the
Series A Preferred Stock and Warrant Purchase
Agreement dated as of February 19, 1999 among the
Company and the several purchasers set forth therein;
and (d) the Warrant to Purchase Common Stock issued
pursuant to the First Amendment to the Master License
Agreement, dated as of April 23, 1999, among the
Company, CAIS, Inc., and Hilton Hotels Corporation
(the "Hilton Warrant");
--------------
(6) pursuant to Rights issued or sold to strategic
partners after the date hereof which are exercisable,
exchangeable or convertible into up to 1,000,000
Additional Shares of Common Stock (as appropriately
adjusted for any stock dividends, combinations,
splits or the like);
(7) Additional Shares of Common Stock issued to the
former shareholders of Atcom, Inc. and Business
Anywhere USA, Inc. in accordance with the terms of
the Amended and Restated Agreement and Plan of
Merger, dated as of August 4, 1999, among the
Company, CIAM Corp. and Atcom, Inc., as amended by
Amendment No. 1, dated as of September 1, 1999, and
as further amended by Amendment No. 2, dated as of
November 19, 1999, and the Agreement and Plan of
Merger, dated as of September 7, 1999, among the
Company, Business Anywhere USA, Inc., CIBA Merger
Corp., Kim Kao and Amy Hsiao, respectively; and
(8) any other shares of Common Stock issued or deemed
issued that the holders of a majority of the then
outstanding shares
<PAGE>
of the Series E Preferred Stock and Series D
Preferred Stock, voting together as a single class,
vote to exclude such shares from the definition of
Additional Shares of Common Stock.
(D) "Reserved Employee Shares" shall mean shares reserved, as
------------------------
of the date hereof, for issuance upon the exercise of
outstanding options to purchase up to 5,601,825 shares of
Common Stock plus options to acquire up to 947,671 shares
of Common Stock to be issued under the Company's Amended
and Restated 1998 Equity Incentive Plan as in effect on
December 20, 1999 and shares of Common Stock to be issued
upon exercise of such options (as appropriately adjusted
for any stock dividends, combinations, splits or the
like).
(E) "Rights to Acquire Common Stock" (or "Rights") shall mean
------------------------------ ------
all rights issued by the Company to acquire Common Stock
whether by exercise of a warrant, option or similar call,
or conversion of any existing instruments, in either case
for consideration fixed, in amount or by formula, as of
the date of issuance.
(ii) No Adjustment of Conversion Price. No adjustment in the number
---------------------------------
of shares of Common Stock into which the Series E Preferred Stock
is convertible shall be made, by adjustment in the applicable
Conversion Price thereof, unless the Fair Market Value of the
consideration per share (determined pursuant to subsection
5(d)(v) below) received by the Company for an Additional Share of
Common Stock issued or deemed to be issued by the Company is less
than 95% of the Fair Market Value per share of the Common Stock
immediately prior to the issue of such additional shares, or if
prior to such issuance, the Company receives written notice from
the holders of at least a majority of the then outstanding shares
of Series E Preferred Stock and Series D Preferred Stock, voting
together as a single class, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares
of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
---------------------------------------------------------------
Stock. If the Company at any time or from time to time after the
-----
Original Issue Date issues any Options or Convertible Securities
or Rights to Acquire Common Stock, then the maximum number of
shares of Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise
of such Options, Rights to Acquire Common Stock or, in the case
of Convertible Securities, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue; provided,
however,
<PAGE>
that Additional Shares of Common Stock shall not be deemed to
have been issued unless the Fair Market Value of the
consideration per share (determined pursuant to Subsection
5(d)(v) hereof) received by the Company for such Additional
Shares of Common Stock would be less than 95% of the Fair Market
Value per share of Common Stock on the date of and immediately
prior to such issue, or such record date, as the case may be, and
provided, further, that in any such case:
(A) No further adjustment in the Conversion Price shall be made
upon the subsequent issue of shares of Common Stock upon the
exercise of such Options, Rights or conversion or exchange
of such Convertible Securities;
(B) Upon the expiration or termination of any unexercised
Option, Right or Convertible Security, the Conversion Price
shall be adjusted immediately to reflect the applicable
Conversion Price which would have been in effect had such
Option, Right or Convertible Security (to the extent
outstanding immediately prior to such expiration or
termination) never been issued; and
(C) In the event of any change in the number of shares of Common
Stock issuable upon the exercise, conversion or exchange of
any Option, Right or Convertible Security, including, but
not limited to, a change resulting from the anti-dilution
provisions thereof, the Conversion Price then in effect
shall forthwith be readjusted to such Conversion Price as
would have obtained had the Conversion Price adjustment that
was originally made upon the issuance of such Option, Right
or Convertible Security which were not exercised or
converted prior to such change been made upon the basis of
such change, but no further adjustment shall be made for the
actual issuance of Common Stock upon the exercise or
conversion of any such Option, Right or Convertible
Security.
(iv) Adjustment of Conversion Price upon Issuance of Additional Shares
-----------------------------------------------------------------
of Common Stock. If the Company shall at any time after the
---------------
Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Subsection 5(d)(iii), but excluding shares issued as
a dividend or distribution as provided in subsection 5(f) or upon
a stock split or combination as provided in subsection 5(e)),
without consideration, or for a consideration per share less than
95% of the Fair Market Value per share of Common Stock on the
date of and immediately prior to such issue, or without the
requisite number of notices contemplated by subsection 5(d)(ii)
hereof, then and in such event, the Conversion Price shall be
reduced, concurrently with such issuance, to a price (calculated
to the nearest cent) determined by multiplying such Conversion
Price by a fraction, the
<PAGE>
numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding, on a fully diluted basis,
immediately prior to such issuance plus (B) the number of shares
of Common Stock which the aggregate consideration received by the
Company for the total number of Additional Shares of Common Stock
so issued would purchase at 95% of the Fair Market Value per
share of Common Stock and the denominator of which shall be the
sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance plus (2) the number of such
Additional Shares of Common Stock so issued.
Notwithstanding the foregoing, the applicable Conversion Price
shall not be reduced if the amount of such reduction would be an
amount less than $.01, but any such amount shall be carried
forward and reduction with respect thereto made at the time of
and together with any subsequent reduction which, together with
such amount and any other amount or amounts so carried forward,
shall aggregate $.01 or more.
(v) Determination of Consideration. For purposes of this Subsection
------------------------------
5(d), "Fair Market Value" of the consideration received by the
-----------------
Company for the issue of any Additional Shares of Common Stock
shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(1) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding
amounts paid or payable for accrued interest or accrued
dividends;
(2) insofar as it consists of property other than cash, be
computed at the Fair Market Value thereof at the time
of such issue, as determined in good faith by the
Board; and
(3) in the event Additional Shares of Common Stock are
issued together with other shares or securities or
other assets of the Company for consideration which
covers both, be the proportion of such consideration so
received, computed as provided in clauses (1) and (2)
above, as determined in good faith by the Board.
(B) Options, Rights and Convertible Securities. The
------------------------------------------
consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been issued
pursuant to subsection 5(d)(iii), relating to Options,
Rights and Convertible Securities, shall be determined by
dividing
<PAGE>
(1) the total amount, if any, received or receivable by the
Company as consideration for the issue of such Options,
Rights or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to
the Company upon the exercise of such Options, Rights
or the conversion or exchange of such Convertible
Securities, by
(2) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without
regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the
exercise of such Options, Rights or the conversion or
exchange of such Convertible Securities.
(e) Adjustment for Stock Splits and Combinations. If the Company shall at
--------------------------------------------
any time or from time to time after the Original Issue Date effect a subdivision
of the outstanding Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased. If the Company
shall at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event the
--------------------------------------------------
Company at any time or from time to time after the Original Issue Date shall
make or issue a dividend or other distribution payable in Additional Shares of
Common Stock, then and in each such event the Conversion Price shall be
decreased as of the time of such issuance, by multiplying such Conversion Price
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding, on a fully diluted basis, immediately prior to such
issuance and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such issuance plus the number of
such Additional Shares of Common Stock issuable in payment of such dividend or
distribution; provided that no such adjustment shall be made if the holders of
the Series E Preferred Stock receive such dividend or distribution in accordance
with the terms of Section 2(f).
(g) Adjustments for Other Dividends and Distributions. In the event the
-------------------------------------------------
Company at any time, or from time to time after the Original Issue Date shall
make or issue, a dividend or other distribution payable in securities of the
Company other than shares of Common Stock or other assets or properties, then
and in each such event provision shall be made so that the holders of shares of
the Series E Preferred Stock shall receive upon conversion thereof in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Company or other assets or properties that they would have
received had their Series E Preferred Stock been converted into Common Stock on
the date of such event and had thereafter, during
<PAGE>
the period from the date of such event to and including the Conversion Date,
retained such securities receivable by them as aforesaid during such period
given application to all adjustments called for during such period, under this
paragraph with respect to the rights of the holders of the Series E Preferred
Stock; provided that no such adjustment shall be made if the holders of the
Series E Preferred Stock receive such dividend or distribution in accordance
with the terms of Section 2(f).
(h) Adjustment for Reclassification, Exchange or Substitution. If the
---------------------------------------------------------
Common Stock issuable upon the conversion of the Series E Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares, stock dividend or
reorganization, reclassification, merger, consolidation or asset sale provided
for elsewhere in this Section 5), then and in each such event the holder of each
share of Series E Preferred Stock (whether then outstanding or thereafter
issued) shall have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which all such shares of Series E Preferred Stock
might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as provided
herein or with respect to such other securities or property by the terms
thereof.
(i) Reorganizations, Mergers, Consolidations or Asset Sales. If at any
-------------------------------------------------------
time after the Original Issue Date there is a merger, consolidation,
recapitalization, sale of all or substantially all of the Company's assets or
reorganization involving the Common Stock (collectively, a "Capital
-------
Reorganization") (other than a merger, consolidation, sale of assets,
- --------------
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as part of
such Capital Reorganization, provision will be made so that the holders of
Series E Preferred Stock (whether then outstanding or thereafter issued) will
thereafter be entitled to receive upon conversion of the Series E Preferred
Stock the number of shares of stock or other securities or property of the
Company to which a holder of the number of shares of Common Stock deliverable
upon conversion would have been entitled on such Capital Reorganization, subject
to adjustment in respect to such stock or securities by the terms thereof. In
any such case, appropriate adjustment will be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of Series
E Preferred Stock after the Capital Reorganization to the end that the
provisions of this Section 5 (including adjustment of the Conversion Price then
in effect and the number of shares issuable upon conversion of the Series E
Preferred Stock) will be applicable after that event and be as nearly equivalent
as practicable. In the event that the Company is not the surviving entity of
any such Capital Reorganization, each share of Series E Preferred Stock shall
become shares of preferred stock of such surviving entity, with the same powers,
rights and preferences as provided herein.
(j) No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
<PAGE>
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series E Preferred Stock against impairment to the extent required hereunder.
Nothing in this Section 5 shall affect the continued accrual of dividends on the
Series E Preferred Stock in accordance with the terms of this Certificate of
Designation.
(k) Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Price pursuant to this Section 5, the Company
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder, if any, of Series E
Preferred Stock outstanding a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based and shall file a copy of such certificate with its
corporate records. The Company shall, upon the reasonable written request of
any holder of Series E Preferred Stock, furnish or cause to be furnished to such
holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series E Preferred Stock. Despite such
adjustment or readjustment, the form of each or all Series E Preferred Stock
certificates, if the same shall reflect the initial or any subsequent Conversion
Price, need not be changed in order for the adjustments or readjustments to be
valid in accordance with the provisions of this Certificate of Designation,
which shall control.
(l) Notice of Record Date. In the event
---------------------
(i) that the Company declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or
other securities of the Company;
(ii) that the Company subdivides or combines its outstanding shares
of Common Stock;
(iii) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding
shares of Common Stock or a stock dividend or stock
distribution thereon);
(iv) of any Capital Reorganization; or
(v) of the involuntary or voluntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed at its principal office or at
the office of the transfer agent of the Series E Preferred Stock, and shall
cause to be mailed to the holders of the Series E Preferred Stock at their
last addresses as shown on the records of the Company, or such transfer
agent, at least 10 days prior to the record date specified in (A) below or
20 days prior to the date specified in (B) below, a notice stating
<PAGE>
(A) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, subdivision or
combination are to be determined, or
(B) the date on which such reclassification, Capital
Reorganization, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, Capital Reorganization, dissolution or
winding up.
Section 6. Mandatory Redemption.
--------------------
(a) Upon the occurrence of a Mandatory Redemption Event (as defined below)
at the option and written election of the holders of a majority of the voting
power of the outstanding shares of the Series E Preferred Stock (a "Redemption
----------
Demand"), the Company shall redeem all outstanding shares of Series E Preferred
- ------
Stock, out of funds of the Company legally available therefor, at a redemption
price per share (the "Redemption Price") equal to the greater of (i) the sum of
----------------
(A) the Original Series E Issue Price plus (B) any compounded accrued and unpaid
dividends thereon (whether or not declared, whether or not funds of the Company
are legally available for the payment of dividends and whether or not such
dividends have been declared by the Board), in each case as adjusted for any
stock dividends, combinations or splits or similar events with respect to such
shares and (ii) the Fair Market Value (as defined in Section 3(c)) of the number
of shares of Common Stock issuable upon conversion of such shares of Series E
Preferred Stock if converted in accordance with the terms of Section 5 of this
Certificate of Designation as of the Redemption Date (as defined below). The
redemption under this Section 6 shall take place on a date (the "Redemption
----------
Date") that is no later than 30 days after the receipt by the Company of the
- ----
Redemption Demand.
(b) The following events shall constitute a "Mandatory Redemption Event"
--------------------------
for purposes hereof:
(i) the fifth anniversary of the Original Issuance Date; provided
that the holders of the Series E Preferred Stock make the
election described in subsection 6(a) within 60 days of such
fifth anniversary;
(ii) a Change of Control occurs;
(iii) a sale, transfer, lease, assignment, conveyance or other
disposition of all or substantially all of the assets of the
Company to any other Person;
(iv) the execution of, or entering into by the Company, an agreement
to do any of the above; or
<PAGE>
(v) any of the following events occurs, each of which shall
constitute an "Event of Default":
----------------
(A) failure by the Company to pay any dividend on the Series E
Preferred Stock when due or to make any required liquidation
or redemption payment and such failure continues for a
period of 5 days;
(B) failure by the Company to perform or observe in any material
respect any Material Covenant (as defined in the Purchase
Agreement) of the Company contained in the Purchase
Agreement, and such failure continues for 30 days after
written notice thereof shall have been given to the Company
by the holders of at least 25% of the then outstanding
shares of Series E Preferred Stock;
(C) any representation or warranty of the Company set forth in
Section 3.3, 3.5, 3.6 and 3.9 in the Purchase Agreement was
not accurate or complete in all material respects as of the
time such representation or warranty was made;
(D) (1) failure by the Company or any Subsidiary to make payment
due on any indebtedness or other security with an aggregate
principal amount or liquidation preference in excess of
$1,000,000 prior to the expiration of the grace period
provided in such indebtedness or other security, and/or (2)
default by the Company or any Subsidiary under any financing
agreement under which the Company or any Subsidiary has
outstanding indebtedness with an aggregate principal amount
in excess of $1,000,000 which default would permit the
holder thereof pursuant to the terms of such agreement to
accelerate such indebtedness;
(E) (i) the Company's voluntary or involuntary bankruptcy,
receivership, assignment for the benefit of creditors,
liquidation which, in the case of any such involuntary
proceeding, has not been discharged or stayed within 60 days
after the commencement thereof, or (ii) acceleration of
third party obligations or unsatisfied judgments in excess
of $500,000 of, by or on behalf of the Company which
obligations shall not have been satisfied or discharged or
which judgments have not been satisfied, discharged or
stayed within 30 days thereafter.
(c) At least twenty (20) days prior to the Redemption Date, the Company
shall send a notice (the "Redemption Notice") of such redemption to be effected
-----------------
to all holders of record (at the close of business on the business day next
preceding the day on which notice is given) of the outstanding Series E
Preferred Stock specifying the number of shares to be redeemed from such
<PAGE>
holder, the Redemption Date, the Redemption Price and the place at which payment
may be obtained.
(d) On or prior to the Redemption Date, the Company shall deposit the
Redemption Price of all shares to be redeemed as of such date with a bank or
trust company having aggregate capital and surplus in excess of $50,000,000, as
a trust fund, with irrevocable instructions and authority to the bank or trust
company to pay, upon receipt of notice from the Company that such holder has
surrendered the Series E Preferred Stock share certificates in accordance with
Section 6(e), the Redemption Price of the shares to their respective holders.
Any moneys deposited by the Company pursuant to this Section 6(d) for the
redemption of shares thereafter converted into shares of Common Stock pursuant
to Section 5 hereof no later than the fifth (5th) day preceding the Redemption
Date shall be returned to the Company forthwith upon such conversion. The
balance of any funds deposited by the Company pursuant to this Section 6(d)
remaining unclaimed at the expiration of one (1) year following such Redemption
Date shall be returned to the Company promptly upon its written request.
(e) On such Redemption Date, each holder of shares of Series E Preferred
Stock to be redeemed shall surrender such holder's certificates representing
such shares to the Company in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the Person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled. In the event less than all the shares represented by such
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares which new certificate shall entitle the holder thereof to all
the powers, preferences and rights of a holder of such shares. From and after
such Redemption Date, unless there shall have been a default in payment of the
Redemption Price or the Company is unable to pay the Redemption Price due to not
having sufficient legally available funds, all rights of the holder of such
shares as a holder of Series E Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificates), shall
cease and terminate with respect to such shares; provided that in the event that
shares of Series E Preferred Stock are not redeemed due to a default in payment
by the Company or because the Company does not have sufficient legally available
funds, such shares of Series E Preferred Stock shall remain outstanding and
shall be entitled to all of the rights and preferences provided herein.
(f) Shares subject to redemption pursuant to this Section 6 shall be
redeemed from each holder of Series E Preferred Stock on a pro rata basis.
(g) If upon any Redemption Date the assets of the Company available for
redemption are insufficient to pay the redeeming holders of outstanding shares
of Series E Preferred Stock the full amounts to which they are entitled, all
shares of the Series E Preferred Stock will be redeemable for cash upon demand.
The shares of Series E Preferred Stock not redeemed shall remain outstanding and
be entitled to all the powers, preferences and rights provided herein. At any
time thereafter when additional funds of the Company are legally available for
the redemption of shares of Series E Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the Company has
become obligated to redeem on any Redemption Date but which it has not redeemed.
<PAGE>
(h) The Company will not enter into any contract or agreement (whether
verbal or written) restricting or impairing its ability to redeem shares of the
Series E Preferred Stock in accordance with this Section 6.
Section 7. Additional Definitions. For purposes of this Certificate of
----------------------
Designation, the following terms shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, for so
long as such Person remains so associated to the specified Person;
(b) "beneficial owner" or "beneficially own" has the meaning given such
---------------- ----------------
term in Rule 13d-3 under the Exchange Act and a Person's beneficial ownership of
voting securities shall be calculated in accordance with the provisions of such
Rule; provided, however, that for purposes of determining beneficial ownership,
-------- -------
a Person shall be deemed to be the beneficial owner of any security which may be
acquired by such Person whether within 60 days or thereafter, upon the
conversion, exchange or exercise of any warrants, options, rights or other.
(c) "Capital Stock" means, with respect to any Person at any time, any and
-------------
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of capital stock, partnership interests (whether
general or limited) or equivalent ownership interests in or issued by such
Person, and with respect to the Company includes, without limitation, any and
all shares of Common Stock, the Series E Preferred Stock and the Series D
Preferred Stock.
(d) "Change of Control" means (i) during any period of two consecutive
-----------------
years, individuals who at the beginning of such period constituted the directors
of the Company (together with any new directors whose election by such directors
or whose nomination for election by the stockholders of the Company 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 directors then in office, (ii) any merger or consolidation with
or into any other entity or any other similar transaction, whether in a single
transaction or series of related transactions where (A) the stockholders of the
Company immediately prior to such transaction in the aggregate cease to own at
least 50% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent thereof) or (B) any Person becomes the
beneficial owner of more than 50% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent thereof),
(iii) any transaction or series of related transactions in which in excess of
50% of the Company's voting power is transferred to any Person, (iv) the sale,
transfer, lease, assignment, conveyance, exchange, mortgage or other disposition
of all or substantially all of the assets of the Company and its Subsidiaries,
or (v) any liquidation, dissolution or winding-up of the Company;
<PAGE>
(e) "Equity Securities" means any and all shares of Capital Stock of the
-----------------
Company, securities of the Company convertible into, or exchangeable or
exercisable for, such shares, and options, warrants or other rights to acquire
such shares (including the Purchase Option).
(f) "Exempt Acquisition" means any acquisition (whether through merger,
------------------
consolidation or otherwise) (i) which has a purchase price (including any
assumed indebtedness and valuing any non-cash consideration at its Fair Market
Value, as defined in Section 3(c)) of less than 5% of the market capitalization
(as reflected by the aggregate Fair Market Value of the outstanding Common
Stock) of the Company as of the date of the execution of the definitive
agreement relating thereto and (ii) which, together with all other Exempt
Acquisitions, has an aggregate purchase price (including any assumed
indebtedness and valuing any non-cash consideration at its Fair Market Value) of
not more than $50.0 million (which amount, for the purposes of Section
4(b)(iv)(A) shall be measured from December 21, 1999);
(g) "Group" has the meaning assigned to such term in Section 13(d)(3) of
-----
the Securities Exchange Act of 1934, as amended;
(h) "Investor Director" means any member of the Board designated by the
-----------------
Investor Stockholder pursuant to Section 2.1 of the Stockholders Agreement;
(i) "Person" means any individual, corporation, limited liability company,
------
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivisions thereof or any Group comprised of two or more of the foregoing.
[Signatures appear on the following page]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of Designation
to be executed this ___ day of ____________.
CAIS INTERNET, INC.
By: __________________________________
Name:
Title:
ATTEST:
______________________________
<PAGE>
Exhibit 4.12
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. Such securities may not be sold
or transferred in the absence of such registration unless the Company receives
an opinion of counsel reasonably acceptable to it stating that such sale or
transfer is exempt from the registration requirements of such Act.
COMMON STOCK WARRANT
OF
CAIS INTERNET, INC.
THIS CERTIFIES THAT, subject to the terms of this Warrant, for value
received, Bass Hotels & Resorts, Inc. ("Bass") or its successors and permitted
assigns (the "Warrantholder"), is entitled to purchase shares of Common Stock,
-------------
par value $.01 per share (the "Common Stock"), of CAIS Internet, Inc., a
------------
Delaware corporation (the "Company"), from the Company in such number and at
-------
such price as determined in accordance with this Warrant.
This Warrant is issued in connection with the Master Agreement for Hotel
Internet Service dated as of February 1, 2000, by and between the Company's
wholly owned subsidiary, CAIS, Inc., and Bass.
Upon delivery of this Warrant (with the Notice of Exercise in the form
attached hereto as Exhibit A), together with payment of the Warrant Price (as
defined below) for the shares of Common Stock to be issued, which payment may be
made by converting this Warrant pursuant to Section 5 below ("Warrant
-------
Conversion"), at the principal office of the Company or at such other office or
- ----------
agency as the Company may designate by notice in writing to the holder hereof,
the Warrantholder shall be entitled to receive a certificate or certificates for
the shares of Common Stock so purchased. All shares of Common Stock which may
be issued upon the exercise of this Warrant will, upon issuance, be fully paid
and nonassessable and free from all taxes, liens and charges with respect
thereto.
This Warrant is subject to the following terms and conditions:
1. Term of Warrant. This Warrant may be exercised in whole, but not in
---------------
part, at any time on or after the date hereof; provided, however, that this
Warrant shall expire to the extent then unexercised as of 5:00 p.m., Washington,
DC time, on February 1, 2005.
2. Number of Warrant Shares. Subject to adjustment from time to time
------------------------
pursuant to Section 4 hereof, the Warrantholder may exercise this Warrant with
respect to 63,000 shares of Common Stock (or other securities issuable in the
event of a reclassification, change, merger or consolidation as set forth in
Section 4(a) hereof) (the "Shares"). This Warrant may be exercised only once for
------
all, and only for all, of the Shares. The Company shall not be required to issue
fractions of Shares on the exercise or conversion of this Warrant. If any
fraction of a Share would, except for the provisions of the immediately
preceding sentence, be issuable on the exercise or conversion of this
<PAGE>
Warrant, the Company shall purchase such fraction for an amount in cash equal to
the current fair market value of such fraction.
3. Warrant Price. The exercise price of this Warrant (the "Warrant
-------------
Price") shall equal $40.0056 per share, subject to adjustment from time to time
pursuant to Section 4 hereof.
4. Adjustment of Number of Shares and Warrant Price. The number and kind
------------------------------------------------
of Shares purchasable upon the exercise of the Warrant and the Warrant Price
shall be subject to adjustment from time to time in accordance with the
following provisions.
(a) Reclassification, Consolidation or Merger. In case of any capital
-----------------------------------------
reorganization, reclassification or change of outstanding securities of the
class issuable upon exercise of the Warrant (other than as a result of a
subdivision, split, combination or stock dividend), or in case of any
consolidation or merger of the Company with or into another entity, the Company,
or such successor entity, as the case may be, shall execute new Warrants, with
substantially the same terms as this Warrant, or amend this Warrant, to provide
that the holder of this Warrant shall have the right to exercise such new
Warrant or amended Warrant and procure upon such exercise in lieu of the Common
Stock theretofore issuable upon exercise of this Warrant the kind and amount of
shares of stock, other securities, money and/or property receivable upon such
reorganization, reclassification, change, consolidation or merger by the
Warrantholder if this Warrant had been fully exercised immediately prior to such
event. Any such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 4. The provisions of this subsection (a) shall similarly apply to
successive reorganizations, reclassifications, changes, consolidations and
mergers.
(b) Subdivision or Combination of Shares. If at any time while this
------------------------------------
Warrant remains outstanding and unexpired, the Company shall subdivide, split or
combine its Common Stock (or declare a dividend or make a distribution payable
in shares of Common Stock or other capital stock), the number of Shares into
which the Warrants are exercisable immediately prior to such action shall be
proportionately adjusted so that the holder of any Warrant thereafter exercised
may receive the aggregate number and kind of shares of capital stock of the
Company which the holder would have owned immediately following such action if
such Warrant had been exercised immediately prior to such action and the Warrant
Price shall be proportionately adjusted.
(c) Notification. Notwithstanding any other provision hereof, to the
------------
extent permitted by applicable law, the Company shall provide written notice to
the Warrantholder at least ten (10) days prior to the record date or other
effective date for any of the following actions: dividends, mergers,
liquidations, consolidations, reclassifications of stock, sale of substantially
all of the Company's assets or any other similar action for which stockholder
approval is required by Delaware law.
2
<PAGE>
5. Payment by Warrant Conversion. The Warrantholder may exercise the
-----------------------------
purchase right represented by this Warrant with respect to the Shares subject to
this Warrant ("Converted Warrant Shares") and elect to pay for a number of such
------------------------
Converted Warrant Shares through Warrant Conversion by specifying such election
in the Notice of Exercise attached hereto as Exhibit A. In such event, the
Company shall deliver to the Warrantholder (without payment by the Warrantholder
of any Warrant Price or any cash or other consideration) that number of Shares
equal to the quotient obtained by dividing (x) the value of this Warrant (or the
specified portion hereof) on the date of exercise, which value shall be
determined by subtracting (A) the aggregate Warrant Price of the Converted
Warrant Shares immediately prior to the exercise of the Warrant from (B) the
aggregate fair market value of the Converted Warrant Shares issuable upon
exercise of this Warrant (or the specified portion hereof) on the date of
exercise, by (y) the fair market value of one Share on the date of exercise. For
purposes of this Section 5, the fair market value of a Share as of a particular
date shall be the closing price on the trading day immediately prior to the
exercise of the applicable Warrant.
6. Notices. Upon any adjustment of the Warrant Price and any increase or
-------
decrease in the number of Shares purchasable upon the exercise of this Warrant,
then, and in each such case, the Company, within 30 days thereafter, shall give
written notice thereof to the registered holder of this Warrant (the "Notice").
------
The Notice shall be mailed to the address of such holder as shown on the books
of the Company; and shall state the Warrant Price as adjusted and the increased
or decreased number of shares purchasable upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation of each. Any
notice pursuant to this Warrant to be given or made by the Warrantholder or the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, or by next day delivery service for personal delivery, addressed (until
another address is provided in writing by the Company or the Warrantholder) as
follows with a copy to the Company's or Warrantholder's legal departments:
CAIS INTERNET, INC. BASS HOTELS & RESORTS, INC.
1255 22nd Street, N.W. Three Ravinia Drive
Washington, D.C. 20037 Suite 2900
Attn: President Atlanta, Georgia 30346
Attention: Senior Vice President,
Information Technology Attorney
7. Transfer and Exchange of the Warrant and Shares. When this Warrant or
-----------------------------------------------
Shares are presented to the Company with a request:
i) to register their transfer; or
ii) to exchange such Warrant for an equal number of Warrants of
other authorized denominations,
3
<PAGE>
the Company shall register the transfer or make the exchange as requested if the
following requirements are met:
(x) the Warrant shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Company, duly executed
by the Warrantholder thereof or by his attorney-in-fact, duly authorized in
writing; and
(y) in the case of Shares, such request shall be accompanied by the
following additional information and documents (all of which may be
submitted by facsimile), as applicable:
(A) if such Shares are being transferred (1) to a "qualified
institutional buyer" (as defined in Rule 144A) in accordance with Rule
144A or (2) pursuant to an exemption from registration in accordance
with Rule 144 (and based on an opinion of counsel if the Company so
requests) or (3) pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), in each
case a certification to that effect;
(B) if such Shares are being transferred pursuant to an
exemption from registration in accordance with Rule 904 under the
Securities Act (and based on an opinion of counsel if the Company so
requests), a certification to that effect; or
(C) if such Shares are being transferred in reliance on another
exemption from the registration requirements of the Securities Act
(and based on an opinion of counsel if the Company so requests), a
certification to that effect.
8. Miscellaneous
-------------
(a) The terms of this Warrant shall be binding upon and shall inure to
the benefit of any successors or permitted assigns of the Company and of the
holder or holders hereof and of the Common Stock issued or issuable upon the
exercise hereof.
(b) No Warrantholder, as such, shall be entitled to vote or receive
dividends or be deemed to be a stockholder of the Company for any purpose, nor
shall anything contained in this Warrant be construed (i) to confer upon the
Warrantholder, as such, any rights of a stockholder of the Company, or any right
to vote, give or withhold consent to any corporate action, receive notice of
meetings, receive dividends or subscription rights, or otherwise, or (ii) as
imposing any obligation on the Warrantholder to purchase any securities or any
liability as a stockholder of the Company, whether such obligation or
liabilities are asserted by the Company or its creditors.
(c) Receipt of this Warrant by the Warrantholder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
4
<PAGE>
(d) The Company will not, by amendment of its certificate of
incorporation or bylaws or through any other action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all actions as may be necessary or appropriate in order to protect the
rights of the Warrantholder against impairment.
(e) Upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
any such loss, theft or distribution, upon delivery of an indemnity agreement
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, upon surrender and cancellation of such Warrants, the Company
at its expense will execute and deliver, in lieu thereof, a new Warrant of like
date and tenor.
(f) Any provision of this Warrant may be amended, waived or modified
upon the written consent of the Company and the Warrantholder.
(g) The Company hereby agrees that at all times there shall be
reserved for issuance and/or deliver upon exercise of this Warrant, free from
preemptive rights, such number of authorized but unissued shares of Common Stock
as from time to time shall be required for issuance or delivery upon exercise of
this Warrant. The Company further agrees that it will promptly take all action
as may from time to time be required in order to permit the holder hereof to
exercise this Warrant and the Company duly and effectively to issue shares of
Common Stock hereunder.
(h) This Warrant shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to the conflicts of laws
provisions thereof.
[This space intentionally left blank]
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: February 1, 2000
CAIS INTERNET, INC.
/s/ William M. Caldwell, IV
------------------------------------
William M. Caldwell, IV
President
6
<PAGE>
EXHIBIT A
- ---------
NOTICE OF EXERCISE
------------------
TO: CAIS Internet, Inc.
1. The undersigned hereby elects to purchase _____ shares of the Common
Stock of CAIS Internet, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
2. The undersigned hereby elects to exercise the purchase right with
respect to ________ shares of such Common Stock through Warrant Conversion, as
set forth in Section 5 of the attached Warrant.
3. Please issue a certificate or certificates representing such shares of
Common Stock in the name of the undersigned or in such other names as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
-----------------------------------------
(Address)
Signature of Warrantholder:
--------------------------------------------
By:
----------------------------------------
Title:
-------------------------------------
Date:
7
<PAGE>
Exhibit 10.51
REGISTRATION RIGHTS AND LOCK-UP AGREEMENT
THIS REGISTRATION RIGHTS AND LOCK-UP AGREEMENT (this "Agreement") is made
and entered into as of September ___, 1999, by and among CAIS Internet, Inc., a
Delaware corporation (the "Company"), Kim Kao and Amy Hsiao (Mr. Kao and Ms.
Hsiao individually, the "Holder;" together, the "Holders"), including their
successors and permitted assigns.
WHEREAS, on September __, 1999, the Company, Business Anywhere, USA, Inc.,
a California corporation ("BAC"), and CIBA Merger Corp., a Delaware corporation
and a wholly owned subsidiary of the Company ("CIBA"), and the Holders entered
into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which
CIBA will be merged with and into BAC (the "Merger");
WHEREAS, the Holders are the sole shareholders of BAC's capital stock. At
the Effective Time of the Merger, the Holders shall receive shares of the
Company's Common Stock (as defined below) in connection with the Merger (the
"Shares");
WHEREAS, the Merger Agreement provides, among other things, that the
Company shall grant the Holders certain registration rights with respect to the
Shares, as more fully set forth herein;
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the consummation of the Merger and the other transactions
contemplated by the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
there parties hereto agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"CAIS Prospectus" shall have the meaning set forth in Section 5(d)
---------------
hereof.
"CAIS SEC Reports" shall have the meaning set forth in Section 5(d)
----------------
hereof.
"Common Stock" shall mean the Common Stock, par value $.01 per share,
------------
of the Company.
"Company" shall have the meaning set forth in the preamble and also
-------
shall include the Company's successors.
1
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time.
"Holder" and "Holders" shall have the meanings set forth in the
------
preamble.
"Merger" shall have the meaning set forth in the preamble.
------
"Offering" shall mean the sale of Common Stock in connection with any
--------
public offering by the Company.
"Other Holders" shall have the meaning set forth in Section 3(c)
-------------
hereof.
"Person" shall mean an individual, partnership, limited liability
------
company, corporation, trust, unincorporated organization or other entity, or a
government or agency or political subdivision thereof.
"Piggyback Notice" shall have the meaning set forth in Section 3(b)
----------------
hereof.
"Piggyback Registration" shall have the meaning set forth in Section
----------------------
3(b) hereof.
"Piggyback Request" shall have the meaning set forth in Section 3(b)
-----------------
hereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement for the registration with the SEC of all or a portion of the
Registrable Securities, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement and by all
other amendments and supplements to such prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Registrable Securities" shall mean the Shares issuable to the Holders
----------------------
as Initial Consideration or Additional Consideration (as defined in the Merger
Agreement) in connection with the Merger, excluding (i) Registrable Securities
for which a Registration Statement relating to the sale thereof shall have
become effective under the Securities Act and which have been sold or otherwise
distributed under such Registration Statement or (ii) Registrable Securities
which the Holder thereof may sell in any one three month period pursuant to Rule
144 under the Securities Act (or such successor rule as may be adopted).
"Registration Statement" shall mean a registration statement of the
----------------------
Company and any other entity required to be a registrant with respect to such
registration statement pursuant to the requirements of the Securities Act which
covers some or all of the Registrable Securities, and all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all materials incorporated by reference therein.
2
<PAGE>
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended
--------------
from time to time.
"Shares" shall have the meaning set forth in the preamble.
------
2. Lock-up Agreement.
-----------------
(a) Each Holder agrees that it shall not transfer, offer, pledge,
sell, contract to sell, grant any options for the sale of or otherwise dispose
of, directly or indirectly, any Shares held by such Holder through November 16,
1999. If requested by an underwriter of Common Stock, each Holder will reaffirm
the agreement set forth in this Section 2 in a separate writing in a form
satisfactory to such underwriter. The Company may impose stop-transfer
instructions with respect to the Shares, subject to the foregoing restriction
until the end of said period.
(b) Notwithstanding anything in this Agreement to the contrary, in
connection with any Offering, each Holder agrees that, if requested by the
managing underwriter of the Offering, such Holder shall not (except pursuant to
a Piggyback Registration to the extent permitted hereunder), directly or
indirectly, sell, offer, contract to sell, grant any option to purchase,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of, any Shares, without the prior written consent of the
Company and the managing underwriters of the Offering for a period of ninety
(90) days from the effective date of the registration statement under the
Securities Act relating to such Offering and to the extent otherwise permissible
under the requirements for a tax-free Merger. This restriction shall be binding
upon any transferee of the Shares and the certificates for the Shares shall bear
a legend to such effect. In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Shares until the end
of such period.
3. Piggyback Registrations.
-----------------------
(a) Right to Piggyback. If the Company proposes to file any
------------------
registration statement under the Securities Act for purposes of an Offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary Offerings of securities of the Company, but
excluding Registration Statements relating to employee benefit plans or other
compensatory arrangements or with respect to corporate reorganizations, or other
transactions under Rule 145 of the Securities Act) (a "Piggyback Registration"),
the Company will give prompt written notice to each Holder of its intention to
effect such a registration (each, a "Piggyback Notice") and, subject to the
terms hereof, the Company will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within ten (10) days after the date of delivery of the
Piggyback Notice; provided, however, that if, at any time after giving written
notice of its intention to register any shares and, prior to the effective date
of the Registration Statement filed in connection with such registration, the
Company shall determine for any reason not to register any
3
<PAGE>
such shares, the Company may, at its election, give written notice of such
determination to the Holders requesting inclusion therein, and thereupon, the
Company shall be relieved of any obligation to register any Registrable
Securities in connection with such terminated registration. If the Piggyback
Registration is an underwritten Offering on behalf of the Company, then the
Company shall not be required to include any Registrable Securities of a Holder
in such Offering unless such Holder enters into a customary form of underwriting
agreement in form and substance reasonably satisfactory to the underwriters and
the Company.
(b) Priority on Primary Registrations. If a Piggyback Registration is an
---------------------------------
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner in such Offering within a price range
acceptable to the Company, the Company will include in such registration, (i)
first, the securities the Company proposes to sell, and (ii) second, other
securities requested to be included in such registration, including without
limitation the Registrable Securities, pro rata on the basis of the number of
shares of such securities owned by each holder thereof (subject to any other
priority arrangements existing under registration rights agreements to which the
Company is a party).
(c) Priority on Secondary Registration. If a Piggyback Registration is an
----------------------------------
underwritten secondary registration on behalf of holders of the Company's
securities other than the Holders (the "Other Holders"), and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner in such Offering within a price range
acceptable to the Company and the Other Holders requesting such registration,
the Company will include in such registration (i) first, the securities
requested to be included therein by the Other Holders requesting such
registration, (ii) second, the securities the Company proposes to sell, and
(iii) third, other securities requested to be included in such registration,
including without limitation, the Registrable Securities, pro rata on the basis
of the number of shares of such securities owned by each holder thereof (subject
to any other priority arrangements existing under registration rights agreements
to which the Company is a party).
(d) Selection of Underwriters. In the case of an underwritten Piggyback
-------------------------
Registration, the Company shall have the right to select the investment
banker(s) and manager(s) to administer the Offering.
4. Registration Procedures.
-----------------------
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to this Agreement, the Company shall:
(a) prepare and file with the SEC, a Registration Statement which shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith;
4
<PAGE>
(b) subject to the last three sentences of this Section 4(b) and
Section 4(i) hereof, (i) prepare and file with the SEC such amendments and post-
effective amendments to each such Registration Statement as may be required
under the Securities Act; (ii) cause each such Prospectus to be supplemented by
any required prospectus supplement, and as so supplemented, to be filed pursuant
to Rule 424 or any similar rule that may be adopted under the Securities Act;
and (iii) respond as promptly as practicable to any comments received from the
SEC with respect to the Registration Statement, or any amendment, post-effective
amendment or supplement relating thereto. Notwithstanding anything to the
contrary contained herein, the Company shall not be required to take any of the
actions described in clauses (i), (ii), or (iii) above with respect to each
particular Holder of Registrable Securities under a Piggyback Registration
unless and until the Company has received a Piggyback Notice from the Holder
that such Holder intends to make offers or sales under the Registration
Statement as specified in such Piggyback Notice. Once a Holder has delivered a
Piggyback Notice to the Company, such Holder shall promptly provide to the
Company such information as the Company reasonably requests in order to identify
such Holder and the method of distribution in a post-effective amendment to the
Registration Statement or a supplement to the Prospectus. Such Holder also shall
notify the Company in writing upon completion of such offer or sale or at such
time as such Holder no longer intends to make offers or sales under the
Registration Statement;
(c) furnish to each selling Holder of Registrable Securities, without
charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other documents as
such Holder may reasonably request, in order to facilitate the public sale or
other disposition of the Registrable Securities; the Company consents to the use
of the Prospectus, including each preliminary Prospectus, by each such Holder of
Registrable Securities in connection with the Offering and sale of the
Registrable Securities covered by the Prospectus or the preliminary Prospectus;
(d) use its best efforts to register or qualify the Registration
Statement by the time the applicable Registration Statement is declared
effective by the SEC under all applicable state securities or "blue sky" laws of
such jurisdictions as any Holder of Registrable Securities shall reasonably
request in writing, keep each such registration or qualification effective
during the period such Registration Statement is required to be kept effective
as provided herein and all other acts and things that may be reasonably
necessary or advisable to enable such Holder to consummate the disposition in
each such jurisdiction of such Registrable Securities owned by such Holder to
the extent required hereunder; provided, however, that the Company shall not be
-------- -------
required to (i) qualify generally to do business in any jurisdiction or to
register as a broker or dealer in such jurisdiction where it would not otherwise
be required to qualify but for this Section 4(d), (ii) subject itself to
taxation in any such jurisdiction, or (iii) submit to the general service of
process in any such jurisdiction;
(e) notify each selling Holder of Registrable Securities promptly and,
if requested by such Holder, confirm such advice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendments and
5
<PAGE>
supplements thereto become effective, (ii) of the issuance by the SEC or any
state securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(ii) if the Company receives any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction or
the initiation of any proceeding for such purpose, and (iv) of the happening of
any event during the period a Registration Statement is effective as a result of
which such Registration Statement or the related Prospectus contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made (in the case of the Prospectus), not
misleading;
(f) take all best efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(g) furnish to each selling Holder of Registrable Securities, without
charge, at least one conformed copy of each Registration Statement and any post-
effective amendment thereto (without documents incorporated therein by reference
or exhibits thereto, unless requested);
(h) cooperate with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any Securities Act legend; and
enable certificates for such Registrable Securities to be issued for such
numbers of shares and registered in such names as the selling Holder may
reasonably request at least two business days prior to any sale of Registrable
Securities;
(i) subject to the last three sentences of Section 4(b) hereof, upon
the occurrence of any event contemplated by Section 4(e)(iv) hereof, use its
best efforts promptly to prepare and file a supplement or prepare, file and
obtain effectiveness of a post-effective amendment to a Registration Statement
or the related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(j) make available for inspection by the Holders of the Registrable
Securities and any representatives, counsel or accountant retained by such
Holders, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the respective officers, directors and
employees of the Company to supply all information reasonably requested by any
such representative, counsel or accountant in connection with a Registration
Statement; provided, however, that such records, documents or information which
-------- -------
the Company determines, in good faith, to be confidential and notifies such
representatives, counsel or accountants in writing that such records, documents
or information are confidential shall not be disclosed by the representatives,
counsel or accountants unless (i) the disclosure of such records,
6
<PAGE>
documents or information is necessary to avoid or correct a material
misstatement or omission in a Registration Statement; (ii) the release of such
records, documents or information is ordered pursuant to a subpoena or order
from a court of competent jurisdiction; or (iii) such records, documents or
information have been generally made available to the public;
(k) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus, provide copies of such document (not
including any documents incorporated by reference therein unless requested) to
the selling Holders of Registrable Securities;
(l) use its best efforts to cause all Registrable Securities to be
listed on any securities exchange on which similar securities issued by the
Company are then listed;
(m) provide a CUSIP number for all Registrable Securities, not later
than the effective date of a Registration Statement;
(n) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering at least 12 months
that shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder; and
(o) use its best efforts to cause the Registrable Securities covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable selling Holders to consummate
the disposition of such Registrable Securities.
The Company may require each Holder of Registrable Securities to
furnish to the Company in writing such information regarding the proposed
distribution by such Holder of such Registrable Securities as the Company may
from time to time reasonably request in writing.
In connection with and as a condition to the Company's obligations
with respect to the Registration Statement, each Holder agrees that: (i) it
will not offer or sell its Registrable Securities under the Registration
Statement until it has provided a Piggyback Notice, if and to the extent
applicable, and has received copies of the supplemental or amended Prospectus
contemplated by Section 4(b) hereof and receives notice that any post-effective
amendment has become effective; or (ii) upon receipt of any written notice from
the Company of the happening of any event of the kind described in Section
4(e)(iv) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until such Holder
receives copies of the supplemental or amended Prospectus contemplated by
Section 4(i) hereof and receives notice that any post-effective amendment has
become effective, and, if so directed by the Company, such Holder will deliver
to the Company (at the expense of the
7
<PAGE>
Company) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. If at any time after any
Registration Statement becomes effective, the Company advises the Holders in
writing that due to the existence of material information that has not been
disclosed to the public and included in the Registration Statement it is thus
necessary to amend the Registration Statement, the Holders shall suspend any
further sale of Registrable Securities until the Registration Statement has been
amended (each such period being referred to herein as a "Suspension Period").
Notwithstanding anything to the contrary contained herein, the Company
shall have the right to postpone the filing of any Registration Statement
hereunder for a reasonable period of time if the Company furnishes the Holders a
certificate signed by the Chairman of the Board of Directors or the President of
the Company stating that in its good faith judgment, the Company's Board of
Directors (or the executive committee thereof) has determined that effecting the
registration at such time would adversely affect a material financing,
acquisition or disposition of assets or securities, merger or other comparable
transaction, or would require the Company to make public disclosure of
information the public disclosure of which would have a material adverse effect
upon the Company.
5. Investment Representations. With respect to the Shares, each Holder
--------------------------
represents and warrants as follows:
(a) The Holder, by reason of his or her business and financial
experience, has such knowledge, sophistication and experience in financial and
business matters and in making investment decisions of this type that he or she
is capable of (i) evaluating the merits and risks of an investment in Common
Stock and making an informed investment decision, (ii) protecting his or her own
interest and (iii) bearing the economic risk of such investment. If the Holder
retained a purchaser's representative with respect to the investment in Common
Stock that may be made pursuant to the Merger Agreement then the Holder shall,
prior to or at the Closing, (i) acknowledge in writing such representation and
(ii) cause such representative to deliver a certificate to the Company
containing such representations as are reasonably requested by the Company.
(b) The Holder is acquiring the Common Stock for investment for the
Holder's own account, not as a nominee or agent and not with the view to, or any
intention of, a resale or distribution thereof, in whole or in part, or the
grant of any participation therein. The Holder understands that the Common Stock
has not been registered under the Securities Act or state securities laws by
reason of a specific exemption from the registration provisions of the
Securities Act and applicable state securities laws that depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Holder's representations as expressed in this Agreement. The Holder further
understands that, except as expressly provided herein, the Company shall have no
obligation to register the Common Stock under the Securities Act or any state
securities laws or to take any action that would make available any exemption
from the registration requirements of such laws. The Holder hereby
8
<PAGE>
acknowledges that because of the restrictions on transfer or assignment of the
Common Stock to be issued in connection with the Merger the Holder may have to
bear the economic risk of the investment commitment in Common Stock for an
indefinite period of time.
(c) The Holder will observe and comply with the Securities Act and all
applicable state securities and "blue sky" laws and the rules and regulations
promulgated thereunder, as now in effect and as from time to time amended, in
connection with any offer, sale, pledge, transfer or other disposition of Common
Stock. In furtherance of the foregoing, and in addition to any restrictions
contained in this Agreement, the Holder will not offer to sell, exchange,
transfer, pledge, or otherwise dispose of any of the Common Stock unless at such
time at least one of the following is satisfied:
(i) a Registration Statement under the Securities Act covering
the Common Stock proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current Prospectus, shall have been filed with the
SEC and made effective under the Securities Act;
(ii) such transaction shall be permitted pursuant to the
provisions of Rule 144;
(iii) counsel representing the Holder, satisfactory to the
Company, shall have advised the Company in a written opinion letter reasonably
satisfactory to the Company and its counsel, and upon which the Company and its
counsel may rely, that no registration under the Securities Act or any
applicable state securities law would be required in connection with the
proposed sale, transfer or other disposition; or
(iv) an authorized representative of the SEC shall have rendered
written advice to the Holder (sought by the Holder or counsel to the Holder,
with a copy thereof and of all other related communications delivered to the
Company) to the effect that the SEC would take no action, or that the staff of
the SEC would not recommend that the SEC take action, with respect to the
proposed sale, transfer or other disposition if consummated.
(d) The Holder understands that an investment in the Common Stock
involves substantial risks. The Holder has been given the opportunity to make a
thorough investigation of the proposed activities of the Company and, upon
request to the Company, has been furnished with materials relating to the
Company and its proposed activities, including, without limitation, a copy of
the Prospectus dated May 20, 1999 (the "CAIS Prospectus") and all reports filed
by the Company with the SEC since May 21, 1999 (the "CAIS SEC Reports"). The
Holder has been afforded the opportunity to obtain any additional information
deemed necessary by the Holder to verify the accuracy of any representations
made or information conveyed to the Holder. The Holder confirms that all
documents, records and books pertaining to his or her investment in Common Stock
9
<PAGE>
and requested by the Holder have been made available or delivered to the Holder.
The Holder has had an opportunity to ask questions of and receive answers from
the Company, or from a person or persons acting on the Company's behalf,
concerning the terms and conditions of his or her investment in the Common
Stock. The Holder has relied upon, and is making his or her investment decision
upon, the CAIS Prospectus, the CAIS SEC Reports, certain consent solicitation
materials distributed by BAC in connection with the Merger and other information
publicly available about the Company.
(e) The Holder understands that all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Securities by the Holder shall be borne by the Holder.
6. Restrictive Legend. All certificates representing the Common Stock
------------------
deliverable to the Holders pursuant to the Merger Agreement and any certificates
subsequently issued with respect thereto or in substitution therefor, unless a
sale, transfer or other disposition is executed pursuant to one or more of the
alternative conditions set forth in Section 5(c) shall have occurred, or unless
the conditions of paragraph (k) of Rule 144 promulgated under the Securities Act
shall have been satisfied, shall bear a legend substantially as follows, in
addition to any legend the Company determines is required pursuant to any
applicable legal requirement:
"The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance with the
requirements of the Securities Act of 1933, as amended, and the other
conditions specified in that certain Agreement and Plan of Merger dated as
of September __, 1999 and that certain Registration Rights and Lock-Up
Agreement dated as of September __, 1999, copies of which agreements CAIS
Internet, Inc. will furnish, without charge, to the holder of this
certificate upon written request therefor."
The Company, at its discretion, may cause a stop transfer order to be placed
with its transfer agent(s) with respect to the certificates for the Common Stock
but not as to the certificates for any part of the Common Stock as to which said
legend is no longer appropriate when one or more of the alternatives set forth
in Section 5(c) shall have been satisfied or the conditions of paragraph (k) of
Rule 144 promulgated under the Securities Act shall have been satisfied.
7. Affiliate Agreements. If and to the extent that a Holder is deemed
--------------------
to be an "affiliate" of the Company within the meaning of the Securities Act,
and as used for purposes of paragraphs (c) and (d) of Rule 145 of the SEC, then
the following terms of this Section 7 shall apply:
(a) The Holder agrees not to sell, transfer or otherwise dispose of
the Shares unless (i) such sale, transfer or other disposition is made pursuant
to an effective Registration Statement under the Securities Act, (ii) such sale,
transfer or other disposition is made in conformity with the requirements of
Rule 145(d) promulgated
10
<PAGE>
under the Securities Act, or (iii) such sale, transfer or other disposition is
executed pursuant to one or more of the alternative conditions set forth in
Section 5(c).
(b) The Company will give stop-transfer instructions to its
transfer agent with respect to the Shares and there will be placed on the
certificates representing such Shares, or any substitutions therefor, a legend
stating in substance:
"The shares represented by this certificate may only be transferred in
conformity with Rule 145(d) or in accordance with a written opinion of
counsel, reasonably acceptable to the issuer in form and substance, that
such transfer is exempt from registration under the Securities Act of
1933."
The legend and stop order set forth above shall be removed (by delivery of a
substitute certificate without such legend) if the Holder delivers to the
Company (i) satisfactory written evidence that the Shares have been sold in
compliance with Rule 145 (in which case, the substitute certificate will be
issued in the name of the transferee), or (ii) an opinion of counsel, in form
and substance reasonably satisfactory to the Company, to the effect that public
sale of the Shares by the Holder is no longer subject to Rule 145.
8. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless each Holder and each Person, if any, who controls any Holder
within the meaning of Section 15 of the Securities Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement (or
any amendment thereto) pursuant to which such Holder's Registrable Securities
were registered under the Securities Act, including all documents incorporated
therein by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendment or
supplement thereto), including all documents incorporated therein by reference,
or the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency, body or third party, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, if such settlement is effected
with the written consent of the Company which shall not be unreasonably
withheld; and
11
<PAGE>
(iii) against any and all expense (including reasonable fees and
disbursements of counsel), as reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, in each case whether or
not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (i) or (ii) above.
provided, however, that the indemnity provided pursuant to this Section 8(a)
- -------- -------
does not apply to any Holder with respect to any loss, liability, claim, damage
or expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in a Registration Statement (or any amendment thereto) or any Prospectus (or
any amendment or supplement thereto).
(b) Indemnification by the Holder. Each Holder severally agrees to
-----------------------------
indemnify and hold harmless the other selling Holder and the Company, and its
directors and officers (including each director and officer of the Company who
signed the Registration Statement), and each Person, if any, who controls the
Company or any other selling Holder within the meaning of Section 15 of the
Securities Act, to the same extent as the indemnity contained in Section 8(a)
hereof (except that any settlement described in Section 8(a)(ii) shall be
effected with the written consent of such Holder), but only insofar as such
loss, liability, claim, damage or expense arises out of or is based upon any
untrue statement or omission, or alleged untrue statement or omission, made in a
Registration Statement (or any amendment or supplement thereto) in reliance upon
and in conformity with written information furnished to the Company by such
selling Holder expressly for use in such Registration Statement (or amendment
thereto) or such Prospectus (or any amendment or supplement thereto). In no
event shall the liability of any Holder under this Section 8(b) be greater in
amount than the dollar amount of the proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. Each indemnified party
shall give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party (i) shall not relieve
it from any liability that it may have under the indemnity agreement provided in
Section 8(a) or (b) above, unless and to the extent it did not otherwise learn
of such action and the lack of notice by the indemnified party results in the
forfeiture by the indemnifying party of substantial rights and defenses and (ii)
shall not relieve, in any event, the indemnifying party from any obligations to
any indemnified party other than the indemnification obligation provided under
Section 8(a) or (b) above. If the indemnifying party so elects within a
reasonable time after receipt of such notice, the indemnifying party may assume
the defense of such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified parties defendant in such action or proceeding, which approval shall
not be unreasonably withheld; provided, however, that, if such indemnified party
-------- -------
or parties reasonably
12
<PAGE>
determine that a conflict of interest exists where it is advisable for such
indemnified party or parties to be represented by separate counsel or that, upon
advice of counsel, there may be legal defenses available to them that are
different from or in addition to those available to the indemnifying party, then
the indemnifying party shall not be entitled to assume such defense and the
indemnified party or parties shall be entitled to one separate counsel at the
indemnifying party's expense. If an indemnifying party is not entitled to assume
the defense of such action or proceeding as a result of the proviso to the
preceding sentence, such indemnifying party's counsel shall be entitled to
conduct such indemnifying party's defense and counsel for the indemnified party
or parties shall be entitled to conduct the defense of such indemnified party or
parties, it being understood that both such counsel will cooperate with each
other to conduct the defense of such action or proceeding as efficiently as
possible. In such event, however, no indemnifying party will be liable for any
settlement effected without the written consent of such indemnifying party. If
an indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, such indemnifying party
shall not be liable for the fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action or proceeding.
(d) Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
this Section 8 is held to be unenforceable for any reason even though it is
applicable in accordance with its terms, the Company and the selling Holders
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by the
Company and the selling Holders, in such proportion as is appropriate to reflect
the relative fault of and benefits to the Company on the one hand and the
selling Holders on the other, (in such proportions that the selling Holders are
severally, not jointly, responsible for the balance) in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relative equitable considerations.
The relative benefits to the indemnifying party and indemnified parties shall be
determined by reference to, among other things, the total proceeds received by
the indemnified parties and indemnifying parties in connection with the Offering
to which such losses, claims, damages, liabilities or expenses relate. The
relative fault of the indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether the action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or the indemnified parties, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), no selling Holder shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such selling Holder were offered to
the public exceeds the amount of any damages that such
13
<PAGE>
selling Holder has otherwise been required to pay by reason of such untrue
statement or omission.
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8(d), each Person,
if any, who controls a Holder within the meaning of Section 5 of the Securities
Act and directors and officers, if any, of a Holder shall have the same rights
to contribution as such Holder, and each director of the Company, each officer
of the Company who signed the Registration Statement and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
9. Rule 144 Sales.
--------------
(a) The Company covenants that it will file the reports required to
be filed by the Company under the Securities Act and the Securities Exchange
Act, as amended, so as to enable any Holder to sell the Registrable Securities
pursuant to Rule 144 under the Securities Act, to the extent such securities are
otherwise transferable.
(b) In connection with any sale, transfer or other disposition by
any Holder of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with such Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as the selling Holders may reasonably request at least
two business days prior to any sale of Registrable Securities.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and the Holders of a
majority in amount of the outstanding Registrable Securities. Notice of any
amendment, modification or supplement to this Agreement adopted in accordance
with this Section 10(a) shall be provided by the Company to each Holder of
Registrable Securities at least thirty (30) days prior to the effective date of
such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery,
(i) if to the Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 10(b), which address initially is, with respect to the Holders, the
address set forth next to such Holder's name on the
14
<PAGE>
signature page of, or notice provisions in, the Merger Agreement, or (ii) if to
the Company, at 1255 22nd Street, N.W., Washington, D.C. 20037, Attention:
Ulysses G. Auger, II.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; or at
the time delivered if delivered by an air courier guaranteeing overnight
delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns as permitted
hereunder of each of the parties and, except as provided in Section 8 hereof, no
other Person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of the Shares from a Holder shall be deemed a successor
or assign by reason of such purchase. The benefits and obligations of a Holder
under this Agreement may be assigned (only by a written instrument signed by
such Holder and such assignee) to a Person then holding or acquiring an
aggregate of at least [50,000] Shares. If any successor or such an assignee of
any Holder shall acquire Registrable Securities, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the terms
of this Agreement.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California without giving effect to
the conflicts of law provisions thereof.
(g) Specific Performance. The parties hereto acknowledge that there
--------------------
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
(h) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
15
<PAGE>
(i) Additional Actions and Documents. The parties hereto shall take
--------------------------------
or cause to be taken such further actions, shall execute, deliver and file, or
cause to be executed, delivered or filed, such further documents and
instruments, and shall obtain such consents as may be necessary or as the other
party may reasonably request, without the payment of further consideration, in
order fully to effectuate the purposes, terms and conditions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CAIS INTERNET, INC.
By: /s/ Ulysees G. Auger, II
_________________________
Name:
Title:
/s/ Kim Kao
____________________________
Kim Kao
Address: 2410 Bennett
Tustin, CA 92780
/s/ Amy Hsiao
____________________________
Amy Hsiao
Address:
16
<PAGE>
Exhibit 10.54
Cisco Systems
[LOGO](TM)
Capital
December 2, 1999
CAIS, Inc.
1255 22nd Street NW
Fourth Floor
Washington D.C. 20037
Attn: Barton Groh
Dear Mr. Groh:
Reference is made 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"), the terms defined therein being used herein as therein defined.
1. Lender has recently conducted a review of its procedures and policies
regarding Loan fundings and interest rate calculations under the vendor credit
facilities to which it is a party, including the Agreement, and as a result of
such review wishes to propose certain changes to the Agreement and Notes.
The Lender wishes to clarify the advance notice requirements and funding
procedures in connection with the Credit Agreement, and, accordingly, proposes
that Section 2.3 of the Credit Agreement be amended and restated in its entirety
to read as follows:
2.3 Borrowing Procedure. Each Loan to be made hereunder shall be
-------------------
in such minimum principal amount as shall be specified in the
Schedule and shall be subject to five Banking Days' advance
written notice, or telephonic notice (confirmed immediately in
writing). 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, and subject to the Funding
Procedures and Policies (as defined below), Lender shall make the
proceeds of the Loan available in accordance with the Borrower's
payment instructions. Without limiting the generality of the
foregoing, 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, and (ii) if the
Vendor is Cisco Systems, 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 (or on such
date thereafter as Cisco Systems shall agree to
<PAGE>
in its sole discretion), and Lender is hereby authorized to make
such Loans without being required to receive a notice of
borrowing with respect thereto. Borrower hereby authorizes and
directs Lender to make direct payment to any Vendor and any other
intended recipient, if any, of Loan proceeds. Lender will make
loan proceeds available to any Vendor or other recipient thereof
on or not later than five Banking Days following the requested
Borrowing Date. As used herein, "Funding Procedures and Policies"
means the Lender's "Funding Procedures and Policies" as in effect
from time to time, as communicated to Borrower.
Lender will be quoting LIBOR on a calendar quarter basis and adjusting the
rounding convention it uses in determining LIBOR. Accordingly, Lender proposes
that the fourth paragraph of each Note be amended and restated in its entirety
to read as follows, effective as of the beginning of the current calendar
quarter:
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 Quarterly Date. Each subsequent
Interest Period shall begin on the last day of the immediately
preceding Interest Period and shall end on the next succeeding
Quarterly Date. As used herein, "LIBOR" means for any Interest
Period the rate of interest per annum determined by Lender to be
the rate of interest per annum (rounded upward, if necessary, to
the nearest 1/100 of 1%) 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
calendar quarter in which such Interest Period occurs, 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; and "Quarterly Date" means the last day of
each calendar quarter.
2. Borrower has requested that Lender agree to the following amendments to the
Credit Agreement. Lender has agreed to such request, subject to the terms and
conditions hereof.
(a) The Schedule of Information to the Credit Agreement shall be amended
and restated in its entirety as set forth on Exhibit A attached hereto.
---------
(b) Exhibit A to the Credit Agreement shall be amended and restated in its
entirety as set forth on Exhibit B attached hereto.
---------
<PAGE>
(c) The attached promissory notes, set forth on Exhibit C and Exhibit D
--------- ---------
attached hereto (reflecting the amendments contemplated herein), shall be
substituted for the promissory notes previously executed and delivered by
Borrower.
(d) Exhibit E to the Credit Agreement shall be amended and restated in its
entirety as set forth on Exhibit E attached hereto.
---------
3. Borrower has requested that Lender waive the requirement set forth in
Section 5.1(q) of the Credit Agreement. Lender has agreed to such request,
provided that no lock box or collection account is established in favor of
Nortel under the Nortel Credit Agreement. Notwithstanding the foregoing, if
Borrower shall at any time establish a lock box or collection account in favor
of Nortel, Borrower shall within 30 days of the effectiveness thereof, fully
comply with the requirements set forth in Section 5.1(q).
Except as provided above, the Credit Agreement and other Loan Documents remain
unmodified and in full force and effect.
Please indicate the agreement of Borrower and Guarantor to the foregoing by
signing and returning to Lender, to the attention of our legal counsel, Bernice
Lake, Esq., a counterpart of this letter. We look forward to receiving your
response. Please contact Bernice Lake at your earliest convenience on tel. (415)
442-1753 at fax (415) 442-1010 or via email at [email protected], if you have
any questions or comments regarding the above matters. Thank you in advance for
your cooperation.
Very truly yours,
Cisco Systems Capital Corporation
By ______________________________________
Title:
<PAGE>
Acknowledged and Agreed:
- -----------------------
CAIS, Inc.
By: ______________________________
Title:
CAIS Internet, Inc.
By: ______________________________
Title:
<PAGE>
EXHIBIT A
Cisco Systems
[LOGO](TM)
Capital
December 2, 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: From the Closing Date through the second
anniversary thereof (the "Commitment Expiry Date"). As used herein, the
"Availability Period" shall mean the period from the Closing Date through the
Commitment Expiry Date.
Commitment: $50,000,000 to be made available 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. The Loans borrowed during the period
from the Closing Date to the first anniversary thereof are "Tranche A1 Loans,"
and the Loans borrowed thereafter are "Tranche A2 Loans."
Fee(s):
(i) Closing Fee: 1.50% of the Commitment as of the Closing Date, payable
in two parts: (1) 0.75% of the Commitment is payable on the Closing
Date and (2) 0.75% of the Commitment is payable on the date that any
Loan request is made which would cause the aggregate principal amount
of outstanding Loans to exceed $25,000,000.
(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
<PAGE>
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 above mentioned commencement date, including at any
time during which one or more conditions precedent in Section 3.2
are not satisfied.
(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: December 2, 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 and (B) each Loan request 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.
<PAGE>
Note(s): The execution and delivery of a Promissory Note in
substantially the form of Exhibit B evidencing the Tranche A1 Loans and a
---------
Promissory Note in the form of Exhibit C, evidencing the Tranche A2 Loans.
---------
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.
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
<PAGE>
(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 B
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 purpose of the borrowing is ____________________. Detailed information
on any purchase transaction being financed by the proposed borrowing is attached
hereto.
4. The payment instructions with respect to the funds to be made available to
Borrower are as follows:
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 December 2, 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 Tranche A1 Loans made by Lender to Borrower
pursuant to the Credit Agreement referred to below, in substantially equal
consecutive quarterly installments, commencing on March 31, 2001, 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 December
31, 2002 (the "Maturity Date") and in the amount necessary to repay in full the
unpaid principal balance hereof.
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 Quarterly Date. Each
subsequent Interest Period shall begin on the last day of the immediately
preceding Interest Period and shall end on the next succeeding Quarterly Date.
As used herein, "LIBOR" means for any Interest Period the rate of interest per
annum determined by Lender to be the rate of interest per annum (rounded upward,
if necessary, to the nearest 1/100 of 1%) 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 calendar
quarter in which such Interest Period occurs, 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
<PAGE>
quotations for such interbank rates selected by Lender; and "Quarterly Date"
means the last day of each calendar quarter.
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 Prime Rate (as defined below) plus 8% per annum.
As used herein, "Prime 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,
N.A. as its "prime rate". Each change in the interest rate hereon based on a
change in the Prime 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.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,
<PAGE>
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
<PAGE>
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.
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
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 December 2, 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 Tranche A2 Loans made by Lender to Borrower
pursuant to the Credit Agreement referred to below, in substantially equal
consecutive quarterly installments, commencing on March 31, 2002, 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 December
31, 2002 (the "Maturity Date") and in the amount necessary to repay in full the
unpaid principal balance hereof.
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 Quarterly Date. Each
subsequent Interest Period shall begin on the last day of the immediately
preceding Interest Period and shall end on the next succeeding Quarterly Date.
As used herein, "LIBOR" means for any Interest Period the rate of interest per
annum determined by Lender to be the rate of interest per annum (rounded upward,
if necessary, to the nearest 1/100 of 1%) 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 calendar
quarter in which such Interest Period occurs, 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
<PAGE>
quotations for such interbank rates selected by Lender; and "Quarterly Date"
means the last day of each calendar quarter.
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 Prime Rate (as defined below) plus 8% per annum.
As used herein, "Prime 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,
N.A. as its "prime rate". Each change in the interest rate hereon based on a
change in the Prime 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.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,
<PAGE>
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
<PAGE>
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.
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 10.55
FIRST AMENDMENT TO GUARANTY
THIS FIRST AMENDMENT TO GUARANTY (this "Amendment"), dated as of
December 2, 1999, is made between CAIS Internet, Inc., a Delaware corporation
("Guarantor") and Cisco Systems Capital Corporation , a Nevada corporation
("Lender").
CAIS, Inc. (the "Borrower") 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 "Credit Agreement") and in connection thereto Guarantor
agreed to guarantee the indebtedness and other obligations of the Borrower to
Lender under or in connection with that certain Guaranty dated June 30, 1999
made by Guarantor in favor of Lender (as amended, modified, renewed or extended
from time to time, the "Guaranty"). Guarantor has requested that Lender agree
to certain amendments to the Guaranty. Lender has agreed to such request,
subject to the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
----------------------------
(a) Terms Defined in the Guaranty. All capitalized terms used in this
-----------------------------
Amendment (including in the recitals hereof) and not otherwise defined herein
shall have the meanings assigned to them in the Guaranty.
SECTION 2 Amendments to the Guaranty.
---------------------------
(a) Amendments. The Guaranty shall be amended as follows, effective
----------
as of the date of satisfaction of the conditions set forth in Section 3 hereof
(the "Effective Date"):
(i) Section 9(k) of the Guaranty is hereby amended and restated
in its entirety as follows:
(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
-----------------------------------------------------
December 31, 1999 $ 3,508,504
-----------------------------------------------------
March 31, 2000 $ 5,800,000
-----------------------------------------------------
June 30, 2000 $ 8,500,000
-----------------------------------------------------
September 30, 2000 $ 13,278,085
-----------------------------------------------------
December 31, 2000 $ 17,811,138
-----------------------------------------------------
March 31, 2001 $ 23,815,387
-----------------------------------------------------
June 30, 2001 $ 28,159,788
-----------------------------------------------------
September 30, 2001 $ 32,520,046
-----------------------------------------------------
December 31, 2001 $ 37,073,989
-----------------------------------------------------
March 31, 2002 $ 42,500,000
-----------------------------------------------------
<PAGE>
-----------------------------------------------------
Quarterly Period Ending Required Amount
-----------------------------------------------------
June 30, 2002 $ 49,300,000
-----------------------------------------------------
September 30, 2002 $ 52,700,000
-----------------------------------------------------
December 31, 2002 $ 55,250,000
-----------------------------------------------------
(ii) Section 9(l) of the Guaranty is hereby amended and
restated in its entirety as follows:
(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 ratio indicated (bracketed amounts (()) are negative):
-----------------------------------------------------
Quarterly Period Ending Required Amount
-----------------------------------------------------
December 31, 1999 ($16,056,506)
-----------------------------------------------------
March 31, 2000 ($16,690,179)
-----------------------------------------------------
June 30, 2000 ($17,313,272)
-----------------------------------------------------
September 30, 2000 ($16,025,469)
-----------------------------------------------------
December 31, 2000 ($14,569,772)
-----------------------------------------------------
March 31, 2001 ($ 8,729,733)
-----------------------------------------------------
June 30, 2001 ($ 5,323,008)
-----------------------------------------------------
September 30, 2001 ($ 1,395,275)
-----------------------------------------------------
December 31, 2001 $ 2,131,229
-----------------------------------------------------
March 31, 2002 $ 6,800,000
-----------------------------------------------------
June 30, 2002 $10,000,000
-----------------------------------------------------
September 30, 2002 $10,000,000
-----------------------------------------------------
December 31, 2002 $10,000,000
-----------------------------------------------------
"EBITDA" shall mean with respect to any fiscal period of a Person, such
Person's earnings (excluding extraordinary items (determined in accordance with
GAAP, consistently applied)), plus (except to the extent attributable to
----
extraordinary items (determined in accordance with GAAP, consistently applied))
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.
(b) References Within Guaranty. Each reference in the Guaranty to
--------------------------
"this Guaranty" and the words "hereof," "herein," "hereunder," or words of like
import, shall mean and be a reference to the Guaranty as amended by this
Amendment.
SECTION 3 Conditions of Effectiveness. Section 2 of this
---------------------------
Amendment shall become effective as of the date on which the Lender has received
from the Guarantor an executed counterpart of this Amendment and the consent of
the Borrower in substantially the form of Exhibit A (the "Borrower Consent"), to
the amendments contemplated by this Amendment.
SECTION 4 Representations and Warranties. To induce Lender to
------------------------------
enter into this Amendment, Guarantor hereby confirms and restates, as of the
date hereof, the
<PAGE>
representations and warranties made by it in Section 8 of the Guaranty and in
the other Loan Documents. For the purposes of this Section 4, (i) each reference
in Section 8 of the Guaranty to "this Guaranty," and the words "hereof,"
"herein," "hereunder," or words of like import in such Section, shall mean and
be a reference to the Guaranty as amended by this Amendment and (ii) clause (i)
shall take into account any amendments to any disclosures made in writing by
Guarantor and any Guarantor to Lender after the Closing Date and approved by
Lender.
SECTION 5 Miscellaneous.
-------------
(a) Guaranty Otherwise Not Affected. Except as expressly amended
-------------------------------
pursuant hereto, the Guaranty shall remain unchanged and in full force and
effect and is hereby ratified and confirmed in all respects. Lender's execution
and delivery of, or acceptance of, this Amendment and any other documents and
instruments in connection herewith (collectively, the "Amendment Documents")
shall not be deemed to create a course of dealing or otherwise create any
express or implied duty by it to provide any other or further amendments,
consents or waivers in the future.
(b) No Reliance. Guarantor hereby acknowledges and confirms to Lender
-----------
that Guarantor is executing this Amendment and the other Amendment Documents on
the basis of its own investigation and for its own reasons without reliance upon
any agreement, representation, understanding or communication by or on behalf of
any other Person.
(c) Costs and Expenses. Guarantor agrees to pay to Lender on demand
------------------
the reasonable out-of-pocket costs and expenses of Lender, and the reasonable
fees and disbursements of counsel to Lender, in connection with the negotiation,
preparation, execution and delivery of this Amendment and any other documents to
be delivered in connection herewith.
(d) Binding Effect. This Amendment shall be binding upon, inure to
--------------
the benefit of and be enforceable by Guarantor, Lender and their respective
successors and assigns.
(e) Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the law of the State of New York.
(f) Complete Agreement; Amendments. This Amendment, together with the
------------------------------
other Amendment Documents and the other Loan Documents, contains the entire and
exclusive agreement of the parties hereto and thereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
commitments, drafts, communications, discussions and understandings, oral or
written, with respect thereto. This Amendment may not be modified, amended or
otherwise altered except in accordance with the terms of Section 13 of the
Guaranty and Section 7.1 of the Credit Agreement.
(g) Severability. Whenever possible, each provision of this Amendment
------------
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Amendment
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
<PAGE>
prohibition or invalidity without affecting the remaining provisions of this
Amendment, or the validity or effectiveness of such provision in any other
jurisdiction.
(h) Counterparts. This Amendment 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.
(i) Interpretation. This Amendment and the other Amendment Documents
--------------
are the result of negotiations between and have been reviewed by counsel to
Lender, Guarantor and other parties, and are the product of all parties hereto.
Accordingly, this Amendment and the other Amendment Documents shall not be
construed against Lender merely because of Lender's involvement in the
preparation thereof.
(j) Loan Documents. This Amendment and the other Amendment Documents
--------------
shall constitute Loan Documents.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment, as of the date first above written.
CAIS Internet, Inc.
By _______________________________________
Title:
Cisco Systems Capital Corporation
By _______________________________________
Title:
<PAGE>
EXHIBIT A
---------
BORROWER CONSENT
December 2, 1999
Cisco Systems Capital Corporation
Worldwide Financial Services
Mailstop SJC2-3rd Floor
170 West Tasman Drive
San Jose, CA 95134-1706
Re: CAIS Internet, Inc.
-------------------
Gentlemen:
Reference is made to that certain Agreement dated as of June 30, 1999
(as amended, modified, renewed or extended from time to time, the "Credit
Agreement") by and between CAIS, Inc. (the "Borrower") and Cisco Systems Capital
Corporation (the "Lender") and in connection therewith, that certain Guaranty
dated June 30, 1999 made by CAIS Internet, Inc. (the "Guarantor") in favor of
Lender (as amended, modified, renewed or extended from time to time, the
"Guaranty").
The undersigned acknowledges receipt of a copy of the First Amendment
to Guaranty dated December 2, 1999 (the "Amendment") being entered into
concurrently herewith by and between CAIS Internet, Inc. and the Lender.
The undersigned, in its capacity as Borrower in the Credit Agreement,
hereby acknowledges that its consent to the foregoing Amendment is not required,
but the undersigned nevertheless does hereby consent to the foregoing Amendment
and to the documents and agreements referred to therein and to all future
modifications and amendments thereto and any termination thereof, and to any and
all other present and future documents and agreements between or among the
foregoing parties. Nothing herein shall in any way limit any of the terms or
provisions of any of the Loan Documents, all of which are hereby ratified and
affirmed in all respects.
Sincerely yours,
CAIS, Inc.
By: _______________________________
Title: ____________________________
<PAGE>
Exhibit 10.56
BORROWER CONSENT
December 2, 1999
Cisco Systems Capital Corporation
Worldwide Financial Services
Mailstop SJC2-3rd Floor
170 West Tasman Drive
San Jose, CA 95134-1706
Re: CAIS Internet, Inc.
-------------------
Gentlemen:
Reference is made to that certain Agreement dated as of June 30, 1999
(as amended, modified, renewed or extended from time to time, the "Credit
Agreement") by and between CAIS, Inc. (the "Borrower") and Cisco Systems Capital
Corporation (the "Lender") and in connection therewith, that certain Guaranty
dated June 30, 1999 made by CAIS Internet, Inc. (the "Guarantor") in favor of
Lender (as amended, modified, renewed or extended from time to time, the
"Guaranty").
The undersigned acknowledges receipt of a copy of the First Amendment
to Guaranty dated December 2, 1999 (the "Amendment") being entered into
concurrently herewith by and between CAIS Internet, Inc. and the Lender.
The undersigned, in its capacity as Borrower in the Credit Agreement,
hereby acknowledges that its consent to the foregoing Amendment is not required,
but the undersigned nevertheless does hereby consent to the foregoing Amendment
and to the documents and agreements referred to therein and to all future
modifications and amendments thereto and any termination thereof, and to any and
all other present and future documents and agreements between or among the
foregoing parties. Nothing herein shall in any way limit any of the terms or
provisions of any of the Loan Documents, all of which are hereby ratified and
affirmed in all respects.
Sincerely yours,
CAIS, Inc.
/s/ Barton R. Groh
---------------------------------------
By: Barton R. Groh
------------------------------------
Title: Chief Financial Officer
---------------------------------
<PAGE>
Exhibit 10.57
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
between
CAIS INTERNET, INC.
and
CII VENTURES LLC
dated as of December 20, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I AGREEMENT TO SELL AND PURCHASE............................................................. 1
SECTION 1.1. Authorization of Shares.................................................................... 1
SECTION 1.2. Sale and Purchase.......................................................................... 2
SECTION 1.3. The Option................................................................................. 2
ARTICLE II CLOSING, DELIVERY AND PAYMENT.............................................................. 3
SECTION 2.1. Closing.................................................................................... 3
SECTION 2.2. Delivery................................................................................... 3
SECTION 2.3. Adjustments................................................................................ 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................. 4
SECTION 3.1. Organization, Good Standing and Qualification.............................................. 4
SECTION 3.2. Subsidiaries............................................................................... 4
SECTION 3.3. Capitalization; Voting Rights.............................................................. 5
SECTION 3.4. Authorization; Binding Obligations......................................................... 6
SECTION 3.5. SEC Reports; Financial Statements.......................................................... 7
SECTION 3.6. Undisclosed Liabilities.................................................................... 7
SECTION 3.7. Agreements; Action......................................................................... 8
SECTION 3.8. Obligations to Related Parties............................................................. 8
SECTION 3.9. Changes.................................................................................... 9
SECTION 3.10. Title to Properties and Assets; Liens, Condition, Etc...................................... 9
SECTION 3.11. Intellectual Property...................................................................... 10
SECTION 3.12. Compliance with Law; Other Instruments..................................................... 11
SECTION 3.13. Litigation................................................................................. 11
SECTION 3.14. Tax Matters................................................................................ 12
SECTION 3.15. Employees.................................................................................. 12
SECTION 3.16. Environmental and Safety Laws.............................................................. 13
SECTION 3.17. Offering Valid............................................................................. 13
SECTION 3.18. Employee Benefit Plans..................................................................... 13
SECTION 3.19. Permits.................................................................................... 14
SECTION 3.20. Year 2000 Compliance....................................................................... 15
SECTION 3.21. No Broker.................................................................................. 15
SECTION 3.22. Disclosure................................................................................. 15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER............................................ 15
SECTION 4.1. Requisite Power and Authority.............................................................. 15
SECTION 4.2. Investment Representations................................................................. 16
SECTION 4.3. Litigation................................................................................. 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.4. No Broker.................................................................................. 16
ARTICLE V COVENANTS OF THE COMPANY................................................................... 17
SECTION 5.1. Ordinary Course of Business................................................................ 17
SECTION 5.2. Access..................................................................................... 19
SECTION 5.3. Key Person Life Insurance; D&O Insurance................................................... 19
SECTION 5.4. Use of Proceeds............................................................................ 19
SECTION 5.5. Efforts.................................................................................... 19
SECTION 5.6. Notification of Certain Matters............................................................ 19
SECTION 5.7. Reservation of Shares...................................................................... 19
SECTION 5.8. Regulatory and Other Authorizations; Notices and Consents.................................. 20
SECTION 5.9. Appointment of Directors................................................................... 20
SECTION 5.10. Stockholder Approval....................................................................... 21
SECTION 5.11. Series C Convertible Preferred Stock....................................................... 21
SECTION 5.12. IP Contracts............................................................................... 21
SECTION 5.13. Transaction Fee............................................................................ 21
SECTION 5.14. Material Covenants......................................................................... 21
SECTION 5.15. Issuance of Series E Preferred Stock....................................................... 22
SECTION 5.16. Registration Rights........................................................................ 22
ARTICLE VI CONDITIONS TO CLOSING...................................................................... 22
SECTION 6.1. Conditions to Purchaser's Obligation to Purchase the Shares................................ 22
SECTION 6.2. Conditions to Obligations of the Company................................................... 25
ARTICLE VII INDEMNIFICATION............................................................................ 26
SECTION 7.1. Survival of Representations and Warranties................................................. 26
SECTION 7.2. Indemnification............................................................................ 26
SECTION 7.3. Indemnification Amounts.................................................................... 27
SECTION 7.4. Non-Exclusive Remedy....................................................................... 27
SECTION 7.5. Certain Limitations........................................................................ 28
ARTICLE VIII MISCELLANEOUS.............................................................................. 28
SECTION 8.1. Other Definitions.......................................................................... 28
SECTION 8.2. Governing Law; Jurisdiction; Waiver of Jury Trial.......................................... 29
SECTION 8.3. Successors and Assigns; Assignment......................................................... 29
SECTION 8.4. Entire Agreement; Supersedes Prior Agreement............................................... 29
SECTION 8.5. Severability............................................................................... 29
SECTION 8.6. Amendment and Waiver....................................................................... 29
SECTION 8.7. Delays or Omissions........................................................................ 29
SECTION 8.8. Notices.................................................................................... 30
SECTION 8.9. Expenses................................................................................... 31
SECTION 8.10. Titles and Subtitles....................................................................... 31
SECTION 8.11. Termination................................................................................ 31
SECTION 8.12. Counterparts; Execution by Facsimile Signature............................................. 31
</TABLE>
ii
<PAGE>
Exhibits
Exhibit A - Certificate of Designation of the Series D Preferred Stock
Exhibit B - Certificate of Designation of the Series E Preferred Stock
Exhibit C - Amended and Restated Certificate of Incorporation of the
Company
Exhibit D - Form of Stockholders Agreement
Exhibit E - Bylaws of the Company
Exhibit F - Opinion of Counsel to the Company
iii
<PAGE>
CAIS INTERNET, INC.
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is entered
---------
into as of December 20, 1999, between CAIS INTERNET, INC., a Delaware
corporation (the "Company"), and CII VENTURES LLC, a Delaware limited liability
-------
company, together with such Affiliates (as defined below) as it shall designate
("Purchaser").
---------
RECITALS
--------
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of 9,620,393 shares of its Series D Convertible Participating
Preferred Stock, par value $0.01 per share (the "Series D Preferred Stock",)
------------------------
and 9,620,393 shares of its Series E Convertible Participating Preferred Stock,
par value $0.01 per share (the "Series E Preferred Stock");
------------------------
WHEREAS, Purchaser initially desires to purchase 7,142,857 shares of
Series D Preferred Stock and obtain an option to purchase up to an additional
7,142,857 shares of Series E Preferred Stock, on the terms and conditions set
forth herein; and
WHEREAS, the Company desires to issue and sell such shares of Series D
Preferred Stock and grant such option to Purchaser on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
AGREEMENT TO SELL AND PURCHASE
------------------------------
SECTION 1.1. Authorization of Shares. The Company has
-----------------------
authorized (i) the initial sale and issuance to Purchaser of 7,142,857 shares of
Series D Preferred Stock (the "Firm Shares"), (ii) the issuance of up to
-----------
7,142,857 shares of Series E Preferred Stock (the "Option Shares" and, together
-------------
with the Firm Shares, the "Shares") to be issued upon exercise of the Option (as
------
defined below), (iii) the issuance of up to 2,477,536 shares of Series D
Preferred Stock and 2,477,536 shares of Series E Preferred Stock to be paid as
dividends on the Firm Shares and the Option Shares, respectively, and (iv) the
issuance of shares of Common Stock to be issued upon conversion of the Shares
(the "Conversion Shares"). The Firm Shares shall have the rights, preferences,
-----------------
privileges and restrictions set forth in the Series D Certificate of Designation
of the Company in the form attached hereto as Exhibit A (the "Series D
--------
Certificate of Designation"), the Option Shares shall have the rights,
- --------------------------
preferences, privileges and restrictions set forth in the Series E Certificate
of Designation of the Company in the form attached hereto as Exhibit B (the
"Series E Certificate of Designation" and, together with the Series D
- ------------------------------------
Certificate of Designation, the "Certificate of Designation") and the Conversion
--------------------------
Shares shall have the rights, preferences, privileges and restrictions set forth
in the Amended and Restated Certificate of
<PAGE>
2
Incorporation of the Company, as amended through the date hereof, attached
hereto as Exhibit C (the "Restated Certificate").
-------- -----------
SECTION 1.2. Sale and Purchase. Subject to the terms and conditions
-----------------
hereof, the Company hereby agrees to issue and sell to Purchaser, and Purchaser
agrees to purchase from the Company, the Firm Shares at a purchase price of
$14.00 per Firm Share (the "Firm Share Price"). Subject to the terms and
----------------
conditions hereof, the Company will issue and sell to Purchaser and Purchaser
will purchase from the Company, at the Firm Share Price, (i) at the First
Closing, 5,276,622 Firm Shares (the "Initial Firm Shares") and (ii) at the
-------------------
Second Closing (as defined in Section 2.1), the remaining Firm Shares (the
"Subsequent Firm Shares"). To the extent that more than 5,276,622 shares may
----------------------
be purchased at any time under the rules (the "NASD Rules") of the National
----------
Association of Securities Dealers, Inc. (the "NASD") without any action on the
----
part of the stockholders of the Company, Purchaser shall have the right (the
"Additional Purchase Option"), but not the obligation, at any time prior to the
- ---------------------------
receipt of the Stockholder Approval (as defined in Section 5.10) as it shall
direct (i) to purchase any or all of the remaining Firm Shares that can be so
purchased at such time (the "Additional Purchase Firm Shares") and (ii) to the
-------------------------------
extent that all of the Firm Shares have been purchased, to purchase such number
of Option Shares that can be so purchased at such time (the "Additional Purchase
-------------------
Option Shares").
- -------------
SECTION 1.3. The Option.
----------
(a) In connection with the purchase of the Firm Shares, the Company
hereby agrees to provide Purchaser, as of the date of the First Closing, with an
irrevocable option (the "Option") to purchase up to 7,142,857 Option Shares at a
------
purchase price of $14.00 per Option Share (the "Option Price").
------------
(b) The Option may be exercised by Purchaser, at any time and from
time to time up to four (4) times, commencing on the First Closing and ending on
midnight of the date which is one (1) year after the later of (i) the date of
the First Closing and (ii) the date of the receipt of the Stockholder Approval,
for a number of Option Shares having an aggregate purchase price of not less
than $25.0 million for each such exercise (other than any exercise where
Purchaser purchases all remaining Option Shares). Pending receipt of the
Stockholder Approval, the Option can be exercised any number of times and for
any number of shares in accordance with the last sentence of Section 1.2.
(c) In the event Purchaser wishes to exercise the Option, Purchaser
shall send a written notice to the Company of its intention to exercise the
Option, in whole or in part (an "Option Notice"), specifying the place, time and
-------------
date ("Option Closing Date") of the closing of such purchase (an "Option
------------------- ------
Closing"), which date shall not be less than three business days from the date
- -------
on which an Option Notice is delivered. In the event Purchaser wishes to
exercise the Additional Purchase Option, Purchaser shall send a written notice
to the Company of its intention to exercise the Additional Purchase Option,
specifying the number of Firm Shares or Option Shares to be purchased and the
place, time and date ("Additional Purchase Closing Date") of the closing of such
--------------------------------
purchase (an "Additional Purchase Closing").
---------------------------
<PAGE>
3
ARTICLE II
CLOSING, DELIVERY AND PAYMENT
-----------------------------
SECTION 2.1. Closing. The closing of the sale and purchase of
-------
the Firm Shares under this Agreement (the "First Closing") and the Subsequent
-------------
Firm Shares (the "Second Closing" and, together with the First Closing, any
--------------
Additional Purchase Closing and any Option Closing, each a "Closing") shall take
-------
place on the fifth business day after the satisfaction or waiver of the
conditions set forth in Section 6, at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York 10017, or at such other time or place
as the Company and Purchaser may mutually agree (such date for the purchase of
the Initial Firm Shares is hereinafter referred to as the "First Closing Date"
------------------
and such date for the purchase of the Subsequent Firm Shares is hereinafter
referred to as the "Second Closing Date" and together with the First Closing
-------------------
Date and any Option Closing Date and any Additional Purchase Closing Date, each
a "Closing Date").
------------
SECTION 2.2. Delivery. At each Closing, subject to the terms
--------
and conditions hereof, the Company will deliver to the Purchaser all of the Firm
Shares to be purchased in accordance with Section 1.2 at such Closing or the
Option Shares for which the Option has been exercised in accordance with Section
1.2, as the case may be, by delivery of a certificate or certificates evidencing
the Shares to be purchased at such Closing, free and clear of any Encumbrances
(other than those placed thereon by or on behalf of Purchaser), and the
Purchaser will make payment to the Company of the aggregate purchase price
therefor by wire transfer of immediately available funds to an account
designated by the Company at least two business days prior to the applicable
Closing Date.
SECTION 2.3. Adjustments. To the extent not reflected in the
-----------
adjustment provisions in the Certificate of Designation, the applicable purchase
price and/or conversion price with respect to the Shares (and the nature of the
securities or other property for which the Option or the Additional Purchase
Option is exercisable or the Shares are convertible) shall be adjusted to
reflect any stock splits, cash or noncash dividends, recapitalizations, mergers,
combinations, distributions, issuances, reclassifications, exchanges,
substitutions or other similar adjustments with respect to the capital stock of
the Company, or sales of shares of capital stock below the applicable purchase
price with respect to the Shares, in each case consistent with the adjustment
provisions relating to the Shares in the applicable Certificate of Designation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to Purchaser as follows:
SECTION 3.1 Organization, Good Standing and Qualification .
---------------------------------------------
Each of the Company and its Subsidiaries (as defined below) is a corporation or
other entity duly organized, validly existing and in good standing under the
laws of the jurisdiction of incorporation or
<PAGE>
3
formation, as the case may be, and has all requisite power and authority to own,
lease and operate its properties and assets and to carry on its business as
currently conducted. The Company has all requisite corporate power and authority
to execute and deliver this Agreement and the Stockholders Agreement in the form
of Exhibit D attached hereto (the "Stockholders Agreement"), to consummate the
------------ ---------
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. Each of the Company and its Subsidiaries is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation or other entity in all jurisdictions in which the character or
location of its activities and of the properties owned or operated by it makes
such qualification necessary. The Company has provided to Purchaser a complete
and correct copy of the Restated Certificate and of its Bylaws, as amended
through the date hereof, attached hereto as Exhibit E (the "Bylaws").
------
SECTION 3.2. Subsidiaries. As used herein, "Subsidiary" means (i)
------------ ----------
any corporation of which a majority of the securities entitled to vote generally
in the election of directors thereof, at the time as of which any determination
is being made, are owned by another entity, either directly or indirectly, and
(ii) any joint venture, general or limited partnership, limited liability
company or other legal entity in which an entity is the record or beneficial
owner, directly or indirectly, of a majority of the voting interests or the
general partner. Schedule 3.2(a) accurately sets forth each Subsidiary of the
Company, including its name, place of incorporation or formation, and if not
wholly owned directly or indirectly by the Company, the record ownership as of
the date of this Agreement of all capital stock or other equity interests issued
thereby. All shares of capital stock or other equity interests of any Subsidiary
directly or indirectly owned by the Company have been duly authorized and
validly issued, are fully paid and nonassessable and are directly or indirectly
owned by the Company free and clear of any Encumbrance and have not been issued
in violation of, nor subject to, any preemptive, subscription or other similar
rights. " Encumbrance" means any security interest, pledge , mortgage, lien
-----------
(statutory or other), charge, option to purchase, lease or otherwise acquire any
interest or any claim, restriction, covenant, title defect, hypothecation,
assignment, deposit arrangement or other encumbrance of any kind or any
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement).
(b) Except for the Subsidiaries and as set forth on Schedule 3.2(b),
the Company does not own any capital stock, membership interests, security or
other interest in any other Person (as defined in Section 8.1), and except as
set forth on Schedule 3.2(b), neither the Company nor any of its Subsidiaries
has any written, or to the knowledge of the Company, oral understanding or
agreement to provide funds to, or make any investment (in the form of a loan,
capital contribution or otherwise) in, any other Person.
SECTION 3.3. Capitalization; Voting Rights. As of December 17, 1999,
-----------------------------
the capitalization of the Company consisted of the following:
(i) 100,000,000 shares of Common Stock, par value $0.01 per share
(the "Common Stock"), (1) 22,498,161 shares of which were issued and
------------
outstanding, (2) 5,601,825 shares of which were reserved for future
issuance to employees pursuant to outstanding stock options under the Stock
Option Plans (as defined below), (3) 2,923,928
<PAGE>
5
shares of which were reserved for future issuance upon the conversion of
securities convertible into shares of Common Stock and (4) a number of
shares of which are issuable as additional consideration in connection with
the acquisitions of Atcom, Inc. ("Atcom") and Business Anywhere USA, Inc.
-----
("Business Anywhere") pursuant to the express terms of the definitive
-----------------
merger agreements with respect thereto (the "Acquisition Shares"); and
------------------
(ii) 25,000,000 shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock") (less the sum of (x) 2,827,168 of which were
---------------
designated Series A Preferred Stock, none of which were issued and
outstanding and (y) 1,119,679 shares of which were designated Series B
Preferred Stock, none of which were issued and outstanding), 125,000 of
which were designated Series C Preferred Stock, 125,000 of which were
issued and outstanding (the "Existing Preferred Stock").
------------------------
Except upon the conversion or exercise of the securities described in
clause (i) (3) or (i) (4), upon the exercise of options described in Schedule
3.3(c) or upon conversion of the Existing Preferred Stock, since December 17,
1999, no shares of Common Stock or Preferred Stock have been issued. The rights,
preferences, privileges and restrictions of the Preferred Stock are as stated in
the Restated Certificate and such other certificates of designations as have
been delivered to Purchaser on or prior to the date hereof.
(b) All issued and outstanding shares of the Company's capital stock
(a) have been duly authorized and validly issued, (b) are fully paid and
nonassessable, (c) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities and (d) were not issued in
violation of, or subject to, any preemptive, subscription or other similar
rights of any other Person.
(c) The Company has delivered to Purchaser a copy of (i) the
Company's Amended and Restated 1998 Equity Incentive Plan, (ii) Atcom's 1996
Stock Option/Stock Issuance Plan and (iii) each option agreement pursuant to
which stock options have been granted outside of the plans described in clauses
(i) and (ii) above (collectively (i)-(iii) are hereinafter referred to as the
"Stock Option Plans"). Schedule 3.3(c) sets forth a true and complete summary of
------------------
all options issued under the Stock Option Plans, including the holder, issue
date, exercise price and vesting status of such option. Except as set forth on
Schedule 3.3(c), other than the 5,601,825 shares reserved for issuance upon the
exercise of options outstanding under the Stock Option Plans, the stock options
issued pursuant to the Stock Option Plans, outstanding warrants to purchase
1,673,928 shares of Common Stock, outstanding shares of Existing Preferred Stock
convertible into 1,250,000 shares of Common Stock and the Acquisition Shares
which may become issuable as additional consideration in connection with the
acquisition of Atcom and Business Anywhere, and except as may be granted
pursuant to this Agreement, there are no outstanding subscriptions, options,
calls, warrants, rights (including conversion or preemptive rights and rights of
first refusal), proxy or stockholder agreements, or agreements of any kind for
the purchase or acquisition from the Company or any Subsidiary of any of their
securities, nor has the Company taken or agreed to take any action to issue or
grant the same. Except as described in this Agreement or set forth on Schedule
3.3(c), (x) there are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire
<PAGE>
6
any securities of the Company or any voting or equity securities or interests of
any Subsidiary, (y) there is no voting trust, proxy, stockholder or other
agreements or understandings to which the Company or any of its Subsidiaries or,
to the knowledge of the Company, any of its stockholders is a party or is bound
with respect to the voting or transfer of the capital stock or other voting
securities of the Company or any of its Subsidiaries and (z) there are no other
subscriptions, options, calls, warrants or other rights (including registration
rights, whether demand or piggyback registration rights), agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any of its Subsidiaries to which the Company or
any of its Subsidiaries is a party. Except as set forth on Schedule 3.3(c), the
consummation of the transactions contemplated by this Agreement and the
Stockholders Agreement will not trigger the anti-dilution provisions or other
price adjustment mechanisms of any outstanding subscriptions, options, calls,
warrants, commitments, contracts, preemptive rights, rights of first refusal,
demands, conversion rights or other agreements or arrangements of any character
or nature whatsoever under which the Company is or may be obligated to issue or
acquire shares of any of its capital stock. The sale of the Shares (including
Option Shares and Conversion Shares) is not and will not be subject to any
preemptive rights, rights of first refusal, subscription or similar rights that
have not been properly waived.
(d) The Shares have been duly and validly authorized and the
Conversion Shares have been duly and validly reserved for issuance and when the
Shares, the Conversion Shares and any shares of Series D Preferred Stock or
Series E Preferred Stock issued as a dividend on the Shares are issued in
accordance with the provisions of this Agreement and the Certificate of
Designation or the Restated Certificate, as the case may be, such shares will be
duly authorized, validly issued, fully paid and nonassessable will be delivered
to Purchaser free and clear of all Encumbrances (other than those placed thereon
by or on behalf of Purchaser) and will have the rights, preferences, privileges
and restrictions set forth in the Certificate of Designation or the Restated
Certificate, as the case may be.
SECTION 3.4. Authorization; Binding Obligations. All corporate action
----------------------------------
on the part of the Company, its officers, directors and stockholders necessary
for the execution and delivery of this Agreement and the Stockholders Agreement,
the consummation of the transactions contemplated hereby and thereby and the
performance of all obligations of the Company hereunder and thereunder as of
each Closing has been taken or will be taken prior to the First Closing, other
than, with respect to the issuance of Subsequent Firm Shares and the Option
Shares, the approval of a majority of the total votes cast by the holders of
Common Stock. This Agreement and the Stockholders Agreement have been or will be
duly executed and delivered by the Company. This Agreement and the Stockholders
Agreement (assuming due execution and delivery by Purchaser) will be legal,
valid and binding obligations of the Company enforceable against it in
accordance with their terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
SECTION 3.5. SEC Reports; Financial Statements.
---------------------------------
<PAGE>
7
(a) The Company has filed with the U.S. Securities and Exchange
Commission (the "SEC") all forms, reports, schedules, proxy statements
---
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein and including all registration
statements and prospectuses filed with the SEC in connection with the Company's
initial public offering, the "SEC Reports") required to be filed by the Company
-----------
with the SEC since its initial public offering on May 20, 1999. As of its date
of filing, each SEC Report complied in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), or the Securities Act of 1933, as amended (the "Securities Act"), and the
- --- --------------
rules and regulations promulgated thereunder and none of such SEC Reports
(including any and all financial statements included therein) contained when
filed or (except to the extent revised or superceded by a subsequent filing with
the SEC prior to the date hereof) contains any untrue statement of a material
fact or omitted or omits to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
(b) Each of the consolidated financial statements (including the
notes thereto) included in the SEC Reports complied as to form, as of its date
of filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, has been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
----
(except as may be indicated in the notes thereto) and fairly presents the
consolidated financial position of Company and its consolidated Subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended, subject (in the case of unaudited financial
statements) to normal year-end adjustments and any other adjustments described
therein or in the notes or schedules thereto which are not expected to be
material.
SECTION 3.6. Undisclosed Liabilities . Except as set forth on
-----------------------
Schedule 3.6 and except for liabilities included or reserved for in the audited
consolidated balance sheet of the Company for the year ended December 31, 1998,
included in its Registration Statement on Form S-1, as amended as of its
effective date, SEC file number 333-72769 (the "Form S-1"), or the unaudited
--------
consolidated balance sheet of the Company included in its Quarterly Report on
Form 10-Q (the "10-Q") for the quarter ended September 30, 1999 (the "Balance
---- -------
Sheet"), each as filed with the SEC, at December 31, 1998, neither the Company
- -----
nor any Subsidiaries had, and since such date none of them has incurred,
liabilities or any other obligations whatsoever that are material (individually
or in the aggregate) to the Company and its Subsidiaries, taken as a whole,
except current liabilities incurred in the ordinary course of business
consistent with past practice subsequent to December 31, 1998.
SECTION 3.7. Agreements; Action.
------------------
(a) Except as set forth on Schedule 3.7(a) or disclosed in the
Form S-1, there are no contracts, agreements, understandings or proposed
transactions between the Company or any Subsidiary and any of its officers,
directors or Affiliates or any family member or Affiliate thereof that would be
required to be disclosed pursuant to Item 404 of Regulation S-K of the SEC.
<PAGE>
8
(b) Attached hereto as Schedule 3.7(b) is a list of (i) all "material
contracts" within the meaning of Item 601 of Regulation S-K of the SEC, (ii) all
material contracts concerning Intellectual Property (as defined in Section 3.11)
("IP Contracts"), (iii) all contracts restricting the Company or any of its
------------
Subsidiaries from engaging in any line of business or competing with any Person
or in any geographical area, or from using or disclosing any information in its
possession, and (iv) all contracts restricting the payments of dividends upon,
or the redemption or conversion of, the Shares (collectively, the "Contracts").
---------
(c) Except as set forth on Schedule 3.7(c), neither the Company nor
any of its Subsidiaries is, nor to the Company's knowledge is any other party to
any Contract, in material default under, or in material breach or material
violation of, any Contract and, to the knowledge of the Company, no event has
occurred which, with the giving of notice or passage of time or both would
constitute a material default by the Company or any other party under any
Contract. Other than Contracts which have terminated or expired in accordance
with their terms, each of the Contracts is in full force and effect and
(assuming due execution and delivery by the counterparties thereto) is a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms (subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing).
SECTION 3.8. Obligations to Related Parties. Except as disclosed in
------------------------------
the Form S-1, there are no obligations of the Company or any Subsidiary to their
respective officers, directors, stockholders, or employees or any family member
or Affiliate thereof other than (a) for payment of salary for services rendered,
(b) reimbursement for reasonable expenses incurred on behalf of the Company or
Subsidiary and (c) for other standard employee benefits made generally available
to all employees (including stock option agreements outstanding under the Stock
Option Plans). Except as set forth on Schedule 3.8, neither the Company nor any
Subsidiary is a guarantor or indemnitor of any indebtedness of any other Person.
Except as disclosed in the Form S-1 or as set forth on Schedule 3.8, neither the
Company nor any Subsidiary is indebted, directly or indirectly, to any of their
respective officers, directors or stockholders or to any family member or
Affiliate thereof, in any amount whatsoever, other than for normal travel
advances or reimbursement for normal business expenses; and none of such
officers, directors or stockholders or any family member or Affiliate thereof is
indebted to the Company or any Subsidiary. Schedule 3.8 sets forth a description
of all transactions since January 1, 1997, between the Company and any of its
officers, directors and stockholders, and their respective spouses and children
in which such persons had a direct or indirect material interest which are not
disclosed in the Form S-1.
SECTION 3.9. Changes. Except as set forth in the SEC Reports filed
-------
and publicly available prior to the date hereof, since December 31, 1998, no
event, change or circumstance has occurred which has had, or would reasonably be
expected to result in, individually or in the aggregate, a material adverse
effect on the business, operations, properties, assets, liabilities, financial
condition or results of operations of the Company and its Subsidiaries, taken as
a whole, or on the ability of the parties hereto to perform their respective
obligations
<PAGE>
9
under this Agreement and the Stockholders Agreement and to consummate the
transactions contemplated hereby and thereby (a "Material Adverse Effect").
-----------------------
(b) Except as set forth in the SEC Reports filed and publicly
available prior to the date hereof, since December 31, 1998, the Company and its
Subsidiaries have carried on their respective businesses only in the ordinary
and usual course consistent with their past practices.
(c) Except as disclosed on Schedule 3.9(c) or in the SEC Reports
filed and publicly available prior to the date hereof, since December 31, 1998,
the Company has not taken any action or omitted to take any action and there has
not occurred any event which, if it had taken place following the date hereof
and prior to the First Closing, would not have been permitted by Section 5.1 of
this Agreement without the prior consent of the Purchaser.
(d) Except as disclosed on Schedule 3.9(d) or in the SEC Reports
filed and publicly available prior to the date hereof, since December 31, 1998,
the Company has not engaged in any sale, assignment, disposition, conveyance,
abandonment, transfer or license, and no event has occurred causing the
invalidation or cancellation, in whole or in part, of the Intellectual Property.
SECTION 3.10. Title to Properties and Assets; Liens, Condition, Etc.
------------------------------------------------------
The Company and each of its Subsidiaries have good and marketable title to their
respective properties and assets, and good title to their respective leasehold
estates, in each case subject to no Encumbrance, other than (i) liens for
current taxes not yet due and payable, (ii) possible minor Encumbrances which do
not in any case materially detract from the value of the property subject
thereto or materially impair the operations of the Company and its Subsidiaries,
and which have not arisen other than in the ordinary course of business and
(iii) Encumbrances relating to vendor or installation purchases, so long as such
Encumbrances extend only to the properties or other assets whose purchase was so
financed. The Company and each of its Subsidiaries are in compliance with all
material terms of each lease to which they are a party or are otherwise bound.
All material properties, equipment and systems of the Company and its
Subsidiaries are in good repair, working order and condition and are in material
compliance with all applicable standards and rules imposed (a) by any
governmental agency or authority in which such properties, equipment and systems
are located, and (b) under any agreements with customers.
SECTION 3.11. Intellectual Property. (a) Schedule 3.11(a) contains a
---------------------
complete and accurate list of, with respect to all Intellectual Property owned,
held or used by the Company or any of its Subsidiaries ("Company IP"), all
----------
patents, registrations or applications, all material unregistered Intellectual
Property and all IP Contracts.
(b) Except as set forth on Schedule 3.11(b), the Company and its
Subsidiaries have (i) recorded their current interests in, and status with
respect to, all Company IP (and all Encumbrances related thereto) with all
applicable governmental authorities; and (ii) not granted to any third party, by
way of IP Contract or otherwise, any right or interest in any Company IP.
(c) Except as set forth on Schedule 3.11(c), (i) the Company and its
Subsidiaries own or have the valid right to use all the Intellectual Property
necessary or desirable to conduct
<PAGE>
10
their businesses as currently conducted and consistent with past practice, free
of all Encumbrances; (ii) all of the Company IP is valid, enforceable and
unexpired, has not been abandoned, and to the Company's knowledge, does not
infringe, impair or make unauthorized use of ("Infringe") the Intellectual
--------
Property of any third party and is not being Infringed by any third party; (iii)
no Order or claim, action, suit, audit, assessment, arbitration or inquiry, or
any proceeding or, to the Company's knowledge, investigation, by or before any
governmental authority (an "Action") is outstanding or pending, or to the
------
Company's knowledge, threatened or imminent, that would limit or challenge the
ownership, use, value, validity or enforceability of any Company IP; (iv) the
Company and its Subsidiaries have taken all necessary steps to protect, maintain
and safeguard the value, validity and their ownership of the Company IP,
including without limitation any confidential Company IP, and have taken all
actions, made all filings, paid all fees and executed all agreements that are
appropriate in connection with the foregoing; (v) to the Company's knowledge, no
employee of it or any of its Subsidiaries has, in connection with its provision
of services thereto, breached any third-party contract with respect to
Intellectual Property; (vi) the operation of the Company and its Subsidiaries'
businesses does not use any Intellectual Property owned by any of its employees,
except for same that has been assigned in writing to the Company; (vii) the
Company and its Subsidiaries own exclusively all of the Intellectual Property
listed on Schedule 3.11(a) as owned thereby, free of any claim by any third
parties, including any current or former employees or independent contractors;
and (viii) with respect to any patents or patent applications listed on Schedule
3.11(a), the Company and its Subsidiaries have the right to obtain a
corresponding patent in all other countries in which they currently do business
or propose to do business in the foreseeable future. For purposes of this
Agreement, the term "Intellectual Property" means all U.S. and foreign
---------------------
intellectual property, including without limitation (i) patents, inventions,
discoveries, processes, designs, techniques, developments, technology, and
related improvements, know-how and show-how, whether or not patented or
patentable; (ii) copyrights and works of authorship in any media, including
computer hardware, software, applications, systems, networks, databases,
documentation and Internet site content; (iii) trademarks, service marks, trade
names, brand names, corporate names, domain names, logos and trade dress; (iv)
trade secrets, drawings, blueprints and all non-public, confidential or
proprietary information, documents or materials; and (v) all registrations,
applications and recordings related thereto.
SECTION 3.12 Compliance with Law; Other Instruments . Neither the
--------------------------------------
Company nor any of its Subsidiaries is in violation or default of (i) the
Restated Certificate or Bylaws or the organizational documents of any Subsidiary
or (ii) of any judicial or administrative judgment, decision, decree, order,
settlement, injunction, writ, stipulation, determination or award (each, an
"Order") or any statute, law, ordinance, rule or regulation (each, a "Law") and
- ------ ---
has received no notice of, and to the knowledge of the Company, no investigation
or review is in process or threatened by any governmental authority with respect
to, any violation or alleged violation of any Order or Law except, in the case
of any Order or Law, where such violation or default would not, in the
aggregate, have a Material Adverse Effect. The execution, delivery and
performance of this Agreement and the Stockholders Agreement, and the
consummation of the transactions contemplated hereby and thereby, will not
result in (a) (i) any violation, or be in conflict with or constitute a default
(with or without notice or lapse of time or both) under the Restated Certificate
or Bylaws or the organizational documents of any Subsidiary, (ii) any violation,
or be in conflict with or constitute a default (with or without notice or lapse
of time or both) under, any
<PAGE>
11
term or provision of, or any right of termination, cancellation or acceleration
arising under any Contract or cause any liabilities or additional fees to be due
thereunder or (iii) any violation under any Order or Law applicable to the
Company or any of its Subsidiaries, its business or operations or any of its
assets or properties or (b) result in the imposition of any Encumbrance on the
business or material properties or assets of the Company or any of its
Subsidiaries. None of the execution and delivery of this Agreement and the
Stockholders Agreement, the consummation of the transactions contemplated hereby
and thereby or the performance of the obligations of the Company hereunder and
thereunder will result in the suspension, revocation, impairment, forfeiture or
nonrenewal of any Permit applicable to the Company or any of its Subsidiaries,
its business or operations or any of its assets or properties. "Permits" means
-------
all licenses, permits, orders, consents, approvals, registrations,
authorizations, qualifications and filings with and under all federal, state,
local or foreign laws and governmental authorities and all industry or other
non-governmental self-regulatory organizations.
SECTION 3.13 Litigation. Except as set forth on Schedule 3.13, there
----------
is no Action pending, or to the Company's knowledge, currently threatened
against the Company or any Subsidiary (including with respect to any Company
Plan, as defined below) which, if adversely determined, would, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect. The
foregoing includes, without limitation, Actions pending or threatened (or any
basis therefor known to the Company) involving the prior employment of any of
the Company's or any Subsidiary's employees, their use in connection with the
Company's or any Subsidiary's business of any Intellectual Property rights of
their former employers, or their obligations under any agreements with prior
employers. Neither the Company nor any Subsidiary is a party or subject to the
provisions of any Order of any court or governmental authority. There is no
Action by the Company or any Subsidiary currently pending or which the Company
or any Subsidiary intends to initiate. Schedule 3.13 lists all material
settlements of any Action entered into within the last five years to which the
Company or any Subsidiary is party.
SECTION 3.14 Tax Matters.
-----------
(a) Except as set forth on Schedule 3.14(a), (i) all material Tax
Returns that are required to be filed by or with respect to the Company and its
Subsidiaries have been duly filed, (ii) all material Taxes of the Company and
its Subsidiaries due and payable, whether or not shown on the Tax Returns
referred to in clause (i), have been paid in full, (iii) the Tax Returns
referred to in clause (i) have been audited by the Internal Revenue Service or
the appropriate state, local or foreign taxing authority or the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired, (iv) all material deficiencies asserted or assessments made
as a result of such examinations have been paid in full, (v) no material issues
that have been raised by the relevant taxing authority in connection with the
examination of any of the Tax Returns referred to in clause (i) are currently
pending, (vi) no waiver of statutes of limitation have been given by or
requested with respect to any Taxes of the Company or its Subsidiaries, (vii)
there are no liens for Taxes on any asset of the Company or any of its
Subsidiaries other than for current Taxes not yet due and payable, or if due,
(A) not delinquent or (B) being contested in good faith by appropriate
proceedings, (viii) no consent has been filed relating to the Company or any of
its Subsidiaries pursuant to Section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code"), and (ix) from its formation and until
----
<PAGE>
12
October 2, 1998, the Company was a validly electing "S corporation" within the
meaning of Section 1361(a) of the Code and under the laws of the State of
Delaware.
(b) For purposes of this Agreement, the term (i) "Taxes" means all
-----
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to, income, excise, property, sales and use, transfer, franchise,
payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto, and (ii) "Tax Return" means any
----------
return, report, information return or other document (including any related or
supporting information) filed or required to be filed with any taxing authority
with respect to Taxes.
SECTION 3.15. Employees. Neither the Company nor any of its
---------
Subsidiaries has any collective bargaining agreements with any of its employees.
There is no labor union organizing activity pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened with respect to the Company or
any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is
aware that any officer or key employee, or that any group of key employees,
intends to terminate their employment with the Company or any of its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group of
key employees. No employee of the Company or its Subsidiaries is bound by any
contract, agreement or covenant that would interfere or conflict with or
restrict in any way its full provision of services thereto, including any of the
foregoing relating to trade secrets, confidential information or other
Intellectual Property.
SECTION 3.16. Environmental and Safety Laws.
-----------------------------
(a) Neither the Company nor any Subsidiary has failed to comply in
any material respect with any Environmental Laws.
(b) Neither the Company nor any Subsidiary has Released, generated or
disposed of any Hazardous Substance in a manner which could reasonably be
expected to give rise to a material liability under or relating to any
Environmental Laws.
(c) There is no claim under or relating to Environmental Laws pending
or, to the knowledge of the Company, threatened against the Company or any of
its Subsidiaries or, to the knowledge of the Company, pending or threatened
against any other Person whose liability for any environmental claim the Company
or any of its Subsidiaries has retained or assumed either contractually or by
operation of law. Except as would not reasonably be expected to give rise to a
material liability under or relating to any Environmental Laws, no real property
currently or formerly owned, operated or leased by the Company or any of its
Subsidiaries has been impacted by any Release or threatened Release of any
Hazardous Substance.
(d) For purposes of this Agreement, the term (i) "Environmental Laws"
------------------
means all applicable federal, foreign, state, local or municipal Laws or Orders
or other legally binding requirements relating to pollution or the protection of
human health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.,
Section 9601, et seq., as amended ("CERCLA"), the Resource
------
<PAGE>
13
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., as amended, the
Clean Air Act, 42 U.S.C. Section 7401 et seq., as amended, the Clean Water Act,
33 U.S.C. Section et seq., the Toxic Substance Control Act, 15 U.S.C. Section
2601 et seq., and the Occupational Safety and Health Act, 29 U.S.C. Section 651,
et seq.; (ii) "Hazardous Substances" means any pollutant, contaminant, toxic
--------------------
substance, hazardous waste, hazardous material, or hazardous substance, or any
oil, petroleum or petroleum product, each as defined or listed in, or classified
pursuant to, any Environmental Laws or any other substance or force that could
result in liability under any Environmental Laws; and (iii) "Release" means any
-------
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing (including, without limitation, the
abandonment or discarding of barrels, containers and other receptacles).
SECTION 3.17. Offering Valid. Assuming the accuracy of the
--------------
representations and warranties of the Purchaser contained in Section 4.2 hereof,
the offer, sale and issuance of the Shares will be exempt from the registration
requirements of the Securities Act and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.
SECTION 3.18. Employee Benefit Plans.
----------------------
(a) Schedule 3.18(a) contains a true and complete list of each
"employee benefit plan" (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), stock purchase,
-----
stock option, severance, employment, change-in-control, fringe benefit, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not subject to
ERISA, under which any employee or former employee of the Company or its
Subsidiaries has any present or future right to benefits and under which the
Company or its Subsidiaries has any present of future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively referred
to as the "Company Plan".
------------
(b) Each Company Plan has been established and administered in
accordance with its terms, in all material respects, and in material compliance
with the applicable provisions of ERISA, the Code and other applicable laws,
rules and regulations and neither the Company nor any of its Subsidiaries has
incurred any material tax, fine, lien, penalty or other liability imposed by
ERISA, the Code or other applicable law, rule and regulations; and (ii) each
Company Plan which is intended to be qualified within the meaning of Code
section 401(a) has received a favorable determination letter and subsequent to
that term nothing has occurred, whether by action or failure to act, that could
reasonably be expected to cause the loss of such qualification.
(c) No Company Plan is (i) subject to Title IV of ERISA or (ii) a
"multiemployer plan" (as such term is defined in section 3(37) of ERISA) and
neither the Company nor any of its Subsidiaries has incurred any withdrawal
liability or termination liability with respect to any such plan that remains
unsatisfied. The Company has not engaged in, and is not a successor or parent
corporation to any Person that has engaged in, a transaction described in
Section 4069 or 4212(c) of ERISA.
<PAGE>
14
(d) Except as set forth on Schedule 3.18(d), no Company Plan exists
that could result in the payment to any present or former employee of the
Company or its Subsidiaries of any money or other property or accelerate or
provide any other rights or benefits to any present or former employee of the
Company or its Subsidiaries as a direct result of the transaction contemplated
by this Agreement, whether or not such payment would constitute a parachute
payment within the meaning of Code section 280G; provided, however, that in no
-------- -------
event will the transactions contemplated by this Agreement and the Stockholders
Agreement constitute a "change of control" for purposes of any outstanding
options granted pursuant to the Stock Option Plans.
SECTION 3.19. Permits. The Company and its Subsidiaries hold all
-------
Permits necessary for the lawful conduct of their respective businesses as they
are presently being conducted, except where the failure to so hold Permits would
not have a Material Adverse Effect. All Permits are in full force and effect in
all material respects. The Company and its Subsidiaries have complied in all
material respects with the terms of the Permits and there are no pending
modifications, amendments or revocations of any Permits. All fees due and
payable from the Company or any of its Subsidiaries to governmental authorities
or other third parties pursuant to the Permits have been paid. There are no
pending or, to the knowledge of the Company, threatened, suits, actions,
proceedings or, to the Company's knowledge, investigations with respect to the
possible revocation, cancellation, suspension, limitation or nonrenewal of any
Permits, and there has occurred no event which (whether with notice or lapse of
time or both) could reasonably be expected to result in or constitute the basis
for such a revocation, cancellation, suspension, limitation or nonrenewal
thereof.
SECTION 3.20. Year 2000 Compliance. Except as set forth in Schedule
--------------------
3.20, all computer hardware, software, databases, automated systems and other
computer and telecommunications equipment owned or licensed by the Company
and/or its Subsidiaries ("Systems"), and all products and services designed,
-------
manufactured, distributed, offered or sold thereby ("Products"), can be used
--------
prior to, during and after the calendar year 2000 A.D., and will operate during
each such time period, either on a stand-alone basis or by interacting or
interoperating with third-party software (provided that such third-party
software is Year 2000 Compliant), without material error relating to the
processing, calculating, comparing, sequencing or other use of date-related data
(the foregoing ability, "Year 2000 Compliant"). The Company and its Subsidiaries
-------------------
have made all necessary and appropriate contingency plans in the event of the
non-Year 2000 Compliance of any of its Systems and/or Products, including plans
to limit its potential liability to third parties, except where the failure to
do so would not have a Material Adverse Effect. Except as set forth in Schedule
3.20, the Company and its Subsidiaries have timely complied in all material
respects with all laws, statutes, rules, regulations and directives of all
government, industry and regulatory authorities with respect to Year 2000
Compliance issues.
SECTION 3.21. No Broker. Except as set forth on Schedule 3.21,
---------
neither the Company nor any of its Subsidiaries has employed any broker or
finder, or incurred any liability for any brokerage or finders' fees or any
similar fees or commissions in connection with the transactions contemplated by
this Agreement.
<PAGE>
15
SECTION 3.22. Disclosure. Neither this Agreement (including all
----------
Exhibits and Schedules hereto) nor any of the other agreements or instruments
contemplated to be executed and delivered by the Company in connection with this
Agreement contain any untrue statement of material fact; and none of such
documents omits to state any material fact necessary to make any of the
representations, warranties or other statements or information contained therein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
Purchaser hereby represents and warrants to the Company as
follows:
SECTION 4.1. Requisite Power and Authority. Purchaser has all
-----------------------------
requisite power and authority to execute and deliver this Agreement and the
Stockholders Agreement, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. All action on
Purchaser's part necessary for the execution and delivery of this Agreement and
the Stockholders Agreement, the consummation of the transactions contemplated
hereby and thereby and the performance of all obligations of Purchaser hereunder
and thereunder as of each Closing has been or will be effectively taken prior to
the First Closing. This Agreement and the Stockholders Agreement have been or
will be duly executed and delivered by Purchaser. This Agreement and the
Stockholders Agreement (assuming due execution and delivery by the Company) will
be legal, valid and binding obligations of Purchaser, enforceable against it in
accordance with their terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
SECTION 4.2. Investment Representations. Purchaser acknowledges
--------------------------
that the Shares and the Conversion Shares have not been registered under the
Securities Act or under any state securities laws. Purchaser (a) is acquiring
the Shares and the Conversion Shares for investment for its own account, not as
a nominee or agent, and not with the view to, or for resale in connection with,
any distribution thereof, (b) is an "accredited investor" within the meaning of
Regulation D, Rule 501(a), promulgated by the SEC, (c) acknowledges that the
Shares and the Conversion Shares must be held indefinitely unless subsequently
registered under the Securities Act or unless an exemption from the registration
requirements of the Securities Act is available and (c) represents that by
reason of its business or financial experience, Purchaser has the capacity to
protect its own interests in connection with the transactions contemplated by
this Agreement and the Stockholders Agreement. Purchaser has had an opportunity
to discuss the Company's business, management and financial affairs with the
Company's management. Purchaser has had an opportunity to ask questions of and
receive answers from, officers of the Company. Purchaser understands that such
discussions, as well as any other written information issued by the Company,
were intended to describe certain aspects of the Company's business and
operations, but were not an exhaustive description.
<PAGE>
SECTION 4.3. Litigation. There is no Action pending, or to
----------
Purchaser's knowledge, currently threatened against Purchaser which, if
adversely determined, would, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the ability of Purchaser to
perform its obligations under this Agreement and the Stockholders Agreement and
to consummate the transactions contemplated hereby and thereby.
SECTION 4.4. No Broker. Purchaser has not employed any broker
---------
or finder, or incurred any liability for any brokerage or finders' fees or any
similar fees or commissions in connection with the transactions contemplated by
this Agreement.
ARTICLE V
COVENANTS OF THE COMPANY
------------------------
SECTION 5.1. Ordinary Course of Business.
---------------------------
(a) Except as otherwise contemplated by the terms of this Agreement,
during the period from the date of this Agreement to the First Closing Date (the
"Pre-Closing Period"), the Company shall use commercially reasonable efforts to
------------------
preserve intact its and its Subsidiaries' current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be unimpaired.
(b) Without limiting the generality of the foregoing, during the Pre-
Closing Period, each of the Company and its Subsidiaries shall not, without the
prior consent of Purchaser:
(i) enter into any direct or indirect transaction by the Company or
any of its Subsidiaries with an Affiliate of the Company or a family member
or an Affiliate thereof or any entity in which an Affiliate has an interest
as a director, officer, or greater than 5% stockholder (including without
limitation, the purchase, sale, lease or exchange of any property, or
rendering of any service or modification or amendment of any existing
agreement or arrangement);
(ii) (A) remove the chief executive officer or president (or, if there
are no officers with such titles, the officers whose responsibility is
executive oversight of the Company's and its Subsidiaries' operations) or
any executive vice president, or appoint any person to fill a vacancy in
any such office, or (B) approve any new, or modify any existing (x)
material executive, officer and director compensation plans or agreements
or (y) other material employee compensation or benefit plan, agreement or
arrangement, offered by the Company or any of its Subsidiaries, including
without limitation, any stock option plan;
<PAGE>
(iii) change the number of Directors or the composition or structure
of the Board or any Board committee or establish any Board committees and
appointments thereto;
(iv) increase or decrease the total number of authorized or issued
shares of Preferred Stock;
(v) except (A) as consideration in any transaction of the type
described in clause (vi) of this Section 5.1(b) which does not require the
consent of Purchaser or to which Purchaser has consented and (B) for Common
Stock issued upon the conversion or exercise of the Equity Securities
described in clauses (2), (3) and (4) of Section 3.3(a)(i) of this
Agreement in accordance with the terms of such Equity Securities,
authorize, create (by way of reclassification or otherwise) or issue any
Senior Securities, Parity Securities or Junior Securities (as each such
term is defined in the Form of Certificate of Designation attached hereto
as Exhibits B and C) or any Equity Securities (as defined in the Form of
Stockholders Agreement attached hereto as Exhibit D);
(vi) (A) merge or consolidate with or into any other Person, or
acquire another Person, whether in a single transaction or series of
related transactions, other than Exempt Acquisitions (as defined below) or
(B) enter into any proposed transaction or series of related transactions
involving a Change of Control (as defined in the Form of Stockholders
Agreement attached hereto as Exhibit D) of the Company;
(vii) redeem, acquire or otherwise purchase any share of Common Stock
or Preferred Stock of the Company, unless, in the case of any Preferred
Stock, such redemption, acquisition or purchase is required by the terms of
such Preferred Stock or in the case of the warrant to purchase Common Stock
issued pursuant to the First Amendment to the Master License Agreement,
dated as of April 23, 1999, among the Company, CAIS, Inc., and Hilton
Hotels Corporation (the "Hilton Warrant"), such redemption, acquisition or
--------------
purchase is required by the terms of the Hilton Warrant;
(viii) sell a Subsidiary's securities to any third party (other than
the Company or any other wholly owned Subsidiary of the Company);
(ix) amend, repeal or alter the Company's Restated Certificate of
Incorporation or Amended and Restated By-Laws in a manner that adversely
affects the holders of the Shares;
(x) sell or transfer any of the Company's or its Subsidiaries'
technology or other Intellectual Property, to any other Person, other than
in the ordinary course of business; or
(xi) enter into any arrangement or contract to do any of the
foregoing.
For purposes of this Section 5.1, an "Exempt Acquisition" means any
------------------
acquisition (whether through merger, consolidation or otherwise) (i) which has a
purchase price (including any assumed indebtedness and valuing any non-cash
consideration at its Fair Market Value (as defined in Section 3(c) of the Form
of Certificate of Designation attached hereto as Exhibit A))
<PAGE>
of less than 5% of the market capitalization (as reflected by the aggregate Fair
Market Value of the outstanding Common Stock) of the Company as of the date of
the execution of the definitive agreement relating thereto and (ii) which,
together with all other Exempt Acquisitions, has an aggregate purchase price
(including any assumed indebtedness and valuing any non-cash consideration at
its Fair Market Value) of not more than $50.0 million (which amount, for the
purposes of Section 5.1(b)(vi)(A) shall be measured from December 21, 1999).
SECTION 5.2. Access. During the Pre-Closing Period, the Company
------
shall, and shall cause its Subsidiaries, officers, directors, employees,
auditors and other agents to, (a) afford the officers, employees, auditors and
other agents of Purchaser, during normal business hours reasonable access at all
reasonable times to its officers, employees, auditors, legal counsel,
properties, offices, plants and other facilities and to all books and records,
(b) furnish Purchaser with all financial, operating and other data and
information as Purchaser, through its officers, employees or agents, may from
time to time reasonably request and (c) afford Purchaser the opportunity to
discuss the Company's affairs, finances and accounts with the Company's officers
on a regular basis.
SECTION 5.3. Key Person Life Insurance; D&O Insurance.
----------------------------------------
(a) During the Pre-Closing Period, the Company and Purchaser agree to
use good faith efforts to obtain key person life insurance in such amounts and
with respect to such persons as they shall mutually agree upon. A copy of any
such policy will be provided by the Company to the Purchaser.
(b) During the period that Purchaser has designees on the Board of
Directors of the Company (the "Board"), the Company agrees to maintain Directors
-----
and Officers Insurance in the amount of $50 million.
SECTION 5.4. Use of Proceeds. The Company shall use the proceeds
---------------
from the sale of the Shares for general corporate purposes and to fund working
capital.
SECTION 5.5. Efforts. Each party hereto agrees to use commercially
-------
reasonable efforts to take any and all actions required in order to consummate
the transactions contemplated in this Agreement and the Stockholders Agreement.
SECTION 5.6. Notification of Certain Matters. During the Pre-Closing
-------------------------------
Period, the Company shall give prompt notice to Purchaser of the occurrence or
non-occurrence of any event known to the Company the occurrence or non-
occurrence of which would reasonably be expected to cause any representation or
warranty contained in Section 3 to be untrue, or the failure of the Company to
comply with or satisfy any covenant or agreement under this Agreement.
SECTION 5.7 Reservation of Shares. From and after the First Closing,
---------------------
the Company shall at all times reserve and keep available for issuance (a) any
Subsequent Firm Shares, (b) such number of its authorized but unissued shares of
Series E Preferred Stock as shall be sufficient to permit the exercise in full
of the Option, (c) 2,477,536 shares of Series D
<PAGE>
Preferred Stock and 2,477,536 shares of Series E Preferred Stock for payment of
the dividends on the Firm Shares and the Option Shares, respectively, and (d)
such number of its authorized but unissued shares of Common Stock as shall be
sufficient to permit the issuance of all of the Conversion Shares. Following the
approval of the Charter Amendment, the Company shall (until the Shares have been
converted or redeemed pursuant to their terms) reserve 5 million shares of
Preferred Stock to be issued in payment of the dividends on the Shares in the
event that the number of shares reserved pursuant to clause (c) are insufficient
to pay such dividends and if necessary at any time, the Company will amend the
Certificate of Designation to provide for the increase in the authorized number
of shares with respect to each such series of Preferred Stock.
SECTION 5.8. Regulatory and Other Authorizations; Notices and
------------------------------------------------
Consents. The Company shall promptly make any and all filings which it is
- --------
required to make under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), for the sale of the Shares and the Conversion Shares
-------
and the Company agrees to furnish Purchaser with such necessary information and
reasonable assistance as Purchaser may reasonably request in connection with its
preparation of any necessary filings or submissions to the Federal Trade
Commission ("FTC") or the Antitrust Division of the U.S. Department of Justice
---
(the "Antitrust Division"), including, without limitation, any filings or
------------------
notices necessary under the HSR Act. Any such actions with respect to the
conversion of the Conversion Shares shall be taken by the Company at such times
as Purchaser reasonably shall so request. The Company shall, at its own expense,
use all reasonable efforts to respond to any request for additional information,
or other formal or informal request for information, witnesses or documents
which may be made by any governmental authority pertaining to the Company with
respect to the sale of the Shares and the Conversion Shares and shall keep
Purchaser fully apprised of its actions with respect thereto.
(b) Purchaser shall promptly make any and all filings which it is
required to make under the HSR Act with respect to the purchase of the Shares
and the Conversion Shares and Purchaser agrees to furnish the Company with such
necessary information and reasonable assistance as it may request in connection
with its preparation of any necessary filings or submissions to the FTC or the
Antitrust Division, including, without limitation, any filings or notices
necessary under the HSR Act. Purchaser shall, at its own expense, use all
reasonable efforts to respond promptly to any request for additional
information, or other formal or informal request for information, witnesses or
documents which may be made by any governmental authority pertaining to
Purchaser with respect to the purchase of the Shares and the Conversion Shares
and shall keep the Company fully apprised of its actions with respect thereto.
(c) Each of the parties hereto shall use their commercially reasonable
efforts to give such notices and obtain all other authorizations, consents,
orders and approvals of all governmental authorities and other third parties
that may be or become necessary for its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement and the Stockholders
Agreement and will cooperate fully with the other parties hereto in promptly
seeking to obtain all such authorizations, consents, orders and approvals.
SECTION 5.9. Appointment of Directors. Prior to the First Closing,
------------------------
the Company shall take all action necessary to increase the size of the Board to
eight (8) directors and to elect two (2) designees of Purchaser to the Board.
Prior to the Qualified Option Closing
<PAGE>
(as defined in the Stockholders Agreement), the Company shall take all action
necessary to increase the size of the Board to nine (9) directors and to elect
one (1) additional designee of Purchaser to the Board.
SECTION 5.10. Stockholder Approval. As promptly as practicable following
--------------------
the date hereof, the Company shall take all action necessary to obtain
stockholder approval of the issuance of the Subsequent Firm Shares and the
Option Shares (the "Stockholder Approval") and to obtain stockholder approval of
--------------------
an amendment to the Restated Certificate to increase the number of authorized
shares of Preferred Stock from 25 million to 50 million (the "Charter
-------
Amendment"), including, without limitation, preparing, filing with the SEC and
- ---------
mailing to its stockholders a proxy statement or statements with respect
thereto, and duly calling, giving notice of, convening and holding a meeting or
meetings of its stockholders for such purpose. The Board shall recommend
stockholder approval of the issuance of the Subsequent Firm Shares and the
Option Shares and of the Charter Amendment. The Company agrees that the record
date for such meeting shall be after the First Closing Date.
SECTION 5.11. Series C Convertible Preferred Stock. From and
------------------------------------
after the First Closing, so long as shares of the Series C Convertible Preferred
Stock of the Company shall remain outstanding, the Company shall, quarterly on
the fifteenth day of December, March, June and September of each year, pay all
accrued and unpaid dividends on its Series C Convertible Preferred Stock. The
Company agrees that it will establish an escrow of $3.4 million to provide for
the payment of such dividends until such time, if any, as the Company is
permitted to pay such dividends in kind.
SECTION 5.12. IP Contracts. The Company shall (i) use its
------------
commercially reasonable best efforts to record its and its Subsidiaries'
interests in, and status with respect to, all Company IP (and all Encumbrances
related thereto) listed on Schedule 3.11(b) with all applicable governmental
authorities and (ii) deliver copies of all IP Contracts entered into prior to
the applicable Closing Date and not listed on Schedule 3.7(b), in a form
suitable for recording with all appropriate governmental authorities.
SECTION 5.13. Transaction Fee. At the First Closing, the Company
---------------
shall pay to Kohlberg Kravis Roberts & Co. L.P. ("KKR") a transaction fee in the
---
amount of $2.0 million. At each Option Closing or Additional Purchase Closing
relating to Option Shares, the Company shall pay to KKR a transaction fee in the
amount of the product of (A) $2.0 million and (B) a fraction, the numerator of
which is the aggregate purchase price to be paid by Purchaser at such Option
Closing or Additional Purchase Closing and the denominator of which is $100.0
million. In each case, the fee due KKR shall be paid at the option of
Purchaser, (i) by wire transfer of immediately available funds to an account
designated by KKR at least two business days prior to the applicable Closing
Date or (ii) by netting by Purchaser of the amount due KKR from the Company
against the amount due from Purchaser to the Company at such Closing.
SECTION 5.14. Material Covenants. Each of the covenants and
------------------
agreements of the Company set forth in Sections 5.3, 5.7, 5.9, 5.10, 5.11 and
5.13 of this Agreement and Articles II, IV and V and Section 7.1 of the
Stockholders Agreement shall be referred to as a "Material Covenant" for
-----------------
purposes of the Certificate of Designation.
<PAGE>
SECTION 5.15. Issuance of Series E Preferred Stock. In the event
------------------------------------
that Purchaser does not exercise the Option, the Company shall not at any time
issue any Series E Preferred Stock or designate any Preferred Stock as Series E
Preferred Stock.
SECTION 5.16. Registration Rights. Prior to the First Closing,
-------------------
the Company and Ulysses G. Auger, Sr. and Ulysses G. Auger, II may enter into a
registration rights agreement containing customary terms and conditions and
providing in the aggregate for two demand registrations and piggyback
registrations, which agreement shall be reasonably acceptable to the Investor
Stockholder.
ARTICLE VI
CONDITIONS TO CLOSING
---------------------
SECTION 6.1. Conditions to Purchaser's Obligation to Purchase the
----------------------------------------------------
Shares.
- ------
(a) First Closing and each Option Closing. Purchaser's obligation to
-------------------------------------
purchase the Firm Shares or Option Shares, as applicable, at the First Closing
and each Option Closing is subject to the satisfaction (or waiver by Purchaser)
of the following conditions:
(i) Representations and Warranties True; Performance of Obligations.
---------------------------------------------------------------
Each of the representations and warranties of the Company contained in this
Agreement that is qualified as to materiality or Material Adverse Effect
shall be true and correct, and each of the representations and warranties
of the Company contained in this Agreement that is not so qualified as to
materiality or Material Adverse Effect shall be true and correct in all
material respects, in each case as of such Closing Date (except for those
representations and warranties which address matters only as of a
particular date, which shall be true and correct, or true and correct in
all material respects, as the case may be, as of such date). The Company
shall have performed in all material respects all agreements, obligations,
covenants and conditions herein required to be performed or observed by it
on or prior to such Closing Date.
(ii) Legal Investment. On such Closing Date, there shall not be in
----------------
effect any Law or Order directing that the purchase and sale of the Firm
Shares or the Option Shares, as the case may be, and the other transactions
contemplated by this Agreement and the Stockholders Agreement not be
consummated or which has the effect of rendering it unlawful to consummate
such transactions.
(iii) Proceedings and Litigation. No Action shall have been commenced
--------------------------
by any governmental authority against any party hereto seeking to restrain
or delay the purchase and sale of the Firm Shares or the Option Shares, as
the case may be, or the other transactions contemplated by this Agreement
and the Stockholders Agreement.
(iv) Approvals. All approvals, consents, permits and waivers of
---------
governmental authorities and of the third parties listed on Schedule
6.1(a)(iv) necessary or appropriate
<PAGE>
for consummation of the transactions contemplated by this Agreement and the
Stockholders Agreement shall have been obtained, and no such approval, consent,
permit or waiver of any governmental authority or such other third party shall
contain any term or condition that Purchaser in its reasonable discretion
determines to be unduly burdensome.
(v) Compliance Certificate; Secretary's Certificate. The Company
-----------------------------------------------
shall have delivered to Purchaser a compliance certificate, executed by the
Chief Executive Officer or the President of the Company, dated such Closing
Date, to the effect that the conditions specified in Section 6.1(a)(i) have
been satisfied. The Company shall have delivered to the Purchaser a
certificate executed by the Secretary of the Company, dated such Closing
Date, certifying as to (i) the resolutions of the Board evidencing approval
of the transactions contemplated by and from this Agreement and the
Stockholders Agreement and the authorization of the named officer or
officers to execute and deliver this Agreement and the Stockholders
Agreement and (ii) certain of the officers of the Company, their titles and
examples of their signatures.
(vi) Legal Opinion. The Purchaser shall have received from legal
-------------
counsel to the Company an opinion addressed to them, dated as of such
Closing Date, in the form attached hereto as Exhibit F.
(vii) HSR Compliance. All waiting periods applicable to the purchase
--------------
of the Shares under the HSR Act shall have been terminated or expired.
(b) First Closing. Purchaser's obligation to purchase the Firm Shares
-------------
at the First Closing is subject to the satisfaction (or waiver by Purchaser) of
the following additional conditions:
(i) Certificate of Designation. The Series D Certificate of
--------------------------
Designation shall have been filed with and certified by the Secretary of
State of the State of Delaware.
(ii) Stockholders Agreement. The Stockholders Agreement shall have
----------------------
been executed and delivered by the Company and each of the other parties
thereto (other than Purchaser).
(iii) Board of Directors. The Company shall have taken all actions
------------------
required by Section 5.9.
(iv) Transaction Fee. At the First Closing, the Company shall have
---------------
paid to KKR the transaction fee provided for in Section 5.13.
(c) Second Closing. Purchaser's obligation to purchase Subsequent
--------------
Firm Shares (but not any Additional Purchase Firm Shares) is subject to the
satisfaction (or waiver by Purchaser) of the following conditions:
(i) Stockholder Approval. The Stockholder Approval shall have been
--------------------
obtained.
<PAGE>
(ii) Legal Investment. On the Second Closing Date, there shall not
----------------
be in effect any Law or Order directing that the purchase and sale of the
Subsequent Firm Shares and the other transactions contemplated by this
Agreement and the Stockholders Agreement not be consummated or which has
the effect of rendering it unlawful to consummate such transactions.
(iii) Proceedings and Litigation. No Action shall have been commenced
--------------------------
by any governmental authority against any party hereto seeking to restrain
or delay the purchase and sale of the Subsequent Firm Shares or the other
transactions contemplated by this Agreement and the Stockholders Agreement.
(d) Additional Purchase Closing. Purchaser's obligation to purchase
---------------------------
Additional Purchase Firm Shares or Additional Purchase Option Shares is subject
to the satisfaction (or waiver by Purchaser) of the following conditions:
(i) Legal Investment. On such Additional Purchase Closing Date,
----------------
there shall not be in effect any Law or Order directing that the purchase
and sale of the Additional Purchase Firm Shares or Additional Purchase
Option Shares, as the case may be, and the other transactions contemplated
by this Agreement and the Stockholders Agreement not be consummated or
which has the effect of rendering it unlawful to consummate such
transactions.
(ii) Proceedings and Litigation. No Action shall have been commenced
--------------------------
by any governmental authority against any party hereto seeking to restrain
or delay the purchase and sale of the Additional Purchase Firm Shares or
Additional Purchase Option Shares, as the case may be, or the other
transactions contemplated by this Agreement and the Stockholders Agreement.
(iii) Certificate of Designation. Prior to the purchase of any
--------------------------
Additional Purchase Option Shares, the Series E Certificate of Designation
shall have been filed with and certified by the Secretary of State of the
State of Delaware.
(iv) Transaction Fee. At each Additional Purchase Closing with
---------------
respect to Additional Purchase Option Shares, the Company shall have paid
to KKR the transaction fee provided for in Section 5.13.
(e) Option Closing. Purchaser's obligation to purchase the Option
--------------
Shares (but not any Additional Purchase Option Shares) at any Option
Closing is subject to the satisfaction (or waiver by Purchaser) of the
following additional conditions:
(i) Certificate of Designation. Prior to the first Option Closing,
--------------------------
the Series E Certificate of Designation shall have been filed with and
certified by the Secretary of State of the State of Delaware.
(ii) Transaction Fee. At each Option Closing, the Company shall have
---------------
paid to KKR the transaction fee provided for in Section 5.13.
<PAGE>
24
(iii) Stockholder Approval. If all of the Firm Shares shall have been
--------------------
purchased without the Stockholder Approval having been obtained, the
Stockholder Approval shall have been obtained.
SECTION 6.2 Conditions to Obligations of the Company.
----------------------------------------
(a) Each Closing. The Company's obligation to issue and sell the
------------
Firm Shares or Option Shares, as applicable, at each Closing is subject to the
satisfaction (or waiver by the Company), on or prior to such Closing, of the
following conditions:
(i) Representations and Warranties True. Each of the representations
-----------------------------------
and warranties of Purchaser contained in this Agreement shall be true and
correct in all material respects as of such Closing Date. Purchaser shall
have performed in all material respects all agreements, obligations,
covenants and conditions herein required to be performed or observed by it
on or prior to such Closing Date.
(ii) Legal Investment. On such Closing Date, there shall not be in
----------------
effect any Law or Order directing that the purchase and sale of the Firm
Shares or the Option Shares, as the case may be, and the other transactions
contemplated by this Agreement and the Stockholders Agreement not be
consummated or which has the effect of rendering it unlawful to consummate
such transactions.
(iii) Proceedings and Litigation. No Action shall have been commenced
--------------------------
by any governmental authority against any party hereto seeking to restrain
or delay the purchase and sale of the Firm Shares or the Option Shares, as
the case may be, or the other transactions contemplated by this Agreement
and the Stockholders Agreement.
(iv) Approvals. All approvals, consents, permits and waivers of
---------
governmental authorities and other third parties listed on Schedule
6.1(a)(iv) necessary or appropriate for consummation of the transactions
contemplated by this Agreement and the Stockholders Agreement shall have
been obtained.
(v) HSR Compliance. All waiting periods applicable to the purchase of
--------------
the Shares under the HSR Act shall have been terminated or expired.
(b) First Closing. The Company's obligation to issue and sell the
-------------
Firm Shares at the First Closing is subject to the satisfaction or waiver by the
Company of the following additional condition:
(i) Stockholders Agreement. The Stockholders Agreement shall have
----------------------
been executed and delivered by Purchaser.
<PAGE>
25
ARTICLE VII
INDEMNIFICATION
---------------
SECTION 7.1 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties contained in Section 3.3 of this Agreement
shall survive indefinitely.
(ii) All other representations and warranties contained in Article
III of this Agreement shall survive until the later of (A) the first
anniversary of the First Closing Date and (B) 30 days after the filing by
the Company of its Annual Report on Form 10-K for the year ended December
31, 2000, with the exception of Section 3.14, which shall survive until the
later of (x) the second anniversary of the First Closing Date or (y) three
months after the expiration of the applicable statute of limitations with
respect to the subject matter thereof.
(iii) The representations and warranties contained in Article IV of
this Agreement shall survive until the first anniversary of the First
Closing Date.
(iv) The representations and warranties contained in Article III of
this Agreement, and the rights and remedies that may be exercised by any
Person seeking indemnification hereunder, shall not be limited or otherwise
affected by or as a result of any information furnished to, or any
investigation made by, any such Person or its representatives.
(v) For purposes of this Agreement, each statement or other item of
information set forth by the Company on any Schedule hereto shall be deemed
to be a representation and warranty made by the Company in this Agreement.
SECTION 7.2 Indemnification. From and after the First Closing Date
---------------
and subject to Sections 7.1, 7.3 and 7.5, the Company (the "Purchaser
---------
Indemnitor") shall defend, indemnify and hold harmless the Purchaser and its
- ----------
Affiliates and each director, officer, member, partner, employee and agent of
such Persons (the "Purchaser Indemnitees") against any loss, damage, claim,
---------------------
liability, judgment or settlement of any nature or kind, including all costs and
expenses relating thereto, including without limitation, interest, penalties and
reasonable attorneys' fees (collectively "Damages"), arising out of, resulting
-------
from or relating to:
(i) the breach of any representation or warranty contained in
Article III, or any certificate delivered by the Company pursuant hereto;
and
(ii) the breach by the Company of any covenant or agreement (whether
to be performed prior to or after the First Closing) contained in this
Agreement, or any certificate delivered by the Company pursuant hereto.
(b) From and after the First Closing Date and subject to Sections
7.1, 7.3 and 7.5, Purchaser (the "Company Indemnitor" and collectively with the
------------------
Purchaser Indemnitor, the "Indemnitors") shall defend, indemnify and hold
-----------
harmless the Company and its Affiliates and
<PAGE>
26
each director, officer, member, partner, employee and agent of such Persons
(the "Company Indemnitees" and collectively with the Purchaser Indemnitees,
-------------------
the "Indemnitees") against any Damages arising out of, resulting from or
relating to:
(i) the breach of any representation or warranty contained in Article
IV; and
(ii) the breach by Purchaser of any covenant or agreement (whether to
be performed prior to or after the First Closing) contained in this
Agreement.
(c) The term "Damages" as used in this Article VII is not limited to
matters asserted by third parties against any Person entitled to be indemnified
under this Article VII, but includes Damages incurred or sustained by any such
Person in the absence of third party claims, and shall take into account such
Person's ownership or investment in the Company.
SECTION 7.3 Indemnification Amounts. An Indemnitor shall not have
-----------------------
liability under Section 7.2 until the aggregate amount of Damages theretofore
incurred by the Purchaser Indemnitees or the Company Indemnitees, as applicable,
exceeds an amount equal to 1% of the sum of the aggregate Firm Share Price and
the Option Share Price paid at any time by Purchaser (the "Deductible"), in
----------
which case the Purchaser Indemnitees or the Company Indemnitees, as applicable,
shall be entitled to Damages only in the amount by which all Damages exceed the
Deductible.
(b) The limitations on the indemnification obligations set forth in
this Section 7.3 shall not apply to any covenants or agreements of the parties
in this Agreement. In addition, notwithstanding the provisions of paragraph (a)
above, the limitations on the indemnification obligations of the parties set
forth therein shall not apply to breaches of the representations and warranties
made in Section 3.3.
SECTION 7.4 Non-Exclusive Remedy. The indemnification remedies
--------------------
provided in this Article VII shall not be deemed to be exclusive. Accordingly,
the exercise by any Person of any of its rights under this Article VII shall not
be deemed to be an election of remedies and shall not be deemed to prejudice, or
to constitute or operate as a waiver of, any other right or remedy that such
Person may be entitled to exercise (whether under this Agreement, under any
other contract, under any law or otherwise).
SECTION 7.5 Certain Limitations. The indemnification obligations of
-------------------
the parties hereto for any breach of a representation and warranty described in
Articles III and IV of this Agreement shall survive for only the period
applicable to such representations and warranties as set forth in Section 7.1 of
this Agreement, and thereafter all such representations and warranties of the
applicable Indemnitor under this Agreement shall be extinguished; provided,
--------
however, that such indemnification obligation shall not be extinguished in the
- -------
event of Damages incurred as a result of an Action that was instituted or begun
prior to the expiration of the survival period set forth in Section 7.1 if
noticed in writing to the applicable Indemnitor by the applicable Indemnitee
within 30 days of such Indemnitee receiving notice thereof. Subject to the
proviso at the end of the immediately preceding sentence, no claim for the
recovery of such Damages may be asserted by an Indemnitee after such period.
<PAGE>
27
ARTICLE VIII
MISCELLANEOUS
-------------
SECTION 8.1 Other Definitions. The following terms as used in this
-----------------
Agreement shall have the following meanings:
(a) "Affiliate" means, with respect to any Person, any other Person
---------
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, for so
long as such Person remains so associated to the specified Person.
(b) "control" (including the terms "controlled by" and "under common
------- ------------- ------------
control with"), with respect to the relationship between or among two or more
- ------------
Persons, means the possession, directly or indirectly, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise.
(c) "Group" shall have the meaning assigned to it in Section 13(d)(3)
-----
of the Exchange Act.
(d) "Person" means any individual, corporation, limited liability
------
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivisions thereof or any Group comprised of two or more of the
foregoing.
SECTION 8.2 Governing Law; Jurisdiction; Waiver of Jury Trial. This
-------------------------------------------------
Agreement shall be governed in all respects by the laws of the State of New
York. No suit, action or proceeding with respect to this Agreement may be
brought in any court or before any similar authority other than in a court of
competent jurisdiction in the State of New York, as Purchaser may elect in its
sole discretion, and the Company hereby submits to the exclusive jurisdiction of
such courts for the purpose of such suit, proceeding or judgment. The Company
hereby irrevocably waives any right which it may have had to bring such an
action in any other court, domestic or foreign, or before any similar domestic
or foreign authority. Each of the parties hereto hereby irrevocably and
unconditionally waives trial by jury in any legal action or proceeding in
relation to this Agreement and for any counterclaim therein.
SECTION 8.3 Successors and Assigns; Assignment. Except as otherwise
----------------------------------
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, permitted assigns, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each Person who shall be a holder of the Shares from time to
time. This Agreement may not be assigned without the prior written consent of
the other party, except that Purchaser may assign its rights and obligations
hereunder to any Affiliate or Affiliates.
<PAGE>
28
SECTION 8.4 Entire Agreement; Supersedes Prior Agreement. This
--------------------------------------------
Agreement and the Exhibits hereto, the Stockholders Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof and no
party shall be liable or bound to any other in any manner by any
representations, warranties, covenants and agreements except as specifically set
forth herein and therein.
SECTION 8.5 Severability. In case any provision of this Agreement
------------
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 8.6 Amendment and Waiver. This Agreement may be amended or
--------------------
modified, and the rights of the Company or Purchaser hereunder may only be
waived, upon the written consent of the Company and Purchaser.
SECTION 8.7 Delays or Omissions. It is agreed that no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement or the
Stockholders Agreement, shall impair any such right, power or remedy, nor shall
it be construed to be a waiver of any such breach, default or noncompliance, or
any acquiescence therein, or of or in any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on Purchaser's part of any
breach, default or noncompliance under this Agreement or the Stockholders
Agreement or any waiver on such party's part of any provisions or conditions of
this Agreement or the Stockholders Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or the Stockholders Agreement, by law, or
otherwise afforded to any party, shall be cumulative and not alternative.
SECTION 8.8 Notices. All notices required or permitted hereunder
-------
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1)
business day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent to the addresses set forth below:
If to the Company:
CAIS Internet, Inc.
1255 22nd Street, N.W., Fourth Floor
Washington, D.C. 20037
Telephone: (202) 715-1300
Fax: (202) 463-7190
Attn: President
<PAGE>
29
with copies to:
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Telephone: (202) 887-1500
Fax: (202) 887-0763
Attn: Morris F. DeFeo, Jr., Esq.
If to Purchaser:
c/o Kohlberg Kravis Roberts & Co. L.P.
9 W. 57th Street
New York, NY 10019
Telephone: (212) 750-8300
Fax: (212) 750-0333
Attn: Alexander Navab, Jr.
with copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, N.Y. 10017
Telephone: (212) 455-2000
Fax: (212) 455-2502
Attn: David J. Sorkin, Esq.
SECTION 8.9 Expenses. The Company shall pay all costs and expenses that
--------
it incurs with respect to the negotiation, execution, delivery and performance
of this Agreement and the Stockholders Agreement. In addition to any fee to be
paid to KKR in accordance with Sections 5.13, 6.1(b)(iv), 6.1(d)(iv) and
6.1(e)(ii), the Company shall, at or after each Closing, reimburse all
reasonable expenses of Purchaser incurred in connection with the transactions
contemplated by this Agreement and the Stockholders Agreement, including the
payment of the reasonable fees, disbursements and expenses payable to
consultants, accountants and counsel to Purchaser. Purchaser may, at its
option, net any such amounts against amounts payable to the Company at any such
Closing.
SECTION 8.10 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
SECTION 8.11 Termination. This Agreement may be terminated by (i)
-----------
mutual agreement of the parties hereto or (ii) by Purchaser or the Company in
the event the First Closing has not occurred by February 29, 2000; provided,
--------
that this termination right may not be exercised by a party whose nonperformance
has delayed the First Closing. Upon termination of this Agreement pursuant to
this Section 8.11, this Agreement shall be void and of no further force
<PAGE>
30
and effect and no party shall have any liability to any other party under this
Agreement, except that nothing herein shall relieve any party from any liability
for the breach of any of the representations, warranties, covenants and
agreements set forth in this Agreement and except as contemplated by Section
8.9.
SECTION 8.12 Counterparts; Execution by Facsimile Signature. This
----------------------------------------------
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument. This
Agreement may be executed by facsimile signature(s).
<PAGE>
31
IN WITNESS WHEREOF, the parties hereto have executed the PREFERRED STOCK
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
CAIS INTERNET, INC.
/s/ Gary H. Rabin
By: _______________________________
Name: Gary H. Rabin
Title:Executive Vice President
CII VENTURES LLC
/s/ Alex Navab
By: ______________________________
Name: Alex Navab
Title:
<PAGE>
Exhibit 10.58
CAIS INTERNET, INC.
VOTING AGREEMENT
VOTING AGREEMENT, dated as of December 20, 1999 (the "Agreement"), among
CII Ventures LLC, a Delaware limited liability company ("CII"), and the
undersigned holders (each, a "Holder" and, collectively, the "Holders") of
shares of the common stock, par value $.01 (the "Company Common Stock"), of CAIS
Internet, Inc., a Delaware corporation (the "Company").
RECITALS
The Company and CII, propose to enter into a Preferred Stock Purchase
Agreement dated as of the date hereof (the "Purchase Agreement"; capitalized
terms not otherwise defined herein being used herein as therein defined),
pursuant to which CII initially desires to purchase 7,142,857 shares of the
Company's Series D Preferred Stock and obtain an option to purchase up to an
additional 7,142,857 shares of the Company's Series E Preferred Stock; and
As a condition to entering into the Purchase Agreement, CII has requested
the Holders to agree, and the Holders have agreed, to enter into this Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Representations and Warranties of the Holders. Each Holder represents
--------------------------------------------
and warrants to CII as to itself as follows:
(a) Ownership of Securities. The Holder is the record owner of
-----------------------
the number of shares of Company Common Stock (the "Existing Securities")
(together with any shares of Company Common Stock hereafter acquired by the
Holder, the "Subject Securities") set forth on the signature page to this
Agreement opposite such Holder's name. The Holder does not own any securities of
the Company on the date hereof other than the Existing Securities. The Holder
has sole voting power (and the power to act by written consent) and sole power
to issue instructions with respect to the voting of the Existing Securities and
sole power of disposition of the Existing Securities and, on the record date
for, and on the date of the stockholders meeting of the Company held to vote on
(i) the issuance of shares of the Preferred Stock to CII (the "Share Issuance")
and (ii) the amendment to the Restated Certificate of Incorporation of the
Company to increase the authorized number of shares of preferred stock from 25
million to 50 million (the "Charter Amendment"), will have sole voting power
(and the power to act by written consent) and sole power to issue instructions
with respect to the voting of all of the Subject Securities and sole power of
disposition of the Subject Securities.
<PAGE>
2
(b) Power; Binding Agreement. The Holder has full power and
------------------------
authority, or, if a natural person, legal capacity, to enter into and perform
all of its or his obligations under this Agreement. This Agreement has been duly
and validly executed and delivered by the Holder and constitutes a valid and
binding agreement of the Holder, enforceable against the Holder in accordance
with its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law).
(c) No Conflicts. No filing with, and no permit, authorization, consent or
------------
approval of, any state or federal public body or authority or any other person
or entity is necessary for the execution of this Agreement by the Holder and the
consummation by the Holder of the transactions contemplated hereby, and neither
the execution and delivery of this Agreement by the Holder nor the consummation
by the Holder of the transactions contemplated hereby nor compliance by such
Holder with any of the provisions hereof will conflict with or result in any
breach of any applicable organizational documents or instruments applicable to
such Holder, result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any third-party
right of termination, cancellation, material modification or acceleration) under
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which such Holder is a party or
by which the Holder's Subject Securities may be bound or violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to the Holder as of the date hereof.
(d) No Liens. Except as set forth on Schedule 1(d), the Existing
--------
Securities are held by the Holder, or by a nominee or custodian for the benefit
of the Holder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever, except for any encumbrances arising hereunder.
2. Agreement to Vote Shares.
------------------------
(a) At every meeting of the stockholders of the Company called with
respect to the Share Issuance and the Charter Amendment, and at every
adjournment thereof, and on every action or approval by written consent of the
stockholders of the Company with respect to the Share Issuance and the Charter
Amendment, each Holder irrevocably agrees that it shall vote all the Subject
Securities that it beneficially owns on the record date of any such vote or
action in favor of each of the Share Issuance and the Charter Amendment.
(b) Each of the Holders agrees to vote, or act by written consent with
respect to, any Subject Securities beneficially owned by him or it, at each
annual or special meeting of stockholders of the Company at which Directors (as
defined in the Stockholders Agreement) are to be elected or to take all actions
by written consent in lieu of any such meeting as are necessary, to cause the
designees of CII pursuant to Section 2.1 of the Stockholders Agreement to be
elected to the Board of Directors of the Company (the "Board"). Each of the
Holders
<PAGE>
3
agrees to use his or its best efforts to cause the election of each such
designee to the Board, including nominating such individuals to be elected as
members of the Board as provided in the Stockholders Agreement.
(c) In the event that a vacancy is created at any time by the death,
disability, retirement, resignation or removal (with or without cause) of any
Director designated by CII (an "Investor Director"), the remaining Directors
shall cause the vacancy created thereby to be filled by a new designee of CII as
soon as possible and each Holder hereby agrees to take, at any time and from
time to time, all actions necessary to accomplish the same. Upon the written
request of the CII, each Holder shall vote, or act by written consent with
respect to, all Subject Securities beneficially owned by him or it and otherwise
take or cause to be taken all actions necessary to remove any Investor Director
and to elect any replacement Director designated as provided in the first
sentence of this Section 2(c). Unless CII shall otherwise request in writing, no
Holder shall take any action to cause the removal of any Investor Directors.
(d) Without the written consent of CII, each Holder agrees not to take any
action that would cause the number of Directors constituting the entire Board to
be other than eight (8) from and after the First Closing or nine (9) from and
after the Qualified Option Closing (as defined in the Stockholders Agreement) .
(e) In connection with any vote or action by written consent of the
stockholders of the Company relating to any matter specified in Section 2.3 of
the Stockholders Agreement, each Holder agrees, with respect to any Subject
Securities with respect to which he or it has the power to vote, (i) to vote
against (and not act by written consent to approve) such matter if such matter
has not been consented to by at least one Investor Director in accordance with
Section 2.3 of the Stockholders Agreement and (ii) to take or cause to be taken
all other reasonable actions required, to the extent permitted by law, to
prevent the taking of any action by the Company with respect to a matter unless
such matter has been consented to by at least one Investor Director in
accordance with Section 2.3 of the Stockholders Agreement.
3. Covenants of the Holder. Each Holder hereby agrees and covenants
-----------------------
that:
(a) Restriction on Transfer, Proxies and Noninterference. In addition to
----------------------------------------------------
the transfer restrictions imposed by the Stockholders Agreement, until the
termination of such Holder's obligations under this Section 3(a) in accordance
with Section 12, such Holder shall not, directly or indirectly: (i) sell,
transfer, assign, pledge, encumber, hypothecate or similarly dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to the sale, transfer, assignment, pledge, encumbrance, hypothecation or
similar disposition of, any of the Subject Securities or any options, rights or
warrants to acquire Subject Securities, except for such pledges as would be
permitted under Section 3.2(d) of the Stockholders Agreement if the Stockholders
Agreement were in effect as of the date hereof; (ii) grant any proxies or powers
of attorney, deposit any such Subject Securities or options, rights or warrants
to acquire Subject Securities into a voting trust or enter into a voting
agreement with respect to any of the Subject Securities; or (iii) take any
action that would make any representation or warranty contained herein untrue or
incorrect or have the effect of preventing or disabling the Holder from
performing its obligations under this Agreement.
<PAGE>
4
(b) Cooperation. Each Holder shall use all reasonable efforts to cooperate
-----------
with CII to effect the transactions contemplated by the Purchase Agreement and
provide any information reasonably requested by CII in connection with any
regulatory application or filing made or approval sought for such transactions.
(c) Stockholders Agreement. Each Holder shall execute and deliver the
----------------------
Stockholders Agreement in the form attached as Exhibit D to the Purchase
Agreement on or prior to the First Closing Date.
4. Fiduciary Duties. Notwithstanding anything in this Agreement to the
----------------
contrary, the covenants and agreements set forth herein shall be subject to the
fiduciary obligations of each Holder or any of such Holder's designees now or
hereafter serving on the Board and shall not prevent any Holder or any of such
Holder's designees now or hereafter serving on the Board from taking any action
or refraining to take any action while acting in the capacity as a Director of
the Company.
5. Assignment; Benefits. This Agreement may not be assigned by
--------------------
any party hereto without the prior written consent of the other party. This
Agreement shall be binding upon, and shall inure to the benefit of, each Holder,
CII and their respective successors and permitted assigns.
6. Notices. All notices and other communications given or made
-------
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier or sent by
electronic transmission, with confirmation received, to the telecopy numbers
specified below:
If to any of the Holders:
c/o CAIS Internet, Inc.
1255 22/nd/ Street, N.W., Fourth Floor
Washington, D.C. 20037
Telecopier No.: 202-463-7190
Telephone No.: 202-715-1300
Attention: Gary Rabin, Executive
Vice President
If to CII:
c/o Kohlberg Kravis Roberts & Co. L.P.
9 W. 57th Street
New York, NY 10019
Telephone: (212) 750-8300
Fax: (212) 750-0333
Attn: Alexander Navab, Jr.
With copies to:
<PAGE>
5
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Telecopier No.: (212)455-2502
Telephone No.: (212) 455-2000 Attention:
David Sorkin, Esq.
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
7. Notice of Litigation. Each Holder shall promptly notify CII of any
--------------------
pending or, to its knowledge, threatened action or proceeding challenging the
validity or enforceability of this Agreement.
8. Specific Performance. The parties hereto agree that
--------------------
irreparable harm would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
9. Amendment. This Agreement may not be amended or modified, except by an
---------
instrument in writing signed by or on behalf of each of the parties hereto. This
Agreement may not be waived by either party hereto, except by an instrument in
writing signed by or on behalf of the party granting such waiver.
10. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
------------------------------------------------------------
Agreement shall be governed in all respects by the laws of the State of New
York. No suit, action or proceeding with respect to this Agreement may be
brought in any court or before any similar authority other than in a court of
competent jurisdiction in the State of New York, and the parties hereto hereby
submit to the exclusive jurisdiction of such courts for the purpose of such
suit, proceeding or judgment. The parties hereto hereby irrevocably waive any
right which they may have had to bring such an action in any other court,
domestic or foreign, or before any similar domestic or foreign authority. Each
of the parties hereto hereby irrevocably and unconditionally waives trial by
jury in any legal action or proceeding in relation to this Agreement and for any
counterclaim therein.
11. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
12. Termination. Sections 2(a) and 3(a) of this Agreement shall terminate
-----------
upon the earlier of (i) the termination of the Purchase Agreement pursuant to
its terms and (ii) the later of (A) approval of the Share Issuance by the
requisite vote of the stockholders of the Company
<PAGE>
6
and (B) the First Closing Date. The remaining provisions of this Agreement shall
terminate upon the earlier of (i) the termination of the Purchase Agreement
pursuant to its terms and (ii) the termination of the Stockholders Agreement
pursuant to its terms. Nothing herein shall relieve any party from any liability
for such party's wilful breach of this Agreement and nothing herein shall limit,
restrict, impair, amend or otherwise modify the rights, remedies, obligations or
liabilities of any person under any other contract or agreement, including,
without limitation, the Purchase Agreement or the Stockholders Agreement.
13. Severability. Any term or provision of this Agreement which is invalid
------------
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability and shall not
render invalid or unenforceable the remaining terms and provisions of this
Agreement or affect the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
<PAGE>
7
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of
each of the parties hereto, all as of the date first above written.
CII VENTURES LLC
/s/ Alex Narab
By:__________________________________
Name: Alex Narab
Title:
HOLDERS
/s/ ULYSSES G. AUGER, SR.
_____________________________________
ULYSSES G. AUGER, SR.
Shares of Company Common Stock: 4,808,704
/s/ ULYSSES G. AUGER, II
_____________________________________
ULYSSES G. AUGER, II
Shares of Company Common Stock: 4,824,214
CHANCERY LANE, L.P.
Shares of Company Common Stock: 2,726,480
/s/ signature illegible
By:_____________________________________
General Partner
/s/ signature illegible
By:_____________________________________
Name:
Title:
/s/ WILLIAM M. CALDWELL
_____________________________________
WILLIAM M. CALDWELL
Shares of Company Common Stock: - 0 -
_______________________________________
<PAGE>
8
/s/ EVANS K. ANDERSON
______________________________________
EVANS K. ANDERSON
Shares of Company Common Stock: - 0 -
/s/ GARY H. RABIN
_____________________________________
GARY H. RABIN
Shares of Company Common Stock: - 0 -
_____________________________________
KEVIN BRAND
Shares of Company Common Stock:_______
<PAGE>
Exhibit 10.59
OFFICE LEASE
By and Between
AMES CENTER, L.C.
a Virginia Limited Liability Corporation
(Lessor)
and
CAIS , INC.
(Lessee)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Demised Premises
2. Term
3. Use
4. Rent
5. Security Deposit
6. Assignment and Subletting
7. Rental Escalations for Increase in Expenses
8. Alterations
9. Intentionally Deleted
10. Liens
11. Real Estate and Other Taxes or Assessments
12. Maintenance by Lessee
13. Signs and Advertisements
14. Deliveries and Moving of Lessee's Property
15. Lessee's Equipment
16. Services and Utilities
17. Lessee's Responsibility for Damage
18. Entry for Inspections, Repairs and Installations, etc.
19. Hazardous Materials
20. Insurance Rating
21. Indemnity and Public Liability Insurance
22. Worker's Compensation Insurance
23. All Risk Coverage Insurance
24. Lessee's Contractor's Insurance
25. Requirements for Lessee's Insurance Policies
26. Liability for Damage to Personal Property and Person
27. Damage to the Building and/or the Demised Premises
28. Default of Lessee
29. Repeated Defaults
30. Waiver
31. Subordination
32. Condemnation
33. Rules and Regulations
34. Right of Lessor to Cure Lessee's Default
35. Late Charges
36. Bankruptcy
37. Parking
38. Landlord's Lien
39. Intentionally Deleted
40. Intentionally Deleted
41. Modification to Lease
42. Survival of Certain Terms
43. Construing Lease
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
44. Time of the Essence
45. No Partnership
46. No Representations by Lessor
47. Broker and Agent
48. Waiver of Jury Trial
49. Enforcement of Lease
50. Notices
51. Estoppel Certificates
52. Holding Over
53. Covenants of Lessor
54. Intentionally Deleted
55. Recordation
56. Intentionally Deleted
57. Gender
58. Benefit and Burden
59. Governing Law
60. Savings Clause
61. Corporate Lessee
62. Joint and Several Liability
63. Business Day/Working Day
64. Entire Agreement
65. Initial Construction, Construction Allowance and Condition of Demised
Premises
66. First Right to Lease
67. Roof/Airtights
68. Quiet Enjoyment
</TABLE>
Exhibits
--------
A. Floor Plan, Demised Premises
B. Specifications for Office Space
C. Rules and Regulations
D. Declaration as to Date of Delivery and Acceptance of Possession of
Demised Premises
E. Direct Hourly HVAC Costs
(iii)
<PAGE>
DEED OF LEASE
This Deed of Lease ("Lease"), made and entered into on this _____ day of
_____________, 1999, by and between AMES CENTER, L.C., a Virginia Limited
Liability Corporation, hereinafter called "Lessor", and CAIS, INC., a Virginia
corporation, hereinafter called "Lessee."
Witnesseth, that, for and in consideration of the rents, mutual covenants,
and agreements hereinafter set forth, the parties hereto do hereby mutually
agree as follows:
1. DEMISED PREMISES
----------------
Lessor does hereby lease to Lessee, and Lessee does hereby lease from
Lessor, for the term and upon the conditions hereinafter provided, Suite No. 400
on the 4th floor (Fourth Floor Demised Premises), and Suite No. 500 of the 5th
floor (Fifth Floor Demised Premises), of the office building situated at 1820
North Fort Myer Drive, Arlington, Virginia (such building being hereinafter
referred to as the "Building" and such rentable area being hereinafter
collectively referred to as the "Demised Premises"). The Demised Premises
contains approximately 28,232 square footage (14,116 square feet on the 4th
floor and 14,116 square feet on the 5th floor), and is outlined on the floor
plan attached hereto and made a part hereof as Exhibit A as determined in
accordance with GWCAR standard method of measurement (revised June 1995).
Lessee shall be entitled to verify the measurement of the Demised Premises no
later than the Commencement Date. If Lessor and Lessee's respective architects
are unable to agree upon the rentable area, the amount shall be determined by a
third architect jointly selected by the two respective architects. Each party
shall bear the cost of its own architect and the costs of the third architect
shall be borne in equal shares. The resulting agreed rentable floor area shall
be deemed to be the rentable area of the Premises for all purposes of this
Lease. If as a result of the re-measurement the Demised Premises is determined
to contain less or more than the number of square feet of leasable area set
forth in this Lease, then and in such event both the proportionate share of
Lessee for pass-through purposes hereunder and the amount of Monthly Rent during
the Lease Term and any extensions thereto shall be proportionately adjusted
using the corrected measurement.
2. TERM
----
Subject to and upon the covenants, agreement and conditions of Lessor and
Lessee set forth herein, or in any Exhibit hereto, the term of this Lease for
Fourth Floor Demised Premises and shall commence on the 1st day of September,
1999 (hereinafter called the "Fourth Floor Commencement Date" for the Demised
Premises), and shall commence on March 1, 2000, for the Fifth Floor Demised
Premises (herein called the Fifth Floor Commencement Date") and expire on the
28th day of February, 2010 (the "Initial Term").
In the event Lessor is unable to deliver possession of either the Fourth
Floor Demised Premises or Fifth Floor Demised Premises to Lessee by respective
Commencement Date designated above for such floor, with all of the Lessor's Work
therein substantially completed due to causes beyond the control of the Lessor,
Lessor, its agents and employees, shall not be liable or responsible for any
claims, damages or liabilities arising in connection therewith or by reasons
thereof, nor shall Lessee be excused or released from this Lease, because of
Lessor's inability to deliver the Demised Premises. The Commencement Date as to
each such floor shall be respectively extended to such reasonable date Lessor
delivers possession of the Demised Premises with all of the Lessor's Work
therein substantially completed, or if earlier, the date the Lessor's Work would
have been substantially completed in the absence of any delay caused by Lessee,
and Lessee's obligations, including the payment of rent, pursuant to this Lease
shall commence thereon on a floor by floor basis. In the event Lessor shall
perform the Lessor's Work, Lessor agrees to cause its contractor, TWIN
CONTRACTING CORPORATION, to competitively bid to at least three (3)
subcontractors for each major trade all of the Lessor's Work and to obtain bids
from any subcontractors recommended by Lessee which are reasonably acceptable to
Lessor. Further, Lessor agrees to waive any profit, overhead, general conditions
or other mark-ups on any of the Lessor's Work. Lessor shall cause its contractor
to limit all of its profit, overhead, mark-up and general conditions to an
aggregate of eleven percent (11%) of the "hard" costs of the Lessor's Work. In
no event shall the cost of the Lessor's Work include any costs incurred by
reason of any change or other modifications to any of the Common Areas of the
Building necessitated in order to cause same to comply with the Americans with
Disabilities Act.
In no event shall substantial completion be deemed to have occurred until
Lessee is lawfully able to use and occupy the respective floor within the
Demised Premises for the conduct of its business operations. Lessee shall have
the right to cancel and terminate this Lease with no penalty to Lessee in the
event that Lessor fails to deliver possession of the Fourth Floor Demised
Premises with the Lessee Work substantially completed on or before September 30,
1999 (in which event any prepaid rent and security deposit will be promptly
refunded to Lessee together with any costs incurred by Lessee in connection with
this Lease or the Demised Premises).
The Lessee shall have the right to extend the Initial Term for one
additional five year term commencing at the expiration of the Initial Term (the
"Extended Term"). The Lessee shall give the Lessor written notice no less than
one (1) year prior to the expiration of the Initial Term of its exercise of the
Option to extend the Initial Term.
The Initial Term and the Extended Term are hereafter sometimes collectively
referred to as the "Term".
Monthly rent for the first Lease Year of the Extended Term shall be the
greater of 103% of the fully escalated Monthly Rent at the end of the Initial
Term or ninety-five percent (95%) of the estimated prevailing Fair Market Rent
at the end of the Initial Term as determined by the method hereinafter set
forth. The "Base Year" for purposes of calculating Lessee's pro rata share of
increases in operating expenses and Base Real Estate Taxes for purposes of
calculating Lessee's pro rata share of increases in Real Estate Taxes shall be
revised during the Extension Term to reflect those operating expenses and Real
Estate Taxes paid or incurred during the first Lease Year of the Extension Term.
Market rent shall be determined in accordance with the provisions below:
The Fair Market Rent shall be determined by a group of three (3) real
estate brokers, one of whom shall be named by Lessor, one by Lessee, and
the two so appointed shall select a third. For purposes hereof, "Fair
Market Rent" means the fair market rate per square foot of rentable area
that would be agreed upon between a landlord and tenant entering into a new
lease for comparable space as to location, size, configuration in a
comparable building as to quality, age and reputation with a comparable
term, and also considering comparable concessions as may then be customary
in the market for new leases, including, without limitation, rental
abatements, cash allowances, and/or credits for tenant improvements over
the entire Term. Said brokers shall each be licensed in Virginia as real
estate brokers specializing in the field of commercial leasing, having at
least ten (10) years experience, and recognized as ethical and reputable
within their field. Lessor and Lessee agree to make their appointments
promptly within ten (10) days following the expiration of the
aforementioned thirty (30) day period. The two brokers selected by Lessor
and Lessee shall promptly select a third broker. If the two brokers are
unable to agree upon a third broker, the parties shall promptly submit the
matter to the Chief Executive Officer of the Board of Realtors of Northern
Virginia, or its successors, for its determination. Within five (5) days
after the third broker is selected, the three brokers shall submit their
determination of the Fair Market Rent. The Fair Market Rent shall be the
mean of the two closest determinations and shall be binding on both Lessor
and Lessee. Lessor and Lessee shall pay the costs and expense of the
broker selected by each of them and shall share equally the costs and
expense of the third broker.
1
<PAGE>
When Lessee accepts possession of the Demised Premises, Lessor and Lessee
shall execute the "Declaration as to Date of Delivery and Acceptance of
Possession of Demised Premises," attached hereto as Exhibit D, which shall
specify, the Commencement Date for each respective floor contained within the
Demised Premises.
For the purposes of this Lease, the term "Commencement Date" shall also
mean any extended Commencement Date which may be established pursuant to the
operation of the provisions of this section of the Lease.
The Lessee shall have the right to terminate this Lease at the end of the
seventh lease year ("Seventh Lease Year") (i.e. the seventh anniversary of the
Fourth Floor Commencement Date) by the Lessee giving the Lessor one hundred and
eighty (180) days prior written notice of its intent to cancel the Lease. The
Lessee shall be required to pay the Lessor, at the time of Lessee's notice, a
termination fee equal to the unamortized cost of the initial construction
allowance and additional construction allowance, as hereinafter set forth, the
unamortized costs of the brokerage commission, and Lessee must continue to pay
Monthly Rent and Additional Rent until the end of the Seventh Lease Year.
3. USE
---
Lessee shall use and occupy the Demised Premises solely for general office
purposes and installation of telephone switches and other equipment used in
connection with its internet and telecommunications service business, in
accordance with the applicable zoning regulations. The Demised Premises shall
not be used for any other purpose without the prior written consent of Lessor.
Lessee shall not use or occupy the Demised Premises for any unlawful purpose,
and will comply with all present and future laws, ordinance, regulations, and
orders of all governments, government agencies and any other public authority
having jurisdiction over the Demised Premises. Notwithstanding the foregoing,
Lessee shall not be required to comply with any laws, regulations or
requirements which would either require Lessee to (i) perform any structural
alterations unless the same arise as a result of Lessee's particular use of the
Demised Premises (other than general office use), (ii) remove any hazardous
material or substance installed by a party other than Lessee or by an agent,
employee or contractor of Lessee, (iii) perform any alterations or installations
if Lessee's use without same is "grandfathered" under existing laws, rules or
ordinances, (iv) correct or cure any defect or deficiency in work required of
Lessor under Exhibit "C" or elsewhere in this Lease or (v) arise solely by
reason of modifications or alterations made by either Lessor or its other
tenants in any part of the Building beyond the Demised Premises. Lessee agrees
not to have more than 110 persons stationed in either the Fourth Floor Demised
Premises or Fifth Floor Demised Premises during the Lease term.
4. RENT
----
1. Lessee covenants and agrees to pay to Lessor rent of any kind or
nature, including Monthly Rent (as hereinafter defined) and any sums, charges,
expenses and costs identified in this Lease as additional rent to be paid by
Lessee to Lessor. Lessee's obligation to pay rent shall begin on the
Commencement Date and shall continue to remain an obligation of Lessee until
completely satisfied.
Lessee shall make all payments of rent by check, payable to the Lessor's
agent, Virginia Management, Inc., 4600 N. Fairfax Drive, Suite 1002, Arlington,
Virginia 22203, or to such other party or to such other address as Lessor may
designate from time to time by written notice to Lessee, without demand and
without deduction, set-off or counterclaim. If Lessor at any time or times
accepts rent after it shall become due and payable, such acceptance shall not
excuse delay upon subsequent occasions, or constitute, or be construed as, a
waiver of any or all of Lessor's rights hereunder. If the Lessee's checks are
returned and not paid more than two (2) times during the Term, the Lessor shall
have the right to thereafter require the Lessee to pay all rent by certified or
cashiers checks.
2. The monthly rent for the Fourth Floor Demised Premises (hereinafter
referred to as "Fourth Floor Monthly Rent") as of the Fourth Floor Commencement
Date, which Lessee hereby agrees to pay in advance to Lessor and Lessor hereby
agrees to accept, shall be TWENTY NINE THOUSAND NINE HUNDRED NINETY SIX AND
50/100 Dollars ($29,996.50). Commencing on the Fifth Floor Commencement Date the
month rent for the Demised Premises (hereinafter referred to as "Monthly Rent")
shall be FIFTY NINE THOUSAND NINE HUNDRED NINETY THREE AND 00/100 Dollars
($59,993.00).
3. Commencing on December 1, 2000 , and each twelve (12) months during
(i) the Initial Term and (ii) Extended Term from and after the first Lease Year
of such Extended Term, if applicable, (with the understanding that there shall
be no such adjustment for the first Lease Year of the Extended Term) the Monthly
Rent shall be increased by a sum equal to three percent (3%) of the Monthly Rent
during the preceding twelve month lease period.
4. Monthly Rent as specified above shall be payable in advance on the
first day of each calendar month during the term of this Lease.
5. If the Fourth Floor Commencement Date, and therefore the obligation
under the Lease to pay Fourth Floor Monthly Rent, or if the Fifth Floor
Commencement Date, and therefore the obligation under the Lease to pay Monthly
Rent, whichever is applicable hereunder, begins on a day other than the first
day of a calendar month, then Monthly Rent from such date until the first day of
the following calendar month shall be prorated at the rate of one-thirtieth
(1/30th) of Monthly Rent for each day of that month from and including the
particular Commencement Date, payable in advance, as specified above.
6. Any payment required to be made by the Lessee in addition to the
Monthly Rent including but not limited to increases in operating expenses,
consumer price index escalation and real estate taxes and other taxes or
assessments shall be deemed to be additional rent.
7. Lessee shall pay the first installment of Monthly Rent for the Fourth
Floor Demised Premises concurrent with execution of this Lease. Lessee shall pay
the first installment of Monthly Rent for the Fifth Floor Demised Premises on or
before the date construction of the Lessor's Work for the Fifth Floor shall
commence.
5. SECURITY DEPOSIT
----------------
Upon execution of this Lease, Lessee shall deposit with Lessor cash or an
appropriate letter of credit ("Letter of Credit") in the amount of THREE HUNDRED
FIFTY THOUSAND AND 00/100 Dollars ($350,000.00). Should Lessee deposit cash at
anytime during the Term, Lessee shall be entitled to subsequently replace the
appropriate letter of credit whereupon Lessor shall promptly remit to Lessee the
cash deposited, together with all interest accrued thereon. Should Lessee use a
letter of credit hereunder, Lessee shall bear all costs and fees associated with
issuing such Letter of Credit. This Letter of Credit must be with an
institution located in the Washington, D.C. Metropolitan area, which
institution must be reasonably acceptable to the Lessor and the Letter of Credit
must be on terms, conditions and in a form reasonably acceptable to Lessor. In
the event that Lessee is not in default under the terms of this Lease, after
notice to Lessee and the expiration of the applicable cure period, Lessee shall
have the right to reduce the amount of the Letter of Credit as of December 1,
2000 and the remainder of the term to SIXTY THOUSAND AND 00/100 Dollars
($60,000.00). Such deposit (which if cash shall be maintained by Lessor in a
separate interest bearing account with the interest thereon being considered a
part of the deposit until such time as the security deposit shall reduce to
$60,000 whereupon the deposit shall prospectively cease earning interest)
shall be considered as security for the prompt payment and performance by Lessee
of all of Lessee's obligations under this Lease. Upon expiration of the term
hereof (or any renewal or extension thereof in accordance with this Lease), and
provided that Lessee is not in default under the terms hereof Lessor shall
return such security deposit to Lessee, less such portion thereof as Lessor
shall have withheld to make good any default by Lessee. In the event of any
default by Lessee hereunder, Lessor shall have the right to apply all or any
portion of the security deposit to cure such default, in which event Lessee
shall promptly restore the security deposit to its original amount. The use,
application or retention of the security deposit, or any portion thereof, by
Lessor shall not prevent Lessor from exercising any other right or remedy
provided by this Lease or by Law, and shall not be deemed liquidated damages not
limit any
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recovery to which Lessor may otherwise be entitled. In the event of the sale or
transfer of Lessor's interest in the Building, Lessor shall transfer the
security deposit to such purchaser or transferee, in which event Lessee shall
look to the new lessor for the return of the security deposit, and Lessor shall
be released from liability to Lessee for the return of such security deposit. In
the absence of evidence satisfactory to Lessor of any permitted assignment of
the right to receive the security deposit, or the remaining balance thereof,
Lessor may return the same to the original Lessee regardless of any assignment
of Lessee's interest in this Lease or the security deposit. In such event, upon
the return of the security deposit for balance thereof to the original Lessee,
Lessor shall be relieved of liability under this paragraph. This security
deposit shall not be assigned or encumbered by Lessee.
6. ASSIGNMENT AND SUBLETTING
-------------------------
The parties have therefor agreed that Lessee shall have no right to
transfer, assign, sublet, enter into license or concession agreements, or
mortgage or hypothecate this Lease of Lessee's interest in the Demised Premises
or any part thereof (herein collectively a "Transfer") without Lessor's prior
written consent which consent shall not be unreasonably withheld, conditioned or
delayed. Except as otherwise provided below, any attempted transfer,
assignment, subletting, license or concession agreement of hypothecation made
without Landlord's consent shall be void and confer no rights upon any third
person. Except as otherwise provided herein, any transfer of this Lease from
Lessee by merger, consolidation, liquidation or otherwise by operation of law,
including, but not limited to, an assignment for the benefit of creditors, shall
be included in the term "assignment" for the purposes of this Lease and shall be
a violation of the provisions hereof. Lessee shall nevertheless have the right
to sublease all or a portion of the Demised Premises or assign this Lease
throughout the term of the Lease without Lessor's consent to an affiliate, to a
successor by merger, consolidation or purchase of the Lessee or all of the
Lessee's assets. Further, the use of the Premises by a subsidiary or affiliate
of Lessee (which for purposes hereof shall also include without limitation
Cleartel Communications, Inc.), or a joint venture or partnership in which
Lessee (or any affiliate or subsidiary) is a member or partner, shall not
constitute a subletting requiring Lessor's prior approval, provided however that
Lessee shall give Lessor at least ten (10) days, prior written notice of such
intended use. Lessor shall be entitled to condition its consent to any Transfer
where its consent is required to the requirement that (i) it receive payment for
its reasonable administrative, legal and accounting costs arising from the
implementation of such transaction, such sum not to exceed One Thousand Dollars
($1,000.00), and (ii) with respect to a subletting requiring the consent of
Lessor hereunder only, that fifty percent (50%) of any profit on any assignment
and subletting be paid to the Lessor when, as and if received by the Lessee,
after recovery by Lessee of all reasonable costs and expenses incurred with
respect to the assignment or subletting, including without limitation, brokerage
or consulting fees, construction allowances or costs, concessions provided to
the subtenant or assignee, and legal fees. In the event of any assignment or
subletting, the Lessee shall nevertheless remain liable during the term of this
Lease.
7. RENTAL ESCALATIONS FOR INCREASE IN EXPENSES
-------------------------------------------
For the purpose of this Article:
1. The term "operating expense" shall mean any and all expenses incurred
by Lessor in connection with the operation, maintenance, replacement and repair
of the Building. By way of example but without limitation, operating expenses
shall include any and all of the following: salaries, wages, medical, surgical
and general welfare benefits (including group life insurance) and pension
payments for employees of Lessor or Agent engaged in the operation, maintenance
or repair of the Building and improvements (all of which are to be pro-rated to
reflect only the time spent at the Building by such employees in the case any
such employees shall provide for Lessor or Agent services at properties other
than the Building), payroll taxes, license fees, worker's compensation
insurance, personal property taxes charged and applicable to the building, any
gross receipts tax imposed on or measured by the income of Lessor from the
operation of the Building, electricity (except as charged directly to tenants),
fuel, utility taxes, water and sewer charges, fire and extended coverage and
liability insurance, repairs and maintenance, building and cleaning supplies,
building personnel uniforms and the cleaning thereof, cleaning of windows and
exterior curtain walls, snow removal, cleaning and trash removal, repairs and
telephone and telegraph and stationery, management expenses not to exceed three
percent (3%) of the gross rents from the Building, security expenses, reasonable
legal fees to the extent incurred for Building operations only (as opposed to
fees for tenant defaults, lease negotiations, transactions involving the
proposed or actual sale or refinancing of the Building, or any ground lease),
reasonable accounting fees relating to the determination of operating expenses
and the preparation of statements required by tenants' leases but excluding all
such accounting fees incurred to prepare Lessor's income tax returns and
periodic financial statements, and all other expenses now or hereafter
reasonably and customarily incurred in connection with the operation,
maintenance and management of comparable office buildings in Arlington County,
Virginia. Operating Expenses shall not include any of the following: expenses
for capital improvements made to the land or building (except to the extent that
such capital expenses are intended to reduce or to help limit increases in
operating expenses in which event such expenses shall be amortized over a period
equal to the useful life of such improvement determined in accordance with
generally accepted accounting principles and the amortized cost allocated to
each calendar year during the Term, together with and imputed interest amount
calculated on the unamortized portion thereof using an interest rate which is 2
percent over the prime rate of interest charged from time to time by First
Virginia Bank or its successor by merger or consolidation, or such other
financial institution reasonably determined by the Lessor), expenses for
painting, redecorating or other work which Lessor or Agent performs for any
tenant in the Building; interest or principal amortization, or other payments on
loans to Lessor whether secured or unsecured; depreciation of the Building or
other said improvements, ground rent; leasing commission; credits, allowances,
moving expenses or other payments or rent waivers granted to any tenant
(including Lessee), any costs paid to induce any tenant to move into or maintain
its tenancy at the Building, or other concessions to tenants (including
specified cleaning or other services not provided to other tenants of the
Building on a regular basis, including Lessee) legal expenses, salaries, wages
or other compensation paid to officers or executive of Lessor; and income or
franchise taxes, except as to any gross receipts tax; costs incurred due to
violations by Lessor of any of the terms and conditions of any leases in the
Building; overhead to subsidiaries or affiliates of the Lessor for services; any
amounts paid to any person, firm or corporation related or otherwise affiliated
with Lessor or any general partner, officer or director of Lessor or any of its
general partners, to the extent same exceeds arms-length competitive prices paid
in the metropolitan area where the Building is located for the services or goods
provided; costs attributable to enforcing leases against tenants in the
Building, such as attorneys fees, court costs, adverse judgments and similar
expenses; rentals and other related expenses incurred in leasing equipment
ordinarily considered to be of a capital nature, except equipment used in
providing janitorial, security, maintenance services not affixed to the
Building; advertising and promotional expenditures; repairs and other work
occasioned by fire, or other casualty that is reimbursable under customary
insurance policies maintained by other similar landlords; any fines or penalties
incurred due to violations by Lessor of any governmental rule or authority and
the defense of same; expenses for vacant or vacated space, including utility
costs, securing and renovating such space; costs incurred to cause the Building
or Land to comply with the Americans with Disabilities Act, as from time to time
amended, or any codes or regulations promulgated thereunder, or any similar laws
of any state, municipality or other governmental authority; all bad debt loss,
rent loss or reserve for bad debt or rent loss; costs resulting from the gross
negligence or willful misconduct of Lessor or its agents, contractors or
employees; any amounts not actually expended, such as a contingency funds,
reserve funds or sinking funds; the cost of any item or service which Lessee
separately reimburses Lessor or pays to third parties, or that Lessor provides
selectively to one or more tenants of the Building, other than Lessee, whether
or not Lessor is reimbursed by such other Lessee(s); all costs of repair or
restoration to any portion of the Building due to an eminent domain taking or
conveyance of title in lieu of condemnation proceedings; all costs hereunder
that are otherwise reimbursable by warranties held by the Lessor; any costs of
disputes between third parties not caused by Lessee; costs relating to
maintaining Lessors existence, either as a corporation, partnership, or other
entity, such as trustees fees, annual fees, partnership organization or
administration expenses, deed recordation expenses; any costs of selling,
financing or mortgaging Lessor's interest in the Building and/or the Land; any
costs of defending lawsuits; any other costs or expenses not otherwise expressly
stated herein which under generally accepted operating and/or management
procedures would not be considered as a properly reimbursable Operating Expense;
and interest or penalties arising by reason of Lessor's failure to timely pay
any Operating Expense.
2. "Base Year" shall mean the calendar year ending December 31, 2000.
3. "Comparison Year" shall mean the period of twelve months commencing
January 1st of each year and ending on December 31st of the same year.
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4. If the average occupancy level of the Building for any calendar year
(including also the Base Year) is less than 95 percent (95%) the operating
expenses for such calendar year shall be increased by the additional operating
expenses as reasonably estimated by Lessor, that would have been incurred by
Lessor in providing the same services provided to Lessee (and included in
operating expenses) if the average occupancy level of the building for the
calendar year had been 95 percent. For purposes of the preceding sentence the
"average occupancy level of the Building" for any calendar year shall be the
arithmatic average of the rentable area of the Building occupied by tenants on
the first day of each month during the calendar year.
Following the end of each Comparison Year commencing with the 2001 calendar
year, Lessee will pay to Lessor or Agent, as additional rent, on a monthly basis
over the next twelve months, after receipt of an itemized statement showing by
category the amount of the Operating Expenses for the Comparison Year and
Lessee's pro rata share of the amount of the increase, if any, of the operating
expenses for the Comparison Year over the Base Year. Lessee's share of the
increase shall be 17.45% of the total increase, which share shall be increased
if the Demised Premises shall be increased during the term or any renewal
hereof.
Lessor will make every effort to notify Lessee of said increase in
operating expenses, if any, sixty (60) days following the close of the calendar
year.
Lessee at its expense shall have the right at any reasonable time within
twelve (12) months after the end of an applicable year for which additional rent
is due, within ten (10) days following prior written notice to Lessor, to audit
Lessor's books and records relating to Operating Expenses for such calendar year
but such right shall expire at the end of the twelve (12) months after the
applicable year. In addition, Lessee shall be entitled at anytime during the
term to audit the Operating Expenses for the Base Year, to assure the inclusion
of all such expenses and the gross-up to 95% where applicable. Any overpayment
by Lessee of Rent for any year reflected by such audit shall be promptly
refunded to Lessee. In the event as a result of such audit it shall be
determined that Lessor overcharged Lessee more than three percent (3%) for
Operating Expense increases, Lessor shall also reimburse Lessee all reasonable
costs incurred by Lessee with respect to its audit. Lessee shall cause the
audit to take place in the offices of the Lessor or its management agent.
Nothing contained in this Article shall be construed at any time to reduce
the rent payable hereunder below the amount stipulated in Section 4 of this
Lease.
8. ALTERATIONS
-----------
After Lessee's initial occupancy of the Demised Premises, Lessee shall make
no alterations, installations, additions or improvements (hereinafter
collectively called "Alterations") other than Alterations which are decorative
in nature (e.g. painting, re-carpeting) provided such decorative alterations
comply with applicable codes (and further provided that Lessee submits in
advance for its reasonable approval samples of the decorative items in the case
of carpeting and wall coverings), in or to the Demised Premises or the Building
without Lessor's prior written consent, which consent shall not be unreasonably
withheld, conditioned or delayed. If any Alterations requiring Lessor's consent
are made without the prior written consent of Lessor, Lessor may correct or
remove the same, and Lessee shall be liable for and promptly pay for any and all
expenses incurred by Lessor in the performance of this work. All Alterations
shall be made at Lessee's sole expense, at such times and in such manner as
Lessor may designate, and only by such contractors or mechanics as are approved
in writing by Lessor. Approval of contractors or mechanics by Lessor, which
approval may not be unreasonably withheld, shall be based upon the contractors
or mechanics being properly licensed, their financial posture, experience and
past job performance. At the option of the Lessor, the Lessor may require the
Lessee to use a contractor designated by the Lessor.
All Alterations to the Demised Premises, whether made by Lessor or Lessee,
and whether at Lessor's or Lessee's expense, or the joint expense of Lessor and
Lessee, shall be and remain the property of Lessor. Notwithstanding the
foregoing, however, any Alterations, fixtures or any other property installed in
the Demised Premises at the sole expense of Lessee and with respect to which
Lessee has not been granted any credit or allowance by Lessor, and which can be
removed without causing material damage to the Demised Premises and the Building
or the Demised Premises, shall be and remain the property of Lessee. In the
event Lessee removes any of these Alterations and the like, Lessee agrees, at
Lessor's election, (A) to promptly repair any damage to the Building caused by
said removal and to restore the Demised Premises to the condition in which it
was in on the Commencement Date, or (B) promptly pay Lessor, as additional rent,
for all costs incurred by Lessor to undertake such repairs. Any replacements of
any property or improvements of Lessor, whether made at Lessee's expense or
otherwise, shall be and remain the property of Lessor with the understanding
that movable systems furniture shall not be deemed to constitute an improvement
for such purposes.
Lessor, at the expiration or earlier termination of the term of the Lease,
may elect to require Lessee to remove all or any part of the Alterations made by
Lessee subsequent to the Commencement Date in the case of Alterations which are
unusual for modern office buildings for normal office use in the Greater
Washington, D.C. metropolitan area, unless Lessor agrees in writing not to
require the removal of any Alterations at the time Lessor consents to the
Lessee's Alterations. Removal of Lessee's Alterations shall be at Lessee's cost
and expense, and Lessee shall, at its cost and expense, repair any damage to the
Demised Premises or the Building caused by such removal.
In the event on or before the expiration, or earlier termination, of the
term of the Lease Lessee fails to promptly remove its personal property (whether
placed prior or subsequent to the Commencement Date) or the Alterations
requested to be removed by Lessor and required pursuant to the foregoing
provisions to be removed by Lessee, then Lessor may remove such personal
property and Alterations from the Demised Premises at Lessee's expense, and
Lessee hereby agrees to pay to Lessor, as additional rent, the cost of such
removal together with any and all damages which Lessor may suffer and sustain by
reason of the failure of Lessee to remove the same. Said amount of additional
rent shall be due and payable upon receipt by Lessee of a written statement of
costs and damages from Lessor. Lessee shall be required to remove any generator
and any supplemental HVAC units installed or placed by Lessee at the Building no
later than thirty (30) days following expiration or termination of this Lease.
9. INTENTIONALLY DELETED
---------------------
10. LIENS
-----
If any mechanics' or other lien is filed against the Demised Premises, or
the Building of which the Demised Premises are a part, for work, labor,
services, or materials, done for or supplied to or claimed to have been done for
or supplied to Lessee, such lien shall be discharged by Lessee, at its sole cost
and expense, within ten (10) days from the date Lessee received written demand
from Lessor to discharge said lien, by the payment thereof or by filing any bond
required by law. If Lessee shall fail to discharge any such lien, Lessor may,
at its option, discharge the same and treat the cost thereof as additional rent,
due and payable upon receipt by Lessee of a written statement of costs from
Lessor. It is hereby expressly covenanted and agreed that such discharge of any
lien by Lessor shall not be deemed to waive or release Lessee from its default
under the Lease for failing to discharge the same. Prior to commencing any such
work, the Lessee and its contractor shall provide such assurance as the Lessor
requires to protect the Lessor against any such liens from being filed.
Lessee will indemnify and hold harmless Lessor from and against any and all
claims, damages and expenses incurred by Lessor, arising from any liens placed
against the Demised Premises or the Building and the land upon which it is
situated, as a result of Lessee undertaking Pre-occupancy Tenant work in the
Demised Premises at its own cost and under its own control and direction, or
making any Alterations to the Demised Premises.
11. REAL ESTATE AND OTHER TAXES OR ASSESSMENTS
------------------------------------------
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For the purpose of this Article:
1. The term "Real Estate Taxes" means all taxes, rates and assessments,
general and special, levied or imposed with respect to the land, building and
improvements constructed thereon including all taxes, rates and assessments,
general and special, levied or imposed for school, public betterment, general or
local improvements. If the system of real estate taxation shall be altered or
varied and any new tax or levy shall be levied or imposed on said land, building
and improvements, and/or Lessor, in substitution for real estate taxes presently
levied or imposed on immovables in the jurisdiction where the property is
located, then any such new tax or levy shall be included within the term "Real
Estate Taxes". Real Estate Taxes shall in no event include penalties or interest
imposed for late payment. Further, the term Real Estate Taxes shall specifically
exclude any capital levy, franchise, estate, inheritance, transfer or
recordation tax, as well as any abatements, reductions or credits received by
Lessor. Assessments which may be paid over a period in excess of twelve months
without penalties shall be included with taxes only to the extent such payments
are required to be made within the particular calendar year. Real Estate Taxes
allocable to the Building shall include taxes on the Building as defined
hereunder but shall not include taxes on unimproved parcels of land (as opposed
to unimproved portions of the parcel presently improved by the Building).
2. The term "Base Real Estate Taxes" means the assessed value of said
land with the building and improvements multiplied by the then current tax rate
for the fiscal year ending December 31, 2000, in addition to any other Real
Estate Taxes paid or incurred by Lessor attributable to such fiscal year.
3. The term "Real Estate Tax Year" means each successive twelve month
(12-month) period following and corresponding to the period in respect which the
base real estate taxes are established, irrespective of the period or periods
which may from time to time in the future be established by competent authority
for the purposes of levying or imposing real estate taxes.
Each year commencing January 1, 2001, Lessee shall pay to Lessor within
thirty (30) days after demand in writing therefore, itemizing the assessed
valuation of the property, the tax rate and the real estate taxes and
assessments payable thereon for the Real Estate Tax Year, as additional rent as
defined in Section 4(e) which shall not be deductible from any rental, Lessee's
pro rata share, determined in the manner hereinafter provided, of any increase
in Real Estate Taxes for or attributable to the then current Real Estate Tax
Year over the Base Real Estate Taxes (all as defined above). Lessee's share, as
aforesaid, shall be 17.45% of the total increase, which share shall be increased
or decreased if the Demised Premises shall be increased or decreased during the
term of any renewal hereof. Lessee's share has been determined based upon the
assumption that the Demised Premises will include prior to January 1, 2001 both
the Fourth Floor and Fifth Floor.
Reasonable expenses incurred by Lessor in obtaining or attempting in good
faith to obtain a reduction of any Real Estate Taxes shall be added to and
included in the amount of any such Real Estate Taxes. Real Estate Taxes which
are being contested by Lessor shall nevertheless be included for purposes of the
computation of the liability of Lessee under Section 11(a) hereof, provided
however, that in the event that Lessee shall have paid any amount of increased
rent pursuant to this Article and Lessor shall thereafter receive a refund of
any portion of any Real Estate Taxes on which such payment shall have been
based, Lessor shall pay to Lessee its proportionate share of such refund, based
upon the percentage of Lessee during the particular fiscal period for which such
refund was received (i.e. after consideration of any adjustment to Lessee's
percentage required by reason of any increase or decrease of the Demised
Premises), such percentage currently being 17.45% of such refund. Lessor shall
have no obligation to contest, object or litigate the levying or imposition of
any Real Estate Taxes. Lessor may settle, compromise, consent to, waive or
otherwise determine in its discretion any real estate tax increase without
consent or approval of Lessee.
Nothing contained in this Article shall be construed at any time to reduce
the monthly installments of rent payable hereunder below the amount stipulated
in Articles 4 and 9 of this Lease.
If the Termination Date of this Lease shall not coincide with the end of a
Real Estate Tax Year, then in computing the amount payable under this Article
and for the period between the commencement of the applicable Real Estate Tax
Year and, if there shall be a difference, such difference pro rated on a monthly
basis shall be payable by Lessee. Lessee's obligation to pay increased Real
Estate Taxes under this Article for the final period of the Lease shall survive
the expiration of the term of this Lease.
12. MAINTENANCE BY LESSEE
---------------------
Lessee shall keep the Demised Premises and the fixtures and equipment
therein in clean, safe and sanitary condition, shall take good care thereof, and
shall suffer no waste or injury thereto. At the expiration or earlier
termination of the term of this Lease, Lessee shall surrender the Demised
Premises broom clean and in the same order and condition in which they were on
the Commencement Date, ordinary wear and tear and damage by the elements, fire
and other casualty, or by any act or omission of Lessor or any agent, employee
or contractor of Lessor, or taking by eminent domain, excepted.
13. SIGNS AND ADVERTISEMENTS
------------------------
No sign, advertisement or notice shall be inscribed, painted, affixed or
displayed on any part of the outside or the inside of the Building, including
windows and doors, except with Lessor's prior written consent and then only in
such place, number, size, color and style as is authorized by Lessor. If any
such sign, advertisement or notice is exhibited without first obtaining Lessor's
written consent, which consent may be granted or withheld in the Lessor's sole
and absolute discretion, Lessor shall have the right to remove the same, and
Lessee shall be liable for any and all expenses incurred by Lessor by said
removal, as additional rent.
14. DELIVERIES AND MOVING OF LESSEE'S PROPERTY
------------------------------------------
No furniture, equipment or other bulky matter of any description shall be
received into the Building except in the manner and during the times approved by
Lessor. Lessee shall obtain Lessor's permission prior to moving said property
into the Building. All moving of furniture, equipment and other material within
the public areas shall be under the direct control and supervision of Lessor who
shall, however, not be responsible for any damage to or charges for moving the
same. Lessee agrees promptly to remove from the sidewalks adjacent to the
Building any of the Lessee's furniture, equipment or other material there
delivered or deposited.
15. LESSEE'S EQUIPMENT
------------------
Except as provided below, Lessee will not install or operate in the Demised
Premises any electrically operated equipment or other machinery, other than
typewriters, word processing machines, adding machines, radios, televisions,
tape recorders, dictaphones, bookkeeping machines, copying machines, clocks, and
other business machines and equipment normally employed for general office use
which do not require high electricity consumption for operation, without first
obtaining the prior written consent of Lessor, who may condition such consent
upon payment by Lessee of additional rent as compensation for additional
consumption of electricity and/or other utility services.
In connection with Lessee's provision of telecommunications and/or internet
services from the Demised Premises, which shall include, without limitation, the
installation, operation, maintenance and replacement of communications and
switch equipment and facilities and various computer facilities consistent with
the power consumption capabilities on Lessee's floors. At Lessee's sole cost
and expense, including all maintenance and replacements thereof, and following
written approval by Lessor of the plans and specification relating thereto,
Lessee shall be entitled to install: a fire suppression system to be selected by
Lessee and /or modify the existing Building sprinkler system servicing the
Demised
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<PAGE>
Premises to a dry pipe double reaction system installed in such a way as to be
approved by state and local jurisdictions and not violate the integrity or
warranty of the existing system; a battery backup system; an electrical
grounding system; two (2) four inch (4") conduits risers from the Building
telecommunications room to the Demised Premises; pathway sufficient to support
two (2) rooftop antennas and other rooftop equipment as may be approved by
Lessor; telecommunication wiring and cabling between adjoining portions of the
demised premises; subject to available pathway, telecommunication wiring and
cabling to non contiguous portions of the Demised Premises not occupied by the
Lessee.
Lessee shall be entitled, if required for continuous uninterrupted
telecommunications services, and without additional charge beyond that of the
cost of a parking space (as set forth in Section 37 hereof) should such location
require a space, to a limited area in the garage, garage exterior or roof, the
location of which to be reasonably determined by Lessor, for the purpose of
installing supplemental HVAC and/or an emergency power generator (with
appropriate conduit, wiring and cabling), all work to be furnished and
installed, maintained and replaced at Lessee's sole cost and expense. Lessee
may conduct periodic tests (e.g. once per week) of the emergency power generator
at such times as to not hinder or interfere with other tenants in the building.
Lessor shall at no cost or expense to Lessor reasonably cooperate with Lessee in
the event, during the course of this Lease, Lessee shall require additional
HVAC, emergency power generation or additional power at Lessee's sole cost and
expense and subject to availability of space, capacity, and impact upon existing
tenants. Lessor shall advise Lessee of any cost or expense of which Lessor
intends to seek reimbursement from Lessee prior to incurring same.
Any auxiliary air-conditioning equipment which Lessee may desire to install in
the Demised Premises shall be attached to the Building's commercial condenser
water system, if available, and Lessee shall pay to Lessor such reasonable
charges as established from time to time for such use. Nothing contained in
this section 15 requiring particular items to be at the sole cost or expense of
Lessee shall be deemed to preclude use by Lessee of the initial construction
allowance and/or additional construction allowance (both allowances of which are
described in Section 65 of this Agreement) toward such costs.
If any or all of Lessee's equipment requires electricity consumption in
excess of the capacity of the electrical system installed by Lessor in the
Demised Premises, all additional transformers, distribution panels and wiring
that may be required to provide the amount of electricity required for Lessee's
equipment shall be installed by Lessor at the cost and expense of Lessee. If
Lessee's equipment causes Lessee's consumption of electricity (exclusive of the
ceiling lights and power to supply the Building's HVAC to the Demised Premises)
to exceed an average of five (5) watts per rentable square foot, or if such
equipment is to be consistently operated beyond the normal Building hours of
8:00 a.m. to 6:00 p.m., Monday through Friday, and 9:00 a.m. to 1:00 p.m. on
Saturday, excepting holidays as hereafter set forth, Lessor may install at its
option a separate meter for the specific equipment that is causing Lessee's
excessive consumption of electricity at Lessee's sole cost and expense. In the
event Lessor installs a separate meter for the specific equipment, Lessee shall
then pay the cost of electricity it consumes as recorded by such meter directly
to the electric company. No adjustment shall be made in Lessee's rent.
Lessee shall not install any equipment of any kind or nature whatsoever
which will or may necessitate any changes, replacements or additions to, or in
the excessive use of, the water system, heating system, plumbing system, air-
conditioning system, or electrical system of the Demised Premises or the
Building without first obtaining the prior written consent of Lessor. Lessor
shall not unreasonably withhold, delay or condition its consent hereunder.
Business machines and mechanical equipment belonging to Lessee which cause noise
or vibration that may be transmitted to the structure of the Building or to any
space therein to such a degree as to be objectionable to Lessor or to any tenant
in the Building shall be installed and maintained by Lessee, at Lessee's
expense, on vibration eliminators or other devices sufficient to materially
eliminate such noise and vibration.
Lessor shall have the right to prescribe the weight and position of all
heavy equipment and fixtures, including, but not limited to, data processing
equipment, record and file system and safes which Lessee intends to install or
locate within the Demised Premises. Lessor shall not unreasonably withhold,
delay or condition its consent hereunder. Lessee shall obtain Lessor's prior
review and approval before installing or locating heavy equipment and fixtures
in the Demised Premises, and if installation or location of such equipment or
fixtures, in Lessor's opinion, requires structural modifications or
reinforcement of any portion of the Demised Premises or the Building, Lessee
agrees to reimburse Lessor, as additional rent, for any and all costs incurred
by Lessor to make such required modifications or reinforcements, and such
modifications or reinforcements shall be completed prior to Lessee installing or
locating such equipment or fixtures in the Demised Premises. Lessee shall
reimburse Lessor within thirty (30) days of receipt of any statement setting
forth those costs.
16. SERVICES AND UTILITIES
----------------------
1. Lessor shall provide the following utilities and services consistent
with the standards used by other owners of comparable (in size, quality, age and
reputation) as the Building within the Northern Virginia area:
1. Hot and cold water and lavatory supplies, it being understood and
agreed that hot and cold water shall be furnished by Lessor only at those points
of supply provided for general use of other tenants in the Building, and at
those points of supply in kitchen and lavatories to be installed in the Demised
Premises as part of Lessee's initial construction.
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2. After business hours cleaning services in corridors and
lavatories, and changing of fluorescent bulbs in common areas and suites on an
"as-needed" basis. These services will be provided daily Monday through Friday,
except legal holidays. Such services shall be provided based upon standards for
first class office space.
3. Zoned heat and air-conditioning in season in such quantities as
to assure uniform temperatures within the ranges set forth below and humidity
levels ( Winter 70 N F drybulb 35% relative humidity and Summer 75 N F Drybulb
50% relative humidity) throughout the Demised Premises, Monday through Friday
from 7:00 a.m. to 6:00 p.m. and on Saturday from 7:00 a.m. to 1:00 p.m., except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
President's Day, Memorial Day, Fourth of July, Labor Day, Columbus Day, Veterans
Day, Thanksgiving Day, and Christmas Day, and any other national holiday
promulgated by a Presidential Executive Order or Congressional Act. Lessor shall
provide heat and air-conditioning at times in addition to those specified in the
preceding sentence at Lessee's expense, provided Lessee gives Lessor notice
prior to 1:00 p.m. on a business day in the case of after-hours service on that
business day and prior to 3:00 p.m. on the immediately preceding business day in
the case of after-hours service on a Saturday, a Sunday or a holiday. Lessor
shall charge Lessee for said after-hours services its direct costs. Lessor
reserves the right, in its sole discretion, to increase the hourly charge for
said after-hours service, but in no event shall the rate per hour charged Lessee
be more than the rate per hour charged other tenants or be more than the direct
cost to Lessor. Lessee agrees to comply with the provisions of any building
warranties obtained by Lessor in connection with its installations under Section
15 provided Lessor gives Lessee advance written notice of such provisions. In
the event the same after-hours service is also requested by other tenants of the
Building in addition to Lessee, the charge therefor to each tenant requesting
such after-hours service shall be prorated among all requesting tenants based
upon the respective square footages of each of the demised premises of the
tenants requesting such after-hours service. Notwithstanding the foregoing,
Lessor agrees that Lessor shall provide at its direct cost (i.e. no profit,
administrative charge, overhead or markup) utilities necessary to permit Lessee
to operate on a 24 hours a day, seven days a week basis, either the building
standard system servicing the Demised Premises or Lessee's supplemental unit (if
any). Lessor agrees that the overtime charge for HVAC to the Lessee shall be at
the rate of $15.00 per hour for each floor of the Demised Premises, which hourly
rate shall be subject to increase at the rate of 3% per annum each December 1
(with the first such rate increase to occur on December 1, 2000). Lessor shall
cooperate with Lessee in the provision of chiller water, and other utilities
recognizing that Lessee's business operations require the conduct of business
round-the-clock within certain areas to be reasonably designated by Lessee
subject to Lessor's reasonable approval.
4. Maintenance, painting and electric lighting service for all
public areas and special service areas in the Building.
5. Electricity and proper electrical facilities to furnish
sufficient electricity for equipment of Lessee installed pursuant to the section
of this Lease entitled, "Lessee's Equipment" recognizing that nothing contained
herein shall affects the rights of Lessor with respect to Additional Power set
forth in Section 15 above.
6. Thermostats shall be set to maintain temperatures between 65NF
and 70NF during the heating season and between 76NF and 80NF during the cooling
season or such other temperatures as the Lessor may reasonably determine during
the Term.
2. In the event any public utility supplying energy requires, or
government law, regulation, executive or administrative order results in a
requirement, that Lessor or Lessee must reduce, or maintain at a certain level,
the consumption of electricity for the Demised Premises or Building, which
affects the heating, air-conditioning, lighting, or hours of operations of the
Demised Premises or Building, Lessor and Lessee shall each adhere to and abide
by said laws, regulations or executive orders without any reduction in rent.
3. At any time and from time to time during the Term of the Lease,
provided Lessor first consults with Lessee to assure that there will be no
material adverse affect on Lessee's operations within the Demised Premises, and
that the costs of provision of such utilities will not exceed the costs which
would be incurred in the absence of such change, Lessor at its sole discretion
shall have the right to select and change the utility companies providing
utilities to the Building, and upon such terms and conditions as are solely
satisfactory to the Lessor.
4. Lessor's inability to furnish, to any extent, these defined services,
or any cessation thereof resulting from causes beyond the control of Lessor,
shall not render Lessor liable for damages to either person or property, nor be
construed as an eviction of Lessee, nor work an abatement of any portion of
rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof.
Lessor agrees to use its best efforts to restore any cessation in services,
recognizing that Lessee's communication business requires twenty-four hour
service, 365 days a year. Should any of the Building equipment or machinery
cease to function properly for any cause, Lessor shall use reasonable diligence
to repair the same promptly, but Lessee shall have no claim for damages or for a
rebate of any portion of rent on account of any interruptions in any services
occasioned thereby or resulting therefrom. If any disruption or interruption of
any service to be provided under this Article by Lessor shall occur and continue
for more than three (3) business days, which interruption shall
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reasonably render Lessee unable to conduct its business in the Demised Premises,
then and in such event all rent shall abate until the earlier of the date of
restoration of service in the Demised Premises or Lessee's resumption of
business operations in the Demised Premises .
5. Prior to the commencement date, the Lessor shall provide an electronic
security system installed and monitored by Julien Enterprises or an equivalent
vendor. The basic components of the system shall include electronic access
control points at the main entry lobby, garage ramp door, and the elevators.
The access control systems on the main lobby doors and elevators shall operate
daily 6:00 p.m. to 8:00 a.m., Monday through Friday, and 24-hours a day on
Saturdays, Sundays, and holidays. Lessor recognizes that Lessee shall be
entitled to access the Building and Premises seven (7) days a week, 24 hours a
day, with at least one elevator in service at all times available for Lessee's
use, and that such round the clock access is imperative by reason of Lessee's
telecommunication operations. Lessor shall initially furnish at no charge to
Lessee 220 security cards. Additional or replacement cards shall be made
available at the rate of $15.00 per card, subject to reasonable increase each
year to reflect actual increases incurred by Lessor for such new cards.
6. Lessor shall keep the roof, foundation, and structural components of
exterior walls of the Demised Premises, together with the parking and other
common areas of the Building in good, clean, sanitary and sightly condition,
working order and repair. Lessor shall make all necessary repairs or
replacements thereto, so as to maintain the Building and its components
consistent with comparable buildings as to age, size and location. Lessor shall
make all repairs with due diligence and due care in a good and workmanlike
manner and in compliance with all applicable local, state and Federal
regulations, ordinances and laws and in making such repairs shall use reasonable
efforts to prevent any unreasonable interference with Lessee's use of the
Demised Premises. Lessor shall promptly restore any damage to any portion of the
Demised Premises resulting from any act or omission of Lessor, its agents,
servants, employees or contractors not caused by Lessee. Lessor shall, without
expense to Lessee, make any and all structural or extraordinary alterations
required to be made to the Demised Premises by law, ordinance or regulation of
any governmental authority, board of fire insurance underwriters, Lessor's
insurers, or similar authority. If Lessor has not commenced repair or
maintenance required to be performed by Lessor hereunder within ten (10) days
after written notice thereof from Lessee, or if so commenced, is not diligently
pursuing same to completion, Lessee shall have the right, but not the
obligation, to make such repairs and Lessor shall reimburse Lessee for the
reasonable cost thereof within ten (10) days after receipt of a bill therefor
from Lessee. In the event of an emergency, Lessee may (but shall not be
obligated to) perform such repairs which would otherwise be Lessor's obligation
hereunder which may be reasonably necessary, after having given Lessor such
notice, if any, as may be practicable under the circumstances. Notwithstanding
anything to the contrary set forth hereinabove, Lessee shall not be required to
perform any repairs which would otherwise be Lessor's obligation hereunder.
17. LESSEE'S RESPONSIBILITY FOR DAMAGE
----------------------------------
Any and all injury, breakage or damage to the Demised Premises or the
Building arising from any cause done by Lessee or its agents, contractors,
servants, employees and visitors, or by individuals and persons making
deliveries to or from the Demised Premises, except as provided for in the
section of this Lease entitled, "ALL RISK COVERAGE INSURANCE," shall be repaired
at the sole expense of Lessee. In the case of any such injury, breakage or
damage beyond the Demised Premises, such damage may at Lessor's option be
repaired by Lessor, and in such event, payment of the cost of such repairs by
Lessee shall be due as additional rent with the next installment of Monthly Rent
after Lessee receives a bill for such repairs from Lessor. This provision shall
not be in limitation of any other rights and remedies which Lessor has or may
have in such circumstances.
18. ENTRY FOR INSPECTIONS, REPAIRS AND INSTALLATIONS, ETC.
------------------------------------------------------
Following reasonable advance notice from Lessor or its Agent, except in
cases of emergencies in which event no such notice shall be required, Lessee
shall permit Lessor, or its agent, employees or contractors, to enter the
Demised Premises at all reasonable times and in a reasonable manner, without
charge to Lessor or diminution of Monthly Rent payable by Lessee, to examine,
inspect, protect the Building, or to show it to prospective or existing lenders
or to prospective purchasers, and, upon one (1) day written notice, to make such
repairs as in the judgment of Lessor may be deemed necessary to maintain or
protect the Building, or to exhibit the same to prospective tenants during the
last year of the Term of this Lease. Lessor shall use reasonable efforts to
minimize interference to Lessee's business when making repairs and in otherwise
scheduling its access into the Demised Premises, but Lessor shall not be
required to perform the repairs at a time other than during normal working
hours.
In the event of an emergency, Lessor may enter the Demised Premises without
notice and make whatever repairs are necessary to protect the Building.
Lessee shall permit Lessor, or its agents, employees or contractors, upon
no less than three (3) days prior written notice to Lessee, to enter the Demised
Premises at reasonable times and in a reasonable manner, without charge to
Lessor or diminution of Monthly Rent payable by Lessee, to make installations
related to the contraction of pre-occupancy tenant work being performed by
Lessor for other tenants of the Building. Lessor shall use reasonable efforts
to minimize interferences with Lessee's business operations, but except in
unusual circumstances, Lessor shall not be required to perform such work at a
time other than normal working hours.
If on the Commencement Date there is no security system for the Building
the Lessor shall have the right at any time during the term to install such
security system as the Lessor deems appropriate.
The Lessor shall also have the right during any reasonable time or times
(except in the case of an emergency, in which event the Lessor may enter at any
time) to enter the Demised Premises for the purpose of making repairs or
improvements to space above, below and/or on the same floor as the Demises
Premises, including the right to install above the ceiling, below the slab or
within columns, and/or remove water lines, heating and air conditioning vents,
to accommodate any change in utility service providers and the like to serve the
Lessee or other Lessees of the Building. However, Lessee may impose upon Lessor
reasonable limitations to avoid placement of water lines above Lessee's computer
center to be located in the Demised Premises. Notwithstanding the foregoing,
Lessor shall not be required to relocate existing water lines or any material
part of the sprinkler system. Costs of relocating any parts of the sprinkler
system shall be borne by Lessee.
19. HAZARDOUS MATERIALS
-------------------
Lessee shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances or materials by reason of Lessee's operations at the
Demised Premises (as opposed to the operations of Lessor or the operations of
any other tenant of Lessor or an invitee of any other tenant). Lessee shall not
allow the storage or use of such substances or materials in any manner not
sanctioned by law or by the highest standards prevailing in the industry for the
storage and use of such substances or materials, nor allow to be brought into
the Building or Parking Facility any such materials or substances except those
which are customarily used in the ordinary course of Lessee's business, and, to
the extent such materials are not typically found in other modern office suites,
then only after written notice is given to Lessor of the identity of such
substances or materials. Without limitation, hazardous substances and materials
shall include those described in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901 et seq., any applicable state or local laws and the regulations adopted
under these acts. If any lender or governmental agency shall make a good faith
determination that Lessee has violated the provisions of this paragraph, then
the reasonable costs of such testing shall be reimbursed by Lessee to Lessor
upon demand as additional charges if such requirement applies to the Demised
Premises. In addition, Lessee shall execute affidavits, representations and the
like from time to time at Lessor's request concerning Lessee's best knowledge
and belief regarding the presence of hazardous substances or materials on the
Demised Premises arising by reason of Lessee's operations. In all events,
Lessee shall indemnify Lessor from all costs, expenses, damages, liabilities or
causes of action from any release of hazardous materials on the Demised Premises
or otherwise in
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the Building, to the extent (and only to the extent) caused by Lessee or persons
acting under Lessee . Lessee shall have no liability, debt or obligation under
this Lease by reason of any use, generation, manufacture, refining, processing,
storage, disposal or release of a hazardous substance or material unless such
hazardous substance or material was caused by Lessee, or any agent, employee or
contractor of Lessee. Lessor shall be deemed the owner of any such hazardous
substance, the existence, use, generation, release, manufacture, refining,
processing, storage, disposal or release of which was not caused by Lessee, or
any agent, employee or contractor of Lessee.
Lessor shall indemnify, defend and hold Lessee harmless from and against
any handling, transportation, storage, treatment or use of hazardous or toxic
substances which may occur at the Building prior to the Commencement Date and
Lessor represents to the best of its knowledge that the Building is in
compliance with all applicable federal, state and local laws, regulations and
ordinances.
Lessor shall certify upon Lessee's occupancy of the Demised Premises that
the shell Building system meets all current health standards for fresh air
changes (current ASHRAE standards) and hazardous materials abatement. Lessor
represents to Lessee that to the best of its knowledge the Building and
improvements are not in violation, nor have they been in violation, of any
federal, state or local law, ordinance or regulation relating to any
environmental conditions on or in the Building or any such improvements thereon,
including without limitation, soil and groundwater conditions.
20. INSURANCE RATING
----------------
Lessee shall not conduct or permit to be conducted any activity, or place
any equipment or property in or about the Demised Premises that will increase in
any way the rate of All Risk Coverage insurance or other insurance on the
Building beyond the rate applicable for other comparable (in age, size and
quality) office buildings located in Northern Virginia, unless consented to by
Lessor. Lessor's consent may be conditioned upon Lessee's payment of any costs
arising directly or indirectly from such increase. If any increase in the rate
of All Risk Coverage insurance or other insurance on the Building is stated by
any insurance company or by the applicable Insurance Rating Bureau to be due to
Lessee's activity, equipment of property in or about the Demised Premises, said
statement shall be conclusive evidence that the increase in such rate is due to
such activity, equipment or property and, as a result thereof, Lessee shall be
liable for such increase. Any such rate increase and related costs incurred by
Lessor shall be deemed additional rent due and payable by Lessee to Lessor upon
receipt by Lessee of a written statement of the rate increase and costs. Lessee
may contest, at its sole cost and expense, any insurance rate increase, provided
such action by Lessee will not adversely affect the insurance coverage of
Lessor.
21. INDEMNITY AND PUBLIC LIABILITY INSURANCE
----------------------------------------
1. Lessee shall indemnify and save harmless Lessor from any and all
liability, damage, expense, cause of action, suits, claims, judgments and cost
of defense arising from injury to person, property or personal property in and
on the Demised Premises, or upon any adjoining sidewalks or public areas of the
Building, which arise out of the act, failure to act or negligence of Lessee,
its agents or employees.
2. In order to assure such indemnity, Lessee shall, at its sole cost,
carry and keep in full force and effect at all times during the term of this
Lease, a comprehensive general liability policy with a single limit of at least
One Million Dollars ($1,000,000.00) including coverage for bodily injury,
property damage and personal injury liability.
3. Lessee shall obtain and keep in full force and effect during the Term
of the Lease rental loss insurance in such amounts as the Lessor deems to be
commercially reasonable.
4. Lessor hereby agrees to indemnify and hold harmless Lessee from and
against any and all claims, losses, actions, damages, liabilities and expenses
(including reasonable attorneys' fees and disbursements) (collectively,
"Damages") that arise from any breach of any covenant or representation made in
connection with this or any other lease in the Building or willful or grossly
negligent act or omission of Lessor, its agents, contractors or employees.
Whenever the Lessee shall be deemed liable for losses, liabilities, obligations,
damages, penalties, claims, costs, charges and expenses under the provisions of
the Lease, no such liability shall arise from losses, liabilities, obligations,
damages, penalties, claims, costs, charges and expenses resulting from the gross
negligence or willful misconduct of Lessor and/or its agents, employees or
contractors.
22. WORKER'S COMPENSATION INSURANCE
-------------------------------
Lessee shall carry and keep in full force and effect at all times during
the term of this Lease, at its sole cost, worker's compensation or similar
insurance in form and amounts required by law.
23. ALL RISK COVERAGE INSURANCE
---------------------------
Lessor shall obtain and maintain All Risk Coverage insurance covering the
Building. Lessee shall obtain and maintain throughout the term of this Lease
and any extension periods All Risk Coverage insurance insuring against damage to
and loss of Lessee's tenant improvements, fixtures, equipment, furniture, and
all other personal property in and about the Demised Premises. Lessor and
Lessee hereby release each other and waive any claims they may have against the
other for loss or damage to the Building, Demised Premises, tenant improvements,
fixtures, equipment and/or any other personal property arising from a risk
insured against under the All Risk Coverage insurance policies to be carried by
Lessor and Lessee, as required above, even though such loss or damage was caused
by the negligence of Lessor and Lessee, their agents or employees, except for
the amount of the deductible under said policies. Lessor and Lessee agree to
obtain and maintain throughout the term of this Lease endorsements to their
respective All Risk Coverage policies waiving the right of subrogation of their
insurance companies against the other party and its agents and employees.
Except to the extent expressly provided in this Lease, nothing contained in this
Lease shall relieve either Lessor or Lessee to the other, or the insurance
carriers which Lessee or Lessor may have under law or the provisions of this
Lease in connection with any damage to the Building, Demised Premises, tenant
improvements, fixtures, equipment, furniture, and all other personal property,
by fire or other casualty.
24. LESSEE'S CONTRACTOR'S INSURANCE
-------------------------------
Lessee shall require any contractor of Lessee performing work on the
Demised Premises to carry and maintain, at no expense to Lessor:
1. Comprehensive general liability insurance, including contractor's
liability coverage, contractual liability coverage, completed operations
coverage, broad form property damage endorsement and contractor's protective
liability coverage, to afford protection with limits, for each occurrence, of
not less than One Million Dollars ($1,000,000.00) with respect to personal
injury, death, or property damage; and
2. Worker's compensation or similar insurance in form and amounts
required by law.
25. REQUIREMENTS FOR LESSEE'S INSURANCE POLICIES
--------------------------------------------
The company or companies writing any insurance which Lessee is required to
carry and maintain or cause to be carried or maintained pursuant to this Lease
as well as the form of such insurance shall at all times be subject to Lessor's
approval and any such
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company or companies shall be a good and responsible insurance company, licensed
to do business in the Commonwealth of Virginia. Lessee's public liability and
All Risk Coverage insurance policies and certificates evidencing such insurance
shall name Lessor and its Agent as additional insured and shall also contain a
provision by which the insurer agrees that such policy shall not be canceled
except after thirty (30) days written notice to Lessor. Lessee agrees to provide
the Lessor prior to taking possession of the Demised Premises the certificates
evidencing such insurance; Lessor may withhold delivery of the Demised Premises
without delaying the Commencement Date, or triggering any abatement of rent, if
Lessee fails to provide Lessor with these certificates.
Any insurance carried or to be carried by Lessee hereunder shall be primary
over any policy that might be carried by Lessor. If Lessee shall fail to
perform any of its obligations regarding the acquisition and maintenance of
insurance, Lessor may perform the same and the cost of same shall be deemed
additional rent, payable upon Lessor's demand. Lessee's insurance shall not
have a deductible greater than One Thousand Dollars ($1,000.00) per claim.
Lessor reserves the right at any time during the term to require the Lessee
to increase the amounts and types of coverage under the Lease to such amounts
and types of coverage as would then be deemed commercially reasonable by the
Lessor, after taking into consideration the insurance required in other
comparable (as to size, age and quality) office buildings in Northern Virginia.
26. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON
----------------------------------------------------
All personal property of Lessee, its employees, agents, subtenants,
business invitees, licensees, customers, clients, family members, guests or
trespassers, in and on the Demised Premises shall be and remain in and on the
Demised Premises and the Building at the sole risk of said parties and except to
the extent set forth in Section 21(d) above, Lessor shall not be liable to any
such person or party for any damage to, or loss of personal property thereof,
including loss or damage arising from, (A) any act, including theft, or any
failure to act, of any other persons, (B) the leaking of the roof, (C) the
bursting, rupture, leaking or overflowing of water, sewer or steam pipes, (D)
the rupture or leaking of heating or plumbing fixtures, including security and
protective systems, (E) short-circuiting or malfunction of electrical wires or
fixtures, including security and protective systems or (F) the failure of the
heating or air-conditioning systems. Lessor shall also not be liable for the
interruption or loss to Lessee's business arising from any of the above-
described acts or causes. Lessee specifically agrees to save Lessor harmless in
all such cases.
Lessor shall not be liable for any personal injury to Lessee, Lessee's
employees, agents, business invitees, licensees, customers, clients, family
members, guests or trespassers arising from the use, occupancy and condition of
the Demised Premises or the Building, unless such party establishes that there
has been gross negligence or a willful act or willful failure to act on the part
of Lessor, its agents or employees.
27. DAMAGE TO THE BUILDING AND/OR THE DEMISED PREMISES
--------------------------------------------------
If the Demised Premises is damaged by fire or other casualty insured
against by Lessor's All Risk Coverage insurance policy covering the Building,
and the Demised Premises can be fully repaired, in Lessor's opinion, within 180
days from the date of the insured risk, Lessor, at Lessor's expense, shall
repair such damage, provided, however, Lessor shall have no obligation to repair
any damage to, or to replace, Lessee's non-building standard tenant
improvements, if any, installed by Lessee at its sole cost and expense, or any
other property located in the Demised Premises. Except as otherwise provided
herein, if the entire Demised Premises is rendered untenantable by reason of the
insured risk, then Monthly Rent shall abate for the period from the date such
damage to the date when Lessor has completed repairs to the Demised Premises as
specified above, and if only a portion of the Demised Premises is so rendered
untenantable, then Monthly Rent shall abate for such period in the proportion
which the area of the portion of the Demised Premises so rendered untenantable
bears to the total area of the Demised Premises, provided, however, if, prior to
the date when such repairs have been completed, any portion of the Demised
Premises so damaged shall be rendered tenantable and shall be used or occupied
by Lessee or any person claiming through or under Lessee, then the amount by
which the Monthly Rent shall abate shall be equitably apportioned for the period
from the date of any such use or occupancy to the date when such repairs are
completed. Notwithstanding the foregoing, if by reason of the fire or other
casualty Lessee is unable to reasonably conduct its business within the
undamaged portion of the Demised Premises, all Monthly Rent and Additional Rent
shall abate as is the entire Demised Premises were untenantable. Any abatement
of rent hereunder shall continue until the first to occur of (i) expiration of
forty-five (45) days following either completion by Lessor of its repairs or
restoration or (ii) the date Lessee is reasonably able to resume conduct of its
business operations within the Demised Premises or any substantial portion
thereof. No compensation or claim or reduction of rent will be allowed or paid
by Lessor by reason of inconvenience, annoyance, or injury to business arising
from the insured risk or the necessity of repairing the Demised Premises or any
portion of the Building which they are a part.
Notwithstanding the foregoing, if, prior to or during the term of this
Lease, (A) the Demised Premises is so damaged that, in Lessor's opinion, the
Demised Premises cannot be fully repaired within 180 days from the date the
damage occurred and provided Lessor concurrently terminates all other office
leases in the Building, or (B) the Building is so damaged that, in Lessor's
opinion, substantial repair or reconstruction of the Building shall be required
(whether or not the Demised Premises is damaged or rendered untenantable) and
provided Lessor concurrently terminates all other office leases in the Building,
then, in any of such events, Lessor, at its option, may give to Lessee, within
sixty (60) days after such fire or other casualty, a thirty (30) days notice of
termination of this Lease and, in the event such notice is given, this Lease
shall terminate (whether or not the term shall have commenced) upon the
expiration of such thirty (30) days with the same effect as if the date of
expiration of such thirty (30) days were the date definitely fixed for
expiration of the term of the Lease, and the then-applicable Monthly Rent shall
be apportioned as of such date, including any rent abatement as provided above.
In the event Lessor is unable to complete its repairs within 180 days of
occurrence of any damage, destruction or other casualty to the Building or the
Demised Premises, so as to enable Lessee to continue its business in the Demised
Premises in a manner satisfactory to Lessee, Lessee may elect to cancel this
Lease without penalty of any kind upon thirty (30) days written notice to
Lessor, which notice shall be given by Lessee at anytime after the 150/th/ day
following the fire or casualty, and which notice shall be effective in the
absence of the Lessor substantially completing its repairs within the thirty
days period following the date of Lessee's notice.
28. DEFAULT OF LESSEE
-----------------
This Lease shall, at the option of Lessor, cease and terminate if (A)
Lessee fails to pay rent in accordance with terms of Lease, including any
installment of Monthly Rent, or any sums, charges, expenses and costs of any
kind or nature identified in this Lease as additional rent, although no legal or
formal demand has been made, and such failure to pay rent continues for a period
of ten (10) days after written notice addressed to Lessee has been delivered by
Lessor to the Demised Premises, or (B) Lessee violates or fails to perform any
of the other conditions, covenants or agreements of this Lease made by Lessee,
and any violation or failure to perform any of those conditions, covenants or
agreement continues for a period of twenty (20) days after written notice
thereof has been delivered by Lessor to Lessee, or, in cases where the violation
or failure to perform cannot be corrected within twenty (20) days, Lessee does
not begin to correct the violation or failure to perform within twenty (20) days
after receiving Lessor's written notice and/or Lessee thereafter does not
diligently pursue the correction of the violation or failure to perform. Any
said violation or failure to perform or to pay any rent, if left uncorrected,
shall operate as a notice to quit, any further notice to quit or notice of
Lessor's intention to re-enter being hereby expressly waived. Lessor may
thereafter proceed to recover possession under and by virtue of the provisions
of the laws of the jurisdiction in which the Building is located or by such
other proceedings, including re-entry and possession, as may be applicable. If
Lessor elects to terminate this Lease, everything herein contained on the part
of Lessor to be done and performed shall cease without prejudice to the right of
Lessor to recover from Lessee all rent accruing up to and through the date of
termination of this Lease or the date of recovery of possession of the Demised
Premises by Lessor, whichever is later. Should this Lease be terminated before
the expiration of the term of this Lease by reason of Lessee's default as
hereinabove provided, or if Lessee abandons or vacates the Demised Premises
before the expiration or termination of the term of this Lease, the Demised
Premises may be relet by Lessor for such rent and upon such terms as are not
unreasonable in the sole option of Lessor under the circumstances, and, if the
full rent hereinabove provided is not realized by Lessor, Lessee shall be liable
for all damages sustained by Lessor, including, without limitation, deficiency
in rent, reasonable attorneys' fees, and brokerage fees, prorated to reflect
only those fees attributable to the portion of the re-let term
10
<PAGE>
coinciding with the balance of the term of this Lease which was in effect at the
time of the default and expenses of placing the Demised Premises in first-class
rentable condition. Any damage or loss of rent sustained by Lessor may be
recovered by Lessor, at Lessor's option, at the time of the reletting, or in
separate actions, from time to time, as said damage shall have been made more
easily ascertainable by successive reletting, or, at Lessor's option, may be
deferred until the expiration of the term of this Lease, in which event the
cause of action shall not be deemed to have accrued until the date of expiration
of said term. The provisions contained in this section shall be in addition to
and shall not prevent the enforcement of any claim Lessor may have against
Lessee for anticipatory breach of the unexpired term of this Lease.
In the event of any action or proceeding brought by either party hereto
against the other based upon or arising out of any breach of the terms and
conditions hereof, the prevailing party shall be entitled to recover all costs,
including reasonable attorneys' fees, from the other.
29. REPEATED DEFAULTS
-----------------
If Lessee is in default of this Lease for the same or substantially the
same reason more than twice during any twelve (12) month period during the term
of this Lease, then, at Lessor's election, Lessee shall not have any right to
cure such repeated default during the twelve (12) month period following the
second such default, the terms and conditions of the section of this Lease
entitled, "DEFAULT OF LESSEE," notwithstanding. In the event of Lessor's
election not to allow a cure of a repeated default, Lessor shall have all of the
rights provided for in that section of this Lease for an uncured default.
30. WAIVER
------
If Lessor or Lessee institutes legal or administrative proceedings against
the other party and a compromise or settlement thereof is made, the same shall
not constitute a waiver of such other party's obligations to comply with any
covenant, agreement or condition, nor of any of rights of the party bringing
such action hereunder. No waiver by Lessor or Lessee of any breach of any
covenant, condition, or agreement specified herein shall operate as an
invalidation or as a continual waiver of such covenant, condition or agreement
itself, or of any subsequent breach thereof. No payment by Lessee or receipt by
Lessor of a lesser amount than the amount of rent due Lessor shall be deemed to
be other than on account of the earliest stipulated rent, nor shall any
endorsement or statement on any check or letter accompanying a check for payment
of such rent be deemed an accord and satisfaction, and Lessor may accept such
check or payment without prejudice to Lessor's right to recover the balance of
such rent or to pursue any other remedy provided for in this Lease or in the
governing law of the jurisdiction in which the Building is located. No payment
by Lessee of an amount in excess of the amount to which Lessor shall be entitled
shall be deemed to be other than on account of the next stipulated rent, if any,
or constitute an accord and satisfaction as to any claims of Lessor which may
then be existing. No re-entry by Lessor, and no acceptance by Lessor of keys
from Lessee, shall be considered an acceptance of a surrender of the Lease.
31. SUBORDINATION
-------------
This Lease is subject and subordinate to the lien of all and any mortgages
(which term "mortgages" shall include both construction and permanent financing
and shall include deeds of trust and similar security instruments) which may now
or hereafter encumber or otherwise affect the real estate (including the
Building) of which the Demised Premises is a part, or Lessor's leasehold
interest therein, and to all and any renewals, extensions, modifications,
recastings or refinancings thereof. In confirmation of such subordination,
Lessee shall, at Lessor's request, promptly execute any requisite or appropriate
certificate or other document provided Lessee is provided with reasonable
assurances of non-disturbance from the mortgagee or ground lessor requesting
such assurances. No later than thirty (30) days following the date hereof,
Lessor agrees to obtain from its mortgagee having any deed of trust upon the
Building (or ground lessor under any ground lease) an agreement (a "Non-
disturbance Agreement") which shall provide that, as long as Lessee is not in
default under this Lease, this Lease will not be terminated during the term
hereof as a result of any foreclosure or conveyance in lieu of foreclosure under
the deed of trust on the Building held by such mortgagee or under any such
ground lease. Any such Non-disturbance Agreement shall be in form and content
reasonably acceptable to Lessee. Lessee acknowledges that the form of the Non-
disturbance Agreement received from Lessor prior to execution of this Lease
shall be acceptable for such purposes.
Lessee agrees that in the event that any proceedings are brought for the
foreclosure of any such mortgage, Lessee shall attorn to the purchaser at such
foreclosure sale, if requested to do so by such purchaser. Lessee shall also
recognize such purchaser as the Lessor under this Lease. Lessee waives the
provisions of any statute or rule of law, now or hereafter in effect, which may
give or purport to give Lessee any right to terminate or otherwise adversely
affect this Lease and the obligations of Lessee hereunder in the event that any
such foreclosure proceeding is prosecuted or completed.
If the Building, the Demised Premises or any part respectively thereof is
at any time subject to a mortgage or a deed of trust or other similar
instrument, and this Lease or the rents are assigned to such mortgagee, trustee
or beneficiary, and the Lessee is given written notice thereof, including the
post office address of such assignee, then Lessee may not terminate this Lease
for any default on the part of Lessor without first giving written notice by
certified or registered mail, return receipt requested, to such Assignee,
Attention: Mortgage Loan Department. The notice shall specify the default in
reasonable detail, and afford such assignee a reasonable opportunity to make
performance, at its election, for and on behalf of Lessor.
32. CONDEMNATION
------------
If the whole or a material part of the Demised Premises or the Building is
condemned or acquired in lieu of condemnation by any governmental authority for
any public or quasi-public or other use or purpose, then the term of this Lease
shall cease and terminate as of the date when title vests in such governmental
authority. Lessee shall have no claim against Lessor or the condemning
authority for any portion of the amount of the condemnation award or settlement
that Lessee claims as its damages arising from such condemnation or acquisition,
or for the value of any unexpired term of the Lease. Lessee may make a separate
claim against the condemning authority for a separate award for the value of any
of Lessee's tangible personal property and trade fixtures, for moving and
relocation expenses and for such business damages and/or consequential damages
as may be allowed by law, provided the same shall not diminish the amount of
Lessor's award.
33. RULES AND REGULATIONS
---------------------
Lessee, its agents and employees shall abide by and observe the rules and
regulations attached hereto as Exhibit C and such other reasonable rules and
regulations as may be promulgated from time to time by Lessor for the operation
and maintenance of the Building, provided a copy thereof is sent to Lessee.
Except to the extent expressly set forth below, nothing contained in this Lease
shall be construed to impose upon Lessor any duty or obligation to enforce such
rules and regulations, or the terms, conditions or covenants contained in any
other lease as against any other tenant, and Lessor shall not be liable to
Lessee for violation of the same by any other tenant, any other tenant's
employees, agents, business invitees, licensees, customers, clients, family
members or guests. Lessor shall not discriminate against Lessee in the
enforcement of any rule or regulation. All rules and regulations that may be
enforced by Lessor
11
<PAGE>
against Lessee shall be reasonable and uniformly enforced among all of the
tenants in the Building. The Lessor shall use its reasonable efforts to enforce
all of the rules and regulations of the Building against other tenants in the
Building whose breach of such rules and regulations adversely affect the use of
the Demised Premises or of the common areas by Lessee, its employees, and
invitees. Lessee shall be notified in writing of any alleged breach by the
Lessee of the rules and regulations, and Lessee shall be given twenty (20) days
to cure such breach before any such breach shall constitute a breach of the
terms of the Lease.
34. RIGHT OF LESSOR TO CURE LESSEE'S DEFAULT
----------------------------------------
If Lessee defaults in the making of any payment to any third party, or
doing any act required to be made or done by Lessee for or on behalf of said
third party relating to the Demised Premises, then Lessor may, but shall not be
required to, make such payment or do such act, and the amount of the expense
thereof, if made or done by Lessor, with interest thereon at a rate equal to two
(2) percentage points above the then applicable prime base rate of interest per
annum as fixed by First Virginia Bank, or a reasonable comparable substitute
bank determined by the Lessor, accruing from the date paid by Lessor, shall be
paid by Lessee to Lessor and shall constitute additional rent hereunder due and
payable by Lessee upon receipt of a written statement of costs from Lessor. The
making of such payment or the doing of such act by Lessor shall not operate to
cure Lessee's default, nor shall it prevent Lessor from the pursuit of any
remedy to which Lessor would otherwise be entitled.
35. LATE CHARGES
------------
If Lessee shall fail to pay any installment of rent (including Monthly
Rent, any additional rent, or other charges to be paid by Lessee pursuant to the
Lease) within five(5) days after the same becomes due and payable Lessee shall
be obligated to pay a late payment charge equal to the greater of One Hundred
Dollars ($100.00) or three percent (3%) of any rent or charge not paid when due,
to reimburse Lessor for its additional administrative costs. The actual cost to
Lessor of such failure to pay is difficult or impossible to determine and the
parties agree that the said amount is liquidated damages for the failure to so
pay. However, no such late charge be payable by Lessee on any late payment of
rent in the event Lessee remits to Lessor the late payment within seven (7) days
following written notice to Lessee that Lessor has failed to timely receive any
payment to which Lessor is entitled under this Lease. However, in the event
Lessee is late more than two (2) times in any twelve (12) month period, Lessor
shall be entitled to the late charge and/or interest as provided in the Lease,
without the necessity of such written notice. In addition, any installments of
rent, including Monthly Rent, any additional rent, or other charges to be paid
by Lessee pursuant to this Lease which are not paid by Lessee within ten (10)
days after the same becomes due and payable, shall bear interest at a rate equal
to two (2) percentage points above the then base rate of interest as declared
First Virginia Bank accruing from the date such installment or payment became
due and payable to the date of payment thereof by Lessee. Such interest shall
constitute additional rent due and payable to Lessor by Lessee upon the date of
payment of the delinquent payment referenced above.
36. BANKRUPTCY
----------
In the event that the Lessee shall be adjudicated insolvent or bankrupt
pursuant to the provisions of any state or federal insolvency or bankruptcy act,
or if a receiver or trustee of the property of Lessee shall be appointed by
reasons of Lessee's insolvency or inability to pay its debts, or if any
assignment shall be made of Lessee's property for the benefit of creditors, or
Lessee admits in writing its inability to pay its debts generally as they become
due, then and in any such events, Lessor may, at its option and in addition to
any other remedy available to Lessor, terminate this Lease and all rights of
Lessee hereunder by giving to Lessee written notice of Lessor's election to
terminate.
In the event of termination, Lessor shall have the immediate right of re-
entry and may remove all person and property from the leased premises and such
property may be removed and stored in a public warehouse or elsewhere at the
cost of, and for the account of Lessee, all without service of notice or resort
to legal process and without being deemed guilty of trespass, or becoming liable
for any loss or damage which may be occasioned thereby.
In the event the trustee of the Lessee, or Lessee as debtor in possession,
shall timely assume this Lease under the Bankruptcy Code and continue in
possession of the Property, it shall be the responsibility of the trustee or
debtor in possession to cure or give adequate assurance that all defaults under
the provisions of this Lease shall be promptly cured, to fully compensate or
provide adequate assurance of compensation for any and all losses suffered by
Lessor, and to provide adequate assurances that all conditions of this Lease
shall be performed in the future, including but not limited to:
1. Adequate assurance of the payment of rent and other consideration due
under this Lease.
2. Adequate assurance that any percentage rent due will not decline
substantially.
3. Adequate assurance that assumption or assignment will not breach
substantially any provision such as radius, location, use or exclusivity
provisions in other lease, financing or master agreements.
4. Adequate assurance that assumption or assignment will not disrupt
substantially any tenant mix or balance.
In no event, will Lessor be required to provide additional services or
supplies under this Lease unless fully compensated by the trustee or debtor in
possession.
In the event that any new insolvency or receivership should occur after the
closing of the bankruptcy case, the Lessor may at its option, and in addition to
any other remedy available to Lessor, terminate this Lease and all rights of the
Lessee hereunder by giving to Lessee written notice of the Lessor's election to
terminate.
In the event that the Trustee for Lessee, or Lessee as Debtor-in-
Possession, exercises certain rights as set out above which would result in the
Property being used for a use other than general office purposes, then Lessor
specifically reserves the right to change or modify the Lease to include a
percentage rent rate or minimum basis of sales rate in the event that the space
is used for retail or commercial purposes and additionally to amend any
provision relating to parking (i.e., the number of parking spaces, location,
employee parking, etc.) in this Lease.
The provisions hereof shall be construed at the option of the Lessor, as
giving due recognition of the federal bankruptcy laws, if applicable, to be
interpreted to result in a termination of this Lease in each instance, and to
the fullest extent and at the earliest time that such termination is permitted
by law, it being of the utmost importance to the Lessor to deal only with
lessees who have and continue to have a strong degree of financial strength and
stability.
37. PARKING
-------
The Lessee shall be entitled at all times to park in the "Parking Facility"
which is a part of the Building on a nonexclusive basis two (2) parking spaces
per one thousand square feet in the Demised Premises for its employees and
invitees at market rates then charged by the Lessor in said Parking Facility.
Lessor agrees that Lessee shall be entitled to additional parking within the
Parking Facility on a pro-rata basis with the other tenants in the Building.
38. LANDLORD'S LIEN
---------------
Lessor acknowledges that Lessee has granted certain of its lenders a
security interest in various of Lessee's personal property and that such lenders
have required, and future lenders are likely to hereafter require, a waiver by
Lessor of its landlord's lien in and
12
<PAGE>
to all personal property of Lessee now or hereafter located at the Demised
Premises. Lessor hereby agrees to execute and deliver to Lessee within ten days
after written request therefor such evidence of Lessor's lien waiver as may
reasonably be requested in connection with any acquisition or financing by
Lessee of equipment, furniture, furnishings or trade fixtures or for the
provision of credit to Lessee in connection with its business operations.
39. INTENTIONALLY DELETED
---------------------
40. INTENTIONALLY DELETED
---------------------
41. MODIFICATION TO LEASE
---------------------
Lessee agrees that if any present or future secured lender on the Building
requires modifications to this Lease the Lessee agrees to promptly enter into
such modification, provided that such modification shall not be in substantial
derogation or diminution of any of the rights of the parties hereunder nor
increase any of the obligations or liabilities of the parties hereunder.
42. SURVIVAL OF CERTAIN TERMS
-------------------------
Both parties agree that all of the obligations of both Lessor and Lessee
set forth in this Lease to the extent pertaining to periods elapsing during the
term of this Lease shall survive the termination of this Lease.
43. CONSTRUING LEASE
----------------
The parties agree that both parties and their counsel have participated in
the drafting and/or review of the Lease and in the event of any dispute under
the Lease neither party shall be deemed to have been the drafter of the Lease
and the Lease shall not be construed against either party.
44. TIME OF THE ESSENCE
-------------------
Time shall be of the essence in the performance of all terms, conditions
and provisions of this Lease.
45. NO PARTNERSHIP
--------------
Nothing contained in this Lease shall be deemed or construed to create a
partnership or joint venture of or between Lessor and Lessee, or to create any
other relationship between the parties hereto other than that of Lessor or
Lessee.
46. NO REPRESENTATIONS BY LESSOR
----------------------------
Neither Lessor nor any agent or employee of Lessor has made any
representations or promises with respect to the Demised Premises or the Building
except as herein expressly set forth, and no rights, privileges, easements or
licenses are acquired by Lessee except as herein expressly set forth. Lessee,
by taking possession of the Demised Premises, shall accept the same in the then
"as is" condition, except for latent defects and punch list items. Taking of
possession of the Demised Premises by Lessee shall be conclusive evidence that
the Demised Premises and the Building are in good and satisfactory condition at
the time of such taking of possession, as provided for in Exhibit D subject to
latent defects (identified to Lessor within six months (provided that in the
event Lessee has not an opportunity to test the building systems within such six
month period due to seasonal changes, such 6 month period as to the Building
systems shall be extended to one year) following the respective Commencement
Date for the particular portion of the Demised Premises) and the punchlist
items.
47. BROKER AND AGENT
----------------
Lessor and Lessee each represent and warrant one to another that, except as
hereinafter set forth, neither of them has employed any broker in carrying on
the negotiations, or had any dealings with any broker, relating to this Lease.
Lessee represents that it has employed Charles E. Smith Commercial Real Estate
as its broker; Lessor represents that it has employed Virginia Management, Inc.
as its broker, and further agrees to pay the commissions accruing to each
identified broker pursuant to certain outside agreement(s). Lessor shall
indemnify and hold Lessee harmless, and Lessee shall indemnify and hold Lessor
harmless, from and against any claim or claims for brokerage or other commission
arising from or out of any breach of the foregoing representation and warranty
by the respective indemnitors.
Lessor appoints and Lessee recognizes, until such time as Lessor otherwise
notifies Lessee in writing, Virginia Management, Inc. as Lessor's management
agent (referred to in this Lease as "Agent") for the management and operations
of the Building including the issuance and receipt of all notices and the
instituting and processing all legal actions on behalf of Lessor under this
Lease.
Lessor appoints and Lessee recognizes, until such time as Lessor otherwise
notifies Lessee in writing, William Lillis on all matters as required by law.
48. WAIVER OF JURY TRIAL
--------------------
LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON OR
WITH RESPECT TO ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS LEASE. THE RELATIONSHIP OF LESSOR AND LESSEE HEREUNDER, LESSEE'S USE
OR OCCUPANCY OF THE DEMISED PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.
49. ENFORCEMENT OF LEASE
--------------------
In the event Lessor is required or elects to take legal action to enforce
against Lessee the performance of Lessee's obligations under this Lease, after
written notice and the expiration of the applicable cure period, then Lessee
shall immediately reimburse Lessor for all costs and expenses, including,
without limitation, reasonable attorneys' fees, incurred by Lessor in its
prosecution of that legal action.
50. NOTICES
-------
All notices or other communications hereunder, except for service of
process, shall be in writing and shall be deemed duly given if delivered in
person, by certified mail, return receipt requested; or by registered mail,
postage prepaid: (i) if to Lessor, in care of Virginia Management, Inc., 4600
North Fairfax Drive, Suite 1002, Arlington, Virginia 22203; and (ii) if to
Lessee, at 1255 22nd Street, N.W., Washington, D.C. 20037, Attention: Mr.
William M. Caldwell, IV, President, with a copy to its counsel, Richard F. Levin
at Grossberg, Yochelson, Fox & Beyda at 2100 Pennsylvania Avenue, N.W.,
Washington, D.C. 20037, prior to November 1, 1999, and thereafter, 2000 L
Street, N.W., Suite 612, Washington, D.C. 20037. Lessor has designated William
B. Lillis for the issuance and receipt of all legal notices and service of
process. The party to receive notices and the place notices are to be sent for
either Lessor or Lessee may be changed by notice given pursuant to the
provisions of this section.
51. ESTOPPEL CERTIFICATES
---------------------
13
<PAGE>
Lessee agrees, at any time and from time to time, upon not less than ten
(10) days prior written notice by Lessor, to execute, acknowledge and deliver to
Lessor a statement in writing (i) certifying that this Lease is unmodified and
in full force and effect (or, if there have been modifications, that the Lease
is in full force and effect as modified and stated the modifications), (ii)
stating the dates to which the rent and other charges hereunder have been paid
by Lessee, (iii) stating whether or not, to the best knowledge of Lessee, Lessor
is in default in the performance of any covenant, agreement or condition
contained in this Lease, and, if so, specifying each such default of which
Lessee may have knowledge, (iv) stating the address to which notices to Lessee
should be sent and, if Lessee is a corporation, the name and address of its
registered agent in the jurisdiction in which the Building is located, (v) such
other information as Lessor may reasonably request, and (vi) agreeing not to pay
rent more than thirty (30) days in advance or to amend the Lease without the
consent of any mortgage lender having a security interest in the Building. Any
such statement delivered pursuant hereto may be relied upon by any owner of the
Building, any prospective purchaser of the Building, any mortgagee or
prospective mortgagee of the Building or of Lessor's interest, or any
prospective assignee of any such mortgage. Lessee shall also be entitled to
request and receive from Lessor an estoppel certificate substantially similar to
that which Lessee is obligated to provide under the Lease and which shall be
provided upon the same terms which Lessee is obligated under the Lease for the
benefit of Lessee or any of Lessee's lenders or designees.
52. HOLDING OVER
------------
In the event Lessee does not immediately surrender the Demised Premises on
the date of expiration of the term of this Lease or any extension period
thereof, Lessee shall, by virtue of this section of the Lease, become a lessee
by the month and hereby agrees to pay to Lessor a Monthly Rent equal to 125% of
the amount of this Monthly Rent in effect during the last month of the term of
this Lease as it may have been extended as and for liquidated damages because
the damage to Lessor as a result of such holding over are difficult or
impossible to determine. The month-to-month tenancy shall commence with the
first day next after the expiration of the term of this Lease. Lessee as a
month-to-month tenant shall continue to be subject to all of the conditions and
covenants of this Lease. Lessee shall give to Lessor at least thirty (30) days
written notice of any intention to quit the Demised Premises. Lessee shall be
entitled to thirty (30) days written notice to quit the Demised Premises, except
in the event of nonpayment of the modified Monthly Rent in advance, in which
event Lessee shall not be entitled to any notice to quit, the usual thirty (30)
days notice to quit being hereby expressly waived.
In the event Lessee holds over after the expiration of the term of the
Lease or extension period thereof, and Lessor desires to regain possession of
the Demised Premises promptly at the expiration of the term of this Lease or
extension period thereof, then at any time prior to Lessor's acceptance of
modified Monthly Rent from Lessee as a month-to-month tenant hereunder, Lessor,
at its option, may forthwith re-enter and take possession of the Demised
Premises without process, or by any legal process in force in the jurisdiction
in which the Building is located.
53. COVENANTS OF LESSOR
-------------------
Lessor covenants that it has the right to make this Lease for the term of
the lease aforesaid, and that if Lessee shall pay the rent and shall perform all
of the covenants, agreements and conditions specified in this Lease to be
performed by Lessee, Lessee shall, for the term of the Lease, freely, peaceably
and quietly occupy and enjoy the full possession of the Demised Premises without
molestation or hindrance by Lessor, its agents or employees.
54. INTENTIONALLY DELETED
---------------------
55. RECORDATION
-----------
Lessee shall not record this Lease or any memorandum thereof without the
written consent of Lessor. In the event Lessee desires to record this Lease,
all fees, costs, taxes and expenses in connection with the filing and recording
of this Lease or any memorandum thereof shall be the sole obligations of Lessee.
Lessor may condition its consent to any request by requiring that only a
memorandum of lease be filed and recorded, such memorandum to exclude
information as to the amount of rent specified in this Lease. In the event
Lessee shall cause a memorandum of this Lease to be recorded, Lessee shall at
its sole cost and expense cause the release of such memorandum following the
expiration or other termination of this Lease.
56. INTENTIONALLY DELETED
---------------------
57. GENDER
------
Feminine or neuter pronouns shall be substituted for those of the masculine
form, and the plural shall be substituted for the singular number, in any place
or places herein in which the context may require such substitution or
substitutions.
58. BENEFIT AND BURDEN
------------------
The terms and provision of this Lease shall be binding upon and shall inure
to the benefit of the parties hereto and each of their respective
representatives, successors and permitted assigns. Lessor may freely and fully
assign its interest hereunder. In the event of any sale or transfer of the
Building by operation of law or otherwise by the party named as Lessor hereunder
(or any subsequent successor, transferee or assignee), then said party, whose
interest is thus sold or transferred shall be and is completely released and
forever discharged from and with respect to all covenants, obligations and
liabilities as Lessor hereunder after the date of such sale or transfer.
In the event Lessor shall be in default under this Lease, and if as a
consequence of such default, Lessee shall recover a money judgement against
Lessor, such judgement shall be satisfied only out of the proceeds of sale
received upon execution of such judgement against the right, title and interest
of Lessor in the Building as the same may then be constituted and encumbered and
Lessor shall not be liable for any deficiency. In no event shall Lessee have
the right to levy execution against any property of Lessor other than its
interests in the Building. Notwithstanding any provisions to the contrary, in
no event shall Lessor be released from any liability, debt or obligation
pertaining to periods during which the particular Lessor owned the Building
unless and to the extent that the same has been assumed by the Purchaser from
the Lessor, nor shall Lessee's right to recover sums from Lessor's policies of
insurance maintained with respect to the Building be adversely affected by
reason of any limitation of Lessor's liability or similar provisions contained
in the Lease.
59. GOVERNING LAW
-------------
This Lease and the rights and obligations of Lessor and Lessee hereunder
shall be governed by the laws of the jurisdiction in which the Building is
located.
60. SAVINGS CLAUSE
--------------
If any provision of this Lease or the application thereof to any person or
circumstance is to any extent held invalid, then the remainder of this Lease or
the application of such provision to persons or circumstances other than those
as to which it is held invalid shall not be affected thereby, and each provision
of the Lease shall be valid and enforced to the fullest extent permitted by law.
61. CORPORATE LESSEE
----------------
If Lessee is or will be a corporation, the persons executing this Lease on
behalf of Lessee hereby consent, represent and warrant that Lessee is a duly
incorporated or a duly qualified (if a foreign corporation) corporation and
authorized to do business in the Commonwealth of Virginia; and that the person
or persons executing this Lease on behalf of Lessee is an officer or are
officers of Lessee, and that he or they as such officers are duly authorized to
sign and execute this Lease. If Lessee is a partnership, limited
14
<PAGE>
partnership or limited liability company, the person executing this Lease
represents and warrants that the entity is properly formed and authorized to do
business in the Commonwealth of Virginia and they have the authority to execute
this Lease and bind the entity. Upon request of Lessor to Lessee, Lessee shall
deliver to Lessor documentation satisfactory to Lessor evidencing Lessee's
compliance with the provisions of this section. Further, Lessee agrees to
promptly execute all necessary and reasonable applications or documents
confirming such registration as requested by Lessor or its representative
required to permit the issuance of necessary permits and certificates for
Lessee's use and occupancy of the Demised Premises. Any delay or failure by
Lessee in submitting such application or document so executed shall not serve to
delay the Commencement Date or delay or waive Lessee's obligations to pay rent
hereunder.
62. JOINT AND SEVERAL LIABILITY
---------------------------
If two or more individuals, corporations, partnerships or other business
associations (or any combination of two or more thereof) shall sign this Lease
as Lessee, the liability of each of them shall be joint and several. In like
manner, if Lessee named in this Lease shall be a partnership or other business
association the members of which are, by virtue of statute or general law,
subject to personal liability, the liability of each of such member shall be
joint and several.
63. BUSINESS DAY/WORKING DAY
------------------------
The terms "business day" and "working day" are terms describing each
calendar day Monday through Friday except any holiday identified specifically or
generically in the section of this Lease entitled, "SERVICES AND UTILITIES"
falling on one of such calendar days.
64. ENTIRE AGREEMENT
----------------
This Lease, together with Exhibits A, B, C and D attached hereto and made a
part hereof, contains and embodies the entire agreement of the parties hereto,
and no representations, inducements, or agreements, oral or otherwise, between
the parties not contained and embodied in this Lease and said Exhibits shall be
of any force or effect, and the same may not be modified, changed or terminated
in whole or in part in any manner other than by an agreement in writing duly
signed by all parties hereto.
65. INITIAL CONSTRUCTION, CONSTRUCTION ALLOWANCE AND CONDITION OF DEMISED
---------------------------------------------------------------------
PREMISES
- --------
Lessor shall deliver the Demised Premises in a broom clean "as is"
condition, subject to the terms described below.
Lessor shall provide to Lessee an initial construction allowance (the
"Lessor's Allowance") equal in amount to Twenty Five Dollars( $25.00) per
rentable square foot of the Demised Premises to construct all improvements in
the Demised Premises above a Base Building as defined. Lessor agrees to cause
Lessor's contractor to construct Lessor's Work at Lessee's request and expense,
subject to the Lessor's Allowance and, if desired by Lessee, the Lessor's
Additional Allowance (below defined) in accordance with the final plans approved
by both Lessor and Lessee. Lessor agrees not to unreasonably delay , withhold
or condition its consent to the final plans. Lessee agrees to pay to Lessor the
cost of Lessor's Work, if any, in excess of the Lessor's Allowance and Lessor's
Additional Allowance remaining, such sums to be paid at the time of substantial
completion. However, Lessee shall not pay for any of the base building
environment items specified below, all of which to be provided to Lessee by
Lessor at Lessor's sole cost and expense. There shall be no construction
management or supervisory fee imposed by Lessor. Any unused portion of the
Lessor's Allowance (as opposed to the Lessor's Additional Allowance) shall be
made available to Lessee against the installments of rent otherwise payable
hereunder. The Lessor's Allowance may also be applied by Lessee towards any
design, demolition, permitting and construction costs related to Lessor's Work,
and costs of cabling, technology and move related expenses. Lessor shall
disburse Lessor's Allowance directly to Lessor's contractor to be applied
towards the cost of constructing Lessor's Work, upon Lessor's receipt of
invoices. Lessee shall have access to the Premises two (2) weeks prior to the
Commencement Date for purposes of construction of installation of voice/data
communication systems, subject to the following conditions: (i) Lessee shall
coordinate any installation work with Lessor; (ii) Lessee shall be liable for
any damage or injury caused to person or property as a result of such early
access; (iii) Lessee's installation work shall not interfere with any work which
Lessor may be doing in the Premises or with any other Lessee's use and enjoyment
of the Building; and (iv) such entry shall be subject to all terms and
conditions of the Lease except for Lessee's obligation to pay rent.
Lessor will provide upon Lessee's written request an additional
construction allowance (the "Lessor's Additional Allowance") of up to Five
Dollars ($5.00) per square foot over the initial construction allowance to be
amortized over the term at an interest rate of eight and one-half percent (
8.5%) per annum.
Base building environment to be provided to Lessee for Lessee's own
construction shall be delivered by Lessor, at its sole cost and expense, in the
condition and level of completion as follows:
Floors: Floor surfaces ready to receive carpet finishes without filling,
flashing, chipping or other preparation.
Walls: Perimeter walls, core walls, furred solid walls, columns bulkheads, etc.,
to be sheet rocked or plastered, finished, prepared and to receive finish paint
or wall covering.
Windows: Window sills, mullions, trim, installed and finished. Window blinds to
be installed.
Elevator Lobby: All lobby features to be complete and installed including, but
not limited to, elevator door frames, thresholds, call buttons, lights, trash
receptacles, and code required signage. All lobby alarm systems including, but
-----
not limited to, detectors, annunciators, bells, pull stations, lights, flashers,
extinguishers, etc., as may be required to be installed and complete.
Core Area: All core area spaces, including closets, toilet rooms, etc., to be
complete and finished and ready for Lessee use.
Plumbing: All wetstack plumbing systems to be complete and ready for connection
to Lessee-added plumbing work.
Electrical: Electrical system to be complete at floor electrical rooms, in
accordance with specifications dated July 11, 1997.
Mechanical Systems: Mechanical systems to be completed in accordance with plans
and specifications dated July 11, 1997.
Sprinklers: Sprinkler system to be completed and operational in accordance with
plans and specifications dated July 11, 1997.
Alarms and Life Safety Systems: All building tenant area alarm circuits,
emergency circuits, equipment, fixtures and trim to be completed and operational
in accordance with plans and specifications dated July 11, 1997.
Access: The Demised Premises will be accessible during all working hours without
interference by base building contractors or continuing base building work. One
elevator will be operational and protected for use by contractors to bring
materials, equipment, tools and personnel to the Demised Premises.
Lessor certifies that the Building will meet Arlington County, Virginia,
governmental approval and will be occupiable using the equivalent of building
standard materials and assemblies, customary practice and technique.
Lessor will within ______ days of the execution of this Lease provide Lessee a
complete set of proposed drawings, specifications and documents for the Lessee's
use in the design of the Premises, and will make available the Building
engineers, architects, and engineering designers to answer any questions about
the existing Building systems and structure.
15
<PAGE>
66. FIRST RIGHT TO LEASE
--------------------
Lessor hereby grants to Lessee a first right to lease any space, on the 1st
and 2nd floors of the Building which become available for leasing, at any time
during the Initial Term, at Lessee's fully escalated per square foot rental for
the Demised Premises at the commencement of such first right. Lessor will
advise Lessee in writing of the availability of any such space prior to making
same and Lessee shall have ten (10) working days to notify Lessor of its
agreement to lease the additional space. If Lessee fails to exercise its option
to lease additional space within this ten (10) day period, Lessor shall be free
to offer such additional space to others.
67. ROOF/AIRTIGHTS
--------------
The Lessor shall provide space on the roof in an area reasonably acceptable
to Lessor for placement of two (2) antennae, together with associated wiring
and cabling, or related equipment or future similar equipment for use by the
Lessee only, . Lessee shall be solely responsible for the maintenance and
repair of such satellite dish or related equipment an the removal at the
expiration of the Term. Lessee shall comply with building rules and other laws,
codes and regulations of applicable governmental authorities in the use and
maintenance of such equipment. Lessee shall conduct and maintain its equipment
in a manner not to unreasonably interfere with the roof-top equipment of other
tenants in the Building, and Lessor shall similarly obligate its other tenants
to operate their respective roof-top equipment to assure that they will not
unreasonably interfere with Lessee's antennae. Lessee's roof top equipment
shall be furnished and installed by and at the sole cost and expense of Lessee.
Lessee hereby indemnifies Lessor and holds Lessor harmless against all claims,
actions, damages, judgments, settlements, liability, cost and expenses in
connection with the use or operation, installation, maintenance or removal of
Lessee's roof-top equipment.
68. QUIET ENJOYMENT
---------------
Lessor covenants that it has the right to make this Lease and that, if
Lessee pays all of the Annual Base Rent and the Additional Rent, performs all of
its obligations provided for hereunder and observes all of the other provisions
hereof, Lessee shall have the right, during the term of this Lease and any
applicable renewal period, to the quiet enjoyment, use and occupancy of the
Demised Premises, without any molestation or hindrance by Lessor or others
claiming by, through or under Lessor.
16
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be signed
in their names by their duly authorized representatives and delivered as their
act and deed, intending to be legally bound by its terms and provisions.
LESSOR:
AMES CENTER, L.C.
A Virginia Limited Liability Company
SNELL CONSTRUCTION CORPORATION, Member
By: __________________________________
Its: President
SECO ASSOCIATES LIMITED PARTNERSHIP, Member
By:___________________________________
Its ________________________________
I, _____________________, a Notary Public in and for the jurisdiction
aforesaid do hereby certify that ______________________________, who is
personally well known to me as the person who executed the foregoing and annexed
Lease, dated the _____ day of _____________, 1999, on behalf of the Lessor, to
acknowledge the same, personally appeared before me in said jurisdiction and
acknowledged said Lease to be his act and deed and delivered the same as such.
Given under my hand and seal this _____ day of _______________, 1999.
___________________________________
Notary Public
My commission expires:
LESSEE:
CAIS , INC.
By: __________________________________
____________________________)
____________________________) ss:
____________________________)
I, _____________________, a Notary Public in and for the jurisdiction
aforesaid do hereby certify that ______________________________, who is
personally well known to me as the person who executed the foregoing and annexed
Lease, dated the _____ day of _____________, 1999, on behalf of the Lessor, to
acknowledge the same, personally appeared before me in said jurisdiction and
acknowledged said Lease to be his act and deed and delivered the same as such.
Given under my hand and seal this _____ day of _______________, 1999.
___________________________________
Notary Public
My commission expires:
17
<PAGE>
EXHIBIT B
SPECIFICATIONS FOR OFFICE SPACE
Pre-occupancy Lessee work to be provided by and at the expense of lessor
and included within the Monthly Rent.
Lessee accepts possession of the Demised Premises in its "as is" condition
existing on the date possession is delivered to Lessee, without requiring any
alternations, improvements, or decorations to be made by Lessor at Lessor's
expenses except as set forth in the Lease.
18
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, vestibules, stairways,
corridors or halls or other parts of the Building not occupied by any Lessee
shall not be obstructed or encumbered by any Lessee or used for any purpose
other than ingress and egress to and from the Demised Premises. Lessor shall
have the right to control and operate the public portions of the Building, and
the facilities furnished for the common use of the Lessees, in such manner as
Lessor deems best for the benefit of the Lessees generally. No Lessee shall
permit the visit to the Demised Premises of persons in such numbers or under
such conditions as to interfere with the use and enjoyment by other Lessees of
the entrances, corridors, and other public portions or facilities of the
Building.
2. No awnings or other projections shall be attached to the outside walls of
the Building without the prior written consent of the Lessor. No drapes,
blinds, shades, signs, or screens shall be attached to or hung in, or used in
connection with any window or door of the Demised Premises, without the prior
written consent of the Lessor. Such awnings, projection, curtains, blinds,
shades, screens, signs or other fixtures must be of a quality, type, design and
color, and attached in the manner approved by Lessor.
3. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Lessee on any part of the outside or inside
of the Demised Premises or Building including windows or doors without the prior
written consent of the Lessor. In the event of the violation of the foregoing
by any Lessee, Lessor may remove same without any liability, and may charge the
expense incurred by such removal to the Lessee or Lessees violating this rule.
Interior signs on doors and directory tablet shall be inscribed, painted or
affixed for each Lessee by the Lessor at the expense of such Lessee, and shall
be of a size, color and style acceptable to the Lessor.
4. No showcases or other articles shall be put in front or affixed to any part
of the exterior of the building, nor placed in the halls, corridors or
vestibules without the prior written consent of the Lessor.
5. The water and wash closets and other plumbing fixture shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein. All damages
resulting from any misuse of the fixtures shall be borne by the Lessee who, or
whose servants, employees, agents, visitors or licensees, shall have caused the
same.
6. There shall be no marking, painting, drilling into or in any way defacing
any part of the Building, except as to ordinary interior decoration of the
Demised Premises. No boring, cutting or stringing of wires shall be permitted.
Lessee shall not construct, maintain, use or operate within the Demised Premises
or elsewhere within or on the outside of the Building, any electrical device,
wiring or apparatus in connection with loud speaker system or other sound
system.
7. No bicycles, vehicles or animals, birds or pets of any kind shall be
brought into or kept in or about the Demised Premises, and no cooking shall be
done or permitted by any Lessee on said premises, except Lessor expressly hereby
consents to Lessee's having and using a refrigerator, microwave and coffee and
lunchroom facilities within the Demised Premises for the exclusive use of Lessee
and its employees. No Lessee shall cause or permit any unusual or objectionable
odors to be produced upon or permeate from the Demised Premises.
8. No space in the building shall be used for manufacturing, for the storage
of merchandise, or for the sale of merchandise, goods or property of any kind,
or to hold any auction whatsoever.
9. No Lessee shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or neighboring buildings
or premises of those having business with them whether by the use of any musical
instrument, radio, talking machine, unmusical noise, whistling, singing, or in
any other way. No Lessee shall throw anything out of the doors or windows or
down the corridors or stairs.
10. No inflammable, combustible or explosive fluid, chemical or substance shall
be brought or kept upon the Demised Premises.
11. No additional locks or bolts of any kind shall be placed upon any of the
doors, or windows by the Lessee, nor shall any changes be made in existing locks
or the mechanism thereof.
12. All removals, or the carrying in or out of any safes, freight, furniture or
bulky matter of any description must take place during the hours which the
Lessor or its Agent may determine from time to time. The Lessor reserves the
right to inspect all freight to be brought into the building and to exclude from
the building all freight which violates any of these Rules and Regulations or
the Lease of which these Rules and Regulations are a part.
13. Any person employed by any lessee to do janitor work within the Demised
Premises must obtain Lessor's consent, which consent shall not be unreasonably
withheld, and such person shall, while in the Building and outside of said
Demised Premises, comply with all instructions issued by the Property Manager of
the Building.
19
<PAGE>
14. The Lessor reserves the right to exclude from the building at all times
any person who is not known or does not properly identify himself to the
building management. Each Lessee shall be responsible for all persons for whom
Lessee authorizes entry into or exit out of the Building.
15. The premises shall not be used for lodging or sleeping or for any immoral
or illegal purpose.
16. Each Lessee, before closing and leaving the Demised Premises at any time,
shall see that all windows are closed and all lights turned off.
17. Canvassing, soliciting and peddling in the Building is prohibited and each
Lessee shall cooperate to prevent the same.
18. No water cooler, plumbing or electrical fixtures shall be installed by any
Lessee without the prior written consent of Lessor.
19. There shall not be used in any space, or in the public halls of the
Building, either by any Lessee or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
20. Access plates to underfloor conduits shall be left exposed. Where Lessee
elects not to provide removable plates in their carpet for access into the
underfloor duct system, it shall be the Lessee's responsibility to pay for the
removal and replacement of the carpet for any access needed into the duct or
conduit system at any time in the future.
21. Mats, trash or other objects shall not be placed in the public corridors.
22. Drapes or blinds installed by the Lessee for their use which are visible
from the exterior of the Building must be approved by Lessor in writing and be
cleaned by the Lessee and must have non-see through white liners.
23. The Lessor will furnish and install lights bulbs for the building standard
fluorescent fixtures only. For special fixtures the Lessee will stock his own
bulbs, which will be installed by the Lessor when so requested by the Lessee.
24. The Lessee will, at its own cost, promptly comply with and carry out all
orders, requirements or conditions now or hereinafter imposed upon it by the
ordinances, laws, rules, orders and/or regulations of the Commonwealth of
Virginia, Arlington County or the United States of America.
25. The Lessee covenants and agrees, at its sole cost and expense, to comply
with all present and future laws, orders, requirements, conditions and
regulations of all entities having jurisdiction over the Property regarding
health, safety, environmental and/or access to the property by all individuals
(including those with disabilities).
26. The Lessee covenants and agrees, at its sole cost and expense, to comply
with all present and future laws, orders, requirements, conditions and
regulations of all entities having jurisdiction over the Property regarding the
collection, sorting, separation and recycling of waste products, garbage, refuse
and trash.
27. Violation of these rules and regulations, or any amendments thereto, shall
be sufficient after notice and opportunity to cure to cause for termination of
this Lease at the option of the Lessor.
28. The Lessor may, upon request by any Lessee, waive the compliance by such
Lessee of any of the foregoing rules and regulations, provided that (i) no
waiver shall be effective unless signed by Lessor or Lessor's authorized agent,
(ii) any such waiver shall not relieve such Lessee from the obligation to comply
with such rule or regulation in the future unless expressly consented to by
Lessor, and (iii) no waiver granted to any Lessee shall relieve any other Lessee
from the obligation of complying with the foregoing rules and regulations unless
such other Lessee has received a similar waiver in writing from Lessor.
20
<PAGE>
EXHIBIT D
DECLARATION AS TO DATE OF DELIVERY
AND ACCEPTANCE OF POSSESSION OF
DEMISED PREMISES
Attached to and made a part of the Lease, dated the ________ day of
___________________, 19 _____, entered into by and between
_______________________________________________________________, as Lessor, and
_________________________________________________, as Lessee.
Lessor and Lessee do hereby declare and evidence that possession of the
Demised Premises was accepted by Lessee on the _____ day of _______________,
19_____. The Building, the Demised Premises and other improvements required to
be constructed and finished by Lessor in accordance with Exhibit B have been
satisfactorily completed by Lessor and accepted by Lessee. The Lease is now in
full force and effect. For the purpose of this Lease, the Commencement Date is
established as the _________ day of ______________________, 19 _____. As of the
date of delivery and acceptance of possession of the Demised Premises as herein
set forth, there is no right of set off against rents claimed by Lessee against
Lessor.
Lessee, if a corporation, states that its registered agent is
_____________________________, having an address at ____________________, and
that it is a corporation in good standing in the jurisdiction in which the
Building is located.
LESSOR:
By:________________________________
By:________________________________
LESSEE:
By:________________________________
21
<PAGE>
EXHIBIT E
DIRECT HOURLY HVAC COSTS
22
<PAGE>
Exhibit 10.60
AMENDMENT TO DEED OF LEASE
--------------------------
THIS AMENDMENT TO DEED OF LEASE ("Amendment") made and entered into this
18th day of November, 1999, by and between AMES CENTER, L.C., a Virginia
limited liability company, hereinafter called "Lessor", and CAIS, INC., a
Virginia corporation. hereinafter called "Lessee."
W I T N E S S E T H:
WHEREAS, on the 10th day of August, 1999, the Lessor and Lessee entered
into a Deed of Lease ("Lease") for the lease of the fourth floor and fifth floor
("Fourth Floor Demised Premises and Fifth Floor Demised Premises") in the
building located at 1820 N. Fort Myer Drive, Arlington, Virginia (the
"Building"); and
WHEREAS, the Lessor desires to lease to the Lessee and the Lessee desires
to lease from the Lessor Suite No. 700 on the seventh floor ("Seventh Floor
Demised Premises") in the Building upon the terms and conditions hereinafter set
forth; and
WHEREAS, the parties are desirous of making certain modifications to the
Lease as hereinafter set forth;
NOW, THEREFORE, FURTHER WITNESSETH, that for and in consideration of the
rents, mutual covenants and agreements hereinafter set forth, the parties hereto
agree that the Lease be and the same is hereby amended as follows:
1. Section 1, DEMISED PREMISES. After the date hereof, this Section is
----------------
modified to provide that the Demised Premises shall consist of Suite No. 400 on
the Fourth Floor Demised Premises, Suite No. 500 on the Fifth Floor Demises
Premises, and Suite No. 700 on the Seventh Floor Demises Premises. The Demised
Premises shall contain approximately 42,348 square feet (approximately 14,116
square feet per floor) as outlined on the floor plan attached hereto and made a
part hereof as Exhibit A is determined in accordance with GWCAR standard method
of measurement (revised June 1995).
2. Section 2, TERM. The Term for the Seventh Floor Demised Premises shall
-----
commence on the 1st day of January 2000 (hereinafter called the "Seventh Floor
Commencement Date") and shall expire on the 28th day of February 2010 (the
"Initial Term").
In the event Lessor is unable to deliver possession of the Seventh
Floor Demises Premises to Lessee by the Seventh Floor Commencement Date, with
all of the Lessor's Work therein substantially completed due to causes beyond
the control of the Lessor, Lessor, its
<PAGE>
agents and employees, shall not be liable or responsible for any claims, damages
or liabilities arising in connection therewith or by reasons thereof, nor shall
Lessee be excused or released from this Lease, because of Lessor's inability to
deliver the Seventh Floor Demises Premises.
3. Section 4, RENT.
----
a. Irrespective of any provision of this Amendment or the Lease,
Lessee's obligation to pay rent shall begin on January 1, 2000, and shall
continue to remain an obligation of Lessee until completely satisfied.
b. The Monthly Rent for the Seventh Floor Demises Premises shall be
Twenty-Nine Thousand Nine Hundred Ninety-Six and 50/100 Dollars ($29,996.50) per
month and shall commence on the Seventh Floor Commencement Date and the total
Monthly Rent for the Fourth, Fifth and Seventh Floor Demises Premises shall be
Eighty-Nine Thousand Nine Hundred Eighty-Nine and 50/100 Dollars ($89,989.50)
per month.
c. Commencing on January 1, 2001, and each twelve (12) months during
the Initial Term and Extended Term, if applicable, the Monthly Rent for the
Seventh Floor Demised Premises shall be increased by a sum equal to three
percent (3%) of the Monthly Rental during the preceding twelve (12) month lease
period.
d. Lessee shall pay the first installment of Monthly Rent for the
Seventh Floor Demised Premises concurrent with the execution of this Lease.
4. Section 5, SECURITY DEPOSIT. Upon the execution of this Amendment,
----------------
Lessee shall deposit with Lessor cash or an appropriate letter of credit in the
amount of ONE HUNDRED SEVENTH-FIVE THOUSAND AND 00/100 DOLLARS ($175,000.00)
("Letter of Credit"). In the event the Lessee is not in Default under the terms
of this Lease, after notice to the Lessee and the expiration of the applicable
cure period, Lessee shall have the right to reduce the amount of the said Letter
of Credit as of January 1, 2001, and the remainder of the Term, to THIRTY
THOUSAND AND 00/100 DOLLARS ($30,000.00). All other provisions of Section 5 of
the Lease shall be applicable to the Security Deposit for the Seventh Floor
Demised Premises.
5. Section 7, RENTAL ESCALATIONS FOR INCREASE IN EXPENSES.
-------------------------------------------
d. Add the following to the second paragraph thereof: "From and
after the Seventh Floor Commencement Date, the Lessee's share of the increase
shall be 26.175% of the total increase, which share shall be increased if the
Demised Premises shall be increased during the Term or any renewal hereof."
<PAGE>
6. Section 11, REAL ESTATE AND OTHER TAXES OR ASSESSMENTS.
------------------------------------------
c. Amend the second paragraph by adding the following at the end:
"Lessee's share, as aforesaid, shall be 26.175% of the total increase from and
after the Seventh Floor Commencement Date."
Amend the third paragraph by inserting the following after the
word "refund" in the second sentence thereof: "which percentage shall increase
to 26.175% from and after the Seventh Floor Commencement Date."
7. Section 66, FIRST RIGHT TO LEASE. The parties agree that the Lessee's
--------------------
right to lease any space on the 1st and 2nd floors of the Building, as set forth
in Section 66, is hereby terminated.
8. The provisions contained within Section 65 of the Lease pertaining to
the provision by Lessor of the Lessor's Allowance, the Lessor's Additional
Allowance and the Base Building Environment shall fully apply to the Seventh
Floor Demised Premises. All remaining provisions of the Lease which apply to
the Fourth Floor Demised Premises and Fifth Floor Demised Premises shall be
fully applicable to the Seventh Floor Demised Premises, except to the extent
such provisions are inconsistent with the terms of this Amendment, in which
event the terms of this Amendment shall prevail. The Lessor and the Lessee
agree that, with respect to the Fifth Floor Commencement Date, the Monthly Rent
shall commence as of March 1, 2000, irrespective of whether or not the Lessee
occupies the Fifth Floor Demised Premises prior to March 1, 2000.
9. Except as expressly set forth in this Amendment, all other terms,
conditions and provisions of the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Amendment to be
signed in their names by their duly authorized representatives and delivered as
their act and deed, intending to be legally bound by its terms and provisions.
LESSOR:
AMES CENTER, L.C.,
a Virginia Limited Liability Company
By: SNELL CONSTRUCTION CORPORATION,
Manager
By: ________________________________(SEAL)
Its:
3
<PAGE>
LESSEE:
CAIS, INC.
By:______________________________(SEAL)
Its:_____________________________
4
<PAGE>
Exhibit 10.61
SECOND AMENDMENT TO DEED OF LEASE
---------------------------------
THIS SECOND AMENDMENT TO DEED OF LEASE ("Second Amendment") made and
entered into this 1st day of March, 2000, by and between AMES CENTER, L.C., a
Virginia limited liability company, hereinafter called "Lessor", and CAIS, INC.,
a Virginia corporation. hereinafter called "Lessee."
W I T N E S S E T H :
WHEREAS, on the 10th day of August, 1999, the Lessor and Lessee entered
into a Deed of Lease ("Lease") for the lease of the fourth floor and fifth floor
("Fourth Floor Demised Premises and Fifth Floor Demised Premises") in the
building located at 1820 N. Fort Myer Drive, Arlington, Virginia (the
"Building"); and
WHEREAS, on the 18/th/ day of November, 1999, the Lessor and the Lessee
entered into an Amendment to Deed of Lease ("Amendment") for the lease of the
seventh floor ("Seventh Floor Demised Premises") in the Building; and
WHEREAS, the Lessor desires to lease to the Lessee and the Lessee desires
to lease from the Lessor Suite No. 802 on the eighth floor ("Eighth Floor
Demised Premises") in the Building upon the terms and conditions hereinafter set
forth; and
WHEREAS, the parties are desirous of making certain modifications to the
Lease as hereinafter set forth;
NOW, THEREFORE, FURTHER WITNESSETH, that for and in consideration of the
rents, mutual covenants and agreements hereinafter set forth, the parties hereto
agree that the Lease be and the same is hereby amended as follows:
1. Section 1, DEMISED PREMISES. After the date hereof, this Section is
----------------
modified to provide that the Demised Premises shall consist of Suite No. 400 on
the Fourth Floor Demised Premises, Suite No. 500 on the Fifth Floor Demised
Premises, Suite No. 700 on the Seventh Floor Demised Premises, and Suite No. 802
on the Eighth Floor Demised Premises. The Demised Premises shall contain
approximately 50,501 square feet (approximately 14,116 square feet per floor for
each of the Fourth, Fifth, and Seventh Floor Demised Premises and 8,153 square
feet on the Eighth Floor Demised Premises) as outlined on the floor plan
attached hereto and made a part hereof as Exhibit A is determined in accordance
with GWCAR standard method of measurement (revised June 1995).
<PAGE>
2. Section 2, TERM. The Term for the Eighth Floor Demised Premises shall
-----
commence on the 1st day of March 2000 (hereinafter called the "Eighth Floor
Commencement Date") and shall expire on the 31st day of December 2005 (the
"Eighth Floor Term").
In the event Lessor is unable to deliver possession of the Eighth
Floor Demised Premises to Lessee by the Eighth Floor Commencement Date, with all
of the Lessor's Work therein substantially completed due to causes beyond the
control of the Lessor, Lessor, its agents and employees, shall not be liable or
responsible for any claims, damages or liabilities arising in connection
therewith or by reasons thereof, nor shall Lessee be excused or released from
this Lease, because of Lessor's inability to deliver the Eighth Floor Demised
Premises.
3. Section 4, RENT.
----
a. Irrespective of any provision of this Amendment or the Lease,
Lessee's obligation to pay rent for the Eighth Floor Demised Premises shall
begin on March 1, 2000, and shall continue to remain an obligation of Lessee
until completely satisfied for the duration of the Eighth Floor Term.
b. During the Eighth Floor Term, the Monthly Rent for the Eighth
Floor Demised Premises shall be Seventeen Thousand Three Hundred Twenty-five and
13/100 Dollars ($17,325.13) per month and shall commence on the Eighth Floor
Commencement Date. During the Eighth Floor Term, the total Monthly Rent for the
Fourth, Fifth, Seventh and Eighth Floor Demised Premises shall be One Hundred
Seven Thousand Three Hundred Fourteen and 63/100 Dollars ($107,314.63) per
month.
c. Commencing on January 1, 2001, and each twelve (12) months during
the Eighth Floor Term and Extended Term, if applicable, the Monthly Rent for the
Eighth Floor Demised Premises shall be increased by a sum equal to three percent
(3%) of the Monthly Rental during the preceding twelve (12) month lease period.
d. Lessee shall pay the first installment of Monthly Rent for the
Eighth Floor Demised Premises concurrent with the execution of this Lease.
4. Section 5, SECURITY DEPOSIT. Upon the execution of this Second
----------------
Amendment, Lessee shall deposit with Lessor cash or by appropriate letter of
credit, as set forth in Section 5 of the Lease, the amount of Seventeen Thousand
Three Hundred Twenty-five and 13/100 ($17,325.13) (the "Eighth Floor Deposit").
The parties agree that the Eighth Floor Deposit hereunder is in addition to the
Security Deposit for the Fourth Floor Demised Premises and the Fifth Floor
Demised Premises and the Security Deposit for the Seventh Floor Demised
Premises. All other provisions of Section 5 of the Lease shall be applicable to
the Eighth Floor Deposit. In the event the Eighth Floor Term shall terminate,
Landlord shall
2
<PAGE>
return to Tenant the Eighth Floor Deposit shall be immediately returned to
Tenant, less any portion thereof applied by Landlord on account of an uncured
Event of Default under the Lease.
5. Section 7, RENTAL ESCALATIONS FOR INCREASE IN EXPENSES.
-------------------------------------------
d. Add the following to the second paragraph thereof: "From and
after the Eighth Floor Commencement Date, and at all times during the Eighth
Floor Term, the Lessee's share of the increase shall be 32.03% of the total
increase, which share shall be increased if the Demised Premises shall be
increased during the Term or any renewal hereof. Upon expiration of the Eighth
Floor Term, Lessee's share shall be reduced to 26.175%."
6. Section 11, REAL ESTATE AND OTHER TAXES OR ASSESSMENTS.
------------------------------------------
c. Amend the second paragraph by adding the following at the end:
"Lessee's share, as aforesaid, shall be 32.03% of the total increase from and
after the Eighth Floor Commencement Date for the duration of the Eighth Floor
Term. Upon expiration of the Eighth Floor Term, Lessee's share shall be reduced
to 26.175%."
Amend the third paragraph by inserting the following after the word
"refund" in the second sentence thereof: "which percentage shall increase to
32.03% from and after the Eighth Floor Commencement Date for the duration of the
Eighth Floor Term. Upon expiration of the Eighth Floor Term, Lessee's share
shall be reduced to 26.175%."
7. The provisions contained within Section 65 of the Lease pertaining to
the provision by Lessor of the Lessor's Allowance, the Lessor's Additional
Allowance and the Base Building Environment shall fully apply to the Eighth
Floor Demised Premises. All remaining provisions of the Lease which apply to
the Fourth Floor Demised Premises, the Fifth Floor Demised Premises and the
Seventh Floor Demised Premises shall be fully applicable to the Eighth Floor
Demised Premises, except to the extent such provisions are inconsistent with the
terms of this Amendment, in which event the terms of this Second Amendment shall
prevail.
8. Subject to the presently existing expansion rights of The Art
Institute of Washington (the "Existing Tenant"), Lessee shall have the right to
extend the Eighth Floor Term for two (2) additional terms, the first such
extended term commencing January 1, 2006 and continuing until February 28, 2010,
and the remaining such extended term commencing March 1, 2010 and continuing
until February 28, 2015. Lessor shall give Lessee written notice of the
exercise or failure to exercise of the Existing Tenant of its preferential
expansion rights for the Eighth Floor Demised Premises within ten (10) business
days following Lessor's receipt thereof, but in no event later than January 10,
2005. In the event the Existing Tenant
3
<PAGE>
shall fail to exercise its preferential expansion rights, Lessee shall be
entitled to exercise the first such extension term for the Eighth Floor by its
written notice to Lessor sent no later than twenty (20) days after Lessor has
given Lessee written notice as above set forth of the failure of the Existing
Tenant to exercise its preferential expansion rights for the Eighth Floor
Demised Premises. Lessee shall be entitled to exercise the second such extended
term for the Eighth Floor concurrent with its exercise of its rights to the
Extended Term under Article 2 of the Lease.
In the event Lessee shall exercise either of such extension terms for the
Eighth Floor, such extension terms shall be deemed to be included within the
Eighth Floor Term for all purposes of this Amendment.
Monthly rent and passthroughs of Real Estate Taxes and Operating Expense
increases for the Eighth Floor Demised Premises for the first such extended term
(i.e. the period 1/1/06-2/28/10) shall continue to be computed in accordance
with the provisions of Paragraphs 3, 5 and 6 above. Monthly rent for the
Eighth Floor Demised Premises for the first Lease Year of the second such
extended term shall be the greater of 103% of the fully escalated Monthly Rent
for delivery as of February 28, 2010 for the Eight Floor Demised Premises or
ninety-five percent (95%) of the estimated prevailing Fair Market Rent for
delivery as of February 28, 2010 for the Eighth Floor Demised Premises, as
determined by the method set forth in Article 2 of the Lease. The "Base Year"
for purposes of calculating Lessee's pro rata share of increases in operating
expenses and Base Real Estate Taxes for purposes of calculating Lessee's pro
rata share of increases in Real Estate Taxes with respect to the Eighth Floor
Demised Premises shall be revised during the second extended term to reflect
those operating expenses and Real Estate Taxes paid or incurred during the first
Lease Year of the second extended term.
9. Except as expressly set forth in this Second Amendment, all other
terms, conditions and provisions of the Lease and the Amendment to the Lease
shall remain in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Second Amendment to
be signed in their names by their duly authorized representatives and delivered
as their act and deed, intending to be legally bound by its terms and
provisions.
LESSOR:
AMES CENTER, L.C.,
a Virginia Limited Liability Company
By: SNELL CONSTRUCTION CORPORATION,
Sole Acting Managing Member
4
<PAGE>
By: /s/ Lynda J. Vicker-Louis (SEAL)
--------------------------------
Its: President
----------------------------
LESSEE:
CAIS, INC.
By: /s/ William M. Caldwell IV (SEAL)
-------------------------------
Its: President
-----------------------------
5
<PAGE>
Exhibit 10.62
================================================================================
STOCKHOLDERS AGREEMENT
among
CAIS INTERNET, INC.,
CII VENTURES LLC
and
THE STOCKHOLDERS SIGNATORY HERETO
dated as of __________ ___, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS.................................................................. 1
ARTICLE I DEFINITIONS........................................... 1
SECTION 1.1 Certain Defined Terms................................... 1
SECTION 1.2 Other Definitional Provisions........................... 11
ARTICLE II CORPORATE GOVERNANCE.................................. 11
SECTION 2.1 Board Representation.................................... 11
SECTION 2.2 Committees.............................................. 12
SECTION 2.3 Consents Rights......................................... 12
SECTION 2.4 Available Financial Information......................... 14
SECTION 2.5 Access.................................................. 15
SECTION 2.6 Board Procedures........................................ 15
SECTION 2.7 Termination of Rights................................... 16
ARTICLE III TRANSFERS............................................. 17
SECTION 3.1 Investor Stockholder Transferees........................ 17
SECTION 3.2 Transfer Restrictions................................... 18
ARTICLE IV REGISTRATION RIGHTS................................... 20
SECTION 4.1 Incidental Registrations................................ 20
SECTION 4.2 Registration on Request................................. 21
SECTION 4.3 Registration Procedures................................. 23
SECTION 4.4 Information Supplied.................................... 26
SECTION 4.5 Restrictions on Disposition............................. 26
SECTION 4.6 Indemnification......................................... 27
SECTION 4.7 Required Reports........................................ 29
SECTION 4.8 Selection of Counsel.................................... 30
SECTION 4.9 Holdback Agreement...................................... 30
SECTION 4.10 No Inconsistent Agreements.............................. 30
ARTICLE V EQUITY PURCHASE RIGHTS................................ 30
SECTION 5.1 Equity Purchase Rights................................... 30
ARTICLE VI STANDSTILL............................................ 31
SECTION 6.1 Acquisition of Additional Voting Securities............. 31
ARTICLE VII MISCELLANEOUS......................................... 33
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 7.1 Investor Stockholder Indemnification; Reimbursement
of Expenses............................................. 33
SECTION 7.2 Termination............................................. 33
SECTION 7.3 Amendments and Waivers.................................. 33
SECTION 7.4 Successors, Assigns and Transferees..................... 34
SECTION 7.5 Notices................................................. 34
SECTION 7.6 Further Assurances...................................... 34
SECTION 7.7 Entire Agreement........................................ 34
SECTION 7.8 Delays or Omissions..................................... 34
SECTION 7.9 Governing Law; Jurisdiction; Waiver of Jury Trial....... 35
SECTION 7.10 Severability............................................ 35
SECTION 7.11 Effective Date.......................................... 35
SECTION 7.12 Enforcement............................................. 35
SECTION 7.13 Titles and Subtitles.................................... 35
SECTION 7.14 No Recourse............................................. 35
SECTION 7.15 Counterparts; Facsimile Signatures...................... 36
</TABLE>
-ii-
<PAGE>
CAIS INTERNET, INC.
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is entered as of
---------
__________ ___, 2000, among CAIS INTERNET, INC., a Delaware corporation (the
"Company"), CII VENTURES LLC, a Delaware limited liability company (the
-------
"Investor Stockholder"), and each of the stockholders of the Company whose name
--------------------
appears on the signature pages hereof.
RECITALS
--------
WHEREAS, the Company and the Investor Stockholder have entered into a
Preferred Stock Purchase Agreement, dated as of December 20, 1999 (the "Stock
-----
Purchase Agreement"), pursuant to which the Investor Stockholder will purchase
- ------------------
7,142,857 newly issued shares of Series D Preferred Stock (as defined below),
for a purchase price of $14.00 per share and will have an option to purchase up
to 7,142,857 newly issued shares of Series E Preferred Stock (as defined below),
for a purchase price of $14.00 per share; and
WHEREAS, the parties hereto desire to enter into certain arrangements
relating to the Company, to be effective as of the First Closing (as defined
below).
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE I DEFINITIONS
-----------
SECTION I.1 Certain Defined Terms. As used herein, the following
---------------------
terms shall have the following meanings:
"Acquisition" has the meaning assigned to such term in Section 6.1(a).
-----------
"Acquisition Restrictions" has the meaning assigned to such term in
------------------------
Section 6.1(a).
"Additional Purchase Closing" has the meaning assigned to such term in
---------------------------
the Stock Purchase Agreement.
"Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with, such specified Person, for so
long as such Person remains so associated to the specified Person.
<PAGE>
2
"as converted" has the meaning assigned to such term in Section
------------
2.7(a)(i).
"beneficial owner" or "beneficially own" has the meaning given such
---------------- ----------------
term in Rule 13d-3 under the Exchange Act and a Person's beneficial ownership of
Common Stock or Preferred Stock or other Voting Securities of the Company shall
be calculated in accordance with the provisions of such Rule; provided, however,
-------- -------
that for purposes of determining beneficial ownership, (i) a Person shall be
deemed to be the beneficial owner of any security which may be acquired by such
Person whether within 60 days or thereafter, upon the conversion, exchange or
exercise of any warrants, options, rights or other securities and (ii) no Person
shall be deemed to beneficially own any security solely as a result of such
Person's execution of this Agreement.
"Board" means the Board of Directors of the Company.
-----
"Business Day" means any day that is not a Saturday, a Sunday or other
------------
day on which banks are required or authorized by law to be closed in The City of
New York.
"Bylaws" means the Bylaws of the Company, as in effect on the date
------
hereof and as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms thereof, the terms of the Restated
Certificate and the terms of this Agreement.
"Capital Stock" means, with respect to any Person at any time, any and
-------------
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of capital stock, partnership interests (whether
general or limited) or equivalent ownership interests in or issued by such
Person, and with respect to the Company includes, without limitation, any and
all shares of Common Stock and Preferred Stock.
"Certificate of Designation" has the meaning assigned to such term in
--------------------------
the Stock Purchase Agreement.
"Change of Control" means (i) during any period of two consecutive
-----------------
years, individuals who at the beginning of such period constituted the Directors
(together with any new Directors whose election by such Directors or whose
nomination for election by the stockholders of the Company 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 Directors then in office, (ii) any merger or consolidation with
or into any other entity or any other similar transaction, whether in a single
transaction or series of related transactions where (A) the stockholders of the
Company immediately prior to such transaction in the aggregate cease to own at
least 50% of the voting securities of the entity surviving or resulting from
such transaction (or the ultimate parent thereof) or (B) any Person becomes the
beneficial owner of more than 50% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent thereof),
(iii) any transaction or series of related transactions in which in excess of
50% of the Company's voting power is transferred to any Person or Group, (iv)
the sale, transfer, lease, assignment, conveyance, exchange, mortgage or other
disposition of all or substantially all of the
<PAGE>
3
assets of the Company and its Subsidiaries, or (v) any liquidation, dissolution
or winding-up of the Company.
"Claims" has the meaning assigned to such term in Section 4.6(a).
------
"Common Stock" means the common stock, par value $0.01 per share, of
------------
the Company and any securities issued in respect thereof, or in substitution
therefor, in connection with any stock split, dividend or combination, or any
reclassification, recapitalization, merger, consolidation, exchange or other
similar reorganization.
"control" (including the terms "controlled by" and "under common
------- ------------- ------------
control with"), with respect to the relationship between or among two or more
- ------------
Persons, means the possession, directly or indirectly, of the power to direct or
cause the direction of the affairs or management of a Person, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise.
"Conversion Shares" has the meaning assigned to such term in the Stock
-----------------
Purchase Agreement.
"Demand Party" has the meaning assigned to such term in Section
------------
4.2(a).
"Director" means any member of the Board.
--------
"Equity Purchase Shares" has the meaning assigned to such term in
----------------------
Section 5.1(a).
"Equity Securities" means any and all shares of Capital Stock of the
-----------------
Company, securities of the Company convertible into, or exchangeable or
exercisable for, such shares, and options, warrants or other rights to acquire
such shares (including the Option).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Exempt Acquisition" means any acquisition (whether through merger,
------------------
consolidation or otherwise) (i) which has a purchase price (including any
assumed indebtedness and valuing any non-cash consideration at its Fair Market
Value) of less than 5% of the market capitalization (as reflected by the
aggregate Fair Market Value of the outstanding Common Stock) of the Company as
of the date of the execution of the definitive agreement relating thereto and
(ii) which, together with all other Exempt Acquisitions, has an aggregate
purchase price (including any assumed indebtedness and valuing any non-cash
consideration at its Fair Market Value) of not more than $50.0 million (which
amount, for the purposes of Section 2.3(vii)(A) shall be measured from December
21, 1999).
"Fair Market Value" has the meaning assigned to such term in Section
-----------------
3(c) of the Certificate of Designation.
<PAGE>
4
"Fifth Transfer Period" means the period from and including the fourth
---------------------
anniversary of the First Closing to, but excluding, the fifth anniversary of the
First Closing (and collectively with the First Transfer Period, the Second
Transfer Period, the Third Transfer Period and the Fourth Transfer Period, each
a "Transfer Period").
---------------
"First Closing" has the meaning assigned to such term in the Stock
-------------
Purchase Agreement.
"First Transfer Period" means the period from and including December
---------------------
21, 1999, to, but excluding, the first anniversary of the First Closing.
"Fourth Transfer Period" means the period from and including the third
----------------------
anniversary of the First Closing to, but excluding, the fourth anniversary of
the First Closing.
"Fully-Diluted Basis" with respect to Voting Securities means the
-------------------
number of shares of Voting Securities which are issued and outstanding or owned
or held, as applicable, at the date of determination plus the number of shares
of Voting Securities issuable pursuant to any securities (other than Voting
Securities), warrants, rights or options then outstanding, convertible into or
exchangeable or exercisable for (whether or not subject to contingencies or
passage of time, or both), Voting Securities (including the Preferred Stock and
the Option).
"GAAP" means generally accepted accounting principles, as in effect in
----
the United States of America from time to time.
"Group" has the meaning assigned to such term in Section 13(d)(3) of
-----
the Exchange Act.
"Group A Stockholders" means each of Ulysses G. Auger, II, William M.
--------------------
Caldwell, IV, Evans K. Anderson, Gary H. Rabin and Kevin Brand.
"Group B Stockholders" means each of Ulysses G. Auger, Sr. and
--------------------
Chancery Lane, L.P.
"Hilton Warrant" has the meaning assigned to such term under the
--------------
definition of "New Securities".
"Holder" means the Investor Stockholder and any other holder of
------
Registrable Securities (including any direct or indirect Transferees of the
Investor Stockholder or its Affiliates) entitled to the rights, and bound by the
obligations, under this Agreement in accordance with Section 3.1(b)(ii).
"Indemnified Parties" has the meaning assigned to such term in Section
-------------------
4.6(a).
"Initial Interest" has the meaning assigned to such term under the
----------------
definition of "Permitted Ownership Percentage".
<PAGE>
5
"Investor Director" means any Director designated by the Investor
-----------------
Stockholder pursuant to Section 2.1 of this Agreement.
"Investor Stockholder Indemnitee" has the meaning assigned to such
-------------------------------
term in Section 7.1.
"Investor Stockholder Transfer" has the meaning assigned to such term
-----------------------------
in Section 3.2(b).
"Issuance Notice" has the meaning assigned to such term in Section
---------------
5.1(b).
"Law" has the meaning assigned to such term in the Stock Purchase
---
Agreement.
"Losses" has the meaning assigned to such term in Section 7.1.
------
"NASD" means the National Association of Securities Dealers, Inc.
----
"Nasdaq" means the NASD Automated Quotation System.
------
"New Securities" means shares of Equity Securities of the Company
--------------
(other than (i) any securities of the Company offered pursuant to a registration
statement which has been declared effective under the Securities Act, whereby
such securities shall be publicly traded on a national securities exchange or
quoted on the Nasdaq National Market System, (ii) 5,601,825 shares of Common
Stock (subject to appropriate adjustment for stock splits or combinations)
issued upon exercise of employee stock options outstanding on the date hereof,
(iii) employee stock options to purchase 947,671 shares of Common Stock (subject
to appropriate adjustment for stock splits or combinations) authorized for
issuance under the Company's 1998 Amended and Restated 1998 Equity Incentive
Plan as in effect on December 20, 1999 (the "Plan"), and the shares of Common
----
Stock issued upon the exercise of such options, (iv) shares of Preferred Stock
issued to the Investor Stockholder upon exercise of the Option, (v) Conversion
Shares issued upon conversion of the Preferred Stock, (vi) shares of Common
Stock issued upon the exercise of warrants issued by the Company pursuant to (A)
the Common Stock Warrant dated as of October 27, 1999 and the Series C Preferred
Stock Purchase Agreement, dated as of September 29, 1999 between the Company and
U.S. Telesource, Inc., (B) the Warrant Agreement dated as of September 4, 1998
among the Company, Cleartel Communications, Inc., CAIS, Inc. and ING (U.S.)
Capital Corporation, Inc., (C) the Series A Preferred Stock and Warrant Purchase
Agreement dated as of February 19, 1999 among the Company and the several
purchasers set forth therein and (D) the warrant to purchase Common Stock issued
pursuant to the First Amendment to the Master License Agreement dated as of
April 23, 1999, among the Company, CAIS Inc. and Hilton Hotels Corporation (the
"Hilton Warrant"), (vii) Rights issued or sold to strategic partners after the
--------------
date hereof which are exercisable, exchangeable or convertible into shares of
Common Stock and shares of Common Stock issued upon the exercise, exchange or
conversion thereof, (viii) shares of Common Stock issued as additional
consideration for the acquisitions of Atcom, Inc. and Business Anywhere USA,
Inc, pursuant to the terms of the Amended and Restated Agreement and Plan of
Merger, dated as of August 4, 1999, among the Company, CIAM Corp. and Atcom,
Inc., as amended by Amendment No. 1, dated as of
<PAGE>
6
September 1, 1999, and as further amended by Amendment No. 2, dated as of
November 19, 1999, and the Agreement and Plan of Merger, dated as of September
7, 1999, among the Company, Business Anywhere USA, Inc., CIBA Merger Corp., Kim
Kao and Amy Hsiao, (ix) shares of Common Stock issued upon the conversion of the
Series C Convertible Preferred Stock of the Company and (x) Equity Securities
issued pursuant to the acquisition of any other Person, whether by merger,
consolidation or otherwise).
"Option" has the meaning assigned to such term in the Stock Purchase
------
Agreement.
"Option Closing" has the meaning assigned to such term in the Stock
--------------
Purchase Agreement.
"Option Shares" has the meaning assigned to such term in the Stock
-------------
Purchase Agreement.
"Other Holders" means Persons other than Holders who, by virtue of
-------------
agreements with the Company, are entitled to include their securities in certain
registrations hereunder.
"Other Securities" means securities of the Company, other than
----------------
Registrable Securities which, by virtue of agreements between Other Holders and
the Company, are entitled to be included in certain registrations hereunder.
"Ownership Percentage" means, at any time, the ratio, expressed as a
--------------------
percentage, (i) of the total shares of Voting Securities beneficially owned by
the Investor Stockholder and its Affiliates to (ii) the total number of
outstanding shares of Voting Securities on a Fully-Diluted Basis, in each case
excluding any unexercised portion of the Option.
"Period Ownership" means, with respect to any Transfer Period, a
----------------
number of Equity Securities equal to the greater of (A) the number of Equity
Securities (including with respect to stock options, (i) with respect to Ulysses
G. Auger, II and William M. Caldwell, IV, only those stock options vested as of
December 21, 1999 and (ii) with respect to Evans K. Anderson, Gary H. Rabin and
Kevin Brand, all stock options owned by such stockholder, whether or not vested,
as of December 21, 1999) owned by the applicable stockholder as of December 21,
1999, and (B) the sum of (x) the number of Equity Securities (including with
respect to stock options, (i) with respect to Ulysses G. Auger, II and William
M. Caldwell, IV, only those stock options vested as of the first day of the
applicable Transfer Period and (ii) with respect to Evans K. Anderson, Gary H.
Rabin and Kevin Brand, all stock options owned by such stockholder, whether or
not vested, as of the first day of the applicable Transfer Period) owned by the
applicable stockholder as of the first day of the applicable Transfer Period
plus (y) solely with respect to Ulysses G. Auger, II and William M. Caldwell,
IV, the number of stock options of the Company held by such stockholder that
vest during the applicable Transfer Period.
"Permitted Ownership Percentage" means
------------------------------
<PAGE>
7
(1) following the First Closing and prior to any Additional Purchase
Closing or Option Closing, the sum of (i) the ratio, expressed as a percentage,
of (A) the total number of shares of Voting Securities owned on a Fully-Diluted
Basis by the Investor Stockholder and its Affiliates as of the First Closing
(the "Initial Interest") to (B) the total number of outstanding shares of Voting
----------------
Securities on a Fully-Diluted Basis as of the First Closing plus (ii) 5%,
(2) following any Additional Purchase Closing, the sum of (i) the
ratio, expressed as a percentage, of (A) the total number of shares of Voting
Securities owned on a Fully-Diluted Basis by the Investor Stockholder and its
Affiliates as of such Additional Purchase Closing to (B) the total number of
outstanding shares of Voting Securities on a Fully-Diluted Basis as of such
Additional Purchase Closing plus (ii) 5% and
(3) following any Option Closing, the sum of (i) the ratio, expressed
as a percentage, of (A) the total number of shares of Voting Securities owned on
a Fully-Diluted Basis by the Investor Stockholder and its Affiliates as of such
Option Closing to (B) the total number of outstanding Shares of Voting
Securities on a Fully-Diluted Basis as of such Option Closing plus (ii) 5%.
For the purposes of this definition, (i) all measurements of share
numbers exclude any unexercised portion of the Option and (ii) to the extent the
Ownership Percentage following any exercise by the Investor Stockholder of its
rights under Section 5.1 is greater than the amounts set forth in clause (1)(A)
or (2)(A) of the first sentence of this definition, the Permitted Ownership
Percentage shall be equal to such greater number plus, in each case, 5%.
For the purposes of the definition of "Initial Interest" and of
clauses (1)(A) and (1)(B) above, all measurements of share numbers as of the
First Closing include all Subsequent Firm Shares to be purchased at the Second
Closing.
"Permitted Pledgee" means any Person to which a Group A Stockholder or
-----------------
Group B Stockholder has pledged any Equity Securities in accordance with Section
3.2(d) and which has agreed to be bound in writing by the provisions of this
Agreement and the Voting Agreement. Upon the foreclosure of a Pledge, the
applicable Permitted Pledgee of a Group A Stockholder will be deemed a Group A
Stockholder for the purposes of this Agreement and the applicable Permitted
Pledgee of a Group B Stockholder will be deemed a Group B Stockholder for the
purposes of this Agreement.
"Permitted Pledge Amount" for any Group A Stockholder or Group B
-----------------------
Stockholder means, as of the date of any Pledge, the number of Equity Securities
equal to the product of (i) two and (ii) the difference between (A) the number
of Equity Securities which may be Transferred by such stockholder during the
applicable Transfer Period in accordance with the second proviso of Section
3.2(b) or (c), as applicable, minus (B) the sum of (x) the number of Equity
Securities which, as of the date of such Pledge, have been Transferred during
such Transfer Period and (y) one-half of the number of Equity Securities which,
as of the date of such Pledge, have been Pledged during such Transfer Period.
<PAGE>
8
"Permitted Transfer Amount" for any Group A Stockholder or Group B
-------------------------
Stockholder means the number of Equity Securities equal to the product of (x)
the Period Ownership for such stockholder with respect to the Transfer Period
during which an Investor Stockholder Transfer is consummated, and (y) a fraction
(A) the numerator of which is the total number of Equity Securities actually
sold by the Investor Stockholder and its Affiliates in the Investor Stockholder
Transfer and (B) the denominator of which is the total number of Equity
Securities beneficially owned by the Investor Stockholder and its Affiliates
immediately prior to the consummation of such Investor Stockholder Transfer.
"Person" means any individual, corporation, limited liability company,
------
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivisions thereof or any Group comprised of two or more of the foregoing.
"Plan" has the meaning assigned to such term under the definition of
----
"New Securities".
"Pledge" has the meaning assigned to such term in Section 3.2(d).
------
"Preferred Stock" means, collectively, the Series D Preferred Stock
---------------
and the Series E Preferred Stock.
"Pro Rata Portion" means, on any issuance date for New Securities, the
----------------
number or amount of New Securities equal to the product of (i) the total number
or amount of New Securities to be issued by the Company on such date and (ii)
the fraction determined by dividing (A) the number of Conversion Shares into
which all of the shares of Preferred Stock held by the Investor Stockholder and
its Affiliates are then convertible by (B) the total number of shares of Common
Stock outstanding on such date on a Fully-Diluted Basis (assuming, for the
purposes of clauses (A) and (B), that prior to the expiration of the Option
pursuant to the Stock Purchase Agreement, the Option has been exercised in full
and all shares of Preferred Stock issuable upon exercise of the Option are held
by the Investor Stockholder).
"Qualified Option Closing" means one or more Option Closings and/or
------------------------
Additional Purchase Closings in which the Investor Stockholder and its
Affiliates purchase a number of Option Shares which, together with all other
Option Shares previously purchased by the Investor Stockholder and its
Affiliates, have an aggregate purchase price equal to at least $50.0 million.
"Registrable Securities" means any Equity Security of the Company held
----------------------
by any Holder (including the Conversion Shares and the Preferred Stock). As to
any particular Registrable Securities, once issued, such Registrable Securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale by the Holder of such securities shall have become effective
under the Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (b) such securities shall have been
distributed to the public pursuant to Rule 144 (or any successor provision)
under the Securities Act, or (c) such securities shall have ceased to be
outstanding. For purposes of this
<PAGE>
9
Agreement, any required calculation of the amount of, or percentage of,
Registrable Securities shall be based on the number of shares of Common Stock
which are Registrable Securities, including shares issuable upon the conversion,
exchange or exercise of any security convertible, exchangeable or exercisable
into Common Stock (including the Preferred Stock and the Option, to the extent
the Option is unexercised and unexpired).
"Registration Expenses" means any and all expenses incident to
---------------------
performance of or compliance with Article IV of this Agreement, including (a)
all SEC and securities exchange or NASD registration and filing fees (including,
if applicable, the fees and expenses of any "qualified independent underwriter,"
as such term is defined in Schedule E to the bylaws of the NASD, and of its
counsel), (b) all fees and expenses of complying with securities or blue sky
laws (including fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities), (c) all
printing, messenger and delivery expenses, (d) all fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange or NASD pursuant to Section 4.3(h)(i) and all rating agency fees, (e)
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance, (f)
the reasonable fees and disbursements of counsel selected pursuant to Section
4.8, (g) any fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities, including liability insurance if the Company
so desires or if the underwriters so require, and the reasonable fees and
expenses of any special experts retained in connection with the requested
registration, but excluding underwriting discounts and commissions and transfer
taxes, if any, and (h) expenses incurred in connection with any road show
(including the reasonable out-of-pocket expenses of the Investor Stockholder).
"Restated Certificate" means the Amended and Restated Certificate of
--------------------
Incorporation of the Company, as in effect on the date hereof and as the same
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms thereof and the terms of this Agreement.
"Rights" means all rights issued by the Company to acquire Common
------
Stock whether by exercise of a warrant, option or similar call, or conversion of
any existing instruments, in either case for consideration fixed, in amount or
by formula, as of the date of issuance.
"SEC" means the U.S. Securities and Exchange Commission or any other
---
federal agency then administering the Securities Act or the Exchange Act and
other federal securities laws.
"Second Closing" has the meaning assigned to such term in the Stock
--------------
Purchase Agreement.
"Second Transfer Period" means the period from and including the first
----------------------
anniversary of the First Closing to, but excluding, the second anniversary of
the First Closing.
<PAGE>
10
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Series D Preferred Stock" has the meaning assigned to such term in
------------------------
the Stock Purchase Agreement.
"Series E Preferred Stock" has the meaning assigned to such term in
------------------------
the Stock Purchase Agreement.
"Standstill Period" means the period commencing on the First Closing
-----------------
and continuing until the fifth anniversary of the First Closing.
"Stockholder Approval" has the meaning assigned to such term in the
--------------------
Stock Purchase Agreement.
"Stock Option Plans" has the meaning assigned to such term in the
------------------
Stock Purchase Agreement.
"Subsequent Firm Shares" has the meaning assigned to such term in the
----------------------
Stock Purchase Agreement.
"Subsidiary" means (i) any corporation of which a majority of the
----------
securities entitled to vote generally in the election of directors thereof, at
the time as of which any determination is being made, are owned by another
entity, either directly or indirectly, and (ii) any joint venture, general or
limited partnership, limited liability company or other legal entity in which an
entity is the record or beneficial owner, directly or indirectly, of a majority
of the voting interests or the general partner.
"Third Party" has the meaning assigned to such term in Section 6.1(b).
-----------
"Third Transfer Period" means the period from and including the second
---------------------
anniversary of the First Closing to, but excluding, the third anniversary of the
First Closing.
"Transfer" means, directly or indirectly, to sell, transfer, assign,
--------
pledge, encumber, hypothecate or similarly dispose of, either voluntarily or
involuntarily, or to enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, assignment, pledge,
encumbrance, hypothecation or similar disposition of, any shares of Equity
Securities beneficially owned by a Person or any interest in any shares of
Equity Securities beneficially owned by a Person.
"Transferee" means any Person to whom the Investor Stockholder or any
----------
of its Affiliates or any Transferee thereof Transfers Equity Securities of the
Company in accordance with the terms hereof.
"Transfer Period" has the meaning assigned to such term under the
---------------
definition of "Fifth Transfer Period".
<PAGE>
11
"Voting Agreement" means the Voting Agreement, dated as of December
----------------
20, 1999, among the Investor Stockholder, the Group A Stockholders and the Group
B Stockholders.
"Voting Securities" means, at any time, shares of any class of Equity
-----------------
Securities of the Company which are then entitled to vote generally in the
election of Directors.
SECTION I.2 Other Definitional Provisions. (a) The words "hereof",
-----------------------------
"herein" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Article and Section references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
ARTICLE II CORPORATE GOVERNANCE
--------------------
SECTION II.1 Board Representation. (a) Effective as of the First
--------------------
Closing, the Board shall be comprised of eight (8) Directors of whom two (2)
shall be designees of the Investor Stockholder.
(b) If the Investor Stockholder exercises the Option, effective as of
the Qualified Option Closing, the Board shall be comprised of nine (9) Directors
of whom three (3) shall be designees of the Investor Stockholder.
(c) The Company shall take such action as may be required under
applicable law to cause the Board to consist of the number of Directors
specified in clause (a) or (b), as applicable and to include in the slate of
nominees recommended by the Board the designees of the Investor Stockholder.
The Company shall also take such action as may be required under applicable law
to cause the Investor Directors to be divided as equally as practicable among
each class of Directors.
(d) The Company agrees to use its best efforts to cause the election
of each designee of the Investor Stockholder to the Board, including nominating
such individuals to be elected as Directors as provided herein.
(e) In the event that a vacancy is created at any time by the death,
disability, retirement, resignation or removal (with or without cause) of any
Investor Director, the remaining Directors and the Company shall cause the
vacancy created thereby to be filled by a new designee of the Investor
Stockholder as soon as possible, who is designated in the manner specified in
this Section 2.1, and the Company hereby agrees to take, at any time and from
time to time, all actions necessary to accomplish the same.
(f) Without the written consent of the Investor Stockholder, the
Company agrees not to take any action that would cause the number of Directors
constituting the entire Board to
<PAGE>
12
be other than eight (8) from and after the First Closing or nine (9) from and
after the Qualified Option Closing.
SECTION II.2 Committees. The Company shall cause any executive
----------
committee, compensation committee, audit committee, investment committee,
nominating committee or other committee of the Board to include at least one
Investor Director.
SECTION II.3 Consents Rights. In addition to any vote or consent of
---------------
the Board or the stockholders of the Company required by law or the Restated
Certificate, the consent in writing of at least one Investor Director (or, if no
Investor Directors are then serving on the Board, the Investor Stockholder)
shall be necessary for authorizing, effecting or validating the following
actions by the Company:
a. entering into any direct or indirect transaction by the Company
or any of its Subsidiaries with an Affiliate of the Company or a family
member or an Affiliate thereof or any entity in which an Affiliate has an
interest as a director, officer, or greater than 5% stockholder (including
without limitation, the purchase, sale, lease or exchange of any property,
or rendering of any service or modification or amendment of any existing
agreement or arrangement);
b. (A) the removal of the chief executive officer or president (or,
if there are no officers with such titles, the officers whose
responsibility is executive oversight of the Company's and its
Subsidiaries' operations) or any executive vice president, and the
appointment of any person to fill a vacancy in any such office, or (B)
approval of any new, or modification of any existing (x) material
executive, officer and director compensation plans or agreements (other
than employment agreements with employees at the executive vice president
level or below) or (y) other material employee compensation or benefit
plan, agreement or arrangement, offered by the Company or any of its
Subsidiaries, including without limitation, any stock option plan;
c. any change in the number of Directors or the composition or
structure of the Board or any Board committee or the establishment of any
Board committees and appointments thereto;
d. any amendment, alteration or change to the rights, preferences,
privileges or powers of any Preferred Stock in any manner that adversely
affects the shares of such series;
e. any increase or decrease in the total number of authorized or
issued shares of Preferred Stock;
f. any authorization, creation (by way of reclassification or
otherwise) or issuance of any Senior Securities, Parity Securities or
Junior Securities (as each such term is defined in the Certificate of
Designation), other than (1) the issuance of additional shares of Preferred
Stock pursuant to Section 2 of each Certificate of Designation, (2) the
issuance of Parity Securities or Junior Securities with a total aggregate
value of not more
<PAGE>
13
than $30 million (in addition to the Parity Securities and Junior
Securities described in clauses (1), (3), (4) and (5) and in addition to
any Parity Securities and Junior Securities the issuance of which has been
approved by at least one Investor Director (or Investor Stockholder, if
applicable)), (3) the issuance of Parity Securities or Junior Securities as
consideration in any transaction of the type described in clause (vii) of
this Section 2.3 which does not require the consent of an Investor Director
(or Investor Stockholder, if applicable) or to which an Investor Director
(or Investor Stockholder, if applicable) has consented, (4) employee stock
options to purchase 947,671 shares of Common Stock (subject to appropriate
adjustment for stock splits or combinations) authorized for issuance under
the Plan and the shares of Common Stock issued upon the exercise of such
options and (5) Common Stock issued upon the conversion or exercise of the
Equity Securities described in clauses (2), (3) and (4) of Section
3.3(a)(i) of the Stock Purchase Agreement in accordance with the terms of
such Equity Securities;
g. (A) any merger or consolidation with or into any other Person, or
any acquisition of another Person, whether in a single transaction or
series of related transactions, other than Exempt Acquisitions or (B) any
proposed transaction or series of related transactions involving a Change
of Control of the Company;
h. any redemption, acquisition or other purchase of any share of
Common Stock or preferred stock of the Company with an aggregate redemption
or purchase price in excess of $10 million, other than, (A) in the case of
any preferred stock, to the extent required by the terms of such preferred
stock, and, (B) in the case of the Hilton Warrant, to the extent required
by the terms thereof;
i. any sale of a Subsidiary's securities to any third party (other
than the Company or any other wholly owned Subsidiary of the Company);
j. any amendment, repeal or alteration of the Company's Restated
Certificate of Incorporation or Amended and Restated By-laws in a manner
that adversely affects the holders of the Preferred Stock; provided, that
--------
no increase in the number of authorized shares of Common Stock or Preferred
Stock shall, per se, be deemed to adversely affect such holders;
--- --
k. any sale or transfer of any of the technology or other
intellectual property, to any other Person, other than in the ordinary
course of business; or
l. any arrangement or contract to do any of the foregoing.
Notwithstanding and in addition to the foregoing, without the consent
in writing of at least one Investor Director, the Company shall not issue any
Equity Securities prior to obtaining the Stockholder Approval other than shares
of Common Stock issued upon the conversion or exercise of the Equity Securities
described in clauses (2), (3) and (4) of Section 3.3(a)(i) of the Stock Purchase
Agreement in accordance with the terms of such Equity Securities.
<PAGE>
14
SECTION II.4 Available Financial Information. (a) The Company will
-------------------------------
deliver, or will cause to be delivered, the following to each Investor Director
(or, if no Investor Directors are then serving on the Board, to the Investor
Stockholder):
(i) as soon as practical after the end of each month and in any event
within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its Subsidiaries as of the end of such month and consolidated
statements of income and cash flows of the Company and its Subsidiaries,
for each month and for the current fiscal year of the Company to date, all
subject to normal year-end audit adjustments, prepared in accordance with
GAAP and certified by the principal financial or accounting officer of the
Company, together with a comparison of such statements to the corresponding
periods of the prior fiscal year and to the Company's business plan then in
effect and approved by the Board; and
(ii) an annual budget, a business plan and financial forecasts for the
Company for the next fiscal year of the Company, no later than thirty (30)
days before the beginning of the Company's next fiscal year, in such manner
and form as approved by the Board, which shall include at least a
projection of income and a projected cash flow statement for each fiscal
quarter in such fiscal year and a projected balance sheet as of the end of
each fiscal quarter in such fiscal year. Any material changes in such
business plan shall be delivered to the Investor Directors or the Investor
Stockholder, as the case may be, as promptly as practicable after such
changes have been approved by the Board.
(b) The Company will promptly deliver to the Investor Stockholder
when available one copy of each annual report on Form 10-K and quarterly report
on Form 10-Q of the Company, as filed with the SEC. In the event an annual
report on Form 10-K or quarterly report on Form 10-Q is unavailable, the Company
may, in lieu of the requirements of the preceding sentence, deliver, or cause to
be delivered, the following to the Investor Directors or the Investor
Stockholder, as the case may be:
(i) as soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company and its Subsidiaries as of the
end of such fiscal year, and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such year, prepared in
accordance with GAAP and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and followed
promptly thereafter (to the extent not available) such financial statements
accompanied by the opinion of independent public accountants of recognized
national standing selected by the Company, and a Company-prepared
comparison to the Company's business plan for such year as approved by the
Board; and
(ii) as soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and
in any event within forty-five (45) days thereafter, a consolidated balance
sheet of the Company and its Subsidiaries as of the end of each such
quarterly period, and consolidated statements of income and cash flows of
the Company and its Subsidiaries for such period and for the current fiscal
year
<PAGE>
15
to date, prepared in accordance with GAAP and setting forth in comparative
form the figures for the corresponding periods of the previous fiscal year
and to the Company's business plan then in effect and approved by the
Board, subject to changes resulting from normal year-end audit adjustments,
all in reasonable detail and certified by the principal financial or
accounting officer of the Company, except that such financial statements
need not contain the notes required by GAAP.
SECTION II.5 Access. The Company shall, and shall cause its
------
Subsidiaries, officers, directors, employees, auditors and other agents to, (a)
afford the officers, employees, auditors and other agents of the Investor
Stockholder, during normal business hours reasonable access at all reasonable
times to its officers, employees, auditors, legal counsel, properties, offices,
plants and other facilities and to all books and records, (b) furnish the
Investor Stockholder with all financial, operating and other data and
information as the Investor Stockholder, through its officers, employees, agents
or representatives, may from time to time reasonably request and (c) afford the
Investor Stockholder the opportunity to discuss the Company's affairs, finances
and accounts with the Company's officers from time to time as the Investor
Stockholder may reasonably request.
SECTION II.6 Board Procedures. Unless otherwise agreed by the
----------------
parties hereto or approved by the Board with the consent of at least one
Investor Director, the Board shall follow the following procedures:
(a) Meetings. Special Meetings of the Board may be held at any time
--------
permitted pursuant to the Bylaws, by oral, telephonic, telegraphic or facsimile
notice duly given or sent, or by written notice sent by two-day courier, in each
case to be received at least two days before any actions to be taken by written
resolution, at least three days before any telephonic meeting and at least seven
days before any in-person meeting to each director. Reasonable efforts shall be
made to ensure that each Director actually receives timely notice of any
meeting.
(b) Agenda. A reasonably detailed agenda shall be supplied to each
------
Director reasonably in advance of each meeting of the Board, together with other
appropriate documentation with respect to agenda items calling for Board action,
to inform adequately Directors regarding matters to come before the Board. Any
Director wishing to place a matter on the agenda for any meeting of the Board
may do so by communicating with the chairman of the Board sufficiently in
advance of the meeting of the Board so as to permit timely dissemination to all
directors of information with respect to the agenda.
(c) Reimbursement of Expenses. The Company shall reimburse the
-------------------------
Investor Directors for their reasonable out-of-pocket expenses incurred by them
for the purpose of attending meetings of the Board or committees thereof.
SECTION II.7 Termination of Rights.
---------------------
(a) Director Designee and Related Rights. Notwithstanding Section
------------------------------------
2.1 and subject to Section 3.1(b)(i), at such time as the Investor Stockholder,
together with its Affiliates:
<PAGE>
16
a. shall cease to own at least 10% of the outstanding Common Stock
(determined with respect to the Preferred Stock and any other Equity
Securities owned by the Investor Stockholder and its Affiliates that are
convertible into, or exchangeable or exercisable for Common Stock, on an
as-converted, exchanged or exercised basis (any determination made in
accordance with the foregoing shall hereinafter be referred to as "as
--
converted")), the Investor Stockholder and its Affiliates shall cease to
---------
have the right to designate more than two (2) Directors pursuant to Section
2.1;
b. shall cease to own at least 5% of the outstanding Common Stock as
converted, the Investor Stockholder and its Affiliates shall cease to have
the right to designate more than one (1) Director pursuant to Section 2.1;
and
c. shall cease to own at least the lesser of (A) 5% of the
outstanding Common Stock as converted and (B) 20% of the Investor
Stockholder's Initial Interest, the Investor Stockholder and its Affiliates
shall cease to have the right to designate any Directors pursuant to
Section 2.1 and all other rights of the Investor Stockholder under this
Article II shall terminate except as provided in Section 2.7(b);
provided, however, that, notwithstanding any other provision of this Section
- -------- -------
2.7(a), in the event the Investor Stockholder or any of its Affiliates shall
have Transferred the right to designate one or more Directors to a Third Party
Transferee pursuant to Section 3.1(b)(i), so long as such Transferee (or any
subsequent Transferee thereof) shall be entitled to retain such right pursuant
to Section 3.1(b)(i), any measurement of the percentage ownership of the
outstanding Common Stock by the Investor Stockholder and its Affiliates pursuant
to this Section 2.7(a) shall include all Equity Securities Transferred to such
Transferee.
(b) Consent Rights. Notwithstanding Section 2.3, at such time as the
--------------
Investor Stockholder, together with its Affiliates:
a. shall cease to own at least 10% of the outstanding Common Stock
as converted, the Investor Stockholder and its Affiliates shall cease to
have the consent rights set forth in clauses (i), (ii), (vi), (vii) (except
with respect to clause (B) thereof), (ix) (except where such a sale would
constitute a Change of Control) and (xi) of Section 2.3;
b. shall either (A) cease to own at least 5% of the outstanding
Common Stock as converted or (B) cease to have the right to designate an
Investor Director pursuant to Section 2.1 as a result of a Transfer of such
rights in accordance with Section 3.1(b)(i) or in accordance with Section
2.7(a), the Investor Stockholder and its Affiliates shall cease to have the
consent rights set forth in Section 2.3 except for those set forth in
clauses (iv), (v), (x) and (xii) (in the case of clause (xii), however,
only as it relates to clauses (iv), (v) and (x)) thereof; and
c. shall cease to own any shares of Preferred Stock, the Investor
Stockholder and its Affiliates shall cease to have any of the consent
rights set forth in clauses (iv), (v) and (x) of Section 2.3.
<PAGE>
17
ARTICLE III TRANSFERS
---------
SECTION III.1 Investor Stockholder Transferees. (a) Subject to
--------------------------------
Section 3.1(b), no Transferee of the Investor Stockholder shall be obligated, or
entitled to rights, under this Agreement.
(b) No Transferee shall have any rights or obligations under this
Agreement, except that:
(i) if a Transferee of the Investor Stockholder together with its
Affiliates acquires from the Investor Stockholder and its Affiliates Equity
Securities representing at least 50% of the Investor Stockholder's Initial
Interest then, in the sole discretion of the Investor Stockholder, the
Investor Stockholder may assign all or a portion of the rights and
obligations of the Investor Stockholder under Sections 2.1, 2.2, 2.4, 2.5,
2.6, 5.1 and 7.6 to such Transferee (and such rights shall be further
transferable to any further Transferee subject to this Section 3.1(b)(i));
provided, that (and notwithstanding Section 2.7) any such Transferee or
--------
subsequent Transferee shall cease to have the rights and obligations
provided for in this Section 3(b)(i) at such time as such Transferee or
subsequent Transferee shall own, together with its Affiliates, less than
25% of the Investor Stockholder's Initial Interest.
(ii) if a Transferee of the Investor Stockholder together with its
Affiliates acquires from the Investor Stockholder and its Affiliates at
least five hundred thousand (500,000) shares of Equity Securities then, in
the sole discretion of the Investor Stockholder, the Investor Stockholder
may assign all or a portion of the rights and obligations of the Investor
Stockholder under Section 7.6 and Article IV (and such rights shall be
further transferable to any further Transferee subject to this Section
3.1(b)(ii)).
(c) Prior to the consummation of a Transfer from the Investor
Stockholder, to the extent rights and obligations are to be assigned, and as a
condition thereto, the applicable Transferee shall (i) agree in writing with the
other parties hereto to be bound by the terms and conditions of this Agreement
to the extent described in Section 3.1(b) and (ii) provide the Company and the
other parties to this Agreement at such time complete information for notices
under this Agreement.
SECTION III.2 Transfer Restrictions.
---------------------
(a) Transfers by the Investor Stockholder. Notwithstanding Section
-------------------------------------
3.1, each Investor Stockholder hereby agrees that neither the Investor
Stockholder nor any of its Affiliates shall Transfer any of their respective
Equity Securities to a Person that is principally engaged in the business of
providing high-speed internet connections specifically targeting hotels and
multi-dwelling unit buildings, unless (i) such Transfer is approved by a
majority of the Directors, excluding for the purposes of such approval any
Investor Directors, or (ii) such Transfer is effected through (x) a bona fide
public offering pursuant to the exercise of the registration rights
<PAGE>
18
provided under this Agreement or (y) sales made pursuant to Rule 144 or 145
under the Securities Act or any successor provisions.
(b) Transfers by the Group A Stockholders. Each Group A Stockholder
-------------------------------------
hereby agrees that such Group A Stockholder shall not Transfer any of its Equity
Securities at any time prior to the fifth anniversary of the First Closing,
unless the Investor Stockholder shall agree to such Transfer in writing;
provided, however, that in the event the Investor Stockholder or any of its
- -------- -------
Affiliates Transfers (an "Investor Stockholder Transfer") any of its Equity
-----------------------------
Securities to a Third Party (as defined below), subject to Section 3.2(d), each
Group A Stockholder shall be permitted to Transfer (to the extent not
Transferred pursuant to the immediately succeeding proviso) a number of Equity
Securities equal to such Group A Stockholder's Permitted Transfer Amount within
one month after notice has been provided to such Group A Stockholder of the
applicable Investor Stockholder Transfer, which notice shall be provided within
20 days of the consummation of the Investor Stockholder Transfer; provided,
--------
further, however, that notwithstanding any other provision in this Section
- ------- -------
3.2(b) and subject to Section 3.2(d), each Group A Stockholder shall be
permitted to Transfer (to the extent not Transferred pursuant to the immediately
preceding proviso) (i) during the First Transfer Period, a number of Equity
Securities equal to 10% of its Period Ownership for the First Transfer Period,
(ii) during the Second Transfer Period, a number of Equity Securities equal to
10% of its Period Ownership for the Second Transfer Period, (iii) during the
Third Transfer Period, a number of Equity Securities equal to 10% of its Period
Ownership for the Third Transfer Period, (iv) during the Fourth Transfer Period,
a number of Equity Securities equal to 10% of its Period Ownership for the
Fourth Transfer Period and (v) during the Fifth Transfer Period, a number of
Equity Securities equal to 10% of its Period Ownership for the Fifth Transfer
Period; provided, further, however, that nothing in this Section 3.2(b) shall
-------- ------- -------
prevent a Transfer by a Group A Stockholder during his lifetime or on death by
gift, will or intestacy to his immediate family or to a trust, partnership or
other entity, the beneficiaries, partners or equityholders of which are
exclusively such Group A Stockholder and/or members of his immediate family,
provided that it is expressly understood that any such Transferee shall be, and
shall agree in a writing reasonably satisfactory to the Investor Stockholder to
be, bound by the provisions of this Agreement. Each Group A Stockholder shall as
promptly as practicable provide the Investor Stockholder with written notice of
any Transfer made in accordance with this Section 3.2(b).
(c) Transfers by the Group B Stockholders. Each Group B Stockholder
-------------------------------------
hereby agrees that it shall not Transfer any of its Equity Securities at any
time prior to the third anniversary of the First Closing, unless the Investor
Stockholder shall agree to such Transfer in writing; provided, however, that in
-------- -------
the event of an Investor Stockholder Transfer, subject to Section 3.2(d), each
Group B Stockholder shall be permitted to Transfer (to the extent not
Transferred pursuant to the immediately succeeding proviso) a number of Equity
Securities equal to such Group B Stockholder's Permitted Transfer Amount within
one month after notice has been provided to such Group B Stockholder of the
applicable Investor Stockholder Transfer, which notice shall be provided within
20 days of the consummation of the Investor Stockholder Transfer; provided,
--------
further, however, that notwithstanding any other provision in this Section
- ------- -------
3.2(c) and subject to Section 3.2(d), each Group B Stockholder shall be
permitted to Transfer (to the extent not Transferred pursuant to the immediately
preceding proviso) (i) during the First Transfer Period, a number of Equity
Securities equal to 15% of its Period Ownership for the First
<PAGE>
19
Transfer Period, (ii) during the Second Transfer Period, a number of Equity
Securities equal to 15% of its Period Ownership for the Second Transfer Period
and (iii) during the Third Transfer Period, a number of Equity Securities equal
to 15% of its Period Ownership for the Third Transfer Period; provided, further,
-------- -------
however, that nothing in this Section 3.2(c) shall prevent a Transfer by a Group
- -------
B Stockholder during his lifetime or on death by gift, will or intestacy to his
immediate family or to a trust, partnership or other entity, the beneficiaries,
partners or equityholders of which are exclusively such Group B Stockholder
and/or members of his immediate family, provided that it is expressly understood
that any such Transferee shall be, and shall agree in a writing reasonably
satisfactory to the Investor Stockholder to be, bound by the provisions of this
Agreement. Each Group B Stockholder shall as promptly as practicable provide the
Investor Stockholder with written notice of any Transfer made in accordance with
this Section 3.2(c).
(d) Pledges. During such time as the Group A Stockholders and the
-------
Group B Stockholders shall be bound by the provisions of Sections 3.2(b) and
(c), respectively, each such stockholder shall be permitted to pledge (a
"Pledge") a number of Equity Securities equal to such stockholder's Permitted
------
Pledge Amount on such date to one or more Permitted Pledgees. Upon any Pledge
made by any Group A Stockholder or Group B Stockholder in accordance with this
Section 3.2(d), the aggregate number of Equity Securities which may be
Transferred by such stockholder during the applicable Transfer Period in
accordance with the first and second provisos of each of Sections 3.2(b) and
(c), as applicable, shall be reduced by a number of Equity Securities equal to
one-half of the number of Equity Securities which have been so Pledged. Any
foreclosure or sale of Pledged Equity Securities shall be deemed a Transfer with
respect to all such Pledged Equity Securities.
(e) Carry Forwards. If any Group A Stockholder or Group B
--------------
Stockholder does not Transfer all of the Equity Securities it is permitted to
Transfer during any Transfer Period in accordance with the second proviso of
Section 3.2(b) or (c) (after taking into account Transfers pursuant to the first
proviso of each such Section), as applicable, such stockholder shall be
permitted to carry forward to subsequent Transfer Periods that percentage of
unsold Equity Securities that such stockholder would have otherwise been
entitled to Transfer during the applicable Transfer Period in accordance with
such proviso. If, due to a foreclosure or sale of Pledged Equity Securities, any
Group A Stockholder or Group B Stockholder Transfers any Equity Securities in
excess of the Permitted Transfer Amount for such Transfer Period, such excess
shall reduce the Permitted Transfer Amounts for such stockholder for the
subsequent Transfer Periods.
ARTICLE IV REGISTRATION RIGHTS
-------------------
<PAGE>
20
SECTION IV.1 Incidental Registrations. (a) If the Company at any
------------------------
time after the date hereof proposes to register Equity Securities under the
Securities Act (other than a registration on Form S-4 or S-8, or any successor
or other forms promulgated for similar purposes), whether or not for sale for
its own account, in a manner which would permit registration of Registrable
Securities for sale to the public under the Securities Act, it will, at each
such time, give prompt written notice to all Holders of its intention to do so
and of such Holders' rights under this Article IV. Upon the written request of
any such Holder made within 15 days after the receipt of any such notice (which
request shall specify the Registrable Securities intended to be disposed of by
such Holder), the Company will use its commercially reasonable best efforts to
effect the registration under the Securities Act of all Registrable Securities
which the Company has been so requested to register by the Holders thereof;
provided, that (a) if, at any time after giving written notice of its intention
- --------
to register any securities, the Company shall determine for any reason not to
proceed with the proposed registration of the securities to be sold by it, the
Company may, at its election, give written notice of such determination to each
Holder and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection therewith), and (b) if
such registration involves an underwritten offering, all Holders requesting to
be included in the Company's registration must sell their Registrable Securities
to the underwriters selected by the Company on the same terms and conditions as
apply to the Company, with such differences, including any with respect to
indemnification and liability insurance, as may be customary or appropriate in
combined primary and secondary offerings. If a registration requested pursuant
to this Section involves an underwritten public offering, any Holder requesting
to be included in such registration may elect, in writing prior to the effective
date of the registration statement filed in connection with such registration,
not to register all or any part of such securities in connection with such
registration. Nothing in this Section shall operate to limit the right of any
Holder to request the registration of Common Stock issuable upon conversion,
exchange or exercise of securities held by such Holder notwithstanding the fact
that at the time of request such Holder does not hold the Common Stock
underlying such securities. The registrations provided for in this Section 4.1
are in addition to, and not in lieu of, registrations made upon the request of
the Investor Stockholder in accordance with Section 4.2.
(b) Expenses. The Company will pay all Registration Expenses in
--------
connection with each registration of Registrable Securities requested pursuant
to this Section 4.1.
(c) Priority in Incidental Registrations. If a registration pursuant
------------------------------------
to this Section 4.1 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
Registrable Securities requested to be included in such registration would be
likely to have an adverse effect on the price, timing or distribution of the
securities to be offered in such offering as contemplated by the Company (other
than the Registrable Securities), then the Company shall include in such
registration (a) first, 100% of the securities the Company proposes to sell, (b)
-----
second, any Other Securities requested to be registered by any Other Holders
- ------
exercising a demand registration right, and (c) third, to the extent of the
-----
amount of Registrable Securities and Other Securities requested to be included
in such registration which, in the opinion of such managing underwriter, can be
sold without having the adverse effect referred to above, the amount of
Registrable Securities and Other Securities which the Holders and the Other
Holders have requested to be included in such registration, such
<PAGE>
21
amount to be allocated pro rata among all requesting Holders and the Other
Holders on the basis of the relative amount of Registrable Securities and Other
Securities then held by each such Holder and Other Holder (provided, that any
--------
such amount thereby allocated to any such Holder or Other Holder that exceeds
such Holder's or Other Holder's request shall be reallocated among the remaining
requesting Holders and Other Holders in like manner).
SECTION IV.2 Registration on Request. (a) At any time after the
-----------------------
date hereof, upon the written request of the Investor Stockholder (and any other
Holder; provided that no Transferee of any Investor Stockholder or its
--------
Affiliates or of any Transferee shall be permitted to request a registration
pursuant to this Section 4.2 unless the right to make such a request was
transferred to such Transferee pursuant to Section 3.1(b)(ii)) (the "Demand
------
Party") requesting that the Company effect the registration under the Securities
- -----
Act of all or part of such Demand Party's Registrable Securities and specifying
the amount and intended method of disposition thereof, the Company will promptly
give written notice of such requested registration to all other Holders, and
thereupon will, as expeditiously as possible, use its commercially reasonable
best efforts to effect the registration under the Securities Act of:
(i) the Registrable Securities which the Company has been so
requested to register by the Demand Party; and
(ii) all other Registrable Securities of the same class(es) or series
as are to be registered at the request of a Demand Party and which the
Company has been requested to register by any other Holder thereof by
written request given to the Company within 15 days after the giving of
such written notice by the Company (which request shall specify the amount
and intended method of disposition of such Registrable Securities), all to
the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to
be registered; provided, that in no event shall the Company be required to
--------
effect more than three registrations pursuant to this Section 4.2 (which
number shall be increased to four in the event a Qualified Option Closing
occurs); and provided, further, that, the Company shall not be obligated to
-------- -------
file a registration statement relating to any registration request under
this Section 4.2 (other than a registration statement on Form S-3 or any
successor or similar short-form registration statement) within a period of
90 days after the effective date of any other registration statement
relating to any registration request under this Section 4.2 or to any
registration effected under Section 4.1, in either case which was not
effected on Form S-3 (or any successor or similar short-form registration
statement). Nothing in this Section 4.2 shall operate to limit the right of
any Holder to request the registration of Common Stock issuable upon
conversion of the Preferred Stock or the conversion, exchange or exercise
of any other securities held by such Holder notwithstanding the fact that
at the time of request such Holder does not hold the Common Stock
underlying such securities.
(b) Registration Statement Form. The Company shall select the
---------------------------
registration statement form for any registration pursuant to this Section 4.2;
provided, that if any registration requested pursuant to this Section 4.2 which
- --------
is proposed by the Company to be effected by the filing of a registration
statement on Form S-3 (or any successor or similar short-form registration
<PAGE>
22
statement) shall be in connection with an underwritten public offering, and if
the managing underwriter shall advise the Company in writing that, in its
opinion, the use of another form of registration statement is of material
importance to the success of such proposed offering, then such registration
shall be effected on such other form.
(c) Expenses. The Company will pay all Registration Expenses in
--------
connection with registrations of each class or series of Registrable Securities
pursuant to this Section 4.2.
(d) Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 4.2 will not be deemed to have been effected unless it
has become effective and all of the Registrable Securities registered thereunder
have been sold.
(e) Selection of Underwriters. If a requested registration pursuant
-------------------------
to this Section 4.2 involves an underwritten offering, the investment banker(s),
underwriter(s) and manager(s) for such registration shall be selected by the
Holders of a majority of the Registrable Securities which the Company has been
requested to register; provided, however, that such investment banker(s),
-------- -------
underwriter(s) and manager(s) shall be reasonably satisfactory to the Company.
(f) Priority in Requested Registrations. If a requested registration
-----------------------------------
pursuant to this Section 4.2 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities to be included in such registration (including securities of the
Company which are not Registrable Securities) would be likely to have an adverse
effect on the price, timing or distribution of the securities to be offered in
such offering as contemplated by the Holders (an "Adverse Effect"), then the
--------------
Company shall include in such registration (a) first, 100% of the Registrable
-----
Securities requested to be included in such registration by the Demand Party and
all other Holders of Registrable Securities pursuant to this Section 4.2 (to the
extent that the managing underwriter believes that all such Registrable
Securities can be sold in such offering without having an Adverse Effect;
provided, that if they cannot and the Demand Party does not exercise its right
- --------
set forth in the second succeeding sentence of this clause (f), such lesser
number of Registrable Securities as specified by the Demand Party) and (b)
second, to the extent the managing underwriter believes additional securities
- ------
can be sold in the offering without having an Adverse Effect, the amount of
Other Securities requested to be included by Other Holders in such registration,
allocated pro rata among all requesting Other Holders on the basis of the
relative amount of all Other Securities then held by each such Other Holder
(provided, that any such amount thereby allocated to any such Other Holder that
- ---------
exceeds such Other Holder's request shall be reallocated among the remaining
requesting Other Holders in like manner). In the event that the number of
Registrable Securities and Other Securities to be included in such registration
is less than the number which, in the opinion of the managing underwriter, can
be sold without having an Adverse Effect, the Company may include in such
registration the securities the Company proposes to sell up to the number of
securities that, in the opinion of such managing underwriter, can be sold
without having an Adverse Effect. If the managing underwriter of any
underwritten offering shall advise the Holders participating in a registration
pursuant to this Section 4.2 that the Registrable Securities covered by the
registration statement cannot be sold in such offering within a price range
acceptable to the Demand Party, then the Demand Party shall have the right to
notify the
<PAGE>
23
Company that it has determined that the registration statement be abandoned or
withdrawn, in which event the Company shall abandon or withdraw such
registration statement.
(g) Postponements in Requested Registrations. Notwithstanding Section
----------------------------------------
4.2(f), (i) if the Board determines, in its good faith judgment, that the
registration and offering otherwise required by this Section 4.2 would have an
adverse effect on a then contemplated public offering of the Company's Equity
Securities, the Company may postpone the filing (but not the preparation) of a
registration statement required by this Section 4.2, during the period starting
with the 30/th/ day immediately preceding the date of the anticipated filing of,
and ending on a date 60 days following the effective date of, the registration
statement relating to such other public offering and (ii) if the Company shall
at any time furnish to the Holders a certificate signed by its chairman of the
board, chief executive officer, president or any other of its authorized
officers stating that the Company has pending or in process a material
transaction, the disclosure of which would, in the good faith judgment of the
Board, after consultation with its outside securities counsel, materially and
adversely affect the Company, the Company may postpone the filing (but not the
preparation) of a registration statement required by this Section 4.2 for up to
90 days; provided, that, the Company shall at all times in good faith use its
--------
commercially reasonable best efforts to cause any registration statement
required by this Section 4.2 to be filed as soon as possible and; provided,
--------
further, that, the Company shall not be permitted to postpone registration
- -------
pursuant to this Section 4.2(g) more than once in any 360-day period. The
Company shall promptly give the Holders requesting registration thereof pursuant
to this Section 4.2 written notice of any postponement made in accordance with
the preceding sentence. If the Company gives the Holders such a notice, the
Holders shall have the right, within 15 days after receipt thereof, to withdraw
their request in which case, such request will not be counted for purposes of
this Section 4.2.
SECTION IV.3 Registration Procedures. If and whenever the Company is
-----------------------
required to use its commercially reasonable best efforts to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company will promptly:
(a) prepare and, in any event within 45 days after the end of the
period within which a request for registration may be given to the Company, file
with the SEC a registration statement with respect to such Registrable
Securities and use its commercially reasonable best efforts to cause such
registration statement to become effective within 90 days of the initial filing;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period not
in excess of 180 days and to comply with the provisions of the Securities Act
and the Exchange Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement; provided, that before filing a registration
--------
statement or prospectus, or any amendments or supplements thereto in accordance
with Sections 4.3(a) or (b), the Company will furnish to
<PAGE>
24
counsel selected pursuant to Section 4.8 hereof copies of all documents proposed
to be filed, which documents will be subject to the review of such counsel;
(c) furnish to each seller of such Registrable Securities such number
of copies of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits filed therewith, including any
documents incorporated by reference), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and summary prospectus), in conformity with the requirements of the Securities
Act, and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities by such seller;
(d) use its commercially reasonable best efforts to register or
qualify such Registrable Securities covered by such registration in such
jurisdictions as each seller shall reasonably request, and do any and all other
acts and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction where, but for the requirements of this subsection (d), it
would not be obligated to be so qualified, to subject itself to taxation in any
such jurisdiction or to consent to general service of process in any such
jurisdiction;
(e) use its commercially reasonable best efforts to cause such
Registrable Securities covered by such registration statement to be registered
with or approved by such other governmental authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(f) notify each seller of any such Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the Company's becoming
aware that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and at
the request of any such seller, prepare and furnish to such seller a reasonable
number of copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable (but not more than 18 months) after the effective
date of the registration statement, an earnings statement which shall satisfy
the provisions of Section 11(a) of the Securities Act;
(h) (i) if such Registrable Securities are Common Stock (including
Common Stock issuable upon conversion, exchange or exercise of another
security), use its commercially reasonable best efforts to list such Registrable
Securities on any securities exchange on which the
<PAGE>
25
Common Stock is then listed if such Registrable Securities are not already so
listed and if such listing is then permitted under the rules of such exchange;
and (ii) use its best efforts to provide a transfer agent and registrar for such
Registrable Securities covered by such registration statement not later than the
effective date of such registration statement;
(i) enter into such customary agreements (including an underwriting
agreement in customary form), which may include indemnification provisions in
favor of underwriters and other Persons in addition to, or in substitution for
the provisions of Section 4.6 hereof, and take such other actions as sellers of
a majority of shares of such Registrable Securities or the underwriters, if any,
reasonably requested in order to expedite or facilitate the disposition of such
Registrable Securities;
(j) obtain a "cold comfort" letter or letters from the Company's
independent public accounts in customary form and covering matters of the type
customarily covered by "cold comfort" letters as the seller or sellers of a
majority of shares of such Registrable Securities shall reasonably request;
(k) make available for inspection by any seller of such Registrable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such registration
statement and by any attorney, accountant or other agent retained by any such
seller or any such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause all of
the Company's officers, directors and employees to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with such registration statement;
(l) notify counsel (selected pursuant to Section 4.8 hereof) for the
Holders of Registrable Securities included in such registration statement and
the managing underwriter or agent, immediately, and confirm the notice in
writing (i) when the registration statement, or any post-effective amendment to
the registration statement, shall have become effective, or any supplement to
the prospectus or any amendment to the prospectus shall have been filed, (ii) of
the receipt of any comments from the SEC, (iii) of any request of the SEC to
amend the registration statement or amend or supplement the prospectus or for
additional information, and (iv) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the registration statement for offering or
sale in any jurisdiction, or of the institution or threatening of any
proceedings for any of such purposes;
(m) make every reasonable effort to prevent the issuance of any stop
order suspending the effectiveness of the registration statement or of any order
preventing or suspending the use of any preliminary prospectus and, if any such
order is issued, to obtain the withdrawal of any such order as soon as
practicable;
(n) if requested by the managing underwriter or agent or any Holder
of Registrable Securities covered by the registration statement, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriter or agent or such Holder reasonably
requests to be included therein, including, with respect to the number
<PAGE>
26
of Registrable Securities being sold by such Holder to such underwriter or
agent, the purchase price being paid therefor by such underwriter or agent and
with respect to any other terms of the underwritten offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
prospectus supplement or post-effective amendment as soon as practicable after
being notified of the matters incorporated in such prospectus supplement or
post-effective amendment;
(o) cooperate with the Holders of Registrable Securities covered by
the registration statement and the managing underwriter or agent, if any, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legends) representing securities to be sold under the registration
statement, and enable such securities to be in such denominations and registered
in such names as the managing underwriter or agent, if any, or such Holders may
request;
(p) obtain for delivery to the Holders of Registrable Securities
being registered and to the underwriter or agent an opinion or opinions from
counsel for the Company in customary form and in form, substance and scope
reasonably satisfactory to such Holders, underwriters or agents and their
counsel;
(q) cooperate with each seller of Registrable Securities and each
underwriter or agent participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the NASD; and
(r) use its commercially reasonable best efforts to make available
the executive officers of the Company to participate with the Holders of
Registrable Securities and any underwriters in any "road shows" or other selling
efforts that may be reasonably requested by the Holders in connection with the
methods of distribution for the Registrable Securities.
SECTION IV.4 Information Supplied. The Company may require each
--------------------
seller of Registrable Securities as to which any registration is being effected
to furnish the Company with such information regarding such seller and pertinent
to the disclosure requirements relating to the registration and the distribution
of such securities as the Company may from time to time reasonably request.
SECTION IV.5 Restrictions on Disposition. Each Holder agrees that,
---------------------------
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 4.3(f), such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration statement
covering such Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 4.3(f), and,
if so directed by the Company, such Holder will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 4.3(b) shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Section 4.3(f) and to and including the date
when each seller of
<PAGE>
27
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 4.3(f).
SECTION IV.6 Indemnification. (a) In the event of any registration
---------------
of any securities of the Company under the Securities Act pursuant to Section
4.1 or 4.2, the Company shall, and it hereby does, indemnify and hold harmless,
to the extent permitted by law, the seller of any Registrable Securities covered
by such registration statement, each Affiliate of such seller and their
respective directors, officers, members or general and limited partners (and any
director, officer, and controlling Person of any of the foregoing), each Person
who participates as an underwriter in the offering or sale of such securities
and each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act (collectively, the "Indemnified
-----------
Parties"), against any and all losses, claims, damages or liabilities, joint or
- -------
several, actions or proceedings (whether commenced or threatened) in respect
thereof ("Claims") and expenses (including reasonable attorney's fees and
------
reasonable expenses of investigation) to which such Indemnified Party may become
subject under the Securities Act, common law or otherwise, insofar as such
Claims or expenses arise out of, relate to or are based upon (a) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary, final or summary prospectus contained therein,
or any amendment or supplement thereto, or (b) any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein (in the case of a prospectus, in light of the
circumstances under which they were made) not misleading; provided, that the
--------
Company shall not be liable to any Indemnified Party in any such case to the
extent that any such Claim or expense arises out of, relates to or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or amendment or supplement thereto or in any
such preliminary, final or summary prospectus in reliance upon and in conformity
with written information furnished to the Company by or behalf of such seller
specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of any Indemnified Party and shall survive the transfer of
securities by any seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 4.2 or 4.3 herein, that the Company shall have received an undertaking
reasonably satisfactory to it from the prospective seller of such Registrable
Securities or any underwriter to indemnify and hold harmless (in the same manner
and to the same extent as set forth in Section 4.6(a)) the Company and all other
prospective sellers or any underwriter, as the case may be, with respect to any
untrue statement or alleged untrue statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, if such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such seller or underwriter specifically stating that
it is for use in the preparation of such registration statement, preliminary,
final or summary prospectus or amendment or supplement, or a document
incorporated by reference into any of the foregoing. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any of the prospective sellers, or any of their
respective Affiliates,
<PAGE>
28
directors, officers or controlling Persons and shall survive the transfer of
securities by any seller. In no event shall the liability of any selling Holder
of Registrable Securities hereunder be greater in amount than the dollar amount
of the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
(c) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made pursuant to this Section 4.6, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action or proceeding; provided, that the failure of the indemnified party
--------
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under Section 4.6, except to the extent that the indemnifying
party is materially prejudiced by such failure to give notice. In case any such
action or proceeding is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such action or
proceeding (in which case the indemnified party shall have the right to assume
or continue its own defense and the indemnifying party shall be liable for any
reasonable expenses therefor, but in no event will bear the expenses for more
than one firm of counsel for all indemnified parties in each jurisdiction who
shall be approved by the majority of the participating Holders in the
registration in respect of which such indemnification is sought), the
indemnifying party will be entitled to participate in and to assume the defense
thereof (at its expense), jointly with any other indemnifying party similarly
notified to the extent that it may wish, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation and shall have no
liability for any settlement made by the indemnified party without the consent
of the indemnifying party, such consent not to be unreasonably withheld. No
indemnifying party will settle any action or proceeding or consent to the entry
of any judgment without the prior written consent of the indemnified party,
unless such settlement or judgment (i) includes as an unconditional term thereof
the giving by the claimant or plaintiff of a release to such indemnified party
from all liability in respect of such action or proceeding and (ii) does not
involve the imposition of equitable remedies or the imposition of any
obligations on such indemnified party and does not otherwise adversely affect
such indemnified party, other than as a result of the imposition of financial
obligations for which such indemnified party will be indemnified hereunder.
(d) (i) If the indemnification provided for in this Section 4.6 from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any Claim or expenses referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Claim or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified party in connection with the actions
which resulted in such Claim or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of
<PAGE>
29
a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party under this Section 4.6(d) as a result of the Claim and
expenses referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with any action or
proceeding.
(ii) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 4.6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in Section 4.6(d)(i). No Person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(e) Indemnification similar to that specified in this Section 4.6
(with appropriate modifications) shall be given by the Company and each seller
of Registrable Securities with respect to any required registration or other
qualification of securities under any Law or with any governmental authority
other than as required by the Securities Act.
(f) The obligations of the parties under this Section 4.6 shall be in
addition to any liability which any party may otherwise have to any other party.
SECTION IV.7 Required Reports. The Company covenants that it will
----------------
file the reports required to be filed by it under the Securities Act and the
Exchange Act (or, if the Company is not required to file such reports, it will,
upon the request of any Holder, make publicly available such information), and
it will take such further action as any Holder may reasonably request, all to
the extent required from time to time to enable such Holder to sell shares of
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
SECTION IV.8 Selection of Counsel. In connection with any
--------------------
registration of Registrable Securities pursuant to Sections 4.1 and 4.2 hereof,
the Holders of a majority of the Registrable Securities covered by any such
registration may select one counsel to represent all Holders of Registrable
Securities covered by such registration; provided, however, that in the event
-------- -------
that the counsel selected as provided above is also acting as counsel to the
Company in connection with such registration, the remaining Holders shall be
entitled to select one additional counsel to represent all such remaining
Holders.
SECTION IV.9 Holdback Agreement. If any registration hereunder shall
------------------
be in connection with an underwritten public offering, each Holder agrees not to
effect any public sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Equity Securities of the Company (in each case,
other than as part of such underwritten public offering), within 7 days before,
or subject to Section 4.2(g) in the case of a requested registration that has
been postponed pursuant to clause (i) thereof, 180 days (or such lesser period
as the managing
<PAGE>
30
underwriters may permit) after, the effective date of such registration (except
as part of such registration), and the Company hereby also agrees and agrees to
use its commercially reasonable efforts to have each other holder of any Equity
Security of the Company purchased from the Company (at any time other than in a
public offering) to so agree.
SECTION IV.10 No Inconsistent Agreements. The Company represents and
--------------------------
warrants that it will not enter into, or cause or permit any of its Subsidiaries
to enter into, any agreement which conflicts with or limits or prohibits the
exercise of the rights granted to the Holders of Registrable Securities in this
Article IV.
ARTICLE V EQUITY PURCHASE RIGHTS
----------------------
SECTION V.1 Equity Purchase Rights. (a) The Company hereby grants
----------------------
to the Investor Stockholder, so long as any shares of Preferred Stock are
outstanding, the right to purchase its Pro Rata Portion of all or any part of
New Securities which the Company may, from time to time, propose to sell or
issue. The number or amount of New Securities which the Investor Stockholder may
purchase pursuant to this Section 5.1(a) shall be referred to as the "Equity
------
Purchase Shares". The equity purchase right provided in this Section 5.1(a)
- ---------------
shall apply at the time of issuance of any right, warrant or option or
convertible or exchangeable security and not to the conversion, exchange or
exercise thereof; provided, that with respect to any such right, warrant, option
--------
or convertible or exchangeable security, the Investor Stockholder shall have the
right to purchase its Pro Rata Portion of a series of preferred stock of the
Company with terms identical to the Preferred Stock except that the conversion
price shall be the exercise, conversion or exchange price of such right,
warrant, option or convertible or exchangeable security.
(b) The Company shall give written notice of a proposed issuance or
sale described in Section 5.1(a) to the Investor Stockholder within two Business
Days following any meeting of the Board at which any such issuance or sale is
approved. Such notice (the "Issuance Notice") shall set forth the material
---------------
terms and conditions of such proposed transaction, including the name of any
proposed purchaser(s), the proposed manner of disposition, the number or amount
and description of the shares proposed to be issued and the proposed purchase
price per share, including a description of any non-cash consideration
sufficiently detailed to permit valuation thereof. Such notice shall also be
accompanied by any written offer from the prospective purchaser to purchase such
New Securities. The Issuance Notice shall be received by the Investor
Stockholder at least 20 days prior to the proposed issuance or sale.
(c) At any time during the 20-day period following the receipt of an
Issuance Notice, the Investor Stockholder shall have the right to irrevocably
elect to purchase up to the number of the Equity Purchase Shares at the purchase
price set forth in the Issuance Notice (or if such price includes property other
than cash, the amount in cash equal to the Fair Market Value of such other
property) and upon the other terms and conditions specified in the Issuance
Notice by delivering a written notice to the Company. Except as provided in the
following sentence, such purchase shall be consummated concurrently with the
consummation of the issuance or sale described in the Issuance Notice. The
closing of any purchase by the Investor Stockholder may
<PAGE>
31
be extended beyond the closing of the transaction described in the Issuance
Notice to the extent necessary to obtain required governmental approvals and
other required approvals and the Company and the Investor Stockholder shall use
their respective best efforts to obtain such approvals.
(d If the Investor Stockholder does not elect pursuant to Section
5.1(c) to purchase any of the Equity Purchase Shares, the Company shall be free
to complete the proposed issuance or sale described in the Issuance Notice on
terms no less favorable to the Company than those set forth in the Issuance
Notice; provided, that (x) such issuance or sale is closed within 90 days after
--------
the expiration of the 20-day period described in Section 5.1(c) and (y) the
price at which the New Securities are transferred must be equal to or higher
than the purchase price described in the Issuance Notice. Such periods within
which such issuance or sale must be closed shall be extended to the extent
necessary to obtain required governmental approvals and other required approvals
and the Company shall use its commercially reasonable efforts to obtain such
approvals.
ARTICLE VI STANDSTILL
----------
SECTION VI.1 Acquisition of Additional Voting Securities. (a)
-------------------------------------------
During the Standstill Period, except as provided below in this Section 6.1, the
Investor Stockholder covenants and agrees with the Company that it shall not,
and shall cause each of its Affiliates not to, directly or indirectly, acquire,
offer or propose to acquire or agree to acquire, whether by purchase, tender or
exchange offer, through the acquisition of control of another Person (including
by way of merger or consolidation), by joining a partnership, syndicate or other
Group or otherwise, the beneficial ownership of any additional Voting Securities
if following such proposed acquisition (an "Acquisition") the Investor
-----------
Stockholder together with its Affiliates would beneficially own a number of
Voting Securities exceeding the Permitted Ownership Percentage (except (i) by
way of stock dividends, stock reclassifications or other distributions or
offerings made available and, if applicable, exercised on a pro rata basis, to
holders of Equity Securities of the Company generally, (ii) Equity Securities
acquired from the Company (including Conversion Shares and shares of Series E
Preferred Stock subject to the Option), and (iii) Voting Securities acquired
upon the exercise of the Investor Stockholder's rights under Article V) (the
"Acquisition Restrictions"); provided, however, that the foregoing Acquisition
------------------------ -------- -------
Restrictions shall not apply to any Acquisition that is approved by a majority
of the Directors, excluding for the purposes of such approval any Investor
Directors.
(b The foregoing Acquisition Restrictions will not apply if either
(i) a third party who is not an Affiliate of the Investor Stockholder or any of
its Affiliates (a "Third Party", which term shall include any Group, other than
-----------
a Group which includes the Investor Stockholder or any of its Affiliates as a
member) commences a tender or exchange offer for more than 50% of the
outstanding Voting Securities and the Board does not recommend against the
tender or exchange offer within ten Business Days after the commencement thereof
(which, in the case of an exchange offer, shall be deemed to be the effective
date of the registration statement relating to the securities offered in such
exchange offer or, if permitted under the Exchange Act, such earlier date
selected by the offeror for commencement of the exchange offer) or such longer
<PAGE>
32
period as shall then be permitted under SEC rules, or (ii) a Third Party
acquires beneficial ownership of 15% of the outstanding Voting Securities (other
than as a result of purchases of such securities from the Company) and publicly
discloses a possible intention to seek control of the Company or to engage in a
transaction that would result in a Change of Control of the Company.
(c Upon a repurchase or redemption of Equity Securities by the
Company that, by reducing the number of outstanding Equity Securities, increases
the Ownership Percentage to an amount in excess of the then-applicable Permitted
Ownership Percentage, none of the Investor Stockholder or its Affiliates shall
be required to dispose of Equity Securities beneficially owned by them;
provided, however, that in such event, none of the Investor Stockholder or its
- -------- -------
Affiliates may purchase additional Equity Securities until such time as the
Ownership Percentage is less than the then-applicable Permitted Ownership
Percentage.
(d If at any time the Investor Stockholder or any of its Affiliates
become aware that the Investor Stockholder and its Affiliates beneficially own
in the aggregate more than the Permitted Ownership Percentage, then the Investor
Stockholder shall, as soon as is reasonably practicable (but in no manner that
would require the Investor Stockholder or any such Affiliate to incur liability
under Section 16(b) of the Exchange Act) take all action necessary to reduce the
amount of Equity Securities beneficially owned by it and its Affiliates to an
amount not greater than the Permitted Ownership Percentage in effect at such
time.
<PAGE>
33
ARTICLE VII MISCELLANEOUS
-------------
SECTION VII.1 Investor Stockholder Indemnification; Reimbursement of
------------------------------------------------------
Expenses. The Company agrees to indemnify and hold harmless the Investor
- --------
Stockholder, its respective directors and officers and its Affiliates (and the
directors, officers, partners, Affiliates and controlling persons thereof, each,
an "Investor Stockholder Indemnitee") from and against any and all liability,
-------------------------------
including, without limitation, all obligations, costs, fines, claims, actions,
injuries, demands, suits, judgments, proceedings, investigations, arbitrations
(including stockholder claims, actions, injuries, demands, suits, judgments,
proceedings, investigations or arbitrations) and expenses, including, without
limitation, accountant's and attorney's fees and expenses (together the
"Losses"), incurred by the Investor Stockholder or an Investor Stockholder
------
Indemnitee before or after the date of this Agreement and arising out of,
resulting from, or relating to (i) the Investor Stockholder's purchase and/or
ownership of the Equity Securities, (ii) the transactions contemplated by the
Stock Purchase Agreement, the Stockholders Agreement, the Certificate of
Designation and the Voting Agreement, dated as of December 20, 1999, among the
Investor Stockholder and certain stockholders of the Company, (iii) any
litigation to which the Investor Stockholder or a Stockholder Indemnitee is made
a party in its capacity as a stockholder or owner of securities (or a partner,
director, officer, Affiliate or controlling person of the Investor Stockholder)
of the Company or (iv) any franchise taxes imposed on the Investor Stockholder.
The Company also agrees to reimburse each Investor Stockholder Indemnitee for
any reasonable expenses incurred by such Investor Stockholder Indemnitee in
connection with the maintenance of its books and records, preparation of tax
returns and delivery of tax information to its partners in connection with the
Investor Stockholder's investment in the Company.
SECTION VII.2 Termination. Subject to Section 3.1(b)(i), (x) the
-----------
provisions of this Agreement (other than Articles II, IV and VII) shall
terminate at such time as the Investor Stockholder shall own, together with its
Affiliates, less than 5% of the outstanding Common Stock as converted and (y)
the provisions of Article II shall terminate as provided in Section 2.7.
Article IV of this Agreement (other than Section 4.6 thereof) shall terminate at
such time as there shall be no Registrable Securities outstanding. Section 7.1
of this Agreement shall not terminate. Nothing herein shall relieve any party
from any liability for the breach of any of the agreements set forth in this
Agreement.
SECTION VII.3 Amendments and Waivers. Except as otherwise provided
----------------------
herein, no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company or any Holder unless such modification,
amendment or waiver is approved in writing by the Company and each such Holder.
The failure of any party to enforce any of the provisions of this Agreement
shall in no way be construed as a waiver of such provisions and shall not affect
the right of such party thereafter to enforce each and every provision of this
Agreement in accordance with its terms.
SECTION VII.4 Successors, Assigns and Transferees. This Agreement
-----------------------------------
shall bind and inure to the benefit of and be enforceable by the parties hereto
and their respective successors and permitted assigns. This Agreement may not be
assigned by any party hereto (except as described in the next sentence) without
the prior written consent of the other parties.
<PAGE>
34
Purchaser and its Affiliates may assign their respective rights and obligations
hereunder to any Affiliate or Affiliates thereof and, subject to the Transfer
provisions herein, to any other third party.
SECTION VII.5 Notices. All notices required or permitted hereunder
-------
shall be in writing and shall be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if not, then on
the next business day; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1)
business day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
communications shall be sent, with respect to the Company and the Investor
Stockholder, to their respective addresses specified in the Stock Purchase
Agreement (or at such other address as any such party may specify by like
notice) and, with respect to any other Holder, to the address of such Holder as
shown in the stock record books of the Company (or at such other address as any
such Holder may specify to all of the above by like notice).
SECTION VII.6 Further Assurances. At any time or from time to time
------------------
after the date hereof, the parties agree to cooperate with each other, and at
the request of any other party, to execute and deliver any further instruments
or documents and to take all such further action as the other party may
reasonably request in order to evidence or effectuate the consummation of the
transactions contemplated hereby and to otherwise carry out the intent of the
parties hereunder.
SECTION VII.7 Entire Agreement. Except as otherwise expressly set
----------------
forth herein, this document and the Stock Purchase Agreement embody the complete
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersede and preempt any prior understandings, agreements or
representations by or among the parties, written or oral, that may have related
to the subject matter hereof in any way.
SECTION VII.8 Delays or Omissions. It is agreed that no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party, upon any
breach, default or noncompliance by another party under this Agreement, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent or approval of any kind or
character on the part of any party hereto of any breach, default or
noncompliance under this Agreement or any waiver on such party's part of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to any
party, shall be cumulative and not alternative.
SECTION VII.9 Governing Law; Jurisdiction; Waiver of Jury Trial.
-------------------------------------------------
This Agreement shall be governed in all respects by the laws of the State of New
York. No suit, action or proceeding with respect to this Agreement may be
brought in any court or before any similar authority other than in a court of
competent jurisdiction in the State of New York, and the
<PAGE>
35
parties hereto hereby submit to the exclusive jurisdiction of such courts for
the purpose of such suit, proceeding or judgment. The parties hereto hereby
irrevocably waives any right which they may have had to bring such an action in
any other court, domestic or foreign, or before any similar domestic or foreign
authority. Each of the parties hereto hereby irrevocably and unconditionally
waives trial by jury in any legal action or proceeding in relation to this
Agreement and for any counterclaim therein.
SECTION VII.10 Severability. Whenever possible, each provision of
------------
this Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
SECTION VII.11 Effective Date. This Agreement shall become effective
--------------
immediately upon the First Closing.
SECTION VII.12 Enforcement. Each party hereto acknowledges that money
-----------
damages would not be an adequate remedy in the event that any of the covenants
or agreements in this Agreement are not performed in accordance with its terms,
and it is therefore agreed that in addition to and without limiting any other
remedy or right it may have, the non-breaching party will have the right to an
injunction, temporary restraining order or other equitable relief in any court
of competent jurisdiction enjoining any such breach and enforcing specifically
the terms and provisions hereof.
SECTION VII.13 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
SECTION VII.14 No Recourse. Notwithstanding anything that may be
-----------
expressed or implied in this Agreement, the Company and each Holder covenant,
agree and acknowledge that no recourse under this Agreement or any documents or
instruments delivered in connection with this Agreement shall be had against any
current or future director, officer, employee, general or limited partner or
member of the Investor Stockholder or of any Affiliate or assignee thereof,
whether by the enforcement of any assessment or by any legal or equitable
proceeding, or by virtue of any statute, regulation or other applicable law, it
being expressly agreed and acknowledged that no personal liability whatsoever
shall attach to, be imposed on or otherwise be incurred by any current or future
officer, agent or employee of the Investor Stockholder or any current or future
member of the Investor Stockholder or any current or future director, officer,
employee, partner or member of the Investor Stockholder or of any Affiliate or
assignee thereof, as such for any obligation of the Investor Stockholder under
this Agreement or any documents or instruments delivered in connection with this
Agreement for any claim based on, in respect of or by reason of such obligations
or their creation.
<PAGE>
36
SECTION VII.15 Counterparts; Facsimile Signatures. This Agreement may
----------------------------------
be executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument. This Agreement may be
executed by facsimile signature(s).
<PAGE>
37
IN WITNESS WHEREOF, the parties hereto have executed the STOCKHOLDERS
AGREEMENT as of the date set forth in the first paragraph hereof.
CAIS INTERNET, INC.
By:__________________________________
Name:
Title:
CII VENTURES LLC
By:__________________________________
Name:
Title:
_____________________________________
ULYSSES G. AUGER, SR.
_____________________________________
ULYSSES G. AUGER, II
_____________________________________
WILLIAM M. CALDWELL, IV
_____________________________________
EVANS K. ANDERSON
_____________________________________
GARY H. RABIN
_____________________________________
KEVIN BRAND
<PAGE>
38
CHANCERY LANE, L.P.
By: ________________________________
General Partner
By: ________________________________
Name:
Title:
<PAGE>
Exhibit 10.63
ASSET PURCHASE AGREEMENT
------------------------
dated as of March 15, 2000
by and among
CAIS INTERNET, INC., a Delaware corporation
CAIS SOFTWARE SOLUTIONS, INC., a California corporation
and
QUICKATM, LLC, a California limited liability company
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement (this "Agreement") is made as of March __,
2000, by and among QuickATM, LLC, a California limited liability company
("Seller"), CAIS Software Solutions, Inc., a California corporation ("Buyer")
and CAIS Internet, Inc., a Delaware corporation ("CAIS").
R E C I T A L S
---------------
A. Seller conducts the business of, among other things, the
development, manufacture, lease, sale and operation of multi-media information
and Internet kiosks (the "Business"). The Business is conducted by Seller
primarily at its facility at 2437 Durant Avenue, Suite 207, Berkeley, California
(the "Facility").
B. Buyer is a wholly owned subsidiary of CAIS.
C. Subject to the terms and conditions of this Agreement, Buyer
desires to purchase, and Seller desires to sell, certain of the assets, rights
and tangible and intangible properties of the Business as currently conducted.
Buyer is willing to assume certain of the liabilities and obligations of Seller
specified herein related to the Business, upon the terms and conditions set
forth in this Agreement.
TERMS, COVENANTS AND CONDITIONS
-------------------------------
1. DEFINITIONS.
-----------
For the purposes of this Agreement, in addition to any other terms
defined in this Agreement, the definitions cross-referenced below shall be
applicable:
1.1 Accounts Receivable: shall be as defined in Section 2.2(b).
-------------------
1.2 Acquired Intellectual Property: shall be as defined in
------------------------------
Section 2.1(d).
1.3 Agreement: shall be as defined in the preamble.
---------
1.4 Approval: shall be as defined in Section 2.4.1
--------
1.5 Assets: shall be as defined in Section 2.1.
------
1.6 Assumed Liabilities: shall be as defined in Section 2.5.1.
-------------------
1.7 Books and Records: shall be as defined in Section 2.2(h).
-----------------
1.8 Broker: shall be as defined in Section 3.13.
------
1.9 Business: shall be as defined in the recitals.
--------
1.10 Buyer: shall be as defined in the preamble.
-----
<PAGE>
1.11 Buyer/CAIS Closing Documents: shall be as defined in
----------------------------
Section 2.6.3.
1.12 Buyer's Damages: shall be as defined in Section 9.2.
---------------
1.13 CAIS: shall be as defined in the preamble.
----
1.14 CAIS Common Stock: shall be as defined in Section 2.3.2.
-----------------
1.15 CAIS SEC Reports: shall be as defined in Section 4.6.
----------------
1.16 Cash Consideration: shall be as defined in Section 2.3.2.
------------------
1.17 Closing: shall be as defined in Section 2.6.1.
-------
1.18 Closing Date: shall be as defined in Section 2.6.1
------------
1.19 Confidential Information: shall be as defined in Sections 6.5
------------------------
and 7.4.
1.20 Confidentiality Agreement: shall be as defined in Sections 6.5
-------------------------
and 7.4.
1.21 Closing Date: shall be as defined in Section 2.6.1.
------------
1.22 Consideration Shares: shall be as defined in Section 2.3.2.
--------------------
1.23 Contracts: shall be as defined in Section 2.1(f).
---------
1.24 Corporate Documents: shall be as defined in Section 2.2(c)
-------------------
1.25 Damages: shall be as defined in Section 9.3.
-------
1.26 Employee Plan: shall be as defined in Section 8.2.
-------------
1.27 ERISA: shall be as defined in Section 8.2.
-----
1.28 Escrow Agreement: shall be as defined in Section 2.3.3.
----------------
1.29 Escrow Amount: shall be as defined in Section 2.3.3.
-------------
1.30 Excluded Assets: shall be as defined in Section 2.2.
---------------
1.31 Facility: shall be as defined in the recitals.
--------
1.32 Facility Improvements: shall be as defined in Section 2.1(c).
---------------------
1.33 Financial Statements: shall be as defined in Section 4.6.
--------------------
1.34 First Anniversary Date: shall be as defined in Section 2.3.3.
----------------------
1.35 Full Integration Date: shall be as defined in Section 6.1.
---------------------
2
<PAGE>
1.36 GAAP: shall be as defined in Section 4.6.
----
1.37 Incentive Compensation: shall be as defined in Section 2.3.2
----------------------
1.38 Incentive Date: shall be as defined in Section 2.3.2.
--------------
1.39 Intangible Personal Property: shall be as defined in
----------------------------
Section 2.1(e).
1.40 Intellectual Property: shall be as defined in Section 2.1(d).
---------------------
1.41 Inventory: shall be as defined in Section 2.1(a).
---------
1.42 IRC: shall be as defined in Section 8.2.
---
1.43 Lease: shall be as defined in Section 2.1(g).
-----
1.44 Liens: shall be as defined in Section 3.3.
-----
1.45 Machinery and Equipment: shall be as defined in Section 2.1(b).
-------------------------------------------------
1.46 Material Adverse Effect: shall be as defined in Section 3.
-------------------------------------------------
1.47 Permitted Liens: shall be as defined in Section 3.3.
-------------------------------------------------
1.48 Purchase Price: shall be as defined in Section 2.3.1
-------------------------------------------------
1.49 Registration Rights Agreement: shall be as defined in
-------------------------------------------------
Section 2.3.5.
1.50 Seller: shall be as defined in the preamble.
-------------------------------------------------
1.51 Seller's Closing Documents: shall be as defined in Section 2.6.2.
-------------------------------------------------
1.52 Seller's Damages: shall be as defined in Section 9.3.
-------------------------------------------------
1.53 Seller's Key Officer: shall be as defined in Section 3.
-------------------------------------------------
1.54 Seller Names: shall be as defined in Section 7.3.1.
-------------------------------------------------
1.55 Subsidiary: shall be as defined in Section 2.1.
-------------------------------------------------
1.56 Taxes: shall be as defined in Section 2.2(f).
-------------------------------------------------
1.57 Used in the Business: shall be as defined in Section 2.1
-------------------------------------------------
1.58 Warranty Obligations: shall be as defined in Section 2.5.1(b).
-------------------------------------------------
3
<PAGE>
2. SALE AND PURCHASE OF ASSETS.
---------------------------
2.1 Sale of Assets.
--------------
Subject to the terms and conditions of this Agreement and for the
consideration set forth herein, Seller shall, at the Closing, sell, convey,
assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from
Seller, all of the right, title and interest of Seller in and to the assets,
rights and tangible and intangible property Used in the Business (other than the
Excluded Assets), including, without limitation, the assets, rights, tangible
and intangible property specifically described in Sections 2.1(a)-(h) below, as
the same may exist at the Closing (the "Assets"). As used in this Agreement,
the term "Used in the Business" with respect to any asset, right, tangible and
intangible property, liability or obligation, shall mean (1) the use or accrual
of such item primarily relates to or primarily derives from the Business, and
(2) the item is reasonably necessary for the operation of the Business as
presently conducted and as conducted on the Closing Date. As used herein,
"Subsidiary" shall mean, with respect to a specified company, an entity
controlled, directly or indirectly by such company, including, without
limitation, by such company's beneficial ownership of fifty percent (50%) or
more of such entity's outstanding voting stock or other equity interests.
Without limiting the generality of the foregoing, the Assets shall include,
without duplication, the right, title and interest of Seller in and to the
following as the same may exist at the Closing:
(a) Inventory. All inventories of raw materials, work-in-process,
---------
finished goods (including installation tooling), supplies and repair materials
owned by Seller Used in the Business existing as of the Closing Date, whether on
or within the Facility, en route thereto or elsewhere (the "Inventory").
(b) Fixed Assets and Tangible Personal Property. All fixed assets and
-------------------------------------------
tangible personal property owned or leased by Seller Used in the Business,
including, without limitation, all machinery (including replacement parts),
computers, computer auxiliary equipment and supplies, equipment (including demo
equipment and replacement parts), supplies, tools, tooling, furniture, fixtures,
hardware, dies and spare parts Used in the Business ("Machinery and Equipment"),
including, but not limited to, the Machinery and Equipment set forth in Schedule
--------
2.1(b) of Exhibit A hereto.
- ------ ---------
(c) Facility Improvements. All leasehold improvements and fixtures
---------------------
located at the Facility (the "Facility Improvements").
(d) Intellectual Property. All patents, trademarks and trademark
---------------------
applications listed on Schedule 2.1(d) of Exhibit A attached hereto, all patent
--------------- ---------
applications and invention disclosures set forth in such schedule, and all
service marks, service mark applications, trade and other names (either
registered, common law or registration applied for), copyrights, copyright
applications, trade secrets, know-how, processes, proprietary computer software,
manufacturing or marketing procedures, recipes, formulae, drawings, schematics
and patterns (collectively, "Intellectual Property") owned by Seller that are
Used in the Business, including, but not limited to, the Intellectual Property
listed on Schedule 2.1(d) of Exhibit A hereto (all such Intellectual Property,
--------------- ---------
collectively, the "Acquired Intellectual Property"). Without limitation of the
foregoing, the Acquired Intellectual Property shall be deemed to further include
any drawings,
4
<PAGE>
documentation, schematics, manuals or other materials, whether in written or
magnetic form to the extent that the same describe, disclose or otherwise set
forth any of the Acquired Intellectual Property.
(e) Intangible Personal Property. All warranties, guaranties, vendor
----------------------------
lists, customer lists, customer files, customer records, trade and other
association memberships and rights, licenses and permits susceptible of transfer
under regulatory agency or other applicable rules, and which are Used in the
Business (the "Intangible Personal Property").
(f) Contracts. All contracts of Seller Used in the Business,
---------
including, without limitation, all patent, technology, software and other
Intellectual Property license agreements, assignment agreements, purchase
contracts, purchase orders, sales contracts, sales orders, rights to discounts,
maintenance agreements, installation agreements, sales representative
agreements, Internet service agreements, distribution agreements, joint
development contracts and agreements related to equipment leased from Seller or
third parties Used in the Business (collectively, the "Contracts"), including,
but not limited to, those Contracts listed on Schedule 2.1(f) of Schedule A
-------------- ----------
hereto.
(g) Facility. All of Seller's right, title and interest as tenant in
--------
and to the lease for the Facility ("Lease"). Buyer and CAIS acknowledge that
the Facility lease is a month-to-month tenancy. Further, Buyer may assume the
Seller's insurance policies relating to the Facility or the Business listed on
Schedule 2.1(g) of Schedule A hereto, provided that the insurer, in each case,
- -----------------------------
consents to such assignment and assumption and Buyer (or CAIS) agrees to
reimburse Seller for prepaid policy premiums, deductible and other amounts.
(h) Books and Records. All books, records, logs, plans,
------------------
specifications, blueprints, data, operating manuals, drawings, sketches,
diagrams, marketing materials, and other reports or documents Used in the
Business but excluding any Corporate Documents, or any documents or records
pertaining to Excluded Assets or to any liabilities other than the Assumed
Liabilities (collectively, "Books and Records").
2.2 Assets Not Purchased.
--------------------
Notwithstanding Section 2.1, Seller shall not sell, and Buyer shall
not acquire any interest in, any of the following (collectively, the "Excluded
Assets"):
(a) Cash. Any cash, cash deposits, securities, other cash
----
equivalents, cash refunds, insurance policies (including, but not limited to,
any pre-payments and any rights thereunder), security bonds or deposits, or bank
accounts.
(b) Accounts Receivable. All accounts receivable or notes receivable
-------------------
of Seller accrued in the Business and outstanding as of the Closing Date (the
"Accounts Receivable").
(c) Corporate Documents. All organizational documents, financial or
-------------------
tax information, minute books, stock ledgers, or similar corporate documents and
records pertaining to Seller and its affiliates, including, but not limited to,
Seller's name and identity ("Corporate Documents").
5
<PAGE>
(d) Royalty Bearing Licenses. Any agreements by Seller to license or
------------------------
assign patent, technology, software or other Intellectual Property license
agreements to other parties where royalties (or claims with respect thereto)
accrue to the licensor.
(e) Other Real Property. Real property or real property interests
-------------------
other than the Lease.
(f) Tax Refunds. Any refund of the following: any federal, state,
-----------
local, or foreign income, gross receipts, license, payroll, parking, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including, without limitation, taxes under IRC Code Sec. 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, documentary, value added, alternative or add-on minimum,
estimated tax or other tax of any kind whatsoever (collectively, "Taxes"), or
any claim for a refund of Taxes for periods before the Closing. Notwithstanding
the foregoing, or anything else to the contrary set forth in this Agreement,
neither Buyer nor Seller shall have any obligation to apply for, pursue or
otherwise seek to obtain any refund for Taxes for periods prior to or after the
Closing.
(g) Contingent Benefits. Any claims or rights against third parties
-------------------
arising from the ownership of the Assets or the conduct of the Business before
the Closing Date, other than rights described in clause (f) of Section 2.1 with
respect to Contracts that remain executory.
(h) Intercompany Agreements. Any distributor, representative or
-----------------------
service agreements, contracts or commitments exclusively between Seller and any
affiliate of Seller.
(i) Property Not Specifically Included. Any assets, property, rights,
title or other interests not specifically included in the definition of "Assets"
and set forth in Section 2.1. Such assets shall remain the property of Seller
and Buyer shall have no liability or other responsibility with respect thereto.
2.3 Purchase Price.
--------------
2.3.1 Total Consideration. Subject to the terms and conditions of
-------------------
this Agreement (including, without limitations, Section 11.3 below), as
consideration for Buyer's purchase of the Business and the Assets: (a) Buyer and
CAIS shall pay total consideration equal to $1,750,000 as set forth in Section
2.3.2 below (the "Purchase Price") and (b) Buyer (but not CAIS) shall assume the
Assumed Liabilities.
2.3.2 Payment of Consideration. The Purchase Price shall consist of:
(i) a number of shares of CAIS Common Stock, par value $.01 per share ("CAIS
Common Stock"), equal to (x) One Million Two Hundred and Fifty Thousand Dollars
($1,250,000) divided by (y) the average closing price of the CAIS Common Stock
on the Nasdaq Stock Market for the ten (10) trading days immediately preceding
the Closing Date (the "Consideration Shares"), (ii) cash in an aggregate amount
of Five Hundred Thousand dollars ($500,000) (the "Cash Consideration"), and
(iii) at the "Incentive Date," cash incentive compensation equal to (x) One
Thousand Five Hundred Dollars ($1,500) for each information-only kiosk acquired
by Buyer that Buyer agrees to convert to an Internet access kiosk, and (y) Two
Thousand Five Hundred Dollars ($2,500) for each new Internet kiosk location that
Buyer agrees to establish upon a referral from
6
<PAGE>
Clifford S. Orloff (collectively, the "Incentive Compensation"). The Incentive
Compensation shall be paid on the Incentive Date, which shall be the date which
is the later of ten weeks after August 29, 2000 or ten weeks after the
termination of the Consulting Agreement dated as of the date hereof by and
between Clifford S. Orloff and Buyer, and the Incentive Compensation shall be
paid with respect only to kiosks converted or established prior to or on the
Incentive Date. Without limiting the generality of the foregoing, Buyer shall
have no obligations with respect to Incentive Compensation for kiosks converted
or established after the Incentive Date.
2.3.3 Escrow. Prior to the Closing, shares of CAIS Common Stock
------
equal to ten percent (10%) of the Consideration Shares shall be delivered to and
held in escrow (the "Escrow Amount") until the first anniversary date of the
Closing Date (the "First Anniversary Date") (subject to any pending claims for
indemnification which exist on such date) pursuant to an Escrow Agreement in the
form attached hereto as Exhibit 2.6.2(e) (the "Escrow Agreement") to secure
----------------
claims by indemnified parties for indemnification pursuant to Section 9 of this
Agreement. As set forth in Section 9.7, Seller's liability arising out of, or in
connection with, this Agreement shall be limited to the Escrow Amount; provided,
however, that none of the provisions of this Agreement, the Escrow Agreement, or
any other agreements entered into by the parties in furtherance of this
Agreement shall in any manner limit the liability of Seller, or any person who
is or was an officer, employee, member or agent of Seller, with respect to (i)
fraud; (ii) intentional misrepresentation; or (iii) criminal conduct.
2.3.4 No Fractional Shares. No fraction of a share of CAIS Common
--------------------
Stock shall be issued pursuant to this Agreement. In lieu of fractional shares,
the Seller shall be paid an amount in cash, without interest, rounded to the
nearest cent, determined by multiplying the fractional interest to which Seller
would otherwise be entitled by the average closing price of CAIS Common Stock
computed pursuant to clause (i) of Section 2.3.2.
2.3.5 Restricted Stock. The shares of CAIS Common Stock issued
----------------
pursuant to this Agreement will not be registered under the Securities Act of
1933, as amended ("Securities Act"), except as provided in the Registration
Rights Agreement attached hereto as Exhibit 2.6.2(d) (the "Registration Rights
----------------
Agreement"). Such shares may not be transferred or resold thereafter, except in
compliance with the terms of this Agreement and the Registration Rights
Agreement and following registration under the Securities Act or in reliance on
an exemption from registration under the Securities Act. Notwithstanding the
foregoing, the parties each acknowledge and agree that it is the intention of
the members of Seller to dissolve Seller and to distribute the assets of Seller,
including the shares of CAIS Common Stock purchased hereunder, to the members of
Seller as well as to a certain non-employee director, to certain employees and
to the Broker (as defined herein) as compensation for Broker's services in
connection with this Agreement. Accordingly, the parties will take all
necessary steps to enable the transfer of CAIS Common Stock to the above
mentioned parties, provided that the recipients of CAIS Common Stock cooperate
fully with the parties and otherwise abide by all applicable state and federal
securities laws.
2.4 No Assignment in Certain Circumstances.
-----------------------------------------
2.4.1 Consents. Notwithstanding anything else contained in this
--------
Agreement to the contrary, this Agreement shall not constitute an agreement to
sell, convey, assign, transfer or
7
<PAGE>
deliver any interest in any instrument, commitment, contract, lease, permit or
other agreement or arrangement or any claim, right or benefit arising thereunder
or resulting therefrom if such a transfer or an attempt to make such a transfer
without the authorization, approval, consent or waiver (collectively,
"Approval") of a third party would constitute a breach or violation thereof, or
affect adversely the rights of Buyer, CAIS or Seller thereunder, or constitute a
Material Adverse Effect; and any such transfer to Buyer that requires the
Approval of a third party shall be made subject only to such Approval being
obtained. Prior to the Closing Date, Seller and Buyer shall reasonably
cooperate, at Seller's cost, and shall use commercially reasonable efforts to
obtain all Approvals required hereunder. In the event that any such Approval is
not obtained on or prior to the Closing Date, Seller shall continue to use
commercially reasonably efforts to obtain any such Approval and cooperate with
Buyer and CAIS in any reasonable and lawful arrangement to provide that Buyer
shall receive all of Seller's right, title and interest in any Asset with
respect to which such Approval is required, including, without limitation,
performance by Seller, as agent; provided, however, that, in connection with the
foregoing, Seller shall not be obligated to commence or prosecute any proceeding
of any nature before any governmental entity or pay any amount to any third
party other than at the sole expense of Buyer; provided further, however, that
any and all consent and assignment costs or charges expressly set forth in the
Contracts, including, without limitation, payments stated to be due in
connection with the sale, transfer, or other disposition of the Business by
Seller, shall be paid by Seller. Except as provided in Section 2.4.2 below, no
such Approval shall be a condition to Closing.
2.4.2 Required Consents. Seller shall obtain, at or prior to the
-----------------
Closing, the consent of Mark Daoud to the assignment, to Buyer, of the contracts
listed on Exhibit 2.4.2, in substantially the form of consent set forth in
-------------
Exhibit 2.4.2. Seller shall also obtain, at or prior to Closing, from the
- -------------
landlord to the Lease, such landlord's consent to assign the Lease to either
Buyer or CAIS.
2.5 Assumed Liabilities. __
--------------------
2.5.1 Assumption of Liabilities. In connection with the purchase and
-------------------------
sale of the Assets pursuant to this Agreement, Buyer shall assume in writing at
the Closing pursuant to the Bill of Sale, Assignment and Assumption Agreement
attached hereto as Exhibit 2.6.2(a) (the "Transfer Agreement") only those
----------------
liabilities and obligations of Seller set forth below (collectively, the
"Assumed Liabilities"):
(a) Contract Obligations. Any obligation remaining to be
--------------------
performed under the Contracts, including, without limitation, installation and
maintenance obligations.
(b) Warranty Obligations. Any continuing obligation of Seller
with respect to the performance of warranty and/or service obligations with
respect to the products and/or services related to the Assets ("Warranty
Obligations").
(c) Assets. Any obligations or liabilities relating to the
Assets for which the event giving rise to each such obligation or liability, or
the claim relating to each such obligation or liability, arose after the Closing
Date.
8
<PAGE>
Except as provided in this Section 2.5, no other liabilities or
obligations of any nature, whether known or unknown, foreseen or unforeseen,
fixed or contingent, liquidated or unliquidated, accrued or unaccrued, shall be
assumed by Buyer in connection with the purchase and sale of the Assets
hereunder, and any such liabilities and obligations of any nature of Seller not
expressly assumed by Buyer pursuant to this Section 2.5 shall remain the sole
and absolute responsibility of Seller (collectively, the "Retained
Liabilities").
2.6 Closing.
-------
2.6.1 Closing Date. Subject to Sections 5 and 6, the closing of the
------------
purchase and sale of the Assets and the assumption of the Assumed Liabilities
(the "Closing") shall take place at the offices of Morrison & Foerster LLP, 2000
Pennsylvania Avenue, N.W., Washington, DC, at 10:00 a.m. on March 10, 2000, or
at such other place, date or time as Buyer, CAIS and Seller may agree in
writing. The date of the Closing shall constitute the "Closing Date."
2.6.2 Seller's Deliveries at Closing. At the Closing, Seller shall
------------------------------
deliver or cause to be delivered to Buyer:
(a) An executed counterpart of the Bill of Sale, Assignment and
Assumption Agreement in the form of Exhibit 2.6.2(a);
----------------
(b) Secretary's Certificates certifying the resolutions of the
members or managers, as the case may be, of Seller authorizing consummation of
the transactions contemplated by this Agreement substantially in the form of
Exhibit 2.6.2(b);
- ----------------
(c) Compliance Certificates substantially in the form of
Exhibit 2.6.2(c);
- ----------------
(d) An executed counterpart of the Registration Rights
Agreement in the form of Exhibit 2.6.2(d);
----------------
(e) An executed counterpart of the Escrow Agreement in the form
of Exhibit 2.6.2(e); and
----------------
(f) An executed counterpart of the Consulting Agreement in the
form of Exhibit 2.6.2(f).
----------------
The documents referred to in Sections 2.6.2(a) through (f) above are hereinafter
referred to, collectively, as the "Seller's Closing Documents."
2.6.3 Buyer's and CAIS' Deliveries at Closing. At the Closing, Buyer
---------------------------------------
and/or CAIS, as the case may be, shall deliver or cause to be delivered to
Seller the following instruments and documents against delivery of the items
specified in Section 2.6.2:
(a) (1) From Buyer, the Cash Consideration, subject to any
adjustment thereto pursuant to Section 11.3 below, by
wire transfer of immediately available funds to an
account, and in accordance with instructions,
designated by Seller; and (2) from CAIS, the
Consideration Shares;
9
<PAGE>
(b) Secretary's Certificates certifying the resolutions of the
Boards of Directors of Buyer and of CAIS authorizing
consummation of the transactions contemplated by this
Agreement substantially in the form of Exhibit 2.6.3(b);
----------------
(c) Compliance Certificates substantially in the form of
Exhibit 2.6.3(c);
----------------
(d) An executed counterpart of the Bill of Sale, Assignment and
Assumption Agreement;
(e) An executed counterpart of the Registration Rights
Agreement;
(f) An executed counterpart of the Escrow Agreement; and
(g) An executed counterpart of the Consulting Agreement.
The documents referred to in Section 2.6.3(b) through (g) above, are hereinafter
referred to collectively, as the "Buyer/CAIS Closing Documents." The Incentive
Compensation shall not be due at Closing, but rather, shall be payable, if at
all, from Buyer to Seller on the Incentive Date.
2.7 Consent of Third Parties. At the Closing, Seller shall provide
------------------------
Buyer with copies of such third party consents and Approvals as may have been
actually obtained by Seller through the Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
Seller hereby represents and warrants to Buyer and CAIS that, except
as otherwise disclosed in the Disclosure Schedule attached hereto as Schedule 3
---------
of Exhibit A, the following statements set forth in this Section 3 are true and
---------
correct, as of the Closing Date. Whenever the term "to Seller's knowledge" or
"to the best of Seller's knowledge" or similar expression appears in any
representation or warranty in this Section 3, it means to the actual knowledge
(after reasonable investigation or inquiry) of Clifford Orloff, Seller's
President and Chief Executive Officer ("Seller's Key Officer"). Whenever the
term "Seller has received no notice" or like expression appears in any
representation or warranty in this Section 3, it means that Seller's Key Officer
has not received actual oral or written notice of the matter to which such term
is applied. Whenever the term "Material Adverse Effect" or similar expression
appears in this Agreement, it means, an effect, on the Assets or the Business,
which is or is reasonably likely to be materially adverse to (a) the results of
operations or financial condition of the Business, taken as a whole, or (b)
Buyer's ability to operate the Business, after the Closing Date, substantially
in the form as it was conducted immediately prior to the Closing Date.
3.1 Organization and Authority. Seller: (i) is a duly organized and
--------------------------
validly existing limited liability company and is in good standing under the
laws of the State of California; (ii) has all necessary power and authority to
own and lease its properties and to carry
10
<PAGE>
on its business as and where it is now being conducted and to enter into and
perform this Agreement; and (iii) is qualified to do business in all
jurisdictions in which the failure to so qualify would have a Material Adverse
Effect.
3.2 Authority Relating to this Agreement and Other Agreements;
---------------------------------------------------------
No Violation of Other Instruments.
---------------------------------
3.2.1 The execution and delivery of this Agreement and the Seller's
Closing Documents and the performance by Seller of its obligations hereunder and
thereunder have been duly authorized by all necessary limited liability company
action on the part of Seller and, assuming execution of this Agreement by Buyer
and CAIS, this Agreement and each of the Seller's Closing Documents will
constitute legal, valid and binding obligations of Seller, enforceable against
Seller in accordance with their respective terms, subject as to enforcement
only: (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and
other similar laws of general applicability relating to or affecting creditors'
rights generally; and (ii) to general principles of equity.
3.2.2 Neither execution of this Agreement nor any of the Seller's
Closing Documents, nor the performance hereof or thereof by Seller, will to
Seller's knowledge: (i) conflict with or result in any breach or violation of
the terms of any decree, judgment, order, law or regulation of any court or
other governmental body now in effect applicable to Seller; (ii) conflict with,
or result in, with or without the passage of time or the giving of notice (or
both), any breach of any of the terms, conditions and provisions of, or
constitute a default under, or result in the creation of, any Lien (as defined
herein) upon any of the Assets pursuant to, any indenture, mortgage, lease,
agreement or other instrument to which Seller is a party or by which it or any
of the Assets are bound; or (iii) violate or conflict with any provision of
Seller's organizational instruments.
3.2.3 To Seller's knowledge, and except as provided in Section 2.4.2,
no consent from any third party and no consent, approval or authorization of, or
declaration, filing or registration with, any government or regulatory authority
is required to be made or obtained by Seller in order to (i) assign and transfer
the Acquired Intellectual Property to Buyer, except for such consents which the
failure to obtain would not have, in the aggregate, a Material Adverse Effect;
or (ii) permit the execution, delivery or performance of this Agreement or any
of the Seller's Closing Documents by Seller, or the consummation by Seller of
any of the other transactions contemplated by this Agreement.
3.3 Ownership and Delivery of Assets. Except with respect to Assets
--------------------------------
which are leased by or licensed to Seller, Seller has, or immediately prior to
the Closing will have, good and marketable title to all of the Assets consisting
of personal property and Seller has all necessary power and authority to
transfer such Assets to Buyer, free and clear of all liens, charges, security
interests, easements, covenants, mortgages, restrictions or other encumbrances,
rights of others or limitations (collectively, "Liens") other than any (a)
mechanics', carriers', workers' and other similar Liens arising in the ordinary
course of business; (b) Liens for real property Taxes and assessments not yet
due and payable; (c) non-monetary real property encumbrances that do not
materially interfere with the operation of that portion of the Business
conducted on such property; (d) Liens securing purchase money obligations or
obligations under
11
<PAGE>
equipment leases which, in the aggregate, are not material in amount and have
not arisen other than in the ordinary course of business; and (e) with respect
to patents, patent applications, trademarks, trademark applications, software
and other Intellectual Property, any licenses which may have been granted by
Seller to third parties (collectively, "Permitted Liens").
3.4 Compliance with Law. To Seller's knowledge, Seller holds all
-------------------
licenses, permits, authorizations and other Approvals necessary for the lawful
conduct of the Business whenever and wherever conducted pursuant to all
applicable statutes, laws, ordinances, rules and regulations of all foreign and
domestic governmental and quasi-governmental bodies, agencies and subdivisions
having, asserting or claiming jurisdiction over Seller, the Assets or any part
of Seller's operations, and to Seller's knowledge, there is no violation thereof
or default thereunder. To Seller's knowledge, Seller is not in violation of any
decree, judgment, order, law or regulation of any court or other foreign or
domestic governmental and quasi-governmental body (including, without
limitation, applicable equal employment and civil rights regulations, wages,
hours and the payment of social security taxes and occupational health and
safety legislation).
3.5 Absence of Certain Changes or Events.
------------------------------------
(a) Since December 31, 1999, to Seller's knowledge, there have been
no material changes in the condition, financial or otherwise, of any of the
assets, liabilities, business, or operations of the Business, other than changes
in the ordinary course of business which in the aggregate would not have a
Material Adverse Effect.
(b) Without limiting the foregoing, since December 31, 1999, (i)
Seller has not entered into any transaction other than in the ordinary course of
business relating to or affecting the Assets or the Business, other than this
Agreement; (ii) to Seller's knowledge, there have been no losses or damage to
any of the Assets due to fire or other casualty, whether or not insured,
amounting to more than Five Thousand Dollars ($5,000) in the aggregate; (iii) to
Seller's knowledge, Seller has not executed, created, amended or terminated any
Contract except in the ordinary course of business; (iv) there has been no
waiver or compromise by Seller of a material right or of a material debt owed to
it; (v) there has been no revaluation by Seller of any of the Assets; and (vi)
there has been no revocation of any license, permit, Approval or right to do
business granted to Seller relating to or affecting the Business.
3.6 Inventory. All of the Inventory is of the type used in the
---------
ordinary course of the business, and, except for excess, defective, obsolete and
slow-moving items, is in good operating condition, reasonable wear and tear
excepted. Except as set forth herein and subject to any other disclaimers of
warranties and limitations on liability expressly set forth in this Agreement,
the Inventory is being sold to Buyer on an "as is" basis without warranty of any
kind.
3.7 Personal Property. To Seller's knowledge, the Machinery and
-----------------
Equipment is in good operating condition, reasonable wear and tear excepted, and
the leases to personal property utilized in the Business are valid and
enforceable and are not, with or without the passage of time, the delivery of
notice (or both), in material default by any party thereto.
12
<PAGE>
3.8 Lease. To Seller's knowledge, the Lease is a valid and binding
-----
obligation of Seller and the landlord thereunder, and is enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity (regardless of whether enforceability is considered in a proceeding at
law or in equity) and is not, with or without the passage of time or the
delivery of notice (or both), in material default by any party thereto.
3.9 Intellectual Property. To Seller's knowledge, all of the Acquired
---------------------
Intellectual Property is owned by Seller free and clear of all Liens (other than
Permitted Liens) and the use of any of the Acquired Intellectual Property in the
conduct of the Business does not violate any license agreement between Seller
and any third party with respect to any of the Acquired Intellectual Property.
Seller has received no written notice of any alleged infringement on the rights
of any third party. Seller has the right to transfer and assign the Acquired
Intellectual Property to Buyer hereunder. Seller has received no written notice
of any action or proceeding pending or threatened, contesting the validity,
ownership or right to use, sell, license or dispose of the Acquired Intellectual
Property. To Seller's knowledge, there has been no infringement or unauthorized
use by any other person or entity of any of the Acquired Intellectual Property.
1.10 Product Warranties and Returns. Seller has not made any
------------------------------
warranties or guarantees relating to its products or services that will be in
effect as of the Closing Date, except for warranties and guarantees given in the
ordinary course of business, including, without limitation, (i) warranties and
guarantees made in connection with Seller's established "Satisfaction
Guaranteed -- No Questions Asked" policy; and (ii) any warranties and guarantees
made in any of the Contracts.
1.11 Litigation. None of Seller nor any officer, director, employee or
----------
agent of Seller is a party to any pending or, to Seller's knowledge, threatened
action, suit, proceeding or investigation, at law or in equity or otherwise in,
for or by any court or other governmental or quasi-governmental body which would
have a Material Adverse Effect. Seller is not subject to any pending or, to
Seller's knowledge, threatened product liability claim relating to the Assets or
the Business. Seller is not subject to any decree, judgment, order, law or
regulation of any court or other governmental or quasi-governmental body which
would have a Material Adverse Effect.
1.12 Personnel. Seller has no union contracts or collective bargaining
---------
agreements with, or any other obligations to, employee organizations or groups
relating to the Business, nor is Seller currently engaged in any labor
negotiations, except in minor grievances not involving any employee organization
or group, nor, to the knowledge of Seller, is Seller the subject of any union
organization affecting its Business. There is no pending or, to Seller's
knowledge, threatened labor dispute, strike or work stoppage affecting the
Business. No employees of the Business are parties to any employment agreement
or other arrangement with Seller providing for such employees to receive any
bonus or other payment (in cash or otherwise) upon such employees' termination
of employment, other than ordinary accrued but unpaid salary, vacation pay
and/or severance pay under Seller's policies or law.
13
<PAGE>
1.13 Brokers and Finders. Except as set forth herein, neither Seller
-------------------
nor any member, manager, officer, employee or agent of Seller has retained any
broker or finder in connection with the transactions contemplated by this
Agreement. Notwithstanding the foregoing, Seller has retained Barman Capital,
LLC ("Broker") to represent Seller in connection with this Agreement and the
transactions contemplated thereby and Seller agrees, as between Seller and
Buyer, to pay and have full responsibility for Broker's fees and charges.
1.14 Contracts. Neither Seller nor, to Seller's knowledge, any other
---------
party to any Contract is, with or without the passage of time or the giving of
notice (or both), in default in the performance of, or not in compliance with,
any provisions of such Contract, other than any such default or non-compliance
which would not have a Material Adverse Effect. Seller has no knowledge of any
intent by any other party not to perform its obligations under any Contract.
1.15 Major Customers. Seller has not received any notice or other
---------------
communication (in writing or otherwise), and has not received any other
information, indicating that any recipient of any products or services under any
Contracts listed in Schedule 2.1(f) may terminate any Contract or cease dealing
---------------
with Seller, or may otherwise reduce the volume of business transacted by such
Contract party in any significant respect below historical levels.
4. REPRESENTATIONS AND WARRANTIES OF BUYER AND CAIS .
------------------------------------------------
Buyer hereby represents and warrants to Seller that the following
statements (Sections 4.1 through 4.3) are true and correct as of the Closing
Date.
4.1 Organization and Authority. Buyer (i) is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
California; (ii) has all necessary corporate power to own and lease its
properties, to carry on its business as now being conducted and to enter into
and perform this Agreement; and (iii) is qualified to do business in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the business, results of operations or financial condition of Buyer
taken as a whole.
4.2 Authority Relating to this Agreement; No Violation of Other
-----------------------------------------------------------
Instruments.
- -----------
4.2.1 The execution and delivery of this Agreement and the Buyer/CAIS
Closing Documents and the performance hereunder and thereunder by Buyer have
been duly authorized by all necessary corporate action on the part of Buyer and,
assuming execution of this Agreement by Seller, this Agreement and each of the
Buyer/CAIS Closing Documents will constitute a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with their
respective terms, subject as to enforcement only: (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally; and (ii) to
general principles of equity.
4.2.2 To Buyer's knowledge, neither the execution of this Agreement
or any of the Buyer/CAIS Closing Documents, nor the performance hereof or
thereof by Buyer will: (i) conflict with or result in the breach or violation of
the terms of any decree, judgment, order, law or regulation of any court or
other governmental body now in effect applicable to Buyer; (ii) conflict with,
or result in, with or without the passage of time or the giving of notice, any
14
<PAGE>
breach of any of the terms, conditions and provisions of, or constitute a
default under, any indenture, mortgage, lease, agreement or other instrument to
which Buyer is a party or by which it is bound; or (iii) violate or conflict
with any provisions of Buyer's Articles of Incorporation, Bylaws, or similar
organizational instruments.
4.2.3 No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required to be made or obtained by Buyer in order to
permit the execution, delivery or performance of this Agreement by Buyer, or the
consummation by Buyer of its obligations contemplated by this Agreement, except
for such consents (i) where the failure to obtain the same would not have a
material adverse effect on the business, results of operations or financial
condition of Buyer taken as a whole, or (ii) which have not been received by
Buyer and may be necessary for Buyer to execute, deliver and perform this
Agreement and to consummate the transactions set forth herein, and all of which
shall be obtained by Buyer on or prior to the Closing Date.
4.3 Sufficient Funds. Buyer will have on the Closing Date sufficient
----------------
funds available to pay the Cash Consideration.
CAIS hereby represents and warrants to Seller that the following
statements (Sections 4.4 through 4.7) are true and correct as of the Closing
Date.
4.4 Organization and Authority. CAIS (i) is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware; (ii) has all necessary corporate power to own and lease its
properties, to carry on its business as now being conducted and to enter into
and perform this Agreement; and (iii) is qualified to do business in all
jurisdictions in which the failure to so qualify would have a material adverse
effect on the business, results of operations or financial condition of CAIS and
its Subsidiaries taken as a whole.
4.5 Authority Relating to this Agreement; No Violation of Other
-----------------------------------------------------------
Instruments.
- -----------
4.5.1 The execution and delivery of this Agreement and the Buyer/CAIS
Closing Documents and the performance hereunder and thereunder by CAIS have been
duly authorized by all necessary corporate action on the part of CAIS and,
assuming execution of this Agreement by Sellers, this Agreement and each of the
Buyer/CAIS Closing Documents will constitute a legal, valid and binding
obligation of CAIS, enforceable against CAIS in accordance with their respective
terms, subject as to enforcement only: (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other similar laws of general
applicability relating to or affecting creditors' rights generally; and (ii) to
general principles of equity.
4.5.2 To CAIS' knowledge, neither the execution of this Agreement or
any of the Buyer/CAIS Closing Documents, nor the performance hereof or thereof
by CAIS will: (i) conflict with or result in the breach or violation of the
terms of any decree, judgment, order, law or regulation of any court or other
governmental body now in effect applicable to CAIS; (ii) conflict with, or
result in, with or without the passage of time or the giving of notice, any
breach of any of the terms, conditions and provisions of, or constitute a
default under, any
15
<PAGE>
material indenture, mortgage, lease, agreement or other instrument to which CAIS
is a party or by which it is bound; or (iii) violate or conflict with any
provisions of CAIS' Certificate of Incorporation or Bylaws.
4.5.3 No consent from any third party and no consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority is required to be made or obtained by CAIS in order to
permit the execution, delivery or performance of this Agreement by CAIS, or the
consummation by CAIS of its obligations contemplated by this Agreement, except
for such consents (i) where the failure to obtain the same would not have a
material adverse effect on the business, results of operations or financial
condition of CAIS and its Subsidiaries taken as a whole, or (ii) which have not
been received by CAIS and may be necessary for CAIS to execute, deliver and
perform this Agreement and to consummate the transactions set forth herein, and
all of which shall be obtained by CAIS on or prior to the Closing Date.
4.6 Reports and Financial Statements. CAIS has filed all reports
--------------------------------
required to be filed with the U.S. Securities Exchange Commission ("SEC")
pursuant to the Securities Act and the Securities Exchange Act of 1934, as
amended ("Exchange Act"), since its initial public offering on May 20, 1999 (all
such reports, including those to be filed prior to the Closing Date and all
registration statements and prospectuses filed by CAIS with the SEC in
connection with the Company's initial public offering, are collectively referred
to as the "CAIS SEC Reports"). All of such CAIS SEC Reports complied at the time
they were filed and declared effective, if applicable, in all material respects
with applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations thereunder. None of such CAIS SEC Reports, as of their
respective dates (as amended through the date hereof), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statements ("Financial Statements") included in the SEC Filings are complete and
correct in all material respects and present fairly the financial position and
results of operations as of and for the dates indicated in conformance with
generally accepted accounting principles ("GAAP") applied on a consistent basis,
except that the unaudited financial statements do not contain footnotes and are
subject to normal year-end audit adjustments. To the extent applicable, if any,
Buyer shall have made all required reports, disclosures or other filings as may
be required of it with respect to applicable state and federal laws. The
foregoing representations and warranties shall also be deemed to be made with
respect to all filings made with the SEC on or before the Closing Date.
4.7 Capitalization. The authorized capital stock of CAIS on the
--------------
Closing Date will consist of: (i) 100,000,000 shares of CAIS Common Stock (as
defined herein); and (ii) 25,000,000 shares of preferred stock ("Preferred
Stock"), of which 125,000 shares are designated as Series C Preferred Stock
("Series C Stock") and which 9,620,393 shares are designated as Series D
Participating Preferred Stock ("Series D Stock"). As of the Closing Date,
22,498,161 shares of CAIS Common Stock, 125,000 shares of Series C Stock and
5,276,622 shares of Series D Stock are issued and outstanding. Prior to the
Closing, CAIS will have reserved sufficient shares of CAIS Common Stock for
issuance hereunder as the Consideration Shares. The Consideration Shares, when
issued in accordance with this Agreement, will be duly authorized, validly
issued, fully paid, and nonassessable, and will have the rights, preferences,
privileges,
16
<PAGE>
and restrictions as set forth in CAIS' Certificate of Incorporation. The
Consideration Shares, when issued, will be free of any liens or encumbrances
created by CAIS; provided, however, that the Consideration Shares will be
subject to restrictions on transfer under federal and state securities laws and
as set forth herein, and ten percent (10%) of the Consideration Shares shall be
subject to the Escrow Agreement.
Each of Buyer and CAIS hereby jointly and severally represent and
warrant to Seller that the following statements (Sections 4.8 through 4.12) are
true and correct as of the Closing Date.
4.8 Brokers and Finders. Except as set forth herein, neither Buyer,
-------------------
CAIS nor any shareholder, director, officer, employee or agent of either Buyer
or CAIS has retained any broker or finder in connection with the transactions
contemplated by this Agreement.
4.9 Changes. Since December 31, 1999, there have not been any changes
-------
in the assets, liabilities, financial condition, or operations of either Buyer
or CAIS, which would be required under GAAP to be reflected in financial
statements, except changes in the ordinary course of business which have not
had, individually or in the aggregate, a Materially Adverse Effect.
4.10 Compliance. Neither CAIS nor Buyer is in violation in any
----------
material respect of any provision of: (i) such party's certificate or articles
of incorporation, bylaws or similar organizational document; (ii) any mortgage,
indenture, contract, agreement, or instrument to which such party is subject; or
(iii) any judgment, decree, or order issued against such party. To the best of
each party's knowledge, neither CAIS nor Buyer is in violation in any material
respect of any law, rule, or regulation applicable to such party. The execution,
delivery and performance of and compliance with this Agreement, and the issuance
of the Consideration Shares, have not resulted and will not result: (i) in any
violation of or constitute a default under any such provision; or (ii) in the
creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the
properties or assets of either CAIS or Buyer, in either case, which would result
in a Material Adverse Effect. There is no such undisclosed provision which would
have, or be likely to have, a Material Adverse Effect on the business of either
CAIS or Buyer.
4.11 Litigation. There are no actions, suits, proceedings, or
----------
investigations pending against either CAIS or Buyer, or its properties, before
any court or governmental agency (nor, to the best of each party's knowledge, is
there any threat thereof nor any factual or legal basis therefor), which, if
decided or resolved against CAIS or Buyer would result in a Material Adverse
Effect with respect to CAIS or Buyer.
4.12 Governmental Consent. No consent, approval, or authorization of,
--------------------
or designation, declaration, or filing with, any governmental authority on the
part of either CAIS or Buyer is required in connection with the valid execution
and delivery of this Agreement, the Buyer/CAIS Closing Documents, and any other
documents executed by each party pursuant to this Agreement, or the offer, sale,
or issuance of the Consideration Shares, or the consummation of any other
transaction contemplated hereby, except for the filing and qualification (or
taking such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Consideration Shares
under applicable state and federal securities laws,
17
<PAGE>
which filing and qualification, if required, will be accomplished in a timely
manner prior to or promptly after the Closing Date.
5. CONDITIONS TO THE OBLIGATIONS OF SELLER, BUYER AND CAIS .
-------------------------------------------------------
Except as otherwise specifically set forth herein or as contemplated by
this Agreement, all obligations of Seller, Buyer and CAIS under this Agreement
are subject to the fulfillment, satisfaction or waiver in writing, prior to or
at the Closing Date, of each of the following conditions:
5.1 Required Consents. Buyer and CAIS shall have received the consents
-----------------
required by Section 2.4.2.
5.2 No Orders. There shall not have been issued any preliminary or
---------
permanent court order enjoining or restraining the transactions contemplated by
this Agreement; provided that, in the event of any such preliminary order, the
Closing shall be delayed pending the lifting of such order, subject to Seller's,
Buyer's and CAIS' rights pursuant to Sections 10.3 and 10.4 below.
5.3 Delivery of Closing Documents. Seller shall have delivered to
-----------------------------
Buyer and CAIS the Seller's Closing Documents, and Buyer and CAIS shall have
delivered to Seller the Buyer/CAIS Closing Documents.
6. COVENANTS OF SELLER
-------------------
Seller and, to the extent obligations of Buyer and CAIS are set forth in
this Section 6, Buyer and CAIS, as applicable, covenant as follows:
6.1 Access to Properties and Records. Throughout the period between
--------------------------------
the Closing Date and the latter of: (i) the integration of the Business into the
Buyer after Closing to the reasonable satisfaction of Buyer or (ii) the receipt
by Buyer of all consents necessary for the transfer and assignment of all of the
Assets to Buyer (the "Full Integration Date"), Seller shall give to Buyer and
CAIS and their authorized representatives reasonable access, during reasonable
business hours, in such a manner as to not unduly disrupt the normal business
activities of Seller, to any and all documents, records, correspondence or other
relevant information relating to any unassigned Contracts which arise after the
Closing Date; provided that, notwithstanding anything herein to the contrary,
Seller shall not be required to disclose any documents or information subject to
any confidentiality obligation that would by the terms of such confidentiality
obligation prohibit such disclosure. Any unintentionally disclosed confidential
or privileged documents shall be kept confidential and returned immediately upon
request by Seller without further disclosure. Without limiting the foregoing,
Buyer and CAIS shall be permitted to interview during regular business hours all
employees of Seller reasonably determined by Buyer and CAIS to be important to
the Business. A representative of Seller shall have the right to be present at
all such interviews. Notwithstanding the foregoing, under no circumstances shall
the Full Integration Date be later than the earlier of (A) the termination by
CAIS or Buyer of the Lease, or (B) six (6) months after the Closing Date.
18
<PAGE>
6.2 Conduct of the Business Prior to the Closing Date. Until the
-------------------------------------------------
Closing Date, and except as otherwise consented to or approved by an officer of
Buyer and CAIS in writing or as required by this Agreement:
(i) The Business shall be operated in the ordinary course consistent
with past practices and in a normal businesslike fashion (including, without
limitation, its normal accounts receivable practice), Seller shall use
commercially reasonable efforts to preserve and maintain its goodwill, including
relationships with employees, suppliers and customers. Seller shall maintain
quantities of Inventories in a manner consistent with prior practice. In
addition, Seller shall maintain records and books of account for the Business
consistent with past practice, and shall continue to carry all of the insurance
for the Business consistent with past practice.
(ii) Seller shall not, without the prior written approval of Buyer,
take any action which would cause any material change in any of the items and
matters covered by the representations and warranties set forth in Section 3,
including, without limitation:
(a) incurring or becoming subject to, or agreeing to incur or
become subject to, any obligation or liability (absolute or contingent)
primarily related to the Business, except current liabilities incurred, and
obligations under contracts entered into, in the ordinary course of business
consistent with past practices;
(b) mortgaging, pledging or assuming any Lien (other than any
Permitted Lien), or agreeing to do so, in respect to any of the Assets, except
in each case in the ordinary course of business consistent with past practices;
(c) waiving or compromising any material rights or any material
debt owed to Seller with respect to the Business;
(d) entering into any transactions primarily related to the
Business, other than in the ordinary course of business consistent with past
practices;
(e) increasing the rate of compensation payable or to become
payable to any employees working primarily in the Business, other than in the
ordinary course of the business consistent with past practices, or in connection
with the Closing hereunder;
(f) terminating or amending any material Contract, unless
terminated or amended in the ordinary course of business consistent with past
practices;
(g) introducing any new method of accounting with respect to
the Business or any of the Assets or liabilities of the Business (assumed or not
assumed) (including, without limitation, any change in depreciation or
amortization policies or rates);
(h) making any capital expenditures or entering into
commitments for capital expenditures for the Business exceeding, in the
aggregate, Ten Thousand Dollars ($10,000);
(i) hire or terminate employees engaged in and primarily
dedicated to the Business;
19
<PAGE>
(j) alter its practice for creating or accounting for
Inventory; or
(k) commencing any litigation relating to the Business, except
those related to insured claims or arising in the ordinary course of business
consistent with past practices.
6.3 Acquisition, Merger or Similar Negotiations With Other Parties.
--------------------------------------------------------------
From the date hereof until the earlier of termination of this Agreement or the
Closing Date, none of Seller or any of its members, managers, officers,
employees, representatives, agents or affiliates shall directly or indirectly
encourage, solicit, initiate or conduct discussions or negotiations with,
provide any information to, or enter into any agreement with, any corporation,
partnership, limited liability company, person or other entity or group
concerning any merger, combination, consolidation, sale of assets (other than in
the ordinary course of business) or other similar transaction involving the
Business or the Assets, but excluding the Excluded Assets.
6.4 Non-Compete.
-----------
(i) Provided that nothing herein shall prevent Seller from owning, in
the aggregate, not more than two percent (2%) of the outstanding stock or other
equity interests in any company with shares or other equity interests registered
pursuant to Sections 12(b) or 12(g) of the Exchange Act, Seller agrees that, for
a period of two (2) years the Full Integration Date, Seller will not (1) make,
sell or service (whether directly, indirectly or through any Subsidiary or
affiliate), or (2) directly or indirectly engage or invest in, own, manage,
operate, finance, control, or participate in the ownership, management,
operation or control of, any business that makes, sells or services products and
services that compete with any products or services included in the Business.
(ii) Seller and Buyer each further agrees that, for a period of two
(2) years following the Full Integration Date, neither will, directly or
indirectly, either for itself, or any other person or entity, induce or attempt
to induce any employee of the other (including all employees of the Business) or
any entity under common control with the other to leave the employ of such other
(other than pursuant to advertisements of general circulation).
6.5 Confidentiality.
---------------
(a) Seller acknowledges and agrees that it shall treat and hold as
confidential any information concerning the business and affairs of Buyer, CAIS
or any of their respective affiliates that is not already generally available to
the public (the "Confidential Information"), refrain from using any of the
Confidential Information except in connection with compliance with this
Agreement, and deliver promptly to CAIS or destroy, at the request and option of
CAIS, all tangible embodiments (and all copies) of the Confidential Information
which are in Seller's possession or under its control. In the event that Seller
is requested or required (by oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative
demand, or similar process) to disclose any Confidential Information, Seller
shall notify CAIS promptly of the request or requirement so that CAIS may seek
an appropriate protective order or waive compliance with the provisions of this
Section. If, in the absence of a protective order or the receipt of a waiver
hereunder, Seller is, on the advice
20
<PAGE>
of counsel, compelled to disclose any Confidential Information to any tribunal,
Seller may disclose the Confidential Information to the tribunal; provided that
Seller shall use its reasonable best efforts to obtain, at the request of CAIS,
an order or other assurance that confidential treatment shall be accorded to
such portion of the Confidential Information required to be disclosed as CAIS
shall designate. All provisions relating to confidentiality in this Agreement
are in addition to and shall not supersede or in any way nullify the effect of
the Confidentiality Agreement (the "Confidentiality Agreement"), dated
________________, executed and delivered by Buyer and Seller in connection with
the preliminary discussions relating to this transaction. Notwithstanding the
foregoing, Seller shall not be in violation of the confidentiality obligations
of this Section for (i) attempting to secure any Approval, consents or other
third party agreements required or necessary under this Agreement, (ii) making
any disclosure, filing or other statement required or reasonably advisable under
applicable law, regulation or order, or (iii) publicizing the general fact that
Seller (or any of its members, employees, officers, directors, managers, agents
or affiliates) has engaged in the transactions contemplated by this Agreement,
provided that doing so does not publish or disclose any trade secrets or other
proprietary information belonging to CAIS or Buyer.
(b) Without in any way limiting the rights and remedies that CAIS,
Buyer, or any of their respective affiliates may have at law, in equity or
otherwise, Seller acknowledges and agrees that CAIS, Buyer or any of their
respective affiliates may proceed against Seller for indemnification of all or
any Losses suffered by CAIS, Buyer or any of their respective affiliates in
connection with the breach or other violation of Seller's confidentiality
obligations hereunder. Further, Seller acknowledges and agrees that the injury
CAIS, Buyer or any of their respective affiliates would suffer in the event of a
breach by Seller of the confidentiality obligations of this Section would be
irreparable injury, not adequately compensated by monetary damages alone. Thus,
in the event of a breach or threatened or intended breach of the confidentiality
obligations of this Section by Seller, CAIS, Buyer or any of their respective
affiliates shall be entitled to injunctions, both temporary and final, enjoining
and restraining such breach or threatened or intended breach, and Seller hereby
consents to the issuance thereof by any court of competent jurisdiction without
bond. CAIS, Buyer or any of their respective affiliates may further assert such
claims as any or all might have against Seller for actual, incidental,
consequential, and punitive damages resulting from the breach of this Section.
If CAIS, Buyer or any of their respective affiliates prevails in whole or in
part in any such action, Seller shall be liable to the prevailing party or
parties for all reasonable costs, expert witness fees, and actual reasonable
attorney fees the prevailing party or parties incur in connection with seeking
such legal or equitable relief.
6.6 Satisfaction of Conditions. From the date hereof until the earlier
--------------------------
of termination of this Agreement or the Full Integration Date, Seller shall in
good faith proceed to take or cause to be taken all actions within its power
necessary to satisfy all conditions to its obligations to close and consummate
the transactions contemplated by this Agreement, including, but not limited to,
assisting Buyer in obtaining all consents necessary to transfer and assign all
of the Assets to Buyer; provided that, Seller shall not be obligated to pay any
amount to any third party in connection with obtaining any such consents other
than at the sole expense of Buyer or CAIS.
21
<PAGE>
7. COVENANTS OF BUYER AND/OR CAIS .
------------------------------
Buyer and/or CAIS, as applicable, and to the extent obligations of Seller
are set forth in this Section 7, Seller, covenants as follows:
7.1 Satisfaction of Conditions. Buyer and CAIS shall in good faith
--------------------------
proceed to take or cause to be taken all actions within its power necessary to
satisfy all conditions to its obligations to close and consummate the
transactions contemplated by this Agreement.
7.2 Warranty Obligations. Buyer shall perform the Warranty Obligations
--------------------
following the Closing Date in a timely and workmanlike manner in accordance with
the obligations of Seller with respect thereto that are to be assumed by Buyer
as of the Closing pursuant to Section 2.5.1(d) hereof.
7.3 Prohibition on Use of Names, Etc.
---------------------------------
7.3.1 Seller grants to Buyer a paid up, exclusive, nontransferable
license (i) to use Seller's logos and Seller's names, marks, trade names,
trademarks and service marks (collectively, "Seller Names") affixed to products
of the Business manufactured before the Closing or manufactured by Buyer after
the Closing and meeting the same quality standards met by Seller's products
prior to the Closing, in either case for a period of time not to exceed twelve
(12) months from the Closing Date; and (ii) for a period of time not to exceed
twelve (12) months from the Closing Date, to include in a less conspicuous
manner on products of Buyer substantially similar to those which the Seller
marketed through the Business prior to the Closing Date, and in product
literature therefor, the legend "formerly made by QuickATM." Notwithstanding the
foregoing, Seller shall retain all rights not granted herein, including, without
limitation, the right to use the Seller's Names in connection with the winding
up or dissolution of its affairs or such other purposes as are necessary or
proper and in accordance with this Agreement.
7.3.2 Buyer may use existing supplies of literature, packaging and
documentation of the Business which refer to or employ the Seller's logos and
Seller's Names until such supplies are expended, but in no event beyond twelve
(12) months following the Closing Date; provided that such supplies include a
statement that the Business is no longer affiliated with Seller and, with
respect to products referenced in such supplies, the legend "formerly made by
QuickATM."
7.4 Confidentiality.
---------------
(a) Buyer and CAIS, jointly and severally, acknowledge and
agree that they shall each treat and hold as confidential any information
concerning the business and affairs of the Business and Seller that is not
already generally available to the public (the "Confidential Information"),
refrain from using any of the Confidential Information except in connection with
compliance with this Agreement, and deliver promptly to Seller or destroy, at
the request and option of the Seller, all tangible embodiments (and all copies)
of the Confidential Information which are in its possession or under its
control. In the event that either Buyer or CAIS is requested or required (by
oral question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose
22
<PAGE>
any Confidential Information, such party shall notify Seller promptly of the
request or requirement so that Seller may seek an appropriate protective order
or waive compliance with the provisions of this Section. If, in the absence of a
protective order or the receipt of a waiver hereunder, Buyer or CAIS is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal, such party may disclose the Confidential Information to the tribunal;
provided that such party shall use its reasonable best efforts to obtain, at the
request of Seller, an order or other assurance that confidential treatment shall
be accorded to such portion of the Confidential Information required to be
disclosed as Seller shall designate. All provisions relating to confidentiality
in this Agreement are in addition to and shall not supersede or in any way
nullify the effect of the Confidentiality Agreement (the "Confidentiality
Agreement"), dated ________________, executed and delivered by Buyer and Seller
in connection with the preliminary discussions relating to this transaction.
(b) Without in any way limiting the rights and remedies that
Seller may have at law, in equity or otherwise, Seller may proceed against Buyer
or CAIS or both for indemnification of all or any Losses suffered by Seller in
connection with the breach or other violation of Buyer and/or CAIS'
confidentiality obligations hereunder. Further, Buyer and CAIS each acknowledges
and agrees that the injury Seller would suffer in the event of a breach by
either Buyer or CAIS of the confidentiality obligations of this Section would be
irreparable injury, not adequately compensated by monetary damages alone. Thus,
in the event of a breach or threatened or intended breach of the confidentiality
obligations of this Section by either Buyer or CAIS, Seller shall be entitled to
injunctions, both temporary and final, enjoining and restraining such breach or
threatened or intended breach, and Buyer and CAIS each hereby consents to the
issuance thereof by any court of competent jurisdiction without bond. Seller may
further assert such claims as it might have against Buyer and CAIS for actual,
incidental, consequential, and punitive damages resulting from the breach of
this Section. If Seller prevails in whole or in part in any such action, Buyer
and CAIS shall be jointly and severally liable to Seller for all reasonable
costs, expert witness fees, and actual reasonable attorney fees Seller incurs in
connection with seeking such legal or equitable relief.
7.5 Termination of Lease Guaranty. Following the Closing, Buyer shall
----------------------------- ---------
apply its best efforts to promptly assume the Lease and remove Clifford S.
Orloff as guarantor of Buyer's obligations under the Lease.
8. EMPLOYMENT MATTERS
------------------
8.1 Employees. Prior to the Closing, Buyer shall offer employment to
all of the employees primarily dedicated to the Business except for Seller's Key
Officer, effective at the Closing, at the salary levels no less than those
currently in place with Seller as of the Closing Date, and will provide employee
benefits to such employees in accordance with Buyer's current policies and
practices, except that Buyer shall (i) grant prior service credit under Buyer's
employee benefit plans, programs and policies to each such employee based on the
service date used by Seller in determining his or her service credit under
Seller's employee benefit plans, programs and policies, (ii) waive any
preexisting condition limitations under Buyer's employee benefit plans, programs
and policies which otherwise would be applicable to such employees, and (iii)
offer such employees the right to transfer accrued vacation and sick leave.
Notwithstanding the foregoing, Buyer shall have no liability for accrued wages
(including
23
<PAGE>
salaries, bonuses and commissions), severance pay, sick leave or other benefits
under or with respect to any of Seller's Employee Plans (as defined herein) of
any type or nature on account of Seller's employment or termination of such
employees prior to the Closing Date, except under clause (iii) above.
8.2 Employee Plans. Buyer is not assuming any of the Employee Plans of
--------------
Seller. Without limiting the foregoing, Buyer shall have no liability
whatsoever to employees of Seller with respect to accrued or future benefits
under any such Employee Plans, whether or not any of such employees accept
employment by or become employees of Buyer. For the purposes of only this
Section 8.2, the term "Seller" also includes any controlled group (within the
meaning of Section 414(b) of the Internal Revenue Code of 1986, as amended
("IRC")) of which Seller or any of its Subsidiaries is a member, all trades or
businesses under common control (within the meaning of IRC Section 414(c)) of
which Seller is a member and all affiliated service groups (within the meaning
of IRC Section 414(m)) of which Seller is a member. The term "Employee Plan"
shall mean all present and prior (including terminated and transferred) plans,
programs, agreements, arrangements and methods of contributions or compensation
(including all amendments to and components of the same, such as a trust with
respect to a plan) providing any remuneration or benefits, other than current
cash compensation, to any current or former employee of Seller or to any other
person who provides services to Seller, whether or not such plan or plans,
programs, agreements, arrangements and methods of contribution or compensation
are subject to Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and whether or not such plan or plans, programs, agreements,
arrangements and methods of contribution or compensation are qualified under the
IRC, including, without limitation, pension, retirement, profit sharing,
percentage compensation, stock purchase, stock option, bonus and non-qualified
deferred compensation plans, disability plans, medical plans, dental plans,
workers compensation, health insurance, life insurance or other death benefits,
incentive, severance plans, vacation benefits and fringe benefits. The term
"Employee Plan" also includes any employee plan that is a multi-employer plan as
defined in Section 3(37) of ERISA. Notwithstanding the foregoing, the term
"Employee Plan" shall not include (and Buyer shall assume at the Closing) any
accrued vacation or sick leave transferred to Buyer pursuant to Section 8.1
above.
9. INDEMNITY.
---------
9.1 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties of Seller in Section 3 and of Buyer and CAIS in Section 4 above
shall survive for a period of one (1) year from the Closing Date or the
expiration or termination of the Escrow Agreement, whichever occurs first;
provided, however, that the representations contained in Sections 3.1, 3.2, 4.1,
4.2, 4.4 and 4.5 shall survive until any liability thereunder is barred by all
applicable statutes of limitations, including waivers and extensions thereof. If
written notice of a claim has been given prior to the expiration of the
applicable representations and warranties by a party in whose favor such
representations and warranties have been made to the party that made such
representations and warranties, then the relevant representations and warranties
shall survive as to such claim until such claim has been finally resolved.
9.2 Seller's Indemnity. Seller shall indemnify, defend, protect and
------------------
hold harmless each of Buyer and CAIS (and their respective Subsidiaries,
officers, directors, employees and agents) from and against any and all losses,
costs, expenses, liabilities,
24
<PAGE>
obligations, claims, demands, causes of action, suits, settlements and judgments
of every nature, including the costs and expenses associated therewith and
actual and reasonable attorneys', consultants' and witness fees incurred in
connection therewith ("Buyer's Damages"), which arise out of or relate to: (i)
the material breach of any representation or warranty made by Seller pursuant to
Section 3 of this Agreement; (ii) the material non-performance, partial or
total, of any covenant made by Seller pursuant to this Agreement or the Seller's
Closing Documents; or (iii) any Retained Liability; or (iv) Seller's hiring and
employment practices with respect to employment with Seller's of, or termination
with Seller of, all employees of the Business (except solely as provided in
Section 8.1 above).
9.3 Buyer's Indemnity. Buyer shall indemnify, defend, protect and hold
-----------------
harmless Seller (and its officers, directors, managers, members, employees and
agents) from and against any and all losses, costs, expenses, liabilities,
obligations, claims, demands, causes of action, suits, settlements and judgments
of every nature, including the costs and expenses associated therewith and
reasonable attorneys', consultants' and witness fees incurred in connection
therewith ("Seller's Damages"; and when used together with or in the alternative
to Buyer's Damages, "Damages"), which arise out of: (i) the material breach by
Buyer of any representation or warranty made by Buyer pursuant to Sections 4.1
through 4.3 and Sections 4.8 through 4.12 of this Agreement; (ii) the material
non-performance, partial or total, of any covenant made by Buyer pursuant to
this Agreement or the Buyer/CAIS Closing Documents; (iii) Buyer's hiring and
employment practices with respect to employment with Buyer of, or termination of
employment with Buyer of, the employees to be offered employment or hired by
Buyer for the Business; (iv) any Assumed Liability; and (v) any Damages incurred
by Seller or Clifford S. Orloff under that certain personal guarantee made in
connection with the Lease.
9.4 CAIS' Indemnity. CAIS shall indemnify, defend, protect and hold
---------------
harmless Seller (and its officers, directors, managers, employees and agents)
from and against any and all Seller's Damages which arise out of: (i) the
material breach by CAIS of any representation or warranty made by CAIS pursuant
to Sections 4.4 through 4.12 of this Agreement; or (ii) the material non-
performance, partial or total, of any covenant made by CAIS pursuant to this
Agreement or the CAIS/Buyer Closing Documents.
1.5 Procedure for Indemnification -- Third Party Claims. Promptly
after receipt by an indemnified party under Section 9.2, 9.3 or 9.4 of written
notice of a claim or the commencement of any proceeding against it, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party under such Section, give written notice to the indemnifying
party of the commencement thereof, but the failure so to notify the indemnifying
party shall not relieve it of any liability that it may have to any indemnified
party, except to the extent the indemnifying party demonstrates that the defense
of such action is or has been materially prejudiced thereby. In case any such
proceeding shall be brought against an indemnified party and it shall give
notice to the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish (unless the indemnifying party is also a party to such proceeding and the
indemnified party determines in good faith that joint representation would be
inappropriate) to assume the defense thereof with counsel which is reasonably
satisfactory to such indemnified party and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any fees
25
<PAGE>
of such counsel or any other expenses with respect to the defense of such
proceeding, in each case, subsequently incurred by such indemnified party in
connection with the defense thereof. If an indemnifying party assumes the
defense of such proceeding, (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's reasonable
consent unless (i) there is no finding or admission of any violation of law or
any violation of the rights of any person and no effect on any other claims that
may be made against the indemnified party, and (ii) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (b) the
indemnifying party shall have no liability with respect to any compromise or
settlement thereof effected without its consent (which shall not be unreasonably
withheld or delayed). If notice is given to an indemnifying party of the
commencement of any proceeding and it does not, within fifteen (15) business
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party, the indemnifying party shall
be bound by any determination made in such action or any compromise or
settlement thereof effected by the indemnified party. Notwithstanding the
foregoing, if an indemnified party determines in good faith that there is a
reasonable probability that a proceeding may adversely affect it or its
affiliates, other than as a result of monetary damages, such indemnified party
may, by notice to the indemnifying party, assume the exclusive right to defend,
compromise or settle such proceeding, but the indemnifying party shall not be
bound by any determination of a proceeding so defended or any compromise or
settlement thereof effected without its consent (which shall not be unreasonably
withheld or delayed).
1.6 Bulk Sales Law. Buyer and CAIS each waive any claim they may have
--------------
against Seller or any of Seller's affiliates, members, managers, officers,
directors, employees or agents with respect to, or arising out of, Seller's non-
compliance with any provision of any bulk sales or bulk transfer law in
connection with this Agreement.
1.7 Limitations on Indemnification.
------------------------------
1.7.1 Any claim made against an indemnifying party for
indemnification pursuant to Section 9.2, Section 9.3 or Section 9.4, as the case
may be, shall not qualify for indemnification (either individually, or when
aggregated with other claims as set forth below) unless the Damages for such
claim exceeds One Thousand Dollars ($1,000). Any qualifying claim of greater
than One Thousand Dollars ($1,000) shall be referred to as a "Material Claim."
No claims which are not Material Claims shall give rise to any indemnification
obligation under this Agreement. Further, no Material Claim or Material Claims
may be made against an indemnifying party for indemnification pursuant to
Section 9.2, Section 9.3, or Section 9.4, as the case may be, unless the
aggregate Damages of the indemnified parties with respect to such Material
Claims shall exceed an aggregate amount equal to Twenty-Five Thousand Dollars
($25,000), in which case the indemnifying party shall be obligated to the
indemnified party for the full amount of the Damages, including, without
limitation, those Damages up to said $25,000 amount. Under no circumstances
shall Seller's liability under Section 9.2 exceed the Escrow Amount, and in no
circumstances shall Seller's liability thereunder be satisfied by any assets or
funds other than those contained in the Escrow Agreement. Upon the expiration or
termination of the Escrow Agreement, Seller's indemnification obligations under
this Agreement shall immediately cease and terminate.
26
<PAGE>
1.7.2 The liability of any indemnifying party with respect to any
Damages shall be determined on a basis that is net of the amount of any such
Damages covered by insurance (less any deductibles).
Notwithstanding any provision in this Agreement, nothing shall limit the
rights and remedies of Buyer and CAIS, including but not limited to
indemnification in excess of the foregoing limitations, for any losses,
liabilities or claims related to (i) fraud; (ii) intentional misrepresentation;
or (iii) criminal conduct of Seller or any of its current or former officers,
directors, members or agents.
10. TERMINATION.
-----------
10.1 Mutual Agreement. This Agreement may be terminated at any time
----------------
prior to the Closing Date by the written agreement of Seller, CAIS and Buyer.
10.2 Permanent Injunction. This Agreement shall be terminated upon the
--------------------
entry of a permanent order by a governmental entity having jurisdiction over
Buyer, CAIS, Seller or any of their respective Subsidiaries, affiliates or
assets, enjoining or restraining the transactions contemplated by this
Agreement.
10.3 Termination by Buyer or CAIS. This Agreement may be terminated by
----------------------------
Buyer or CAIS if, on the Closing Date, the conditions set forth in Section 5 of
this Agreement shall not have been met by Seller or waived by Buyer and CAIS,
provided that, if on such date a preliminary injunction has been entered
preventing the Closing, such date shall automatically be extended until (i) such
injunction shall have been lifted, in which case the Closing shall thereupon
take place as soon as practicably possible, assuming that all other conditions
to Closing are satisfied, or (ii) a permanent injunction shall have been
entered, in which case this Agreement shall be terminated as provided in Section
10.2 above.
10.4 Termination by Seller. This Agreement may be terminated by Seller
if, on the Closing Date, the conditions set forth in Section 5 of this Agreement
shall not have been met by Buyer or CAIS, as applicable, or waived by Seller,
provided that, if on such date a preliminary injunction has been entered
preventing the Closing, such date shall automatically be extended until (i) such
injunction shall have been lifted, in which case the Closing shall thereupon
take place as soon as practicably possible, assuming that all other conditions
to Closing are satisfied, or (ii) a permanent injunction shall have been
entered, in which case this Agreement shall be terminated as provided in Section
10.2 above.
10.5 Confidentiality and Effect of Termination. In the event that this
-----------------------------------------
Agreement is terminated, each of the parties shall return (without retaining
copies) all documents and papers containing Confidential Information of the
other party (including, without limitation, technical information, customer
lists, financial data and any similar information developed by another party
pursuant to this Agreement or in contemplation of the transactions contemplated
by this Agreement). The confidentiality obligations set forth in Sections 6.5
and 7.4 of this Agreement shall survive termination of this Agreement for any
reason for a period of three (3) years after the date of such termination.
27
<PAGE>
11. MISCELLANEOUS.
-------------
11.1 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the successors and permitted assigns of the parties, except that no
party hereto may assign its rights or obligations hereunder without the prior
written consent of the other parties. Any assignment in contravention of this
Section 11.1 shall be null and void.
11.2 Allocation of Purchase Price. No later than sixty (60) days after
----------------------------
the Closing Date, Buyer and Seller shall mutually agree upon the allocation of
the Purchase Price among the various items included in the Assets and the
Business being transferred by Seller to Buyer. Buyer and Seller have agreed that
the allocation to be provided hereby shall be determined by the appraisal report
of an independent, mutually agreed upon appraiser, if the parties cannot agree
on the allocation after good faith negotiations, and that Buyer shall solely
bear all of the costs of such appraisal. Buyer and Seller shall file all Tax
returns and reports in a manner consistent with the allocation provided for in
this Section 11.2, and cooperate with each other in connection therewith.
11.3 Prorations. All state and local real and personal property Taxes
----------
relating to the Assets which apply to periods commencing prior to and ending on
or after the Closing Date shall be prorated as between Seller and Buyer as of
the Closing Date. Seller shall receive a credit, at the Closing for the security
deposit, if any, held by the landlord under the Lease. Seller shall also receive
a credit for any fees paid in advance by Seller under the Contracts, which fees
represent prepayments for periods after the Closing Date. State and local real
and personal property Taxes relating to the Assets for the Tax period in which
the Closing occurs shall be prorated between Buyer and Seller on the following
basis: Seller shall be responsible for the payment of all such Taxes for the
period up to the Closing Date; and Buyer shall be responsible for payment of all
such Taxes for the period from and after the Closing Date. All such Taxes
assessed on an annual basis shall be prorated on the assumption that an equal
amount of Tax applies to each day of the year, regardless of how installment
payments are billed or made. Any supplemental property Taxes or assessments
which arise out of a revaluation of an Asset, which revaluation would not have
occurred except for the change in ownership of the Asset, shall be borne by
Buyer. Any payments of Taxes due from one party to another pursuant to this
Section 11.3 shall be paid at the Closing Date. If such Taxes and assessments
are not available as of the Closing Date, for purposes of apportionment between
Buyer and Seller and payment pursuant to this Section 11.3, the amount thereof
shall be estimated on the basis of the prior year's Taxes and assessments, and
any incremental payment shall be adjusted after receipt of the final Tax
statements, but in any event within fifteen (15) days after such statements are
provided by one party to another. Buyer shall not be responsible for any other
Tax (including but not limited to any business, occupation, unemployment
compensation, workers' compensation, withholding or similar Tax) attributable to
the operations of the Business for any period prior to the Closing. Seller shall
not be responsible for any other Tax (including but not limited to any business,
occupation, unemployment compensation, workers' compensation, withholding or
similar Tax) attributable to the operations of the Business for any period from
and after the Closing. The total estimated prorations, as reasonably determined
by Seller, shall be paid by Buyer at the Closing, with final complete prorations
to be determined as soon as practicable after the Closing.
28
<PAGE>
11.4 Publicity. No party shall issue a press release or otherwise
---------
publicize the transactions contemplated by this Agreement or otherwise disclose
the nature or contents of this Agreement prior to the Full Integration Date,
except as otherwise required by applicable law (and any such press release shall
be mutually acceptable to Buyer, CAIS and Seller), regulation, stock exchange or
Nasdaq requirement or by the mutual consent of each of Buyer, CAIS and Seller.
11.5 Transfer Taxes. Any Taxes arising out of or incurred in
--------------
connection with the transactions contemplated by this Agreement shall be paid by
Buyer.
11.6 Expenses. Except as otherwise expressly provided herein, each
--------
party will pay its own costs and expenses, including legal and accounting
expenses, related to the transactions provided for herein, irrespective of when
incurred.
11.7 Further Assurances. It is the intention of the parties hereto
------------------
that all assets, rights, and tangible and intangible property constituting the
Assets be sold to Buyer. Accordingly, each party will from time to time prior to
or subsequent to the Closing Date, at another party's reasonable request and
without further consideration, execute and deliver such other instruments of
conveyance, assignment and transfer and take such other actions as the other
party may reasonably request in order to cause all of the Assets to be
transferred and assigned to Buyer and otherwise to more effectively consummate
the transactions contemplated hereby; provided that, in connection with the
foregoing, Seller shall not be obligated to pay any amount to any third party
other than at the sole expense of Buyer or CAIS.
11.8 Dispute Resolution. Any dispute, controversy or claim between or
------------------
among the parties relating to, or arising out of or in connection with, this
Agreement (or any subsequent agreements or amendments thereto), including as to
its existence, enforceability, validity, interpretation, performance, breach or
damages, including claims in tort, whether arising before or after the
termination of this Agreement, shall be settled only by binding arbitration
pursuant to the Commercial Arbitration Rules, as then amended and in effect, of
the American Arbitration Association (the "Rules"), subject to the following:
11.8.1 The arbitration shall take place in Los Angeles, California,
or at some other location mutually agreed upon in writing by the parties.
11.8.2 There shall be three arbitrators, who shall be selected under
the normal procedures prescribed in the Rules, except that one such arbitrator
shall be a certified public accountant and one (1) such arbitrator (who shall
chair the arbitration panel) shall be a member of the American Board of Trial
Advocates or the American College of Trial Lawyers.
11.8.3 Subject to legal privileges, each party shall be entitled to
discovery in accordance with the Federal Rules of Civil Procedure.
11.8.4 At the arbitration hearing, each party may make written and
oral presentations to the arbitrator, present testimony and written evidence and
examine witnesses.
11.8.5 The arbitrators' decision shall be in writing, shall be
binding and final and may be entered and enforced in any court of competent
jurisdiction.
29
<PAGE>
11.8.6 No party shall be eligible to receive, and the arbitrators
shall not have the authority to award, indirect, exemplary or punitive damages
or any other damages not directly related to compensating the damaged party for
damages directly incurred.
11.8.7 Seller shall pay one-half of the fees and expenses of the
arbitrators and the American Arbitration Association and Buyer and/or CAIS shall
pay the other half of any such fees and expenses.
11.8.8 The arbitrators shall not have the power to amend this
Agreement.
11.8.9 Notwithstanding the provisions of this Section 11.8, the
parties shall not be obligated to commence arbitration when seeking injunctive
relief for any matter for which injunctive relief is specifically authorized in
this Agreement, but rather such party may petition a court of competent
jurisdiction for such injunctive relief.
11.9 Notices. Any notice or other communication required or permitted
-------
hereunder shall be in writing and shall be deemed to have been duly given on the
date of service if served personally or by facsimile, or five (5) days after the
date of mailing if mailed, by first class mail, registered or certified, postage
prepaid. Notices shall be addressed as follows:
To Seller at: QuickATM, LLC
2437 Durant Avenue, Suite 207
Berkeley, California 94704
Attn: Clifford S. Orloff
Fax: _____________________
with a copy to: Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attn: Rob Zeitinger, Esq.
Fax: (310) 203-7199
To Buyer or CAIS at: CAIS Internet, Inc.
1255 22nd Street, N.W.
Washington, DC 20037
Attn: __________________________
Fax: (202) 463-7190
30
<PAGE>
with a copy to: Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006
Attention: Morris F. DeFeo, Jr., Esq.
Fax: (202) 887-0763
or to such other address as a party has designated by notice in writing to the
other parties in the manner provided by this Section.
11.10 Entire Agreement and Modification. This Agreement constitutes and
---------------------------------
contains the entire agreement of the parties and supersedes any and all prior
negotiations, correspondence, understandings and agreements (other than the
Confidentiality Agreement) between the parties respecting the subject matter
hereof. This Agreement may only be amended by written instrument signed by the
parties.
11.11 No Other Remedies. Except with respect to Damages for (a) fraud,
-----------------
(b) intentional misrepresentation or (c) criminal matters, in respect of which
the parties hereto shall be entitled to any and all remedies available
hereunder, under law and/or otherwise, any and all remedies herein expressly
conferred upon a party hereby are deemed exclusive of any other remedy conferred
hereby or by law or equity on such party. In particular, the remedies provided
by Section 9 for Damages shall be exclusive of any other rights or remedies
available to a party against another party, either at law or in equity, in
relation to any breach, default or nonperformance of any representation,
warranty, covenant, agreement or undertaking made or entered into by such other
party pursuant to this Agreement.
11.12 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed in the State of California by California
residents, but without regard to California's conflict of laws principles.
11.13 Brokers. Each party hereby represents and warrants to the others
-------
that, except as disclosed herein, neither it nor its representatives have taken,
nor will they take any action that would cause the other parties hereto to have
any obligation or liability to any person for the payment of any finders' fees,
brokerage fees, investment banking fees, consulting fees, agents' commissions,
or like payments in connection with the transactions contemplated hereby. Each
party shall indemnify and hold harmless the others from any claim that is
asserted by any person for such fees, commissions or like payments with respect
to this Agreement arising from any act, representation or promise of the
indemnifying party or its representative.
11.14 Severability. If any provision of this Agreement is held to be
------------
unenforceable for any reason, it shall be adjusted rather than voided, if
possible, in order to achieve the intent of the parties to the extent possible.
In any event, all other provisions of this Agreement shall be deemed valid and
enforceable to the fullest extent possible.
11.15 Headings. The headings appearing at the beginning of several
--------
sections contained herein have been inserted for the convenience of the parties
and shall not be used to determine the construction or interpretation of this
Agreement.
31
<PAGE>
11.16 Counterparts. This Agreement may be executed by facsimile and in
------------
counterparts, each of which shall be deemed an original, but both of which when
taken together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above set forth.
CAIS SOFTWARE SOLUTIONS, INC.
By: /s/ W. Stephen Nye
---------------------------
Name:
Title:
CAIS INTERNET, INC.
By: /s/ William H. Caldwell IV
---------------------------
Name:
Title:
QUICKATM, LLC
By: /s/ Clifford Orloff
---------------------------
Name:
Title:
32
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. DEFINITIONS......................................................................................... 1
2. SALE AND PURCHASE OF ASSETS......................................................................... 4
2.1 Sale of Assets................................................................................ 4
2.2 Assets Not Purchased.......................................................................... 5
2.3 Purchase Price................................................................................ 6
2.4 No Assignment in Certain Circumstances........................................................ 8
2.5 Assumed Liabilities........................................................................... 8
2.6 Closing....................................................................................... 9
2.7 Consent of Third Parties...................................................................... 10
3. REPRESENTATIONS AND WARRANTIES OF SELLER............................................................ 10
3.1 Organization and Authority.................................................................... 11
3.2 Authority Relating to this Agreement and Other Agreements; No Violation of Other Instruments.. 11
3.3 Ownership and Delivery of Assets.............................................................. 12
3.4 Compliance with Law........................................................................... 12
3.5 Absence of Certain Changes or Events.......................................................... 12
3.6 Inventory..................................................................................... 12
3.7 Personal Property............................................................................. 13
3.8 Lease 13
3.9 Intellectual Property......................................................................... 13
3.10 Product Warranties and Returns................................................................ 13
3.11 Litigation.................................................................................... 13
3.12 Personnel..................................................................................... 13
3.13 Brokers and Finders........................................................................... 14
3.14 Contracts..................................................................................... 14
3.15 Major Customers............................................................................... 14
4. REPRESENTATIONS AND WARRANTIES OF BUYER AND CAIS.................................................... 14
4.1 Organization and Authority.................................................................... 14
4.2 Authority Relating to this Agreement; No Violation of Other Instruments....................... 14
4.3 Sufficient Funds.............................................................................. 15
4.4 Organization and Authority.................................................................... 15
4.5 Authority Relating to this Agreement; No Violation of Other Instruments....................... 15
4.6 Reports and Financial Statements.............................................................. 16
4.8 Capitalization................................................................................ 17
4.7 Brokers and Finders........................................................................... 17
4.9 Changes....................................................................................... 17
4.10 Compliance.................................................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
4.11 Litigation.................................................................................... 18
4.12 Governmental Consent.......................................................................... 18
5. CONDITIONS TO THE OBLIGATIONS OF SELLER, BUYER AND CAIS............................................. 18
5.1 Required Consents............................................................................. 18
5.2 No Orders..................................................................................... 18
5.3 Delivery of Closing Documents................................................................. 18
6. COVENANTS OF SELLER................................................................................. 18
6.1 Access to Properties and Records.............................................................. 18
6.2 Conduct of the Business Prior to the Closing Date............................................. 19
6.3. Acquisition, Merger or Similar Negotiations With Other Parties................................ 20
6.4 Non-Compete................................................................................... 20
6.5 Confidentiality............................................................................... 21
6.6 Satisfaction of Conditions.................................................................... 22
7. COVENANTS OF BUYER AND/OR CAIS...................................................................... 22
7.1 Satisfaction of Conditions.................................................................... 22
7.2 Warranty Obligations.......................................................................... 22
7.3 Prohibition on Use of Names, Etc.............................................................. 22
7.4 Confidentiality............................................................................... 23
7.5 Termination of Lease Guaranty................................................................. 24
8. EMPLOYMENT MATTERS.................................................................................. 24
8.1 Employees..................................................................................... 24
8.2 Employee Plans................................................................................ 24
9. INDEMNITY........................................................................................... 25
9.1 Survival of Representations and Warranties.................................................... 25
9.2 Sellers' Indemnity............................................................................ 25
9.3 Buyer's Indemnity............................................................................. 25
9.4 CAIS' Indemnity............................................................................... 26
9.5 Procedure for Indemnification -- Third Party Claims........................................... 26
9.6 Bulk Sales Law................................................................................ 26
9.7 Limitations on Indemnification................................................................ 27
10. TERMINATION......................................................................................... 27
10.1 Mutual Agreement.............................................................................. 27
10.2 Permanent Injunction.......................................................................... 27
10.3 Termination by Buyer or CAIS.................................................................. 27
10.4 Termination by Seller......................................................................... 28
10.5 Confidentiality and Effect of Termination..................................................... 28
11. MISCELLANEOUS....................................................................................... 28
11.1 Assignment.................................................................................... 28
11.2 Allocation of Purchase Price.................................................................. 28
11.2 [Intentionally Omitted]....................................................................... 28
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
11.3 Prorations.................................................................................... 28
11.4 Publicity..................................................................................... 29
11.5 Transfer Taxes................................................................................ 29
11.6 Expenses...................................................................................... 29
11.7 Further Assurances............................................................................ 29
11.8 Dispute Resolution............................................................................ 30
11.9 Notices....................................................................................... 30
11.10 Entire Agreement and Modification............................................................. 31
11.11 No Other Remedies............................................................................. 31
12.12 Governing Law................................................................................. 32
11.13 Brokers....................................................................................... 32
11.14 Severability.................................................................................. 32
11.15 Headings...................................................................................... 32
11.16 Counterparts.................................................................................. 32
</TABLE>
iii
<PAGE>
TABLE OF EXHIBITS
Exhibit A: Schedules
Exhibit 2.4.2: Consent of Mark Daoud
Exhibit 2.6.2(a): Bill of Sale, Assignment and Assumption Agreement
Exhibit 2.6.2(b): Secretary's Certificates of Seller
Exhibit 2.6.2(c): Compliance Certificates of Seller
Exhibit 2.6.2(d): Registration Rights Agreement
Exhibit 2.6.2(e): Escrow Agreement
Exhibit 2.6.2(f): Consulting Agreement with Clifford D. Orloff
Exhibit 2.6.3(b): Secretary's Certificates of Buyer and CAIS
Exhibit 2.6.3(c): Compliance Certificates of Buyer and CAIS
Exhibit 8.1 List of Seller's Employees to be Hired by Buyer After Closing
1
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Exhibit 10.64
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of March ___, 2000, by and between CAIS Internet, Inc., a Delaware
corporation (the "Company"), and the persons listed on Schedule A attached
----------
hereto and their respective successors and permitted assigns (collectively, the
"Holders" and individually, a "Holder").
WHEREAS, on March __, 2000, the Company, CAIS Software Solutions, Inc.,
("CAISSoft") and QuickATM, LLC, a California limited liability company
("QuickATM") entered into an Asset Purchase Agreement (the "Purchase
Agreement"), pursuant to which CAISSoft will acquire substantially all of the
assets of QuickATM used in the business of producing, distributing and operating
Internet kiosks (the "Purchase");
WHEREAS, pursuant to the Purchase Agreement, the Company will issue to
QuickATM, as partial consideration for the Purchase, shares of the Company's
Common Stock (as defined below) (the "Shares");
WHEREAS, pursuant to the Purchase Agreement, the members of QuickATM will
distribute the Shares to the Holders, who are certain members, officers,
employees, directors and agents of QuickATM;
WHEREAS, the Purchase Agreement provides, among other things, that the
Shares may be transferred or resold only in accordance with the Purchase
Agreement and this Agreement;
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the consummation of the Purchase and the other transactions
contemplated by the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
there parties hereto agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"CAIS Prospectus" shall have the meaning set forth in Section 5(d)
---------------
hereof.
"CAIS SEC Reports" shall have the meaning set forth in Section 5(d)
----------------
hereof.
<PAGE>
"Common Stock" shall mean the Common Stock, par value $.01 per share,
------------
of the Company.
"Company" shall have the meaning set forth in the preamble and shall
-------
also include the Company's successors.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended from time to time.
"Offering" shall mean the sale of Common Stock in connection with any
--------
public offering by the Company.
"Other Holders" shall have the meaning set forth in Section 3(c)
-------------
hereof.
"Person" shall mean an individual, partnership, limited liability
------
company, corporation, trust, unincorporated organization or other entity, or a
government or agency or political subdivision thereof.
"Piggyback Notice" shall have the meaning set forth in Section 3(b)
----------------
hereof.
"Piggyback Registration" shall have the meaning set forth in Section
----------------------
3(b) hereof.
"Piggyback Request" shall have the meaning set forth in Section 3(b)
-----------------
hereof.
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement for the registration with the SEC of all or a portion of the
Registrable Securities, including any preliminary prospectus, and any such
prospectus as amended or supplemented by any prospectus supplement and by all
other amendments and supplements to such prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Purchase" shall have the meaning set forth in the recitals.
--------
"Holder" and "Holders" shall have the meanings set forth in the
------
preamble.
"Registrable Securities" shall mean the Shares issuable to the Holder
----------------------
as Consideration Shares (as defined in the Purchase Agreement) in connection
with the Purchase, excluding (i) Registrable Securities for which a Registration
Statement relating to the sale thereof shall have become effective under the
Securities Act and which have been sold or otherwise distributed under such
Registration Statement or (ii) Registrable Securities which the Holder may sell
pursuant to Rule 144 under the Securities Act (or such successor rule as may be
adopted).
"Registration Statement" shall mean a registration statement of the
----------------------
Company and any other entity required to be a registrant with respect to such
registration
2
<PAGE>
statement pursuant to the requirements of the Securities Act which covers some
or all of the Registrable Securities, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
materials incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as amended
--------------
from time to time.
"Shares" shall have the meaning set forth in the preamble.
------
2. Lock-up Agreement. Notwithstanding anything in this Agreement to the
-----------------
contrary, in connection with any Offering, Holders agree that, if requested by
the managing underwriter of the Offering, the Holders shall not (except pursuant
to a Piggyback Registration to the extent permitted hereunder), directly or
indirectly, sell, offer, contract to sell, grant any option to purchase,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of, any Shares, without the prior written consent of the
Company and the managing underwriters of the Offering for a period of ninety
(90) days from the effective date of the registration statement under the
Securities Act relating to such Offering. This restriction shall be binding
upon any transferee of the Shares and the certificates for the Shares shall bear
a legend to such effect. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Shares until
the end of such period.
3. Piggyback Registration.
----------------------
(a) Right to Piggyback. If the Company proposes to file any
------------------
registration statement under the Securities Act for purposes of an Offering of
securities of the Company (including, but not limited to, registration
statements relating to secondary Offerings of securities of the Company, but
excluding Registration Statements relating to employee benefit plans or other
compensatory arrangements or with respect to corporate reorganizations, or other
transactions under Rule 145 of the Securities Act) (a "Piggyback Registration"),
the Company will give prompt written notice to the Holders of the Company's
intention to effect such a registration (each, a "Piggyback Notice") and,
subject to the terms hereof, the Company will include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within ten (10) days after the date of delivery
of the Piggyback Notice; provided, however, that if, at any time after
-----------------
giving written notice of its intention to register any shares and, prior to the
effective date of the Registration Statement filed in connection with such
registration, the Company shall determine for any reason not to register any
such shares, the Company may, at its election, give written notice of such
determination to the Holders requesting inclusion therein, and thereupon, the
Company shall be relieved of any obligation to register any Registrable
Securities in connection with such terminated registration. If the Piggyback
Registration is an underwritten Offering on behalf of the Company, then the
Company shall not be required to include any Registrable Securities of the
Holders in such Offering unless the Holders enter into a
3
<PAGE>
customary form of underwriting agreement in form and substance reasonably
satisfactory to the underwriters and the Company.
(b) Priority on Primary Registrations. If a Piggyback Registration is
---------------------------------
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner in such Offering within a price range
acceptable to the Company, the Company will include in such registration, (i)
first, the securities the Company proposes to sell, and (ii) second, other
securities requested to be included in such registration, including without
limitation the Registrable Securities, pro rata on the basis of the number of
shares of such securities owned by each holder thereof (subject to any other
priority arrangements existing under other registration rights agreements to
which the Company is a party).
(c) Priority on Secondary Registration. If a Piggyback Registration
----------------------------------
is an underwritten secondary registration on behalf of holders of the Company's
securities other than the Holders (the "Other Holders"), and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in an orderly manner in such Offering within a price range
acceptable to the Company and the Other Holders requesting such registration,
the Company will include in such registration (i) first, the securities
requested to be included therein by the Other Holders requesting such
registration, (ii) second, the securities the Company proposes to sell, if any,
and (iii) third, other securities requested to be included in such registration,
including without limitation, the Registrable Securities, pro rata on the basis
of the number of shares of such securities owned by each holder thereof (subject
to any other priority arrangements existing under registration rights agreements
to which the Company is a party).
(d) Selection of Underwriters. In the case of an underwritten
-------------------------
Piggyback Registration, the Company shall have the right to select the
investment banker(s) and manager(s) to administer the Offering.
4. Registration Procedures.
-----------------------
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to this Agreement, the Company shall:
(a) prepare and file with the SEC, a Registration Statement which
shall comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith;
(b) subject to the last three sentences of this Section 4(b) and
Section 4(i) hereof, (i) prepare and file with the SEC such amendments and post-
effective amendments to each such Registration Statement as may be required
under the Securities Act; (ii) cause each such Prospectus to be supplemented by
any required prospectus supplement, and as so supplemented, to be filed pursuant
to Rule 424 or any similar rule
4
<PAGE>
that may be adopted under the Securities Act; and (iii) respond as promptly as
practicable to any comments received from the SEC with respect to the
Registration Statement, or any amendment, post-effective amendment or supplement
relating thereto. Notwithstanding anything to the contrary contained herein, the
Company shall not be required to take any of the actions described in clauses
(i), (ii), or (iii) above with respect to the Holders of Registrable Securities
under a Piggyback Registration unless and until the Company has received a
Piggyback Notice from the Holder that the Holder intends to make offers or sales
under the Registration Statement as specified in such Piggyback Notice. Once the
Holder has delivered a Piggyback Notice to the Company, the Holder shall
promptly provide to the Company such information as the Company reasonably
requests in order to identify the Holder and the method of distribution in a
post-effective amendment to the Registration Statement or a supplement to the
Prospectus. The Holder also shall notify the Company in writing upon completion
of such offer or sale or at such time as the Holder no longer intends to make
offers or sales under the Registration Statement;
(c) furnish to the selling Holder of Registrable Securities, without
charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other documents as
the Holder may reasonably request, in order to facilitate the public sale or
other disposition of the Registrable Securities; the Company consents to the use
of the Prospectus, including each preliminary Prospectus, by the Holder in
connection with the Offering and sale of the Registrable Securities covered by
the Prospectus or the preliminary Prospectus;
(d) use its reasonable best efforts to register or qualify the
Registration Statement by the time the applicable Registration Statement is
declared effective by the SEC under all applicable state securities or "blue
sky" laws of such jurisdictions as the Holder shall reasonably request in
writing, keep each such registration or qualification effective during the
period such Registration Statement is required to be kept effective as provided
herein and all other acts and things that may be reasonably necessary or
advisable to enable the Holder to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by the Holder to the extent
required hereunder; provided, however, that the Company shall not be required to
-----------------
(i) qualify generally to do business in any jurisdiction or to register as a
broker or dealer in such jurisdiction where it would not otherwise be required
to qualify but for this Section 4(d), (ii) subject itself to taxation in any
such jurisdiction, or (iii) submit to the general service of process in any such
jurisdiction;
(e) notify the Holder promptly and, if requested by the Holder,
confirm such advice in writing (i) when a Registration Statement has become
effective and when any post-effective amendments and supplements thereto become
effective, (ii) of the issuance by the SEC or any state securities authority of
any stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iii) if the Company receives
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose, and (iv) of the happening of any event during the
period a Registration Statement is effective as a result of which
5
<PAGE>
such Registration Statement or the related Prospectus contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made (in the case of the Prospectus), not
misleading;
(f) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(g) furnish to the Holder, without charge, at least one conformed
copy of each Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits thereto, unless
requested);
(h) cooperate with the Holder to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold and
not bearing any Securities Act legend; and enable certificates for such
Registrable Securities to be issued for such numbers of shares and registered in
such names as the Holder may reasonably request at least two business days prior
to any sale of Registrable Securities;
(i) subject to the last three sentences of Section 4(b) hereof, upon
the occurrence of any event contemplated by Section 4(e)(iv) hereof, use its
reasonable best efforts to promptly prepare and file a supplement or prepare,
file and obtain effectiveness of a post-effective amendment to a Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(j) make available for inspection by the Holder and any
representatives, counsel or accountant retained by the Holder, all financial and
other records, pertinent corporate documents and properties of the Company, and
cause the respective officers, directors and employees of the Company to supply
all information reasonably requested by any such representative, counsel or
accountant in connection with a Registration Statement; provided, however, that
-----------------
such records, documents or information which the Company determines, in good
faith, to be confidential and notifies such representatives, counsel or
accountants in writing that such records, documents or information are
confidential shall not be disclosed by the representatives, counsel or
accountants unless (i) the disclosure of such records, documents or information
is necessary to avoid or correct a material misstatement or omission in a
Registration Statement; (ii) the release of such records, documents or
information is ordered pursuant to a subpoena or order from a court of competent
jurisdiction; or (iii) such records, documents or information have been
generally made available to the public;
(k) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus, provide copies of such document (not
including any documents incorporated by reference therein unless requested) to
the Holder;
6
<PAGE>
(l) use its reasonable best efforts to cause all Registrable
Securities to be listed on any securities exchange on which similar securities
issued by the Company are then listed;
(m) provide a CUSIP number for all Registrable Securities, not later
than the effective date of a Registration Statement;
(n) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering at
least 12 months that shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder; and
(o) use its reasonable best efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable Holder to
consummate the disposition of such Registrable Securities.
The Company may require each selling Holder to furnish to the Company
in writing such information regarding the proposed distribution by the Holder as
the Company may from time to time reasonably request in writing.
In connection with and as a condition to the Company's obligations
with respect to the Registration Statement, each Holder agrees that: (i) it
will not offer or sell its Registrable Securities under the Registration
Statement until it has provided a Piggyback Notice, if and to the extent
applicable, and has received copies of the supplemental or amended Prospectus
contemplated by Section 4(b) hereof and receives notice that any post-effective
amendment has become effective; or (ii) upon receipt of any written notice from
the Company of the happening of any event of the kind described in Section
4(e)(iv) hereof, the Holder will forthwith discontinue disposition of
Registrable Securities pursuant to a Registration Statement until the Holder
receives copies of the supplemental or amended Prospectus contemplated by
Section 4(i) hereof and receives notice that any post-effective amendment has
become effective, and, if so directed by the Company, the Holder will deliver to
the Company (at the expense of the Company) all copies in its possession, other
than permanent file copies then in the Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If at any time after any Registration Statement becomes effective, the
Company advises the Holder in writing that due to the existence of material
information that has not been disclosed to the public and included in the
Registration Statement it is thus necessary to amend the Registration Statement,
the Holder shall suspend any further sale of Registrable Securities until the
Registration Statement has been amended (each such period being referred to
herein as a "Suspension Period").
Notwithstanding anything to the contrary contained herein, the Company
shall have the right to postpone the filing of any Registration Statement
hereunder for a reasonable period of time if the Company furnishes the Holder a
certificate signed by the
7
<PAGE>
Chairman of the Board of Directors or the President of the Company stating that
in its good faith judgment, the Company's Board of Directors (or the executive
committee thereof) has determined that effecting the registration at such time
would adversely affect a material financing, acquisition or disposition of
assets or securities, merger or other comparable transaction, or would require
the Company to make public disclosure of information the public disclosure of
which would have a material adverse effect upon the Company.
5. Investment Representations. With respect to the Shares, each Holder
--------------------------
represents and warrants as follows:
(a) The Holder, by reason of its business and financial experience,
has such knowledge, sophistication and experience in financial and business
matters and in making investment decisions of this type that it is capable of
(i) evaluating the merits and risks of an investment in Common Stock and making
an informed investment decision, (ii) protecting its own interest and (iii)
bearing the economic risk of such investment. If the Holder retained a
purchaser's representative with respect to the investment in Common Stock that
may be made pursuant to the Purchase Agreement then the Holder shall, prior to
or at the Closing, (i) acknowledge in writing such representation and (ii) cause
such representative to deliver a certificate to the Company containing such
representations as are reasonably requested by the Company.
(b) The Holder is acquiring the Common Stock for investment for the
Holder's own account, not as a nominee or agent and not with the view to, or any
intention of, a resale or distribution thereof, in whole or in part, or the
grant of any participation therein. The Holder understands that the Common Stock
has not been registered under the Securities Act or state securities laws by
reason of a specific exemption from the registration provisions of the
Securities Act and applicable state securities laws that depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Holder's representations as expressed in this Agreement. The Holder further
understands that, except as expressly provided herein, the Company shall have no
obligation to register the Common Stock under the Securities Act or any state
securities laws or to take any action that would make available any exemption
from the registration requirements of such laws. The Holder hereby acknowledges
that because of the restrictions on transfer or assignment of the Common Stock
to be issued in connection with the Purchase, the Holder may have to bear the
economic risk of the investment commitment in Common Stock for an indefinite
period of time.
(c) The Holder will observe and comply with the Securities Act and
all applicable state securities and "blue sky" laws and the rules and
regulations promulgated thereunder, as now in effect and as from time to time
amended, in connection with any offer, sale, pledge, transfer or other
disposition of the Common Stock. In furtherance of the foregoing, and in
addition to any restrictions contained in this Agreement, but subject to the
exception set forth in subsection (b) above with regard to distributions to
Transferees, the Holder will not offer to sell, exchange, transfer,
8
<PAGE>
pledge, or otherwise dispose of any of the Common Stock unless at such time at
least one of the following is satisfied:
(i) a Registration Statement under the Securities Act covering
the Common Stock proposed to be sold, transferred or otherwise disposed of,
describing the manner and terms of the proposed sale, transfer or other
disposition, and containing a current Prospectus, shall have been filed with the
SEC and made effective under the Securities Act;
(ii) such transaction shall be permitted pursuant to the
provisions of Rule 144;
(iii) counsel representing the Holder, reasonably satisfactory to
the Company, shall have advised the Company in a written opinion letter
reasonably satisfactory to the Company and its counsel, and upon which the
Company and its counsel may rely, that no registration under the Securities Act
or any applicable state securities law would be required in connection with the
proposed sale, transfer or other disposition; or
(iv) an authorized representative of the SEC shall have rendered
written advice to the Holder (sought by the Holder or counsel to the Holder,
with a copy thereof and of all other related communications delivered to the
Company) to the effect that the SEC would take no action, or that the staff of
the SEC would not recommend that the SEC take action, with respect to the
proposed sale, transfer or other disposition if consummated.
(d) The Holder understands that an investment in the Common Stock
involves substantial risks. The Holder has been given the opportunity to make a
thorough investigation of the proposed activities of the Company and, upon
request to the Company, has been furnished with materials relating to the
Company and its proposed activities, including, without limitation, a copy of
the Prospectus dated May 20, 1999 (the "CAIS Prospectus") and all reports filed
by the Company with the SEC since May 21, 1999 (the "CAIS SEC Reports"). The
Holder has been afforded the opportunity to obtain any additional information
deemed necessary by the Holder to verify the accuracy of any representations
made or information conveyed to the Holder. The Holder confirms that all
documents, records and books pertaining to its investment in Common Stock and
requested by the Holder have been made available or delivered to the Holder. The
Holder has had an opportunity to ask questions of and receive answers from the
Company, or from a person or persons acting on the Company's behalf, concerning
the terms and conditions of its investment in the Common Stock. The Holder has
relied upon, and is making its investment decision upon, the CAIS Prospectus,
the CAIS SEC Reports and other information publicly available about the Company.
(e) With respect to the sale or disposition of Registrable Securities
by the Holder, (i) all costs and expenses relating to the registration and
filing fee, printing, compliance with applicable securities laws, the Company's
legal, accounting and other professional fees and other similar expenses
incurred by Company shall be the sole
9
<PAGE>
responsibility of Company, and (ii) all underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of Registrable
Securities by the Holder shall be borne on a pro-rata basis by the Holder,
determined with reference to the number of shares of Registrable Securities as
compared to the overall total number of shares being registered in the
applicable offering.
6. Restrictive Legend. All certificates representing the Common Stock
------------------
deliverable to the Holders pursuant to the Purchase Agreement and any
certificates subsequently issued with respect thereto or in substitution
therefor, unless a sale, transfer or other disposition is executed pursuant to
one or more of the alternative conditions set forth in Section 5(c) shall have
occurred, or unless the conditions of paragraph (k) of Rule 144 promulgated
under the Securities Act shall have been satisfied, shall bear a legend
substantially as follows, in addition to any legend the Company determines is
required pursuant to any applicable legal requirement:
"The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance with the
requirements of the Securities Act of 1933, as amended, and the other
conditions specified in that certain Registration Rights Agreement dated as
of March __, 2000, copies of which agreements CAIS Internet, Inc. will
furnish, without charge, to the holder of this certificate upon written
request therefor."
The Company, at its discretion, may cause a stop transfer order to be placed
with its transfer agent(s) with respect to the certificates for the Common Stock
but not as to the certificates for any part of the Common Stock as to which said
legend is no longer appropriate when one or more of the alternatives set forth
in Section 5(c) shall have been satisfied or the conditions of paragraph (k) of
Rule 144 promulgated under the Securities Act shall have been satisfied.
7. Affiliate Agreements. If and to the extent that a Holder is deemed
--------------------
to be an "affiliate" of the Company within the meaning of the Securities Act,
and as used for purposes of paragraphs (c) and (d) of Rule 145 of the SEC, then
the following terms of this Section 7 shall apply to such Holder:
(a) The Holder agrees not to sell, transfer or otherwise dispose of
the Shares unless (i) such sale, transfer or other disposition is made pursuant
to an effective Registration Statement under the Securities Act, (ii) such sale,
transfer or other disposition is made in conformity with the requirements of
Rule 145(d) promulgated under the Securities Act, or (iii) such sale, transfer
or other disposition is executed pursuant to one or more of the alternative
conditions set forth in Section 5(c); or (iv) such sale, transfer or other
disposition is in connection with the distribution to a Transferee as set forth
more fully in Section 5(b) above.
(b) The Company will give stop-transfer instructions to its transfer
agent with respect to the Shares and there will be placed on the certificates
representing such Shares, or any substitutions therefor, a legend stating in
substance:
10
<PAGE>
"The shares represented by this certificate may only be transferred in
conformity with Rule 145(d) or in accordance with a written opinion of
counsel, reasonably acceptable to the issuer in form and substance, that
such transfer is exempt from registration under the Securities Act of
1933."
The legend and stop order set forth above shall be removed (by delivery of a
substitute certificate without such legend) if the Holder delivers to the
Company (i) satisfactory written evidence that the Shares have been sold in
compliance with Rule 145 (in which case, the substitute certificate will be
issued in the name of the transferee), or (ii) an opinion of counsel, in form
and substance reasonably satisfactory to the Company and its counsel, to the
effect that public sale of the Shares by the Holder is no longer subject to Rule
145. To the extent permitted under applicable securities laws, no Holder will
be deemed an "insider" or affiliate of the Company solely as a result of his or
her ownership of the Company's Common Stock.
8. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless each Holder and each Person, if any, who controls each Holder
within the meaning of Section 15 of the Securities Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement (or
any amendment thereto) pursuant to which the Holder's Registrable Securities
were registered under the Securities Act, including all documents incorporated
therein by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Prospectus (or any amendment or
supplement thereto), including all documents incorporated therein by reference,
or the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency, body or third party, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, if such settlement is effected
with the written consent of the Company which shall not be unreasonably
withheld; and
(iii) against any and all expense (including reasonable fees and
disbursements of counsel), as reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, in each case whether or
not a party, or any claim whatsoever based upon any such untrue statement or
omission, or any such alleged
11
<PAGE>
untrue statement or omission, to the extent that any such expense is not paid
under subparagraph (i) or (ii) above.
provided, however, that the indemnity provided pursuant to this Section 8(a)
- -------- -------
does not apply with respect to any loss, liability, claim, damage or expense to
the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with written
information furnished to the Company by the Holder expressly for use in a
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(b) Indemnification by the Holder. Each Holder agrees to indemnify
-----------------------------
and hold harmless the Company, its directors and officers (including each
director and officer of the Company who signed the Registration Statement), and
each Person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, to the same extent as the indemnity contained in Section
8(a) hereof (except that any settlement described in Section 8(a)(ii) shall be
effected with the written consent of the Holder), but only insofar as such loss,
liability, claim, damage or expense arises out of or is based upon any untrue
statement or omission, or alleged untrue statement or omission, made in a
Registration Statement (or any amendment or supplement thereto) in reliance upon
and in conformity with written information furnished to the Company by the
Holder expressly for use in such Registration Statement (or amendment thereto)
or such Prospectus (or any amendment or supplement thereto). In no event shall
the liability of the Holder under this Section 8(b) be greater in amount than
the dollar amount of the proceeds received by the Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Each indemnified party
--------------------------------------
shall give reasonably prompt notice to each indemnifying party of any action or
proceeding commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party (i) shall not relieve
it from any liability that it may have under the indemnity agreement provided in
Section 8(a) or (b) above, unless and to the extent it did not otherwise learn
of such action and the lack of notice by the indemnified party results in the
forfeiture by the indemnifying party of substantial rights and defenses and (ii)
shall not relieve, in any event, the indemnifying party from any obligations to
any indemnified party other than the indemnification obligation provided under
Section 8(a) or (b) above. If the indemnifying party so elects within a
reasonable time after receipt of such notice, the indemnifying party may assume
the defense of such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party and approved by the
indemnified parties defendant in such action or proceeding, which approval shall
not be unreasonably withheld; provided, however, that, if such indemnified
-----------------
party or parties reasonably determine that a conflict of interest exists where
it is advisable for such indemnified party or parties to be represented by
separate counsel or that, upon advice of counsel, there may be legal defenses
available to them that are different from or in addition to those available to
the indemnifying party, then the indemnifying party shall not be entitled to
assume such defense and the indemnified party or parties shall be entitled to
one separate counsel at the indemnifying party's expense. If an indemnifying
party is not entitled to assume
12
<PAGE>
the defense of such action or proceeding as a result of the proviso to the
preceding sentence, such indemnifying party's counsel shall be entitled to
conduct such indemnifying party's defense and counsel for the indemnified party
or parties shall be entitled to conduct the defense of such indemnified party or
parties, it being understood that both such counsel will cooperate with each
other to conduct the defense of such action or proceeding as efficiently as
possible. In such event, however, no indemnifying party will be liable for any
settlement effected without the written consent of such indemnifying party. If
an indemnifying party is entitled to assume, and assumes, the defense of such
action or proceeding in accordance with this paragraph, such indemnifying party
shall not be liable for the fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action or proceeding.
(d) Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
this Section 8 is held to be unenforceable for any reason even though it is
applicable in accordance with its terms, the Company and the Holder shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity agreement incurred by the Company and
the Holder, in such proportion as is appropriate to reflect the relative fault
of and benefits to the Company on the one hand and the Holders on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relative
equitable considerations. The relative benefits to the indemnifying party and
indemnified parties shall be determined by reference to, among other things, the
total proceeds received by the indemnified parties and indemnifying parties in
connection with the Offering to which such losses, claims, damages, liabilities
or expenses relate. The relative fault of the indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether the
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party or the
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 8(d), the Holder shall not be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of the Holder were offered to the
public exceeds the amount of any damages that the Holder has otherwise been
required to pay by reason of such untrue statement or omission.
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8(d), each Person,
if any, who controls the Holder within the meaning of Section 15 of the
Securities Act and directors and officers, if any, of the Holder shall have the
same rights to contribution as the Holder, and
13
<PAGE>
each director of the Company, each officer of the Company who signed the
Registration Statement and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Company.
9. Rule 144 Sales.
--------------
(a) The Company covenants that it will file the reports and make
available adequate current public information, as required to be filed by the
Company under the Securities Act and the Securities Exchange Act, as amended, so
as to enable the Holders to sell the Registrable Securities pursuant to Rule 144
under the Securities Act, to the extent such securities are otherwise
transferable.
(b) In connection with any sale, transfer or other disposition by
the Holders of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as the Holder may reasonably request at least two
business days prior to any sale of Registrable Securities.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the written consent of the Company and the Holder.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery,
(i) if to the Holders, at the most current address given by the Holders to the
Company by means of a notice given in accordance with the provisions of this
Section 10(b), which address initially is, with respect to the Holders, the
address set forth next to the Holder's name on the signature page of this
Agreement, or (ii) if to the Company, at 1255 22nd Street, N.W., Washington,
D.C. 20037, Attention: Ulysses G. Auger, II.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged (during normal business
hours of a normal business day, or otherwise, on the next business day), if
telecopied; or at the time delivered if delivered by an air courier guaranteeing
overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and permitted assigns as permitted
hereunder of each of the parties and, except as provided in Section 8 hereof, no
other Person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any
14
<PAGE>
Shares from a Holder shall be deemed a successor or assign solely by reason of
such purchase. The benefits and obligations of the Holders under this Agreement
may be assigned only to persons or entities designated by the Holder and
approved in writing by the Company prior to an assignment.
(d) Counterparts. This Agreement may be executed by facsimile and in
------------
any number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware without giving effect to
the conflicts of law provisions thereof.
(g) Specific Performance. The parties hereto acknowledge that there
--------------------
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to compel specific performance of the obligations of any other party under this
Agreement in accordance with the terms and conditions of this Agreement in any
court of the United States or any State thereof having jurisdiction.
(h) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(i) Additional Actions and Documents. The parties hereto shall take
--------------------------------
or cause to be taken such further actions, shall execute, deliver and file, or
cause to be executed, delivered or filed, such further documents and
instruments, and shall obtain such consents as may be necessary or as the other
party may reasonably request, without the payment of further consideration, in
order fully to effectuate the purposes, terms and conditions of this Agreement.
[Signature Page Follows]
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CAIS INTERNET, INC.
By:
-----------------------------
Name:
Title:
HOLDERS
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
By:
-----------------------------
Name:
-----------------------------
Address:
-----------------------------
16
<PAGE>
SCHEDULE A
Holders of CAIS Common Stock
- ----------------------------
17
<PAGE>
Exhibit 10.65
BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT
This Bill of Sale, Assignment and Assumption Agreement (this
"Agreement") is made as of March ___, 2000, by and between CAIS Software
Solutions, Inc., a California corporation ("Buyer"), and QuickATM, LLC, a
California limited liability company ("Seller").
RECITALS:
Pursuant to that certain Asset Purchase Agreement, dated as of March
____, 2000, by and among Seller, Buyer and CAIS Internet, Inc., a Delaware
corporation and the parent company of Buyer (the "Asset Purchase Agreement"),
Buyer has agreed to purchase from Seller and Seller has agreed to sell,
transfer, assign, convey and deliver to Buyer the "Assets" (as such term is
defined in the Asset Purchase Agreement). All other capitalized terms used, but
not defined, herein shall also have those meanings assigned to them in the Asset
Purchase Agreement.
NOW, THEREFORE, pursuant to Section 2.1 of the Asset Purchase
Agreement and in consideration of the premises set forth in the Asset Purchase
Agreement and for good and valuable consideration as set forth therein, the
receipt and adequacy of which are hereby acknowledged, Seller and Buyer hereby
agree as follows:
Section 1. Transfer and Assignment of the Assets. In accordance with and
-------------------------------------
subject to all the terms and conditions of the Asset Purchase Agreement, Seller
hereby irrevocably sells, assigns, grants, conveys, transfers and delivers (the
"Transfer") to Buyer, its successors and assigns, all of Seller's right, title
and interest in and to the Assets.
Section 2. Assumed Liabilities. In consideration for the Transfer of the
-------------------
Assets on the date hereof, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Buyer, by this
Agreement, hereby assumes and becomes responsible for all liabilities and
obligations with respect to, and becomes fully responsible for, the Assumed
Liabilities.
Section 3. Waiver of Moral Rights. Except to the extent that any such waiver
----------------------
is prohibited by law, Seller hereby waives the benefits of any provision of law
known as "moral rights" or any similar law in any country of the world
(including under Section 106A of the U.S. Copyright Act of 1976, as amended) and
agrees not to institute, support, maintain or permit any action or lawsuit on
the ground that any Asset or any version of any Asset used, modified or
exploited by Buyer, its assignees or licensees, in any way constitutes an
infringement of any of Seller's moral rights or is in any way a defamation or
mutilation of such Asset or any part thereof or contains unauthorized
variations, alterations, modifications, changes or translations.
Section 4. Further Assurances. If at any time at or after the date hereof
------------------
Buyer either considers or is advised that any deed, other instrument of
conveyance or Transfer,
<PAGE>
assignment, assumption or assurance or other documentation or the taking of any
other act is necessary, desirable or proper to vest, perfect or confirm in
Buyer, its successors or assigns, of record or otherwise, the title to any of
the Assets, Seller agrees, at Buyer's expense, to execute and deliver all such
reasonable deeds, instruments, assignments, assumptions, assurances and
documents and to do all things reasonably necessary, desirable or proper to
vest, perfect or confirm title to such Assets in Buyer, its successors or
assigns, and otherwise to carry out the purposes of this Agreement. Seller
agrees, at Buyer's expense, to assist Buyer, its successors or assigns, in every
proper way to protect Buyer's, its successors' or assigns', rights in the Assets
throughout the world, including, without limitation, executing in favor of
Buyer, its successors or assigns, patent, copyright, and other applications and
assignments relating to the Assets.
Section 5. Seller agrees not to challenge the validity of the ownership by
Buyer, its successors and assigns, of any of the Assets.
Section 6. Delivery. Seller hereby represents that all Assets and components
--------
thereof have been delivered to Buyer as of the date hereof; provided, however,
that from and after the date hereof, if Seller becomes aware of any Asset in its
possession that was not delivered to Buyer as of the date hereof, Seller shall,
at Seller's expense, promptly notify Buyer of any such Asset, and deliver any
such Asset to Buyer in accordance with Buyer's reasonable instructions.
Seller's failure to deliver any Asset hereunder shall, under no circumstances,
give rise to any monetary damages or liability whatsoever under this Agreement,
and Seller's only obligations (and Buyer's only remedy) under this Agreement is
to cause the prompt delivery of such Asset to Buyer.
Section 7. Notices. Any notices authorized to be given hereunder shall be in
-------
writing and deemed given, if delivered personally or by overnight courier, on
the date of delivery, if a Business Day, or if not a Business Day, on the first
Business Day following delivery, or if mailed, three days after mailing by
registered or certified mail, return receipt requested, and in each case,
addressed, as follows:
If to Buyer:
CAIS Software Solutions, Inc.
1255 22nd Street, N.W.
Washington, D.C. 20037
Attention: ____________
Telecopier: (202) 463-7190
with a copy to:
Morrison & Foerster LLP
2000 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
Attention: Morris F. DeFeo, Jr., Esquire
Telecopier: (212) 887-0763
2
<PAGE>
If to Seller:
QuickATM, LLC
2437 Durant Avenue, Suite 207
Berkeley, California 94704
Attention: Clifford S. Orloff
Fax: _____________________
with a copy to:
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
Attention: Rob Zeitinger, Esq.
Fax: (310) 203-7199
or if delivered by facsimile, on a Business Day before 4:00 PM local time of the
addressee, on transmission confirmed electronically, or if at any other time or
day on the first Business Day succeeding transmission was confirmed
electronically, to the facsimile numbers provided above, or to such other
address or facsimile number as any party shall specify to the other, pursuant to
the foregoing notice provisions.
Section 8. Counterparts. This Agreement may be executed by facsimile and in
------------
multiple counterparts, which, when taken together, shall be deemed a single
original instrument.
Section 9. Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California, without giving effect to any choice or
conflict of law provision or rule (whether of California or any other
jurisdiction that would cause the application of the laws of any jurisdiction
other than the State of California).
Section 10. Succession and Assignment. Except as otherwise provided herein,
-------------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors and permitted assigns of the parties hereto. No party may assign any
of its rights or obligations hereunder without the express written consent of
the other parties hereto, which consent may not be unreasonably withheld or
delayed.
Section 11. Entire Agreement. This Agreement and the Asset Purchase Agreement
----------------
(i) set forth the entire agreement of the parties respecting the subject matter
hereof, (ii) supersede any prior and contemporaneous understandings, agreements,
or representations by or among the parties, written or oral, to the extent they
relate in any way to the subject matter hereof, and (iii) may not be amended
orally, and no right or obligation of any party may be altered, except as
expressly set forth in a writing signed by the parties thereto.
3
<PAGE>
[SIGNATURE PAGE FOLLOWS]
4
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have duly executed or caused this
Agreement to be duly executed on the date first above written.
QUICKATM, LLC
By: _________________________
Name:
Title:
SUBSCRIBED AND SWORN TO BEFORE ME IN THE
_____________________________________ THIS
________ DAY OF MARCH, 2000
Notary Signature: ____________________________
My Commission Expires: _______________________
CAIS SOFTWARE SOLUTIONS, INC.
By: _________________________
Name:
Title:
SUBSCRIBED AND SWORN TO BEFORE ME IN THE
_____________________________________ THIS
________ DAY OF MARCH, 2000
Notary Signature: ____________________________
My Commission Expires: _______________________
5
<PAGE>
Exhibit 10.66
SECOND AMENDMENT TO GUARANTY
THIS SECOND AMENDMENT TO GUARANTY (this "Amendment"), dated as of
March 20, 2000, is made between CAIS Internet, Inc., a Delaware corporation
("Guarantor") and Cisco Systems Capital Corporation , a Nevada corporation
("Lender").
CAIS, Inc. (the "Borrower") and Lender are parties to that certain
Agreement dated as of June 30, 1999 (as amended by the Letter Agreement dated as
of December 2, 1999 and as otherwise amended, modified, renewed or extended from
time to time, the "Credit Agreement") and in connection thereto Guarantor agreed
to guarantee the indebtedness and other obligations of the Borrower to Lender
under or in connection with that certain Guaranty dated June 30, 1999 made by
Guarantor in favor of Lender (as amended by the First Amendment to Guaranty
dated as of December 2, 1999 and as otherwise amended, modified, renewed or
extended from time to time, the "Guaranty"). Guarantor has requested that
Lender agree to certain amendments to the Guaranty. Lender has agreed to such
request, subject to the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
----------------------------
(a) Terms Defined in the Guaranty. All capitalized terms used in this
-----------------------------
Amendment (including in the recitals hereof) and not otherwise defined herein
shall have the meanings assigned to them in the Guaranty.
SECTION 2 Amendments to the Guaranty.
---------------------------
(a) Amendments. The Guaranty shall be amended as follows, effective
----------
as of the date of satisfaction of the conditions set forth in Section 3 hereof
(the "Effective Date"):
(i) Section 9(k) of the Guaranty is hereby amended and restated in
its entirety as follows:
(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:
<TABLE>
<CAPTION>
Quarterly Period Ending Required Amount
- -------------------------------------------------------
<S> <C>
March 31, 2000 $ 6,200,000
- -------------------------------------------------------
June 30, 2000 $ 8,053,000
- -------------------------------------------------------
September 30, 2000 $11,582,000
- -------------------------------------------------------
December 31, 2000 $16,489,000
- -------------------------------------------------------
March 31, 2001 $20,533,000
- -------------------------------------------------------
June 30, 2001 $25,539,000
- -------------------------------------------------------
September 30, 2001 $31,605,000
- -------------------------------------------------------
December 31, 2001 $38,282,000
- -------------------------------------------------------
March 31, 2002 $42,686,000
- -------------------------------------------------------
June 30, 2002 $44,627,000
- -------------------------------------------------------
September 30, 2002 $48,507,000
- -------------------------------------------------------
December 31, 2002 $58,209,000
- -------------------------------------------------------
</TABLE>
<PAGE>
(ii) Section 9(l) of the Guaranty is hereby amended and restated in
its entirety as follows:
(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 ratio indicated (bracketed amounts [( )] are negative):
<TABLE>
<CAPTION>
Quarterly Period Ending Required Amount
- -------------------------------------------
<S> <C>
March 31, 2000 ($19,930,000)
- -------------------------------------------
June 30, 2000 ($24,991,000)
- -------------------------------------------
September 30, 2000 ($25,609,000)
- -------------------------------------------
December 31, 2000 ($23,657,000)
- -------------------------------------------
March 31, 2001 ($15,875,000)
- -------------------------------------------
June 30, 2001 ($12,704,000)
- -------------------------------------------
September 30, ($7,498,000)
2001
- -------------------------------------------
December 31, $ 2,119,000
2001
- -------------------------------------------
March 31, 2002 $ 3,324,000
- -------------------------------------------
June 30, 2002 $ 6,648,000
- -------------------------------------------
September 30, 2002 $ 9,972,000
- -------------------------------------------
December 31, 2002 $ 13,296,000
- -------------------------------------------
</TABLE>
"EBITDA" shall mean with respect to any fiscal period of a Person, such
Person's earnings (excluding extraordinary items (determined in accordance with
GAAP, consistently applied)), plus (except to the extent attributable to
----
extraordinary items (determined in accordance with GAAP, consistently applied))
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.
(iii) Section 9 of the Guaranty is hereby amended to add a new
subsection (s) at the end thereof to read in its entirety as follows:
(s) Minimum Cash Reserves. On a consolidated basis, Guarantor and its
---------------------
Subsidiaries shall maintain Minimum Cash Reserves of at least $5,000,000 at all
times. As used in this subsection (s), "Minimum Cash Reserves" means
unrestricted cash, cash equivalents and short-term (90 days or less) readily
marketable investment grade debt securities of Guarantor and its wholly-owned
Subsidiaries.
<PAGE>
(b) References Within Guaranty. Each reference in the Guaranty to
--------------------------
"this Guaranty" and the words "hereof," "herein," "hereunder," or words of like
import, shall mean and be a reference to the Guaranty as amended by this
Amendment.
SECTION 3 Conditions of Effectiveness. Section 2 of this Amendment
---------------------------
shall become effective as of the date on which the Lender has received from the
Guarantor an executed counterpart of this Amendment and the consent of the
Borrower in substantially the form of Exhibit A (the "Borrower Consent"), to the
amendments contemplated by this Amendment.
SECTION 4 Representations and Warranties. To induce Lender to enter
------------------------------
into this Amendment, Guarantor hereby confirms and restates, as of the date
hereof, the representations and warranties made by it in Section 8 of the
Guaranty and in the other Loan Documents. For the purposes of this Section 4,
(i) each reference in Section 8 of the Guaranty to "this Guaranty," and the
words "hereof," "herein," "hereunder," or words of like import in such Section,
shall mean and be a reference to the Guaranty as amended by this Amendment and
(ii) clause (i) shall take into account any amendments to any disclosures made
in writing by Guarantor and any Guarantor to Lender after the Closing Date and
approved by Lender.
SECTION 5 Miscellaneous.
-------------
(a) Guaranty Otherwise Not Affected. Except as expressly amended
-------------------------------
pursuant hereto, the Guaranty shall remain unchanged and in full force and
effect and is hereby ratified and confirmed in all respects. Lender's execution
and delivery of, or acceptance of, this Amendment and any other documents and
instruments in connection herewith (collectively, the "Amendment Documents")
shall not be deemed to create a course of dealing or otherwise create any
express or implied duty by it to provide any other or further amendments,
consents or waivers in the future.
(b) No Reliance. Guarantor hereby acknowledges and confirms to
-----------
Lender that Guarantor is executing this Amendment and the other Amendment
Documents on the basis of its own investigation and for its own reasons without
reliance upon any agreement, representation, understanding or communication by
or on behalf of any other Person.
(c) Costs and Expenses. Guarantor agrees to pay to Lender on demand
------------------
the reasonable out-of-pocket costs and expenses of Lender, and the reasonable
fees and disbursements of counsel to Lender, in connection with the negotiation,
preparation, execution and delivery of this Amendment and any other documents to
be delivered in connection herewith.
(d) Binding Effect. This Amendment shall be binding upon, inure to
--------------
the benefit of and be enforceable by Guarantor, Lender and their respective
successors and assigns.
(e) Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York.
(f) Complete Agreement; Amendments. This Amendment, together with
------------------------------
the other Amendment Documents and the other Loan Documents, contains the entire
and exclusive
<PAGE>
agreement of the parties hereto and thereto with reference to the matters
discussed herein and therein. This Amendment supersedes all prior commitments,
drafts, communications, discussions and understandings, oral or written, with
respect thereto. This Amendment may not be modified, amended or otherwise
altered except in accordance with the terms of Section 13 of the Guaranty and
Section 7.1 of the Credit Agreement.
(g) Severability. Whenever possible, each provision of this Amendment
------------
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Amendment
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 Amendment, or the validity or effectiveness of such provision
in any other jurisdiction.
(h) Counterparts. This Amendment 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.
(i) Interpretation. This Amendment and the other Amendment Documents
--------------
are the result of negotiations between and have been reviewed by counsel to
Lender, Guarantor and other parties, and are the product of all parties hereto.
Accordingly, this Amendment and the other Amendment Documents shall not be
construed against Lender merely because of Lender's involvement in the
preparation thereof.
(j) Loan Documents. This Amendment and the other Amendment Documents
--------------
shall constitute Loan Documents.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment, as of the date first above written.
CAIS Internet, Inc.
By /s/ Barton R. Groh
------------------------------
Title: Chief Financial Officer
Cisco Systems Capital Corporation
By /s/ Brian Fukahara
-----------------------------
Title: Chief Credit Officer
<PAGE>
EXHIBIT A
---------
BORROWER CONSENT
March 20, 2000
Cisco Systems Capital Corporation
Worldwide Financial Services
Mailstop SJC2-3rd Floor
170 West Tasman Drive
San Jose, CA 95134-1706
Re: CAIS Internet, Inc.
-------------------
Ladies and Gentlemen:
Reference is made to that certain Agreement dated as of June 30, 1999
(as amended by the Letter Agreement dated as of December 2, 1999 and as
otherwise amended, modified, renewed or extended from time to time, the "Credit
Agreement") by and between CAIS, Inc. (the "Borrower") and Cisco Systems Capital
Corporation (the "Lender") and in connection therewith, that certain Guaranty
dated June 30, 1999 made by CAIS Internet, Inc. (the "Guarantor") in favor of
Lender (as amended by the First Amendment to Guaranty dated as of December 2,
1999 and as otherwise amended, modified, renewed or extended from time to time,
the "Guaranty").
The undersigned acknowledges receipt of a copy of the Second Amendment
to Guaranty dated March __, 2000 (the "Amendment") being entered into
concurrently herewith by and between CAIS Internet, Inc. and the Lender.
The undersigned, in its capacity as Borrower under the Credit
Agreement, hereby acknowledges that its consent to the foregoing Amendment is
not required, but the undersigned nevertheless does hereby consent to the
foregoing Amendment and to the documents and agreements referred to therein and
to all future modifications and amendments thereto and any termination thereof,
and to any and all other present and future documents and agreements between or
among the foregoing parties. Nothing herein shall in any way limit any of the
terms or provisions of any of the Loan Documents, all of which are hereby
ratified and affirmed in all respects.
Sincerely yours,
CAIS, Inc.
By: /s/ Barton R. Groh
---------------------------------
Title: Chief Financial Officer
------------------------------
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 6, 2000 (except with respect to the
matters discussed in Note 15 to the consolidated financial statements, which
are indicated to have occurred subsequent to March 6, 2000, as to which the
date is March 20, 2000) included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 333-91403 and 333-31510.
ARTHUR ANDERSEN LLP
Vienna, Virginia
March 20, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANYS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,120
<SECURITIES> 16,501
<RECEIVABLES> 3,289
<ALLOWANCES> 199
<INVENTORY> 0
<CURRENT-ASSETS> 39,282
<PP&E> 92,904
<DEPRECIATION> 2,427
<TOTAL-ASSETS> 186,951
<CURRENT-LIABILITIES> 54,937
<BONDS> 0
15,319
0
<COMMON> 226
<OTHER-SE> 111,804
<TOTAL-LIABILITY-AND-EQUITY> 186,951
<SALES> 0
<TOTAL-REVENUES> 10,784
<CGS> 9,689
<TOTAL-COSTS> 9,689
<OTHER-EXPENSES> 54,567
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,035)
<INCOME-PRETAX> (52,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52,437)
<DISCONTINUED> (340)
<EXTRAORDINARY> (551)
<CHANGES> 0
<NET-INCOME> (57,848)
<EPS-BASIC> (3.42)
<EPS-DILUTED> (3.42)
</TABLE>
