<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ZIPLINK, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 04-3457219
(State or other jurisdiction of (Primary Standard Identification (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
------------------------
900 CHELMSFORD STREET
TOWER ONE, FIFTH FLOOR
LOWELL MASSACHUSETTS 01851
(978) 551-8100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
HENRY M. ZACHS
CO-CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ZIPLINK, INC.
900 CHELMSFORD STREET
TOWER ONE, FIFTH FLOOR
LOWELL MASSACHUSETTS 01851
(978) 551-8100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
WAYNE A. MARTINO, ESQ. PAUL JACOBS, ESQ.
GEORGE BRENCHER IV, ESQ. MARA H. ROGERS, ESQ.
BRENNER, SALTZMAN & WALLMAN, LLP FULBRIGHT & JAWORSKI L.L.P.
271 WHITNEY AVENUE 666 FIFTH AVENUE
NEW HAVEN, CONNECTICUT 06511 NEW YORK, NEW YORK 10103
(203) 772-2600 (212) 318-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common stock, par value $.001 per share.................................. $48,300,000 $13,427.40
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 11, 1999
PROSPECTUS
SHARES
[LOGO]
ZIPLINK, INC.
COMMON STOCK
------------------
This is the initial public offering of ZipLink, Inc. and we are offering
shares of our common stock. We anticipate that the initial public
offering price will be between $ and $ per share.
We are a national backbone provider offering wholesale Internet access services
to two distinct markets: Internet appliances and local and regional Internet
service providers.
We intend to apply to list our common stock on the Nasdaq National Market under
the symbol "ZIPL."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------------------- ---------------------
<S> <C> <C>
Initial public offering price........................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to ZipLink................... $ $
</TABLE>
ZipLink has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock at the initial public offering price
less the underwriting discount to cover any over-allotments.
The underwriters expect to deliver the shares against payment in New York, New
York on , 1999.
Jefferies & Company, Inc. FAC/EQUITIES
The date of this prospectus is , 1999
<PAGE>
THE ZIPLINK NETWORK
[ZIPLINK NETWORK MAP APPEARS HERE]
ZIPLINK'S NETWORK IS COMPRISED OF 19 SUPERPOPS COVERING 16 OF THE 20 LARGEST
METROPOLITAN AREAS IN THE UNITED STATES. ONCE CONNECTED, TRAFFIC IS ROUTED USING
PRIMARILY NORTEL NETWORKS EQUIPMENT THROUGH THE NETWORK TO THE DESIRED INTERNET
LOCATION ON OUR HIGH-SPEED 45 MBPS REDUNDANT ATM BACKBONE. USERS CONNECT TO THE
NETWORK AT MULTIPLE SPEEDS, ACCORDING TO THEIR NEEDS, INCLUDING ANALOG SPEEDS UP
TO 56 KBPS AND DIGITAL SPEEDS FROM 64 KBPS TO T-1. OUR NETWORK SUPPORTS ANALOG,
ISDN, XDSL, FRAME-RELAY AND ATM CONNECTION TECHNOLOGIES.
WHOLESALE INTERNET ACCESS SOLUTIONS FOR
INTERNET APPLIANCES AND LOCAL AND REGIONAL
INTERNET SERVICE PROVIDERS
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. SOME OF THE TECHNICAL TERMS USED IN THIS PROSPECTUS ARE DEFINED
IN THE GLOSSARY OF TERMS BEGINNING ON PAGE G-1. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS (I) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
WILL NOT BE EXERCISED, (II) GIVES EFFECT TO CONVERSION OF OUR BUSINESS FORM FROM
A LIMITED LIABILITY COMPANY INTO A CORPORATION AND THE CONVERSION OF EACH .01%
MEMBERSHIP INTEREST OF THE LIMITED LIABILITY COMPANY INTO SHARES OF COMMON
STOCK, AND THE CONVERSION OF EACH OUTSTANDING OPTION AND WARRANT TO PURCHASE
MEMBERSHIP INTERESTS INTO AN OPTION OR WARRANT TO PURCHASE COMMON STOCK AT A
RATE OF SHARES FOR EACH .01% MEMBERSHIP INTEREST SUBJECT TO SUCH OPTION OR
WARRANT, BASED UPON AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF $ PER SHARE,
WHICH REORGANIZATION WILL OCCUR PRIOR TO THE CLOSING OF THIS OFFERING, AND (III)
GIVES EFFECT TO THE CONVERSION OF $7.5 MILLION OF INDEBTEDNESS HELD BY BAY
NETWORKS, INC. INTO SHARES OF COMMON STOCK, BASED UPON AN ASSUMED INITIAL
PUBLIC OFFERING PRICE OF $ PER SHARE, WHICH CONVERSION WILL OCCUR
CONCURRENTLY WITH THE CLOSING OF THIS OFFERING.
ZIPLINK
OUR BUSINESS
ZipLink is a national backbone provider offering wholesale Internet access
services to two distinct target markets: Internet appliances and local and
regional Internet service providers, or ISPs. We provide a range of Internet
access solutions for Internet appliances, such as TV set-top boxes, including
Internet connectivity, subscriber authentication and registration, e-mail
filtering and forwarding and other specially developed services. We also provide
wholesale national dial-up Internet access and enhanced services, including
digital subscriber line, or DSL, service where available, under the name
ZipDial, to local and regional ISPs. Our ZipDial service enables ISPs to quickly
and inexpensively expand their existing geographic coverage and offer national
dial-up Internet access, without investing in costly infrastructure.
We are a leading provider of Internet connectivity to subscribers of the
Microsoft-Registered Trademark- WebTV Network-TM- service which is operated by
WebTV Networks, Inc., a wholly owned subsidiary of Microsoft Corporation. Our
relationship with WebTV over the past two years has allowed us to pursue a
"smart build" strategy in developing our network, adding network
points-of-presence, or POPs, where we believed our investment would be
substantially supported by traffic from WebTV's subscriber base.
Our national network features a high-speed 45 Mbps redundant ATM backbone,
19 SuperPOPs covering 16 of the 20 largest metropolitan areas in the United
States and offers dial-up access at speeds up to 56 Kbps. We facilitated our
network buildout and upgrade through a strategic alliance with Bay Networks,
Inc., an indirect, wholly owned subsidiary of Northern Telecom Limited ("Nortel
Networks"). Nortel Networks has invested $10.0 million in ZipLink, consisting of
$2.5 million of equity and $7.5 million of convertible debt. Concurrently with
the closing of this offering, $2.5 million of this debt will convert into common
stock at the rate of $ per share and $5.0 million of this debt will convert
into common stock at the initial public offering price. We have purchased
network equipment and services from Nortel Networks at preferred pricing to
upgrade our dial-up network to 56 Kbps. In addition, we have served as a beta
site for new Nortel Networks product offerings, have performed field testing
for, and have received pre-released versions of, their equipment and software.
As an outgrowth of this alliance, we will be conducting a joint nationwide
marketing campaign for our ZipDial service with Nortel Networks.
OUR MARKET OPPORTUNITY
As the Internet appliance market grows, we anticipate that there will be an
increasing demand for cost-effective, high-quality access services connecting
these devices to the Internet.
3
<PAGE>
- International Data Corporation, or IDC, estimates that there will be 12.8
million Internet appliances in use in 1999, of which 4.1 million will be
Internet-enabled televisions.
- Forrester Research, Inc. predicts that 20 million Internet-aware
appliances will be installed in U.S. homes by 2002.
- IDC projects that non-PC Internet access appliances shipped will grow from
9% of total Internet access devices (including PCs) to 43% of the market
by 2002.
The ISP market is highly fragmented with approximately 4,800 ISPs in the
United States. As demand for Internet access grows and the market for access
matures, we believe that ISPs will face pressure to lower prices, increase
services, expand infrastructure and concentrate on customer service and
marketing. We believe these factors create a significant outsourcing
opportunity.
- Forrester Research predicts that the Internet access market will reach $38
billion in 2002.
- Forrester Research estimates that there will be 60 million Internet access
dial-up accounts in 2002, constituting 77% of the Internet access market.
ZIPLINK'S SOLUTION
Our wholesale Internet access services are designed to meet the needs of the
emerging Internet appliance market and to provide a network outsourcing solution
for ISPs confronted with increased competition, mounting service demands and the
need to quickly expand their network infrastructure. We believe that our
wholesale Internet access solutions:
- allow our customers to focus on their core competency of marketing their
products and services;
- significantly reduce our customers' time to market;
- lower the barriers to entry into new geographic markets for our customers;
- provide a cost-effective alternative to a self-funded network upgrade or
buildout;
- offer a broad range of service options, including DSL and video and audio
streaming in certain regions; and
- feature high quality, reliable services with 24x7 network monitoring.
OUR BUSINESS STRATEGY
Our objective is to become the leading wholesale provider of Internet access
services for Internet appliances and ISPs in the United States. We intend to
achieve this objective by implementing the following key strategies:
- identify, develop and sustain relationships with key innovators and early
marketers of Internet appliances and leverage these relationships into a
leadership position in this rapidly emerging market;
- capitalize on our network infrastructure and expertise to make ZipDial the
leading high-quality, cost-effective wholesale access solution for ISPs;
- expand, enhance and maintain a robust, reliable network infrastructure
with high-quality, low-latency performance;
- establish and sustain strategic alliances with key customers and suppliers
to create and exploit early access to new markets and new technologies;
and
- extend and strengthen our relationship with WebTV to support continued
network expansion and maintain our high-profile position as a wholesale
Internet access provider for Internet appliances.
4
<PAGE>
OUR HISTORY
ZipLink was originally organized as a Connecticut limited liability company
under the name "ZipCall, LLC" in November, 1995 and changed its name to
"ZipLink, LLC" in July, 1996. On March 9, 1999, ZipLink, LLC merged with and
into a newly-formed Delaware limited liability company, retaining the name
"ZipLink, LLC." Prior to the closing of this offering, ZipLink, LLC will merge
with and into ZipLink, Inc., a newly-formed Delaware corporation. Except as
otherwise required by the context, references in this prospectus to "we," "our,"
"us" and "ZipLink" mean (i) ZipLink, LLC, a Connecticut limited liability
company, prior to its merger with ZipLink, LLC, a Delaware limited liability
company, (ii) ZipLink, LLC, a Delaware limited liability company, prior to its
merger with ZipLink, Inc., a Delaware corporation, and (iii) ZipLink, Inc.,
after consummation of the Reorganization.
Our principal executive offices are located at 900 Chelmsford Street, Tower
One, Fifth Floor, Lowell, Massachusetts 01851, and our telephone number at that
address is (978) 551-8100. We maintain a website at http://www.ziplink.net.
Information contained in our website does not constitute a part of this
prospectus.
ZipLink is a trademark owned by us and ZipDial is subject to a trademark
application made by us. Any other trademark, trade name or service mark of any
other entity appearing in this prospectus belongs to its holder.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... shares
Common stock outstanding after the shares
offering...................................
Use of proceeds.............................. To repay indebtedness, expand our network
infrastructure, increase sales and marketing
and for other working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... ZIPL
</TABLE>
The outstanding share information is based on our shares outstanding as of
February 28, 1999 and includes shares of common stock to be issued upon
conversion of convertible debt concurrently with the closing of this offering,
based upon an assumed initial public offering price of $ per share. The
shares of common stock outstanding excludes:
- 1,500,000 shares reserved for issuance under our 1999 Stock Option Plan
(after giving effect to the conversion of our outstanding options under
our Unit Option Plan), of which options to purchase shares,
exerciseable at a weighted average price of $ per share, have been
granted and options to purchase shares, exerciseable at the initial
public offering price, will be granted concurrently with the closing of
this offering, based upon an assumed initial public offering price of
$ per share; and
- shares reserved for issuance upon the exercise of an outstanding
warrant, at a price of $ per share, based upon an assumed initial
public offering price of $ per share.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes the statement of operations data for our
business. The pro forma data reflects the net loss, net loss per common share
and the weighted average common shares outstanding for each period presented,
assuming the capital contributions of the members of ZipLink, LLC had been
converted into common stock, pursuant to the Reorganization, at the beginning of
each respective period. You should read the following summary financial data
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER
21,
1995 (DATE
OF
INCEPTION)
TO
DECEMBER YEAR ENDED DECEMBER 31,
31, -------------------------------
1995 1996 1997 1998
----------- --------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ -- $ 756 $ 5,236 $ 7,088
Cost of revenues...................................... -- 1,782 3,187 6,271
Selling, general and administrative................... 25 7,373 6,507 5,174
Depreciation and amortization......................... 1 384 1,084 2,637
Loss from operations.................................. (26) (8,783) (5,543) (6,994)
Net loss.............................................. (26) (8,802) (6,709) (8,446)
PRO FORMA DATA:
Pro forma net loss.................................... $
Pro forma net loss per common share--basic and
diluted.............................................
Weighted average common shares outstanding--basic and
diluted.............................................
OTHER FINANCIAL DATA:
Capital expenditures.................................. $ 79 $ 4,219 $ 8,516 $ 1,313
EBITDA(1)............................................. (25) (8,399) (4,527) (4,502)
</TABLE>
- ------------------------
(1) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization. EBITDA is provided because we believe that investors find it
to be a useful tool for approximating our cash flow. EBITDA is presented to
enhance an understanding of our operating results and should not be
construed (i) as an alternative to operating income (as determined in
accordance with GAAP) as an indicator of our operating performance, or (ii)
as an alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Our methodology for
calculating EBITDA may be different from that used by other companies. See
the financial statements and notes thereto contained elsewhere in this
prospectus for more detailed information.
6
<PAGE>
The following table summarizes our balance sheet as of December 31, 1998.
The pro forma as adjusted balance sheet data as of December 31, 1998 gives
effect to (i) the Reorganization, (ii) the conversion of all outstanding
convertible debt into common stock concurrently with the closing of this
offering, based upon an assumed initial public offering price of $ per share,
(iii) the sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share, after deducting the
underwriting discount and estimated offering expenses, and (iv) the application
of the estimated net proceeds of the offering, including the repayment of
indebtedness to Fleet Bank N.A. in the amount of $17.6 million. See "Use of
Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 512 $
Working capital (deficit).............................................. (3,062)
Total assets........................................................... 11,174
Long-term debt......................................................... 17,939
Convertible debt, net of current portion............................... 7,000
Members'/Stockholders' equity (deficit)................................ (18,089)
</TABLE>
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US
OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR OPERATIONS. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASE, THE
MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF
YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THESE STATEMENTS REFER TO OUR FUTURE PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. WE USE WORDS SUCH AS "ANTICIPATES," "BELIEVES,"
"PLANS," "EXPECTS," "FUTURE," "INTENDS," AND SIMILAR EXPRESSIONS TO IDENTIFY
FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED IN THESE STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
THESE DIFFERENCES INCLUDE THE RISKS DESCRIBED BELOW, AS WELL AS THE FACTORS
DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS. WE CAUTION
YOU NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS WHICH
REFLECT OUR MANAGEMENT'S VIEW ONLY AS OF THE DATE OF THIS PROSPECTUS. WE ARE NOT
OBLIGATED TO UPDATE THESE STATEMENTS OR PUBLICLY RELEASE THE RESULTS OF ANY
REVISIONS TO THEM TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS
PROSPECTUS OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
WE ARE DEPENDENT ON WEBTV
We have in the past derived, and we expect in the future to continue to
derive, a significant portion of our revenues from WebTV. Revenue from WebTV
accounted for $2.5 million, or 48%, of our revenues for the year ended December
31, 1997, and $4.8 million, or 68%, of our revenues for the year ended December
31, 1998. Our revenues from WebTV are dependent on the number of WebTV
subscribers who make use of our network for connectivity to WebTV. The market
for WebTV's products and services is at an early stage of development and,
accordingly, we cannot assure you that products such as those offered by WebTV
will achieve or sustain market acceptance.
Our ability to maintain and grow our revenue from WebTV depends upon a
variety of factors, many of which are beyond our control. Those factors include
the following:
- WebTV could quickly and significantly reduce the amount of monthly revenue
we receive from WebTV. The minimum monthly revenue amount that must be
paid to us by WebTV under our agreement is significantly below the actual
monthly revenue we have received from WebTV since July, 1998.
- Our agreement with WebTV expires in December, 2000, subject to earlier
termination by either party at will with a pro-rata monthly reduction of
subscriber traffic over time.
- We do not control or influence WebTV's ability to succeed in the
marketplace or its ability to obtain or retain subscribers.
- Our agreement with WebTV is not exclusive. WebTV obtains services such as
those we provide from a number of our competitors, including PSINet, Inc.,
UUNet Technologies, Inc. (an MCI WorldCom company) and Concentric Network
Corporation. Many of such competitors are substantially larger than we are
and have more extensive networks and other resources.
- WebTV reallocates its subscriber traffic to us monthly based in part on
our quality of service. In late 1997 and the first half of 1998, we
experienced service quality problems, and, as a result, WebTV reduced the
amount of subscriber traffic on our network. If we experience service
quality problems in the future, WebTV may reduce our allocation of
subscriber traffic.
- Our business concentrates on delivering Internet connectivity primarily
using dial-up access over telephone lines. WebTV set-top boxes currently
rely upon this method of connectivity; however,
8
<PAGE>
these devices may, in the future, be configured to use a cable modem as an
alternative to dial-up access. As the Internet becomes more readily
accessible over the cable network, we may experience an erosion in WebTV
subscriber traffic. See "--We Face Risks From New Access Technologies."
Because of these and other factors, we cannot assure you that revenue from
WebTV will continue or that such revenue will reach or exceed historical levels
in any future period.
We cannot assure you that our efforts to develop other sources of revenue,
whether from the provision of services for other Internet appliances or through
our ZipDial program, will be successful or that alternative sources of revenue
will develop as anticipated. As a result, the loss or reduction of WebTV's
business would have a material adverse effect on our business, financial
condition and results of operations.
WE CANNOT PREDICT OUR SUCCESS BECAUSE WE HAVE A LIMITED OPERATING HISTORY
We have a limited operating history. We began the beta test of our Internet
network in the Northeastern U.S. in April, 1996 and commenced revenue generating
operations in June, 1996. In July, 1997, we began use of an ATM backbone network
and commenced initial deployment of our SuperPOP network architecture. During
1998, we enhanced most of our routers, installed software-upgradable remote
access servers in substantially all of our POPs and expanded our network to new
geographic areas. Accordingly, we have a limited operating history upon which an
evaluation of our business and prospects can be based. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets. To address these
risks, we must, among other things:
- respond to competitive developments;
- maintain good relationships with our customers and suppliers;
- continue to upgrade our technologies and commercialize network services
incorporating such technologies;
- manage expanding operations;
- continue to attract, retain and motivate qualified personnel; and
- anticipate and adapt to the changing Internet market.
We cannot assure you that we will be successful in addressing the risks we
face. The failure to do so would have a material adverse effect on our business,
financial condition and results of operations.
WE EXPECT OUR LOSSES AND NEGATIVE CASH FLOW TO CONTINUE
Since our inception, we have incurred net losses and experienced negative
cash flow from operations. Our cumulative net loss from operations as of
December 31, 1998 was $24.0 million. We expect to continue to operate at a net
loss and experience negative cash flow for the foreseeable future given the
level of planned operating and capital expenditures. Our ability to achieve
profitability and positive cash flow from operations is dependent upon our
ability to substantially grow our revenue base and achieve other operating
efficiencies. We plan to make significant capital expenditures to expand our
network and to increase our operating expenses based in large part on our
estimates of potential future revenues. If our future revenues fall short of our
estimates or if our operating expenses exceed our expectations, then we may
never obtain or sustain profitability.
WE WILL NEED SIGNIFICANT ADDITIONAL CAPITAL, WHICH WE MAY BE UNABLE TO OBTAIN
We will require significant capital to build out our network and fund our
growth and operating losses. Since our inception, our capital needs have
primarily been satisfied by equity investments and advances
9
<PAGE>
made by our Co-Chairman and Chief Executive Officer, Henry Zachs, and our
Co-Chairman, Eric Zachs, and their affiliates, equity and debt investments made
by Nortel Networks, and loans from commercial banks, including Fleet Bank N.A.,
supported by Henry and/or Eric Zachs' personal guarantee. Neither Henry nor Eric
Zachs nor any other affiliates will be providing advances or guarantees to us
after the consummation of this offering and we cannot assure you that Nortel
Networks will continue to make financing available to ZipLink.
Our current source of financing consists of a $20.0 million secured line of
credit from Fleet Bank. The outstanding balance of this line of credit was $18.5
million as of February 28, 1999 and we expect such balance to increase before
the closing of this offering. We intend to use a portion of the net proceeds
from this offering to repay the then-outstanding principal amount of our loan
from Fleet Bank. We do not have any agreement with any commercial bank or other
lender to make loans to us.
We anticipate that our available cash from operations, combined with the net
proceeds from this offering (after repayment in full of the loan from Fleet
Bank) will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months. In addition, we are
presently seeking a debt financing of approximately $15.0 million to be used for
capital expenditures, working capital and other general corporate purposes in
place of the Fleet Bank line of credit, such financing to be conditioned upon
the closing of this offering. Even if we obtain such financing, we anticipate
that we will need to raise significant additional capital for the period after
the next 12 months through public or private debt or equity financings or other
sources. None of our indebtedness after consummation of this offering will be
supported by a guaranty from either Henry or Eric Zachs or any of their
affiliates.
In the event this offering is not consummated, we intend to seek a $10.0
million debt financing, which financing will be supported by the personal
guarantee of Henry Zachs.
We cannot assure you that we will be able to raise any additional capital on
terms favorable to us, or at all. If adequate capital is not available or is not
available on acceptable terms, we may not be able to expand, enhance and
maintain our network infrastructure according to our current business plan,
develop new products or services, or otherwise respond to unanticipated
competitive pressures and we may be prevented from taking advantage of
unanticipated opportunities. In such case, our business, financial condition and
results of operations could be materially adversely affected.
WE MAY INCUR INDEBTEDNESS WHICH MAY CREATE FINANCIAL AND OPERATING RISK
If we obtain debt financing after the consummation of this offering, we do
not anticipate that the terms of such indebtedness will be as favorable to us as
the financing we have previously obtained. The amount and terms of any new
financing we may obtain will have important consequences for our company,
including the following:
- our ability to obtain additional financing in the future, whether for
working capital, capital expenditures or other purposes, may be impaired;
- a significant portion of our cash flow from operations may be dedicated to
the payment of interest or principal on our debt, which reduces the funds
available to us for other purposes;
- financial covenants may be imposed, such as ratios to measure performance,
limitations on incurring additional indebtedness, capital expenditures,
payment of dividends or the use of proceeds from the sale of assets, which
may limit our flexibility in operating our business and in planning for,
or reacting to, changes in market conditions; and
- we may be more vulnerable in the event of a downturn in our business or
the economy generally.
Our ability to comply with the terms of such financing will depend on a
number of factors, including our future operating performance and financial
results, as well as factors beyond our control. We cannot
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assure you that we will be able to comply with the terms of such financing. If
we are unable to comply with such terms, then we may be required to, among other
things, seek additional financing in the debt or equity markets, refinance or
restructure all or a portion of our then-existing debt, sell selected assets or
reduce or delay capital expenditures. We cannot assure you that any such
financing or sale of assets would be available on terms satisfactory to us, if
at all. We cannot assure you that any such financing or sale of assets would be
timely or that the proceeds which we could realize therefrom would be sufficient
to meet our debt service requirements.
OUR OPERATING RESULTS IN ONE OR MORE FUTURE PERIODS ARE LIKELY TO FLUCTUATE AND
MAY FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS
Our annual and quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future. Those results fluctuate due to a
variety of factors, including the following:
- timely deployment and expansion of our network;
- the timing and amount of capital costs related to network expansion;
- the timing and amount of bandwidth acquisitions;
- network performance, including maintaining high connection rates;
- variability and length of the sales cycle associated with our service
offerings;
- the degree and success of promotional activity undertaken by WebTV and our
other customers and changes in their number of subscribers;
- the degree and speed of market acceptance and commercial success of
Internet appliances;
- the introduction of new services by us and our competitors;
- the pricing and mix of services offered by us;
- our customer enrollment and retention rate;
- market acceptance of new and enhanced versions of our services;
- changes in pricing policies by our competitors;
- our ability to quickly obtain sufficient supplies of sole or limited
source components;
- user demand for network and Internet access services and the success of
our ZipDial ISP customers;
- the ability to manage potential growth and expansion;
- continued need for dial-up access and connectivity and our ability to
respond to technological change; and
- general economic and market conditions.
As a result of these factors, our operating results may, in some future
period, fall below the expectations of securities analysts and investors. In
such event, the market price of our securities will likely fall. Moreover,
fluctuations in our operating results may also result in volatility in the
market price of our securities.
WE DEPEND UPON NEW AND UNCERTAIN MARKETS
We provide wholesale Internet access services to the Internet appliance and
the ISP markets. These markets are in the early stages of development. The
Internet appliance market, in particular, is new and rapidly evolving. It is
difficult to predict the rate at which these markets will develop and grow and
whether
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demand can be sustained. These markets are subject to numerous uncertainties,
some of which are discussed below. In general, certain critical issues
concerning the use of the Internet itself remain unresolved and may impact the
growth of the Internet appliance and ISP markets and the corresponding demand
for our wholesale Internet access services. These issues include, among others,
security, reliability, ease and cost of access, and quality of service. Further,
although the Internet appliance market and the ISP market are related because
both are dependent upon the general growth and acceptance of the Internet, we
believe they are to a degree independent of one another. Accordingly, conditions
which favor the success of our wholesale access services in one market may be
either neutral or even unfavorable for our prospects in the other.
We believe that the market for providing wholesale Internet access services
for Internet appliances is subject to the following specific risks and
uncertainties:
- internet appliances which make use of our Internet access services may not
be developed or, if developed, may not gain market acceptance as quickly
as we anticipate, if at all;
- we could fail to correctly identify and successfully form relationships
with developers and marketers of Internet appliances whose products enjoy
commercial success and acceptance; or
- developments in Internet access technology, such as alternative access
devices, could occur which render our network less competitive or less
marketable for providing wholesale Internet access services for Internet
appliances.
We believe that the market for providing our wholesale Internet access
services to ISPs is subject to one or more of the following specific risks and
uncertainties:
- consolidation among ISPs could result in increasing price pressure on us
and in a reduction in the number of ISPs with a need for our wholesale
service offerings;
- changes in technology or in the price of equipment or network
infrastructure could make it cost-effective for ISPs to construct their
own network infrastructure rather than outsourcing Internet access to us;
- government regulation could have a material adverse effect on our ability
to offer wholesale Internet access solutions at a price which is
attractive to ISPs; or
- emerging access technologies such as cable modems or wireless devices may
eliminate or decrease the need for dial-up access.
In the event that either the Internet appliance market or the ISP market
fails to develop or fails to develop as quickly as we have anticipated, our
business, financial condition and results of operations would be materially
adversely affected.
WE ARE DEPENDENT UPON THE EFFORTS OF OUR ZIPDIAL CUSTOMERS
Part of our strategy is to market wholesale Internet access to ISPs under
the name ZipDial. Using ZipDial, these ISPs, in turn, offer Internet access to
subscribers using our network services. We earn revenue from our ZipDial ISP
customers largely on the basis of the number of their subscribers who use our
network. Our agreements with these ISP customers are non-exclusive and these
ISPs may obtain similar Internet access services from our competitors. The
extent to which an ISP subscriber uses our network rather than the ISP's own
network or a network provided by one of our competitors is wholly within the
discretion of the ISP. However, we believe that this determination will be made
principally on the basis of relative cost, service availability and quality.
Traffic allocation decisions may be made by ISPs on a subscriber-by-subscriber
or on an aggregate basis at any time or from time to time.
We initiated the ZipDial program in November, 1998. Accordingly, we have a
limited history upon which to base an evaluation of whether, or under what
terms, large numbers of ISPs will join our ZipDial
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program, at what rate, if at all, they will acquire subscribers, or the extent
to which they will cause their subscribers to use our network. Our business,
financial condition and results of operations could be materially adversely
affected if, for any reason:
- we fail to attract ZipDial customers with large subscriber bases;
- our ZipDial customers do not expend efforts to enroll large numbers of
subscribers or otherwise succeed in growing their subscriber base; or
- our ZipDial customers do not allocate large numbers of subscribers to our
network.
We cannot assure you as to the levels of resources or effort, if any, that
will be devoted by ZipDial customers to marketing Internet access using our
network services, nor can we assure you that these customers will not choose to
obtain network services similar to those offered by us from our competitors or
to expand their own network infrastructure.
Our agreements with ZipDial customers are generally for a term of one year.
None of these agreements has reached the end of its initial term. Accordingly,
we have no historical basis for determining whether, or on what terms, existing
or future ZipDial customers will renew their agreements. We cannot assure you
that any of these agreements will be renewed upon expiration.
WE MUST EXPAND AND ADAPT OUR NETWORK
The execution of our business plan requires us to rapidly expand our network
infrastructure to extend and increase our service offerings, to increase our
network capacity and to modify its capabilities as the number of users and the
amount and type of information users wish to transfer increase. We will also be
required to respond to changes in customer requirements. For example, WebTV may
shift its subscriber traffic from one area of our network to another, requiring
a reallocation of our network capacity. Such a shift could occur rapidly and
without advance notice. In 1998, WebTV significantly reduced its allocation of
subscriber traffic to one area of our network for reasons unrelated to our
service quality. At the same time, WebTV increased subscriber traffic to other
areas of our network. While WebTV subscriber traffic on our network as a whole
remained constant after such reallocation, the increased traffic in the affected
portions of our network significantly reduced our excess capacity in those
areas. If such added traffic had exceeded the capacity of our network in the
affected areas, we would have experienced capacity constraints that would have
reduced our service quality. We currently project our network utilization and
customer requirements will necessitate a rapid expansion of our network capacity
to avoid capacity constraints that would adversely affect system performance. We
also plan to increase our area of service coverage to, among other things,
broaden the reach of our ZipDial program. The expansion and adaptation of our
network infrastructure will require substantial financial, operational and
management resources in 1999 and future periods. We cannot assure you that we
will be able to expand or adapt our network infrastructure to facilitate our
business plan or to meet additional demand or our customers' changing
requirements on a timely basis, at a commercially reasonable cost, or at all. In
addition, if demand for network usage were to increase faster than projected by
us or were to exceed our current forecasts, the network could experience
capacity constraints, which would adversely affect the performance of the
system. Our business, financial condition and results of operations could be
materially adversely affected if, for any reason, we fail to:
- expand our network infrastructure both in capacity and in geographic terms
on a timely basis;
- adapt our network infrastructure to changing customer requirements or
evolving industry trends; or
- alleviate capacity constraints experienced by our network infrastructure.
Currently, we have paid transit agreements with UUNet and SAVVIS
Communications Corp. to support the efficient exchange of traffic between our
network and the Internet and reduce our reliance on public peering and limit our
exposure to congestion at public Network Access Points, or NAPs. We also
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have public peering arrangements at MAE-East in Falls Church, Virginia and Pac
Bell in San Francisco, California and with multiple ISPs. These public peering
arrangements also support the exchange of traffic between our network and the
Internet. The failure of the networks with which we have private transit or
public peering agreements or arrangements, or the failure of any other link in
the delivery chain, or any inability to successfully integrate new network
resources into our existing infrastructure would have a material adverse effect
on our business, financial condition and results of operations.
OUR GROWTH AND EXPANSION MAY STRAIN OUR RESOURCES
If we are successful in executing our business plan, our operations will
expand rapidly. If we fail to manage this growth effectively, our business,
financial condition and results of operations could be materially adversely
affected. Our business and our service offerings have grown rapidly since our
inception and are expected to continue to grow. This growth and expansion have
placed, and are expected to continue to place, a significant strain on our
management, operational and financial resources. To manage our growth, we must,
among other things:
- continue to expand and upgrade our network infrastructure;
- hire, train and retain qualified personnel, especially technical
personnel; and
- continue to implement and improve our operational, financial and
management information systems, including our billing, accounts receivable
and payable tracking, fixed assets and other financial management systems.
We cannot assure you that we will be able to expand our network according to
the schedule presently planned by us, that we will be able to hire, train or
retain sufficient numbers of qualified personnel to meet our requirements or
that we will be able to implement information management systems to meet the
requirements created by our future growth.
Future expansion of our customer base or growth in our customers' subscriber
bases will demand the rapid growth of our network infrastructure, technical
support resources and, in some cases, our customer support capabilities. We may
in the future experience difficulties meeting the demand for our access services
and technical and customer support. We cannot assure you that our technical or
customer support or other resources will be sufficient to facilitate our growth.
OUR NEW OR ENHANCED SERVICES MAY HAVE ERRORS OR DEFECTS
Our services may contain undetected errors or defects when first introduced
or upgraded. We cannot assure you that, despite testing by us or our customers
and suppliers, errors will not be found in new services or enhancements after
commencement of commercial deployment. Such errors could result in:
- additional development costs;
- loss of, or delays in, market acceptance;
- diversion of technical and other resources from our other development
efforts; or
- the loss of customers and users (for example, subscribers of a ZipDial
customer).
Any of these consequences could have a material adverse effect on our
business, financial condition and results of operations.
OUR FAILURE OR THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD
NEGATIVELY IMPACT OUR BUSINESS
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, our
computer programs that have date-sensitive software and
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software of companies into which our network is interconnected may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.
We are currently in the process of reviewing our products and services, as
well as our internal management information systems and non-information
technology systems in order to identify and modify those products, services and
systems that are not Year 2000 compliant. In addition, we have begun to contact
our suppliers, vendors and peering and transit partners to ascertain their Year
2000 status. At this time, we estimate that our costs associated with
remediation and verification to become Year 2000 compliant will not exceed
$180,000, although the actual cost of achieving compliance could differ
materially from this estimate.
While we expect to be Year 2000 compliant by the end of the third quarter of
1999, we cannot assure you that we will be able to timely and successfully
modify our services and systems to comply with Year 2000 requirements. Nor can
we assure that equipment received from suppliers will comply or that any of our
suppliers or peering or transit partners, such as Nortel Networks, or MCI
WorldCom, will be Year 2000 compliant in a timely manner or that there will not
be problems with technology working together. Furthermore, despite testing
performed by us and our suppliers and partners, our products, services and
systems may contain undetected errors or defects associated with Year 2000
related functions. In the event any material errors or defects are not detected
and fixed, or if third parties cannot provide us with products, services or
systems that meet Year 2000 requirements in a timely manner, if at all, our
business, financial condition and results of operations could be adversely
affected. Known or unknown errors or defects that affect the operation of our
products, services or systems could result in delay or loss of revenue,
interruption of network services, cancellation of customer contracts, diversion
of development or network expansion resources, damage to our reputation, or
litigation costs.
We do not have and do not plan to develop a contingency plan in the event
our systems fail due to Year 2000 related problems. We cannot assure you that
these or other factors relating to Year 2000 compliance issues will not have a
material adverse effect on our business, financial condition or results of
operations. See "Management's Discussion and Analysis of Financial
Condition--Year 2000 Issues."
WE DEPEND UPON OUR SUPPLIERS AND HAVE SOLE AND LIMITED SOURCES OF SUPPLY FOR KEY
PRODUCTS AND SERVICES
We rely on other companies to supply certain key components of our network
infrastructure. These components include critical telecommunications services
and networking equipment and software, which, in the quantities and quality
demanded by us, are available only from sole or limited sources. MCI WorldCom is
our primary provider of data communications facilities and capacity and provides
the ATM backbone of our network. We are also dependent upon LECs (including
CLECs) to provide telecommunications services to us and our customers. In
particular, each of our SuperPOPs depends upon the services of a CLEC in the
geographic area covered by the SuperPOP. We experience delays and disruptions
from time to time in receiving telecommunications services from these suppliers
and may have no means of replacing these services on a timely basis, if at all.
We cannot assure you that we will be able to obtain such services on the scale
and within the time frames required by us at an affordable cost, or at all. In
addition, each of these telecommunications providers sells services to our
competitors and, in some cases, those providers are or could become competitors
themselves. We cannot assure you that any of our telecommunications providers
will not enter into an exclusive relationship with one of our competitors or
otherwise stop selling services to us. Any inability to obtain such services on
a sufficient scale, on a timely basis or at an affordable cost would have a
material adverse effect on our business, financial condition and results of
operations.
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We purchase equipment and software manufactured by Nortel Networks, Cisco
Systems, Inc., Ascend Communications, Inc., Clarify, Inc. and other providers
either directly from the manufacturer or via systems integrators. Some of these
vendors are sole-source suppliers. We purchase these components pursuant to
purchase orders placed from time to time with our vendors. We do not carry
significant inventories of many of these components and have no guaranteed
supply arrangements for any such components. Further, in many cases, we rely
upon the vendors of our equipment to provide periodic maintenance, technical
support and upgrades. Our vendors also sell products and services to our
competitors and may in the future themselves become our competitors. We cannot
assure you that our vendors will not enter into exclusive arrangements with our
competitors or stop selling their products or services to us at commercially
reasonable prices, or at all.
The expansion of Internet network infrastructure is placing, and will
continue to place, a significant demand on our suppliers. In addition, some of
our suppliers rely on sole or limited sources of supply for components included
in their products. Failure of our suppliers to meet increasing demand may
prevent them from continuing to supply components and products in the quantities
and quality and at the times required by us, or at all. Our inability to obtain
sufficient quantities of sole or limited source components or to develop
alternative sources, if required, or our inability to obtain necessary services
relating to such components could result in delays and increased costs in
expanding, and overburdening of, our network infrastructure. Any such delay,
increased costs or overburdening would have a material adverse effect on our
business, financial condition and results of operations.
We also depend on our suppliers' ability to provide necessary products and
components that comply with various Internet and telecommunications standards.
These products and components must also function efficiently with products and
components from other vendors. Any failure of our suppliers to provide products
or components that comply with Internet standards or that function efficiently
with other products or components used by us in our network infrastructure could
have a material adverse effect on our business, financial condition and results
of operations.
WE DEPEND UPON OUR NETWORK INFRASTRUCTURE FUNCTIONING WITHOUT INTERRUPTION
Our success depends upon the reliability and security of our network
infrastructure. Any system failure that causes interruptions in our network
operations could have a material adverse effect on our business, financial
condition and results of operations. Although we have created and intend to
continue to create redundancies aimed at eliminating single points of failure
within our network, not all single points of failure can be eliminated and
service interruptions do occur from time to time. For example, in December,
1998, an MCI WorldCom telecommunications cable was accidentally cut, resulting
in an interruption in the functioning of our Washington, D.C. SuperPOP and a
temporary suspension of our ability to provide service to that geographic area.
In addition, while we attempt and intend to continue to attempt to maintain an
inventory of critical spare parts to assist in speeding repairs and reducing
downtime in the event of an equipment failure, we cannot assure you that we will
have on hand adequate spare parts to rapidly replace all items of equipment
which may be subject to failure.
Our operations are dependent upon our ability to protect our software and
hardware against damage from fire, earthquake, power loss, telecommunications
failure, natural disaster and similar events. A significant portion of our
computer equipment is located in Lowell, Massachusetts, as well as at individual
SuperPOPs. Although we maintain insurance to cover loss or damage to equipment,
we do not maintain any business interruption insurance or have a formal disaster
recovery plan or alternative providers of network infrastructure. Any damage or
failure that causes interruptions in our operations could have a material
adverse effect on our business, financial condition and results of operations.
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OUR MARKET IS EXTREMELY COMPETITIVE AND WE MAY NOT BE ABLE TO COMPETE
EFFECTIVELY
We face intense competition. There are no substantial barriers to entry in
the market for our services, and we expect that competition will further
intensify in the future. We believe that our ability to compete successfully
depends upon a number of factors, including:
- market presence and, with respect to Internet appliances, our success at
developing relationships with innovators and early marketers of such
devices;
- the capacity, reliability and security of our network infrastructure;
- technical expertise and functionality, performance and quality of services
and our ability to anticipate and meet the changing service needs of the
marketplace;
- our ability to create and market wholesale Internet access solutions that
are attractive to ISPs in terms of price, quality and breadth of service
offerings;
- our ability to establish and maintain successful strategic relationships
with key customers and suppliers and to gain early access to new markets
and new technologies;
- our ability to support industry standards; and
- industry and general economic trends.
Our competitors may be divided into two groups: those with whom we presently
compete and those who may, in the future, compete with us. Our present
competitors with respect to the WebTV relationship consist of the other current
providers to WebTV: PSINet, UUNet, Concentric, and a number of other, smaller
ISPs. Our present competitors with respect to ZipDial consist of a variety of
companies who are, in some form or another, offering wholesale Internet access
services. This group includes ISPs such as GTE Internetworking, Concentric,
PSINet, UUNet, IDT Corp., Splitrock Services, Inc. and Epoch Internet, Inc., as
well as CLECs in selected markets, such as XCOM Technologies, Inc. in Boston,
Massachusetts, Intermedia Communications, Inc. in Vienna, Virginia and ICG
Communications, Inc. in Englewood, Colorado. Our potential future competitors
include all of our present competitors as well as telecommunications companies,
such as AT&T Corporation, Williams Communications, a division of The Williams
Companies, Inc., Qwest Communications International, Inc. and Level 3
Communications, Inc., and other national and regional ISPs. Many of our present
and potential competitors have greater market presence, engineering and
marketing capabilities, and larger financial, technological and personnel
resources than those available to us. They may also enjoy certain price
advantages with respect to the purchase of bandwidth from telecommunications
carriers if, for example, they are a carrier themselves, or if they are
affiliated with a carrier, or if their usage enables them to secure volume
discounts. As a result, these present and future competitors may be able to
develop and expand their communications and network infrastructures more
quickly, adapt more swiftly to new or emerging technologies and changes in
customer requirements, take advantage of acquisition and other opportunities
more readily, and devote greater resources to the marketing and sale of their
products and services than we can.
In addition to possessing greater financial, technological and personnel
resources, a number of our present and future competitors have the ability to
bundle other services and products with Internet access services which could
place us at a competitive disadvantage. Certain companies are also exploring the
possibility of providing or are currently providing Internet services using
alternative delivery methods, such as over the cable television infrastructure,
through direct broadcast satellites and over wireless cable. See "--We Face
Risks From New Access Technologies."
We also anticipate increasing vertical and horizontal integration in our
industry. As a result of increased competition and this integration in the
industry, we could encounter significant pricing pressure both from our Internet
appliance and our ZipDial customers. This pricing pressure could result in
significant reductions in the average selling price of our services. For
example, telecommunications
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companies that compete with us may be able to provide customers with reduced
communications costs in connection with their Internet access services, reducing
the overall cost of their solutions and significantly increasing price pressures
on us. We cannot assure you that we will 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.
INDUSTRY CONSOLIDATION COULD ADVERSELY AFFECT US
The Internet access industry is experiencing consolidation and we believe
the pace of this consolidation will increase in the near future. We cannot
predict with any certainty how such consolidation will affect us or our
competitors. Consolidation among Internet access providers could result in
increased price and other competition in the market for wholesale Internet
access service and we cannot assure you that we will be able to compete
successfully in an increasingly consolidated industry. Any heightened
competitive pressures may have a material adverse effect on our business,
financial condition and results of operations. In addition, consolidation in the
ISP market could result in a reduced number of actual and potential customers
for our ZipDial service as local and regional ISPs are absorbed by larger,
national providers or as ISPs combine into entities with greater resources and
purchasing power. A shrinkage in our potential customer base for ZipDial service
could have a material adverse effect on our business, financial condition and
results of operations.
WE MUST KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
The markets for our services are characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, emerging
competition and frequent new product and service introductions. Our future
success will depend, in part, on our ability to:
- effectively identify and implement leading technologies;
- develop our technical expertise;
- enhance our current Internet access services; and
- influence and respond to emerging industry standards and other
technological changes.
All this must be accomplished in a timely and cost-effective manner. We
cannot assure you that we will be successful in effectively identifying or
implementing new technologies, identifying or developing new services or
enhancing our existing services on a timely basis, if at all. We cannot assure
you that those technologies or enhancements we do identify and develop will
achieve market acceptance. Our pursuit of necessary technological advances may
require substantial time and expense. We cannot assure you that we will succeed
in adapting our Internet access services business to alternate technologies as
they emerge. If we fail to identify and implement new technologies or services,
our business, financial condition and results of operations could be materially
adversely affected.
We believe that our ability to compete successfully is also dependent upon
the continued compatibility of our services with products and architectures
offered by various vendors. Although we intend to support emerging standards in
the market for Internet access products, we cannot assure you that industry
standards will be established. If industry standards are established, we cannot
assure you that we will be able to conform to these new standards in a timely
fashion and maintain a competitive position in the market. Specifically, our
services rely on the continued widespread commercial use of TCP/IP. Alternative
open protocol and proprietary protocol standards have been or are being
developed. If any of these alternative protocols become widely adopted, there
may be a reduction in the use of TCP/IP, which could render our services
obsolete, unmarketable or subject to substantial modification and upgrades. In
addition, we cannot assure you that services or technologies developed by others
will not render our services or technology uncompetitive or obsolete.
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An integral part of our strategy is to design our network to meet the
requirements of emerging standards. However, we have, from time to time in the
past, experienced difficulties in adapting to new standards and will likely
experience similar difficulties in the future. Difficulties experienced while
adapting to new standards may have a material adverse effect on our business,
financial condition and results of operations. For example:
- We initially experienced temporary service quality problems when enhancing
our network to make use of Nortel Networks routers and remote access
servers. Although we believe that these problems have been substantially
rectified, the reduced service quality resulted in a temporary reduction
in WebTV subscriber traffic and a corresponding reduction in revenue from
WebTV.
- We are currently upgrading our network to V.90 56 Kbps modems, the
successor standard to 56 Kbps Kflex and X2. We initially delayed our
implementation of this upgrade due to compatability issues between WebTV's
devices and the Nortel Networks' V.90 software. However, we are currently
testing a modified version of the Nortel Networks software and we expect
to deploy it into the network in the second quarter of 1999. We cannot
assure you that our deployment of V.90 software will be effected on a
timely basis, if at all, or whether such deployment will be successful.
If we fail, for technological or other reasons, to implement emerging
standards or to develop and introduce other new or enhanced services that are
compatible with industry standards and that satisfy customer requirements, then
our business, financial condition and results of operations would be materially
adversely affected.
WE FACE RISKS FROM NEW ACCESS TECHNOLOGIES
We face the risk of fundamental changes in the way Internet access is
delivered. Internet services are currently accessed primarily over telephone
lines by computers and substantially all of our business concentrates on
providing connectivity to the Internet over telephone lines, particularly
dial-up connectivity. Several companies are providing Internet access on a
limited basis via cable television modems, wireless cable modems, satellite
modems and other access devices that do not use telephone lines. These
alternative access devices can operate at substantially faster speeds than the
modems we and our customers and their subscribers currently use and, in some
cases, with reduced network costs. In addition, some Internet devices are
presently configured to make use of these and other new access technologies if
and when they become available. As the Internet becomes accessible through
alternative access devices, we may experience an erosion in our customer base
and in the number of their subscribers making use of our system as our customers
allocate subscriber traffic away from our network to the newer, faster
technologies. In such event, we will be required to identify and develop
Internet access services that are compatible with dial-up capabilities of our
network or to embrace and incorporate such new access technologies. If we fail
to either identify and successfully develop alternative services or otherwise to
adapt to new access methods or other new technologies, our business, financial
condition and results of operations would be materially adversely affected.
OUR SYSTEM MAY EXPERIENCE SECURITY BREACHES
Despite the implementation of network security and authentication measures,
the core of our network infrastructure is vulnerable to computer viruses,
break-ins and similar disruptive problems caused by our customers, Internet
users, our current or former employees or others. Computer viruses, break-ins or
other problems caused by third parties could lead to significant interruptions
or delays in service to our customers and their subscribers. Furthermore,
inappropriate use of the network by third parties could also potentially
jeopardize the security of confidential information stored in our computer
systems and our customers' computer systems. We may face liability and may lose
potential customers or our customers may lose subscribers as a result. We have
no insurance covering such liabilities. Although we intend to continue to
implement industry-standard security and authentication measures, our protective
measures
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have been circumvented in the past. Moreover, we have in the past and expect in
the future to experience security threats which we believe are typical to the
business of providing Internet access. We cannot assure you that our security
measures will prevent security breaches. The costs and resources required to
eliminate computer viruses and alleviate other security problems could be
prohibitively expensive and efforts to address such problems may result in
interruptions, delays or cessation of service to our customers that could have a
material adverse effect on our business, financial condition and results of
operations.
WE DEPEND UPON KEY PERSONNEL AND MAY BE UNABLE TO TIMELY HIRE AND RETAIN
SUFFICIENT NUMBERS OF QUALIFIED PERSONNEL
Our success depends to a significant degree upon the continued contributions
of Christopher Jenkins, our President and Chief Financial Officer, and James
Cocks, our Director of Networking. The loss of the services of any of these
employees could have a material adverse effect on us. We have an employment
agreement with Mr. Jenkins, which expires in December, 2001, but do not have any
employment agreements with any other employee. Further, we do not carry key man
life insurance on the life of any employee. Our success will also depend upon
the continued service of the other members of our senior management team and our
technical and marketing personnel. Competition in our industry for qualified
employees, especially technical personnel, is intense. Our employees may
voluntarily terminate their employment with us at any time. Our success also
depends upon our ability to attract and retain additional highly qualified
management, technical and marketing personnel. Locating personnel with the
combination of skills and attributes required to carry out our strategy is often
a lengthy process. The loss of key personnel, or the inability to attract
additional, qualified personnel, could have a material adverse effect upon our
results of operations, service development efforts and ability to complete the
expansion of our network infrastructure.
GOVERNMENT REGULATION COULD NEGATIVELY IMPACT OUR BUSINESS
Regulation of the telecommunications industry is in a state of rapid and
uncertain change. We cannot predict the direction or scope of these regulatory
changes or the impact such changes may have on our business, financial condition
or results of operations. Government regulation could negatively impact our
business in a number of ways:
- we may become subject to direct government regulation;
- regulatory regimes governing our actual and future competitors could
change in ways which enhance their ability to compete with us; and
- our suppliers may be subject to regulation which has the effect of
increasing our cost of doing business.
Our activities are not presently subject to direct government regulation.
The Federal Communications Commission, or FCC, currently does not regulate
either value-added network software or computer equipment related services that
transport data or IP-based voice messages over telecommunication facilities as
telecommunications services. We provide value-added IP-based network services,
in part, through data transmissions over public telephone lines. Operators of
these types of value-added networks that provide access to regulated
transmission facilities only as part of a data services package are classified
for regulatory purposes as providers of "information services" and are currently
excluded from regulations that apply to "telecommunications carriers." As such,
we are not currently subject to direct regulation by the FCC or any other
governmental agency, other than regulations applicable to businesses generally.
However, future changes in law or regulation could result in some aspects of our
current operations becoming subject to regulation by the FCC or another
regulatory agency.
State public utility commissions generally have declined to regulate
enhanced or information services. Some states, however, have continued to
regulate particular aspects of enhanced services in limited
20
<PAGE>
circumstances, such as where they are provided by incumbent LECs that operate
telecommunications networks. Moreover, the public service commissions of some
states continue to review potential regulation of such services. We cannot
assure you that regulatory authorities of states where we provide Internet
access services will not seek to regulate aspects of this activity as
telecommunications services.
If we become subject to direct government regulation, our business,
financial condition and results of operations could be adversely affected.
Our actual and potential future competitors include ILECs, such as Southern
New England Telecommunications Corporation, or SNET (a subsidiary of SBC
Communications Inc.), and Bell Atlantic Corporation, which are presently subject
to extensive government regulation. Changes in the regulations affecting these
competitors could have the effect of enhancing their ability to compete with us,
which could, in turn, have a material adverse effect on our business, financial
condition and results of operations.
In addition, we purchase significant services from entities which are
subject to government regulation, including CLECs. CLECs provide key enabling
components of our SuperPOP architecture. CLECs are subject to extensive
regulation by the FCC. This includes rules governing so-called "reciprocal
compensation," the compensation of CLECs by ILECs, for telephone calls from ILEC
customers which are terminated on the CLEC's system. This regulation applies to
dial-up calls to ZipLink's network which originate on an ILEC's telephone line
and pass through CLEC facilities used in our SuperPOPs. The FCC has recently
considered the issue of reciprocal compensation and may, in the future, alter
existing reciprocal compensation rules in ways which negatively affect CLECs. We
cannot predict any future changes in reciprocal compensation or other rules
governing CLECs or the impact any such regulatory changes may have on their
businesses. If CLECs are adversely affected by regulatory changes, they may
raise the price or otherwise modify the terms applicable to services they
provide to ZipLink which are important to our SuperPOP architecture. Such
modifications could increase our cost of doing business and, as a result,
negatively affect our ability to compete, reduce our gross margin on some
services or otherwise have a material adverse effect on our business, financial
condition and results of operations.
We cannot predict the impact, if any, that future regulation or regulatory
changes may have on our business and we cannot assure you that future regulation
or regulatory changes will not have a material adverse effect on our business,
financial condition and results of operations.
WE DEPEND ON OUR PROPRIETARY TECHNOLOGY AND TECHNOLOGICAL EXPERTISE
Although we believe our success is more dependent upon our technological
expertise than on our proprietary rights, our success and ability to compete is
dependent in part on our technology and know-how. We rely upon a combination of
copyright, trademark and trade secret laws and contractual restrictions to
protect our proprietary technology and know-how. It is and has been our policy
to require all employees and consultants to execute confidentiality agreements
upon commencement of their relationships with ZipLink. These agreements
generally provide that confidential information developed or made known during
the course of a relationship with us is to be kept confidential and not
disclosed except in specific circumstances. We cannot assure you that such
measures have been, or will be, adequate to prevent misappropriation of our
proprietary technology or know-how. Our competitors may also independently
develop technologies that are substantially equivalent or superior to our
technology.
THIRD PARTIES MAY CLAIM WE INFRINGE THEIR PROPRIETARY RIGHTS
We have applied for or received certain trademarks for use in the United
States. None of our technology is patented by us. We use certain "open source"
and "shareware" software in our business, such as Linux and MRTG. We believe
that such software is in the public domain and that its use by ZipLink and
others is not subject to any charge or licensing fee, although we may, on a
voluntary basis, make contributions to developers or, in some cases, incur
charges for support materials or services relating to such software. However, we
have not investigated our use of any open source or shareware software to
21
<PAGE>
determine whether it constitutes infringement of any third party proprietary
rights. Although we do not believe our trademarks or use of technology infringe
the proprietary rights of any third parties, we cannot assure you that third
parties will not assert such claims against us in the future or that such claims
will not be successful. We could incur substantial costs and diversion of
management resources to defend any claims relating to proprietary rights, which
could have a material adverse effect on our business, financial condition and
results of operations. Furthermore, parties making such claims could secure a
judgment awarding substantial damages, as well as injunctive or other equitable
relief that could effectively block our ability to use such trademarks or
technology. Such a judgment would have a material adverse effect on our
business, financial condition and results of operations. If someone asserts a
claim relating to proprietary technology or information against us, we may seek
licenses to such intellectual property. We cannot assure you, however, that we
could obtain licenses on commercially reasonable terms, if at all. The failure
to obtain the necessary licenses or other rights could have a material adverse
effect on our business, financial condition and results of operations.
WE COULD FACE LIABILITY FOR INAPPROPRIATE USE OF OUR NETWORK
We could face liability for the use of our network to carry or disseminate
inappropriate information. The law relating to the liability of online service
providers, private network operators and Internet service providers for
information carried on or disseminated through the facilities of their networks
is continuing to evolve and remains unsettled. Several private lawsuits seeking
to impose such liability are currently pending. In the past, at least one court
has ruled that Internet service providers could be found liable for copyright
infringement as a result of information disseminated through their networks.
Although no such claim has been asserted against us to date, we cannot assure
you that such claims will not be asserted in the future. Further, while we have
attempted to limit our liability in this respect through various contractual
means, we cannot assure you that our liability will be so limited in the event
of any litigation or other claim against us. We do not have any insurance
covering liabilities or claims relating to the use of our network or to
materials disseminated using our network. Federal laws have been enacted,
however, which, under certain circumstances, may provide Internet service
providers with immunity from liability for information that is disseminated
through their networks when they are acting as mere conduits of information. A
Federal Court of Appeals has recently held that the Telecommunications Act of
1996 creates immunity from liability for Internet service providers for libel
claims arising out of information disseminated over their services by third
party content providers. In addition, the Digital Millennium Copyright Act of
1998, creates a safe-harbor from copyright infringement liability for Internet
service providers that meet certain requirements. We have complied with these
requirements by instituting certain technical measures and by registering with
the Copyright Office. We cannot assure you, however, that the Digital Millennium
Copyright Act or any other legislation will protect us from copyright
infringement liability.
The Child Online Protection Act of 1998 prohibits and imposes criminal
penalties and civil liability on anyone engaged in the business of selling or
transferring, by means of the World Wide Web, material that is harmful to minors
without restricting access to such material by persons under seventeen years of
age. Numerous states have adopted or are currently considering similar types of
legislation. The imposition upon us as an Internet service provider of potential
liability for such materials carried on or disseminated through our system could
require us to implement measures to reduce our exposure to such liability. Such
measures may require the expenditure of substantial resources or the
discontinuation of certain service offerings. Further, the costs of defending
against any such claims and potential adverse outcomes of such claims could have
a material adverse effect on our business, financial condition and results of
operations. The Child Online Protection Act of 1998 has been challenged by civil
rights organizations in part on the grounds that it violates the First
Amendment. A similar statute was held unconstitutional by the United States
Supreme Court in 1997. A United States District Court has temporarily enjoined
enforcement of the law pending final resolution of the case. We do not carry any
insurance against any claims related to the use of our network by third parties.
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Our network operations, like those of all ISPs and on-line services, are at
risk from inappropriate uses by third parties known as "spamming." Spamming
occurs when a user, which could be a subscriber of a ZipDial customer, employs
our network to rapidly distribute a large number of unsolicited e-mails to users
of other networks. The volume of unsolicited e-mails can cause congestion on the
originating network, in this case ZipLink's, or on the networks of other
providers who serve addressees of the e-mails. These addressees may also
register complaints with their host ISPs. As a result, many ISPs react to
spamming of their users by temporarily blocking the flow of traffic from the
originating network until that network blocks access by the offending user and
terminates the flow of unwanted e-mails. Because these blockages are not
specific to the offending user, they affect all traffic emanating from the
originating network and can result in the temporary interruption of service to
all users of that network. If ZipLink's network is used by a spammer, service to
our users could be interrupted and our business, financial condition and results
of operations could be materially adversely affected. Although ZipLink attempts
to prevent use of its network for spamming through contractual means and through
industry standard network monitoring, spamming has occurred on our network in
the past and we cannot assure you that spamming will not occur in the future.
OUR CO-CHAIRMEN AND OUR CHIEF EXECUTIVE OFFICER WILL BENEFIT FROM THIS OFFERING
Since our inception, we have relied substantially on equity contributions
and advances from Henry Zachs, our Co-Chairman and Chief Executive Officer, Eric
Zachs, our Co-Chairman, and their affiliates and, more recently, on loans from
commercial banks supported by the personal guarantee of Henry Zachs. These
recent commercial loans have been on terms and at rates that would not otherwise
have been available to us absent Henry Zachs' personal guarantee. We intend to
use a portion of the net proceeds of this offering to repay our outstanding
indebtedness to Fleet Bank and to obtain the release of Henry Zachs' personal
guarantee, resulting in a material benefit to Henry Zachs. In addition, Henry
Zachs has agreed to personally guarantee an additional $10.0 million of
indebtedness to ZipLink from institutional lenders acceptable to Henry Zachs.
This guarantee will terminate upon the closing of this offering. See "--We Will
Need Substantial Additional Capital, Which We May Be Unable To Obtain" and
"Certain Transactions." Additionally, this offering is expected to create a
public market for our common stock which may result in a substantial increase in
the market value of the initial investments of Henry and Eric Zachs and their
affiliates.
OUR CO-CHAIRMEN AND OUR CHIEF EXECUTIVE OFFICER CAN EXERCISE SIGNIFICANT
INFLUENCE OVER THE COMPANY
Henry Zachs, our Co-Chairman and Chief Executive Officer, and Eric Zachs,
our Co-Chairman, will, in the aggregate, beneficially own approximately % of
our common stock following the completion of this offering ( % if the
underwriters' over-allotment option is exercised in full), based upon an assumed
initial public offering price of $ per share. These stockholders will be
able to control all matters requiring approval by our stockholders, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of ZipLink, which in turn could have a material
adverse effect on the market price of our common stock or prevent our
stockholders from realizing a premium over the market price for their shares of
common stock. See "Principal Stockholders."
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which investor interest in our common
stock will lead to the development of a trading market or how liquid that market
might become. The initial public offering price for the shares of common stock
will be determined by us and the representatives of the underwriters and may not
be indicative of prices that will prevail in the trading market. The market
price of the common stock may decline below the initial
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<PAGE>
public offering price. The stock market has experienced significant price and
volume fluctuations that have affected the market prices for the common stocks
of Internet companies. In the past, these broad market fluctuations have been
unrelated or disproportionate to the operating performance of these companies.
Historically, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. We may become involved in this type of
litigation in the future. Litigation is often expensive and diverts management's
attention and resources, which could have a material adverse effect upon our
business, financial condition and results of operations. See "Underwriting."
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE
If our stockholders sell substantial amounts of common stock (including
shares issued upon the exercise of outstanding options or warrants) in the
public market following this offering, the market price of our common stock
could fall. These sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate. Upon completion of this offering, we will have shares of
common stock outstanding, based upon an assumed initial public offering price of
$ per share. Of these shares, the shares being offered hereby will be
freely tradable, except for any shares purchased by our "affiliates" as defined
in Rule 144 under the Securities Act. The remaining shares may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act. These
remaining shares are subject to contractual restrictions that prevent them from
being sold until 180 days after the effective date of the registration statement
for this offering without the consent of Jefferies & Company, Inc.
Within 180 days after this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of
common stock reserved for issuance under our 1999 Stock Option Plan, including
shares currently subject to outstanding options. We expect this registration
statement on Form S-8 to become effective immediately upon filing. Options to
purchase shares of common stock are either vested or will vest within 180
days of the date of this prospectus. Of these vested option shares,
will be subject to contractual restrictions that prevent them from
being sold until 180 days after the effective date of the registration statement
for this offering without the consent of Jefferies & Company, Inc. All of the
shares covered by the registration statement on Form S-8 will be eligible for
sale in the public markets, subject to Rule 144 volume limitations applicable to
our affiliates as well as to the limitations on sale and vesting described
above.
Further, as of the date of this prospectus, a warrant to purchase
shares of common stock is issued and outstanding, based upon an assumed initial
public offering price of $ per share. These shares may, upon exercise of the
warrant, be sold in the public market only if registered or if they qualify for
an exemption from registration under Rule 144. We have no present intention to
register such shares. The earliest that these shares may be sold in reliance on
Rule 144 is one year from the date such warrant is exercised.
In addition, commencing 180 days after the date of this offering, certain
stockholders, owning in the aggregate approximately shares of common
stock, have the right, subject to certain conditions, to demand registration of
their shares or to require us to include their shares in certain registration
statements relating to our securities. Sales of a substantial amount of common
stock in the public market, or the perception that these sales may occur, could
adversely affect the market price of our common stock prevailing from time to
time in the public market and could impair our ability to raise additional
capital through the sale of equity or equity-related securities. See
"Description of Capital Stock--Registration Rights."
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<PAGE>
WE WILL HAVE BROAD DISCRETION IN USE OF THE PROCEEDS FROM THIS OFFERING
We intend to use a substantial portion of the proceeds of this offering for
working capital and general corporate purposes. Accordingly, our management will
have broad discretion in how the proceeds from this offering are used. Investors
will be relying on the judgment of our management regarding the application of
the proceeds of this offering. See "Use of Proceeds."
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of our common stock. Therefore, investors
purchasing shares in the offering will incur immediate and substantial dilution
in net tangible book value per share. The dilution to investors in this offering
will be approximately $ per share, based upon an assumed initial public
offering price of $ per share. In addition, the exercise of stock options
and warrants could cause additional substantial dilution to such investors. See
"Dilution."
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS WHICH COULD NEGATIVELY IMPACT OUR
STOCKHOLDERS
We are subject to Delaware laws that could have the effect of delaying,
deterring or preventing a change in control of ZipLink. One of these laws
prohibits us from engaging in a business combination with any interested
stockholder for a period of three years from the date the person became an
interested stockholder, unless some conditions are met. In addition, provisions
in our Certificate of Incorporation and By-Laws, and the significant proportion
of our stock held by our executive officers, directors and affiliates, could
have the effect of discouraging potential takeover attempts or making it more
difficult for stockholders to change management. One such provision is the
ability of our Board of Directors to authorize the issuance of preferred stock
with rights and privileges that might be senior to our common stock without
shareholder approval. Our Certificate of Incorporation and By-Laws also provide
that stockholders may not take action by written consent and that special
meetings of the stockholders may only be called by our Board of Directors. Our
Certificate of Incorporation and By-Laws further require a supermajority vote of
the stockholders to amend certain provisions of our Certificate of Incorporation
or the By-Laws. See "Description of Capital Stock--Delaware Anti-takeover Law
and Certain Charter and By-Law Provisions."
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of
common stock we are offering will be approximately $ ($ if the
underwriters' over-allotment is exercised in full), based upon an assumed
initial public offering price of $ per share, and after deducting the
underwriting discount and other estimated offering expenses.
We intend to use approximately $20.0 million of the net proceeds of this
offering for repayment in full of our then-outstanding indebtedness to Fleet
Bank ($18.5 million at February 28, 1999) under a line of credit. The Fleet Bank
line of credit matures on April 1, 2001, accrues interest at a variable rate
equal to the London Interbank Offered Rate, or LIBOR, plus 0.30% and was
incurred in March 1998 to refinance advances from Henry Zachs, our Co-Chairman
and Chief Executive Officer, and Eric Zachs, our Co-Chairman and certain of
their affiliates, to refinance indebtedness guaranteed by Henry and Eric Zachs,
as well as to provide us with general working capital. We intend to use the net
proceeds of this offering remaining after repayment of the Fleet Bank
indebtedness as follows: approximately $10.0 million to expand our network
infrastructure, approximately $1.6 million for sales and marketing and the
remainder for working capital and general corporate purposes. We are presently
seeking a financing of approximately $15.0 million to be used for working
capital and other general corporate purposes as a replacement for the Fleet Bank
line of credit, which financing will be conditioned upon the closing of this
offering. We cannot assure you that we will be able to obtain such financing or
that, if available, it will be on terms we deem acceptable.
We will retain broad discretion in the allocation of the net proceeds from
this offering. The amounts actually expended for any such purposes may vary
significantly and will depend upon a number of factors, including the amount of
our future revenues, our ability to obtain additional financing and other
factors described under "Risk Factors" and elsewhere in this prospectus. Pending
use of the net proceeds from this offering, we intend to invest the net proceeds
in short-term, interest bearing, investment grade securities.
DIVIDEND POLICY
We have not paid and do not anticipate paying any cash dividends on our
common stock in the foreseeable future. We intend to retain our earnings, if
any, for use in our growth and ongoing operations. Any determination to declare
or pay cash dividends will be at the discretion of our Board of Directors and
will depend on our financial condition, results of operations, capital
requirements and such other factors as the Board of Directors determines are
relevant.
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CAPITALIZATION
The following table sets forth the capitalization of ZipLink, as of December
31, 1998, (A) on an actual basis, (B) on a pro forma basis to give effect to the
Reorganization, and (C) on a pro forma as adjusted basis to give effect to (i)
the conversion of all outstanding convertible debt into shares of common
stock concurrently with the offering, based upon an assumed initial public
offering price of $ per share, (ii) the sale of shares of common stock in
this offering, at an assumed initial public offering price of $ per share,
after deducting the underwriting discount and the estimated offering expenses,
and (iii) the application of the estimated net proceeds therefrom as described
under the section "Use of Proceeds." You should read the following table
together with our financial statements and notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
(A) (B) (C)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................................... $ 512 $ $
---------- ----------- -----------
---------- ----------- -----------
Long-term obligations:
Capital lease obligations................................................. $ 803 $ $
Note payable.............................................................. 17,600 --
Convertible debentures.................................................... 7,500 --
---------- ----------- -----------
Total long-term obligations (including current portion)................. 25,903
Members'/Stockholders' equity (deficit):
Members' equity (deficit)................................................. (18,089) -- --
Preferred stock, $.001 par value; no shares authorized, issued or
outstanding, actual; 1,000,000 shares authorized, no shares issued or
outstanding (pro forma and pro forma as adjusted)....................... -- -- --
Common stock, $.001 par value, no shares authorized, issued or
outstanding, actual; 50,000,000 shares authorized, issued and
outstanding (pro forma and pro forma as adjusted)....................... --
Additional paid-in capital................................................ --
Accumulated deficit....................................................... -- -- --
---------- ----------- -----------
Total members'/stockholders' equity (deficit)........................... (18,089)
---------- ----------- -----------
Total capitalization.................................................. $ 8,326 $ $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The outstanding share information excludes:
- 1,500,000 shares reserved for issuance under our 1999 Stock Option Plan
(after giving effect to the conversion of our outstanding options under
our Unit Option Plan), of which options to purchase shares,
exerciseable at a weighted average price of $ per share, have been
granted and options to purchase shares, exerciseable at the initial
public offering price, will be granted concurrently with the closing of
this offering, based upon an assumed initial public offering price of
$ per share; and
- shares reserved for issuance upon the exercise of an outstanding
warrant at a price of $ per share, based upon an assumed initial
public offering price of $ per share.
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DILUTION
After giving effect to the conversion of the $7.5 million of outstanding
convertible debt held by Nortel Networks into an aggregate of shares of
common stock concurrently with the closing of this offering, based upon an
assumed initial public offering price of $ per share, the pro forma net
tangible book value of ZipLink as of December 31, 1998 would have been $ ,
or $ per share of common stock. The pro forma net tangible book value per
share is determined by dividing our pro forma tangible net worth (pro forma
tangible assets less total liabilities) by the pro forma number of shares of
common stock outstanding. Dilution per share represents the difference between
the amount per share paid by investors in this offering and the pro forma net
tangible book value per share after the offering. After giving effect to the
sale of the shares of common stock in the offering at an assumed initial public
offering price of $ per share and after deducting the underwriting discount
and the other estimated offering expenses payable by us, the pro forma net
tangible book value of ZipLink as of December 31, 1998 would have been $
per share. This represents an immediate accretion in the net tangible book value
of $ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors purchasing shares at
the assumed initial public offering price. The following table illustrates this
per share dilution.
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share............... $
---------
Pro forma net tangible book value per share as at December
31, 1998.................................................. $
Increase per share attributable to new investors............ $
---------
Pro forma net tangible book value per share after the offering
---------
Dilution per share to new investors (1)....................... $
---------
---------
</TABLE>
- ------------------------
(1) If the underwriters' over-allotment is exercised in full, the pro forma net
tangible book value per share after the offering would be $ , resulting
in an immediate dilution of $ per share to investors purchasing shares in
this offering.
The following table summarizes, on a pro forma basis, as of December 31,
1998, the total number of shares of common stock purchased from us, the total
consideration paid to us and the average price paid per share by (i) Nortel
Networks, (ii) other existing stockholders, and (iii) investors purchasing
shares from us in this offering at an assumed initial public offering price of
$ per share (before deducting the underwriting discount and estimated offering
expenses payable by us). The information provided gives effect to the
Reorganization as if it had occurred as at the inception of ZipLink, LLC, a
Connecticut limited liability company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Nortel Networks(1)........................................ % $ % $
Other existing stockholders...............................
New investors.............................................
---------- --- ---------- ---
Total................................................. 100% $ 100%
---------- --- ---------- ---
---------- --- ---------- ---
</TABLE>
- ------------------------
(1) Includes shares purchased from us for $ per share on December 23,
1997, shares of common stock issued upon conversion of a $2.5 million
convertible debenture at a conversion price of $ per share, and
shares of common stock issued upon conversion of a $5.0 million convertible
debenture at a conversion price of $ per share, based upon an assumed
28
<PAGE>
initial public offering price of $ per share, which conversions will
occur concurrently with the closing of this offering.
The foregoing table assumes that no stock options or warrants outstanding as
of December 31, 1998 have been exercised. There were, as of December 31, 1998,
outstanding options to purchase shares of common stock, exerciseable at a
weighted average price of $ per share, and an outstanding warrant to purchase
shares of common stock, with an exercise price of $ per share based
upon an assumed initial public offering price of $ per share. To the extent
outstanding options and warrants are exercised, there will be additional
dilution to investors purchasing shares in this offering.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected statement of operations data of ZipLink, for the
three years ended December 31, 1996, 1997 and 1998 and the balance sheet data as
of December 31, 1996, 1997, 1998 have been derived from our financial
statements, which have been audited by Arthur Andersen LLP, independent
accountants, whose report is included elsewhere in this prospectus. The selected
statement of operations data for the period from inception (November 21, 1995)
to December 31, 1995 and the balance sheet data as of December 31, 1995 have
been derived from unaudited financial data of ZipLink and, in our opinion, these
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the information. The
pro forma data reflects the net loss, net loss per common share and the weighted
average common shares outstanding for each period presented assuming for each
period presented the capital contribution of the members had been converted into
common stock, pursuant to the Reorganization, at the beginning of each
respective period. The pro forma financial data included herein is not
necessarily indicative of the results that would have been obtained had the
Reorganization been consummated on the dates indicated, nor do they purport to
indicate the results of future operations. The following selected financial data
is qualified by reference to, and should be read in conjunction with, the
financial statements of ZipLink, the notes thereto and "Management's Discussions
and Analysis of Financial Condition and Results of Operations" included
elsewhere in the prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21,
1995 (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------
1995 1996 1997 1998
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................................... $ $ 756 $ 5,236 $ 7,088
Cost of revenues.................................................. 1,782 3,187 6,271
Selling, general and administrative............................... 25 7,373 6,507 5,174
Depreciation and amortization..................................... 1 384 1,084 2,637
------------- --------- --------- ---------
Total costs and expenses........................................ 26 9,539 10,779 14,082
------------- --------- --------- ---------
Loss from operations.............................................. (26) (8,783) (5,543) (6,994)
Interest and other expenses, net................................ -- 19 1,167 1,452
------------- --------- --------- ---------
Net loss.......................................................... $ (26) $ (8,802) $ (6,709) $ (8,446)
------------- --------- --------- ---------
------------- --------- --------- ---------
PRO FORMA DATA:
Pro forma net loss................................................ $ $ $ $
Pro forma net loss per common share--basic and diluted............
Weighted average common shares outstanding--basic and diluted.....
OTHER FINANCIAL DATA:
Capital expenditures.............................................. $ 79 $ 4,219 $ 8,516 $ 1,313
EBITDA(1)......................................................... (25) (8,399) (4,527) (4,502)
</TABLE>
- ------------------------
(1) EBITDA consists of net loss excluding net interest, taxes, depreciation and
amortization. EBITDA is provided because we believe that investors find it
to be a useful tool for approximating our cash flow. EBITDA is presented to
enhance an understanding of our operating results and should not be
construed (i) as an alternative to operating income (as determined in
accordance with GAAP) as an indicator of our operating performance or (ii)
as an alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. Our methodology for
calculating
30
<PAGE>
EBITDA may be different from that used by other companies. See the financial
statements and notes thereto contained elsewhere in this prospectus for more
detailed information.
The following pro forma as adjusted balance sheet data as of December 31,
1998 gives effect to (i) the Reorganization, (ii) the conversion of all
outstanding convertible debt into common stock concurrently with the closing of
this offering, based upon an assumed initial public offering price of $ per
share, (iii) the sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share, after deducting the
underwriting discount and estimated offering expenses, and (iv) the application
of the estimated net proceeds from the offering, including the repayment of the
note payable to Fleet Bank in the amount of $17.6 million.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 1997
--------- ---------
1998
1995 -----------------------
----------- PRO FORMA
(UNAUDITED) ACTUAL AS ADJUSTED
---------- -----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 2,074 $ 301 $ 1,082 $ 512 $
Working capital (deficit)............................. (78) (6,841) (5,317) (3,062)
Total assets.......................................... 2,185 4,569 12,984 11,174
Long-term debt........................................ -- -- 15,803 17,939
Convertible debentures, net of current portion........ -- -- -- 7,000
Members'/Stockholders' equity (deficit)............... 1 (3,024) (9,748) (18,089)
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND NOTES THERETO AND THE OTHER INFORMATION INCLUDED ELSEWHERE IN
THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON
ZIPLINK'S CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS. THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS
AND THE TIMING OF CERTAIN EVENTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
ZipLink is a national backbone provider offering wholesale Internet access
services to two distinct target markets: Internet appliances and local and
regional ISPs. ZipLink was founded in November, 1995. We began the beta test of
our Internet network in the Northeastern U.S. in April, 1996. In June, 1996, we
commenced revenue generating operations. In July, 1997, we acquired the network
assets and call center of the former Delphi/News Corp./MCI joint venture
("Delphi") from iGuide, Inc, began use of an ATM backbone network and commenced
initial deployment of our SuperPOP network architecture. During 1998, we
replaced most of our routers, installed software-upgradable remote access
servers in substantially all of our POPs and expanded our network to new
geographic areas.
We derive a significant portion of our revenues from the provision of
wholesale Internet access services for Internet appliances, including Internet
connectivity, subscriber authentication and registration, e-mail filtering and
forwarding and other specially developed services. One customer, WebTV, accounts
for substantially all of our revenues from Internet appliance services. Revenues
from the provision of wholesale Internet access to WebTV are recognized monthly
as services are performed.
We also provide wholesale national dial-up Internet access and enhanced
services, including digital subscriber line, or DSL, service where available,
under the name ZipDial, to 52 local and regional ISPs (as of March 1, 1999). Our
services enable ISPs to quickly and inexpensively expand their existing
geographic coverage and offer national dial-up Internet access, without
investing in costly infrastructure. Revenues from our ZipDial program are
recognized monthly as services are provided.
We also provide direct Internet access under the ZipLink name to a limited
number of retail users, although we intend to devote minimal resources to
marketing in this area. Revenues from these users derives from service
subscriptions and are recognized monthly.
Since inception, we have incurred net losses and experienced negative cash
flow from operations. Our cumulative net loss from operations as of December 31,
1998 was $24.0 million. We expect to continue to operate at a net loss and
experience negative cash flow for the foreseeable future given the level of
planned operating and capital expenditures. Our ability to achieve profitability
and positive cash flow from operations is dependent upon our ability to
substantially grow our revenue base and achieve other operating efficiencies. We
plan to make significant capital expenditures to expand our network and to
increase our operating expenses based in large part on our estimate of potential
future revenues. If our future revenues fall short of our estimates or if our
operating expenses exceed our expectations, then we may never obtain or sustain
profitability.
32
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, certain data from
our statement of operations expressed as a percentage of revenues.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- ----------- -----------
Revenues.................................................................. 100.0% 100.0% 100.0%
Cost of revenues.......................................................... 235.9 60.9 88.5
Selling, general and administrative....................................... 975.6 124.3 73.0
Depreciation and amortization............................................. 50.8 20.7 37.2
--------- ----------- -----------
Loss from operations...................................................... (1,162.3) (105.9) (98.7)
Interest and other expenses, net.......................................... (2.5) (22.2) (20.5)
--------- ----------- -----------
Net loss.................................................................. (1,164.8)% (128.1 )% (119.2 )%
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased 36.5% from $5.2 million for the year ended
December 31, 1997 to $7.1 million for the year ended December 31, 1998.
Substantially all of this increase resulted from WebTV revenues which increased
from $2.5 million for the year ended December 31, 1997 to $4.8 million for the
year ended December 31, 1998. During this period, revenue from direct retail
users decreased from $2.3 million for the year ended December 31, 1997 to $1.9
million for the year ended December 31, 1998. This decrease reflects our
decision to shift our business and marketing strategy from the provision of
direct retail service to wholesale service for ISPs. We launched our ZipDial
program in November, 1998. Revenues from ZipDial services for the year ended
December 31, 1998 were $32,000.
COST OF REVENUES. Cost of revenues consist primarily of telecommunications
costs and collocation costs for SuperPOP locations. Cost of revenues increased
96.9% from $3.2 million for the year ended December 31, 1997 to $6.3 million for
the year ended December 31, 1998. Substantially all of this increase was due to
telecommunications costs reflecting the expansion of our network infrastructure
during 1998. Costs for collocation for SuperPOP locations increased in 1998 as
the number of SuperPOPs increased from ten at December 31, 1997 to 18 at
December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of salaries, professional services, marketing and
promotional materials to expand our revenue base and other costs related to our
sales, finance and administrative functions. These expenses decreased 20.0% from
$6.5 million for the year ended December 31, 1997 to $5.2 million for the year
ended December 31, 1998. This decrease was principally due to a substantial
reduction in employees during 1997, most of the cost savings of which were not
realized until 1998. This reduction in employees resulted from the termination
of customer support provided by ZipLink under an agreement with Delphi Internet
Services, Inc. related to the acquisition of the Delphi assets and our shift in
focus from the direct retail market to the wholesale ISP market.
DEPRECIATION AND AMORTIZATION. Substantially all of our depreciation is of
network equipment. Depreciation expense increased from $1.1 million for the year
ended December 31, 1997 to $2.6 million for the year ended December 31, 1998.
This increase was principally due to additional capital expenditures incurred in
1998 for network infrastructure and the effect of a full year of depreciation on
assets acquired during 1997.
INTEREST EXPENSE. Interest expense increased from $1.1 million for the year
ended December 31, 1997 to $1.3 million for the year ended December 31, 1998.
Substantially all of this increase was due to interest
33
<PAGE>
on convertible debt funded by Nortel Networks during 1998 and increased
borrowing in 1998 on our line of credit.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. We commenced revenue generating activity from direct retail users
in June, 1996 and from WebTV in December, 1996. Revenues increased 587.8% from
$756,000 for the year ended December 31, 1996 to $5.2 million for the year ended
December 31, 1997. This increase was primarily due to an increase in our WebTV
revenues from $30,000 for the year ended December 31, 1996 to $2.5 million for
the year ended December 31, 1997. The remainder was largely due to an increase
in revenue from direct retail users from $500,000 in 1996 to $2.3 million for
the year ended December 31, 1997.
COST OF REVENUES. Cost of revenues increased 77.8% from $1.8 million for
the year ended December 31, 1996 to $3.2 million for the year ended December 31,
1997. This increase was primarily due to an increase in telecommunications costs
and, to a lesser extent an increase in collocation costs, which was offset by a
small decrease in software costs.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased 12.2% from $7.4 million for the year ended December 31, 1996
to $6.5 million for the year ended December 31, 1997. This decrease was due to a
significant reduction in employees during 1997 associated with the termination
of the customer support agreement with Delphi Internet Services and our shift in
focus from the direct retail market to the wholesale ISP market.
DEPRECIATION AND AMORTIZATION. Depreciation expense increased from $384,000
for the year ended December 31, 1996 to $1.1 million for the year ended December
31, 1997. The increase in depreciation resulted from our increased investment in
our network infrastructure, with equipment purchases of approximately $8.5
million for the year ended December 31, 1997, as well as a full year of
depreciation for the equipment purchased during 1996.
INTEREST EXPENSE. Interest expense increased from $30,000 for the year
ended December 31, 1996 to $1.1 million for the year ended December 31, 1997.
This increase resulted from increased levels of borrowing under a line of credit
to support operations.
INCOME TAXES
No benefit for federal and state income taxes is reported in the financial
statements as ZipLink has been taxed as a partnership since inception.
Therefore, for the periods presented, the federal and state tax effects of the
tax losses were recorded by the members of the limited liability company in
their respective income tax returns. Subsequent to the consummation of the
Reorganization, we will account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Had we applied the provisions of SFAS No. 109 for the period from
inception (November 21, 1995) through December 31, 1998, the deferred tax asset
generated, primarily from net operating loss carryforwards, would have been
offset by a full valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily from
investments and advances from Henry and Eric Zachs and their affiliates, loans
from commercial banks, including Fleet Bank, supported by Henry Zachs and/or
Eric Zachs' personal guarantee and investments of equity and debt from Nortel
Networks. The principal uses of cash have been to fund working capital
requirements and capital expenditure programs. At December 31, 1996, 1997 and
1998, we had $301,000, $1.1 million and $512,000, respectively, in cash and cash
equivalents.
34
<PAGE>
Net cash used in operating activities was $6.0 million, $3.4 million and
$8.9 million for the years ended December 31, 1996, 1997 and 1998, respectively.
Net cash used in operating activities for the year ended December 31, 1996 is
primarily attributable to our net loss, partially offset by depreciation and
amortization and the increases in accounts payable and accrued expenses. Net
cash used in operating activities for the year ended December 31, 1997 is
primarily attributable to our net loss and decreases in amounts due to
affiliates, partially offset by depreciation and amortization and the increases
in accounts payable. Net cash used in operating activities for the year ended
December 31, 1998 is primarily attributable to our net loss and decreases in
accounts payable, partially offset by depreciation and amortization,
compensation expenses associated with the granting of unit options and a warrant
and the increases in accrued expenses.
Net cash used in investing activities was $4.3 million, $7.0 million and
$1.3 million for the years ended December 31, 1996, 1997 and 1998, respectively.
Principal investments were for capital expenditures which amounted to $4.2
million, $8.5 million and $1.3 million for the years ended December 31, 1996,
1997 and 1998, respectively. Significant capital expenditures for the year ended
December 31, 1996 include the acquisition of Delphi's network assets and call
center for $2.7 million, and, for the year ended December 31, 1997, $1.5 million
of network backbone equipment and $6.1 million of other equipment acquired from
Nortel Networks to continue the expansion of our network. We purchased $1.3
million of additional equipment in 1998.
Net cash provided by financing activities was $8.5 million, $11.1 million
and $9.7 million for the years ended December 31, 1996, 1997 and 1998,
respectively, and include $3.3 million of net contributions from Henry and Eric
Zachs and their affiliates, as well as loans from commercial banks supported by
Henry Zachs and/or Eric Zachs' personal guarantee. In November, 1996, we
obtained a $5.0 million line of credit from BancBoston to be used for working
capital purposes. In December, 1997, this line of credit was increased to
provide for maximum borrowings of up to $20.0 million with a maturity date of
October 1, 2000. This line of credit was refinanced in March, 1998 with the
proceeds of a line of credit from Fleet Bank which provided for maximum
borrowings of $15.0 million. The Fleet Bank line of credit was increased to
$20.0 million in October, 1998 and has a maturity date of April 1, 2001. In
addition, we received a $10.0 million investment ($2.5 million equity in 1997
and $7.5 million convertible debt in 1998) from Nortel Networks for working
capital, to facilitate our network buildout and upgrade our network
infrastructure. In 1997, we also entered into a capital lease for $1.5 million
of equipment.
We intend to use approximately $20.0 million of the net proceeds from this
offering to repay the then-outstanding principal amount of our line of credit
with Fleet Bank ($18.5 million as of February 28, 1999). We are also seeking to
obtain approximately $15.0 million debt financing to be used for capital
expenditures, working capital and other general corporate purposes as a
replacement for the Fleet Bank line of credit. We further intend to make
approximately $6.5 million in capital expenditures in 1999, primarily to expand
our network infrastructure and increase our area of service coverage. Subject to
our capital resources, we currently expect that our capital expenditures will be
substantially higher in future periods in connection with the expansion of our
network capacity and the increase in our area of service coverage. Cash used to
service debt associated with our capital lease obligation is anticipated to be
$528,624 for the year ended December 31, 1999 and $352,416 for the year ended
December 31, 2000.
We believe that our available cash from operations, combined with the net
proceeds from this offering (after repayment of the Fleet Bank line of credit)
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months. We anticipate that we
will need to raise significant additional capital for the period after the next
12 months through public or private debt or equity financings or other sources
in order to execute our business plan.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result, our
computer programs that have date-sensitive software and
35
<PAGE>
software of companies into which our network is interconnected may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities.
We rely on our computer systems for authentication of our wholesale
customers onto our network, email and web services, billing and customer support
activities and network monitoring. We are currently in the process of reviewing
our products and services, as well as our internal management information
systems and non-information technology systems in order to identify and modify
those products, services and systems that are not Year 2000 compliant. In
addition, we have begun to contact our suppliers, vendors and peering and
transit partners to ascertain their Year 2000 status. At this time, we estimate
that our direct costs associated with remediation and verification to become
Year 2000 compliant will not exceed $180,000, although the actual cost of
achieving compliance could differ materially from this estimate.
We are currently engaged in Phase I of our Year 2000 Compliance Project and
have tested and replaced or corrected some non-compliant equipment and software.
A member of the senior management team has been identified to lead the Year 2000
Compliance Project. We define the term "Year 2000 Compliance" to mean the
assurance that our customers will not be negatively impacted, nor will there be
any disruption in service, by dates prior to, during, or after the year 2000.
Phase I of this project involves doing a full inventory of all equipment,
computer hardware, and software. Based upon this inventory, all equipment,
computer hardware, and software components will then be tested for Year 2000
Compliance. Phase II of this project involves evaluation of the results of these
tests. Any equipment, computer hardware, or software component that is found to
be non-compliant will then be upgraded, rewritten, or replaced as required to
achieve compliance.
As of December 31, 1998, we have spent approximately $50,000 correcting
incidents of noncompliance, exclusive of internal costs. We anticipate that the
direct costs associated with our Year 2000 Compliance Project will not exceed
$180,000, however, we cannot assure you that our actual costs of achieving
compliance will not exceed this amount. While we expect to be Year 2000
compliant by the end of the third quarter of 1999, we cannot assure you that we
will be able to timely and successfully modify our services and systems to
comply with Year 2000 requirements. Nor can we assure that equipment received
from suppliers will comply or that any of our suppliers or peering or transit
partners, such as Nortel Networks or MCI WorldCom, will be Year 2000 compliant
in a timely manner or that there will not be problems with technology working
together. Furthermore, despite testing performed by us and our suppliers and
partners, our products, services and systems may contain undetected errors or
defects associated with Year 2000 related functions. In the event any material
errors or defects are not detected and fixed, or if third parties cannot timely
provide us with products, services or systems that meet Year 2000 requirements,
our business, financial condition or results of operations could be adversely
affected. Known or unknown errors or defects that affect the operation of our
products, services or systems could result in delay or loss of revenue,
interruption of network services, cancellation of customer contracts, diversion
of development or network expansion resources, damage to our reputation, and
litigation costs.
We do not have and do not plan to develop a contingency plan in the event
our systems fail due to Year 2000 related problems. We cannot assure you that
these or other factors relating to Year 2000 compliance issues will not have a
material adverse effect on our business, financial condition or results of
operations.
36
<PAGE>
BUSINESS
ZipLink is a national backbone provider offering wholesale Internet access
services to two distinct target markets: Internet appliances and local and
regional Internet service providers, or ISPs. We provide a range of Internet
access solutions for Internet appliances, such as TV set-top boxes, including
Internet connectivity, subscriber authentication and registration, e-mail
filtering and forwarding and other specially developed services. We also provide
wholesale national dial-up Internet access and enhanced services, including
digital subscriber line, or DSL, service, where available, under the name
ZipDial, to local and regional ISPs. Our ZipLink service enables ISPs to quickly
and inexpensively expand their geographic coverage and offer national dial-up
Internet access, without investing in costly infrastructure.
INDUSTRY BACKGROUND
EMERGENCE AND GROWTH OF THE INTERNET
The emergence of the Internet and the widespread adoption of IP as a data
transmission standard in the 1990s, combined with the deregulation of the
telecommunications industry and advances in telecommunications technology have
significantly increased the attractiveness of providing data communication
applications and services over the Internet. At the same time, growth in
client/server computing, multimedia personal computers and online computing
services and the proliferation of networking technologies have resulted in a
large and growing number of people who are accustomed to using networked
computers for a variety of purposes, including e-mail, electronic file
transfers, online computing and electronic financial transactions. The
convergence of these trends has significantly accelerated the already rapid
expansion of Internet usage. Forrester Research, Inc. estimates that in 1998
approximately 51 million people were using the Internet in the United States.
International Data Corporation, or IDC, projects that by the end of 2002, the
number of Internet users will increase to over 135 million in the United States.
INTERNET APPLIANCES
As Internet usage grows it is also expected to expand rapidly beyond today's
paradigm of PC-based web browsing and e-mail. We believe that the ubiquitous
nature and relatively low cost of the Internet, together with rapid advances in
software, hardware and computer chip technology will usher in a new generation
of electronic devices--Internet appliances. These comparatively inexpensive
consumer and business electronics products will make more focused use of the
Internet than PCs, employing connectivity and network computing to accomplish
limited but nonetheless valuable tasks. Internet appliances are expected to come
in a wide variety of forms, some of which will resemble familiar consumer
electronics products. Representative devices in this category which are in use
today include TV set-top boxes from WebTV and WebSurfer, which enable Internet
browsing and e-mail from a television, and wireless devices such as the Beepwear
wristwatch which receives Internet e-mail broadcast over a paging network. Other
Internet appliances will have functionality which is more business oriented or
which is geared to mobile professionals. For example, some existing vending
machines regularly communicate inventory status and needs to distributors via
the Internet and the use of such remote inventory management techniques is
expected to increase. Some cellular phones can now receive e-mail messages and
electronic content from the Web.
The market for these and other Internet devices is presently in its infancy,
but ZipLink and many industry analysts believe it is poised for rapid growth.
For example, IDC estimates that there will be 12.0 million Internet appliances
in use in 1999, 4.1 million of which will be Internet-enabled televisions.
Forrester Research predicts that 20 million Internet-aware appliances will be
installed in U.S. homes by 2002. IDC projects that non-PC Internet appliances
shipped will grow from 9% of total Internet access devices (including PCs) in
1998 to 43% of the market by 2002.
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<PAGE>
THE INTERNET ACCESS INDUSTRY
The rapid development and growth of the Internet has resulted in a highly
fragmented industry of over 4,800 national, regional and local ISPs in the
United States alone. ISP revenues have grown and are expected to continue to
grow at a high rate. IDC estimates that ISP revenues will increase from $10.7
billion in 1998 to $29.7 billion in 2002. Forrester Research projects that the
Internet access market will reach $38 billion in 2002. Forrester Research also
estimates that there will be 60 million Internet access dial-up accounts in 2002
with such accounts representing 77% of the Internet access market. This large
and fragmented market includes a comparatively small number of national ISPs,
including RBOCs and other telecommunications companies, as well as a much
greater number of local and regional providers who serve consumers and, to a
significant degree, small and medium sized businesses. ISPs in general are under
increasing price pressure as the Internet access industry matures and moves
progressively toward a commodity pricing model.
In addition, local and regional ISPs, in particular, are experiencing
mounting customer demands for more sophisticated and reliable service options.
We believe that the principal customer requirements are increased bandwidth,
more reliable connectivity, broader local dial-up access coverage and enhanced
services. However, we also believe that satisfying these service needs requires
significant infrastructure investments that may be beyond the reach of local and
regional providers, particularly in light of increasing price pressure and
intense competition from larger providers with greater financial and
infrastructure resources. Accordingly, we believe that many of these local and
regional ISPs will be driven to seek consolidation with larger players, as well
as the outsourcing of network infrastructure to meet these market challenges.
Because Internet connectivity comprises a large portion of a local or regional
ISP's overhead expenses, we believe that these services will be among the first
to be shifted to third-party providers if a reliable, cost-effective alternative
is made available to them.
THE ZIPLINK SOLUTION
Our wholesale Internet access services are designed to meet the needs of the
emerging Internet appliances market and to provide a network outsourcing
solution for ISPs confronted with increased competition, mounting service
demands and the need to quickly expand their network infrastructure. We believe
that ZipLink's robust, redundant, national network infrastructure is well-suited
to provide Internet connectivity, subscriber authentication and registration,
e-mail filtering and forwarding and other specially developed services to
Internet appliances. The ready availability of these service options will enable
developers of Internet appliances to significantly reduce their time to market
and allow them to focus their resources on their core competencies of product
development and distribution. We believe that our experience with WebTV has
positioned us to become a leading supplier of connectivity and services for the
Internet appliance market.
The same network attributes and experience which support ZipLink's
positioning in the Internet appliance market also enable us to provide valuable
wholesale Internet access services to local and regional ISPs as an alternative
to consolidation. By outsourcing network connectivity to ZipLink, these ISPs can
offer their subscribers a far wider array of access options than their resources
would otherwise permit without the need to invest in costly infrastructure.
Outsourcing further allows these ISPs to concentrate on acquiring and retaining
subscribers and marketing Internet access and other complementary products
rather than network management and buildout. ZipLink's services are transparent
to the ISP's subscriber, preserving the ISP's own brand identity as the service
provider. For example, by using ZipLink's services an ISP can quickly, easily
and inexpensively expand its geographic coverage to cover new local dialing
areas and provide its subscribers with the opportunity to lease high speed DSL
lines or accommodate streaming audio and video applications, thereby enabling
the ISP to better satisfy customer demand without sacrificing
price-competitiveness.
38
<PAGE>
OUR BUSINESS STRATEGY
Our objective is to become the leading wholesale provider of Internet access
services for Internet appliances and ISPs in the United States. We intend to
achieve this goal by implementing the following key strategies:
LEVERAGE KEY INTERNET APPLIANCE RELATIONSHIPS. ZipLink actively seeks to
identify, develop and sustain relationships with key innovators and early
marketers of Internet appliances and to leverage these relationships into a
leadership position in this rapidly emerging market. As a part of this
strategy, we have established relationships to provide Internet access
service for TV set-top boxes and wireless devices and plan to pursue
relationships in additional device categories.
ESTABLISH ZIPDIAL AS A LEADING WHOLESALE SOLUTION. We intend to capitalize
on our network infrastructure and expertise to make our ZipDial service the
leading high-quality, cost-effective wholesale access solution for ISPs.
ZipDial is designed to allow ISPs to respond to increasing price competition
and service demands by quickly expanding their capacity, coverage and
product offerings without costly infrastructure investments. We began
offering ZipDial in November, 1998 and had enrolled 52 local and regional
ISPs as of March 1, 1999.
EXPAND AND ENHANCE OUR NETWORK. We intend to continue to expand, enhance
and maintain a robust, reliable network infrastructure with high-quality,
low latency performance.
ESTABLISH STRATEGIC ALLIANCES. We seek to establish and sustain strategic
alliances with key customers and suppliers to create and exploit early
access to new markets and new technologies. Consistent with this strategy,
we have entered into strategic alliances with:
- Nortel Networks, a premier equipment supplier, which invested $10.0
million in ZipLink. We have purchased equipment from Nortel Networks
and they are our partner in a joint marketing campaign for our ZipDial
service;
- The Batra Group of companies, a private Canadian conglomerate of
high-tech companies including WebSurfer, Inc. ZipLink will provide
Internet connectivity for WebSurfer's TV set-top box and co-branded
Internet access under the name "WebInfinity" for Batra's "Innovator"
line of low-cost PCs.
- Covad Communications, Inc., a leading provider of DSL services. ZipLink
is a master reseller of Covad's DSL services. We jointly market ZipDial
to ISPs and Covad has referred smaller ISPs seeking DSL to us for
integration into our ZipLink program.
EXTEND AND STRENGTHEN OUR WEBTV RELATIONSHIP. We intend to extend and
strengthen our relationship with WebTV to support continued network
expansion and maintain a high profile position as a wholesale Internet
access provider for Internet appliances.
SERVICES
ZipLink provides wholesale Internet access services for Internet appliances
and to local and regional ISPs using our robust, redundant, national network
infrastructure. We also provide Internet service to a limited number of direct
subscribers, although we intend to devote minimal resources on this market
segment.
INTERNET APPLIANCE SERVICES
We believe that we are one of the only national Internet access providers to
actively focus on Internet appliances as a distinct market. We believe that the
dial-up focus of our network configuration and our understanding of, and
experience with, providing Internet connectivity to WebTV and other devices have
provided us with a valuable platform for serving this rapidly emerging area of
Internet usage. We have
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developed the infrastructure, systems configuration and know-how to provide
Internet connectivity, subscriber authentication and registration, e-mail
filtering and forwarding and other specially developed services to link a
diverse array of electronic devices to the Internet. While our service offerings
for Internet appliances are typically tailored to the needs of specific devices,
the solutions we offer are generally applicable to a number of categories of
appliances. The following describes the principal categories of devices for
which we have developed Internet access services and provides specific
information on our existing service relationships in these categories. We
believe that our ability to provide these services will allow us to offer
appliance developers and marketers an opportunity to reduce their time to market
and to avoid the necessity of developing the required infrastructure and service
capabilities in-house or with other less experienced providers.
TV SET-TOP BOXES. TV Set-top boxes are relatively inexpensive consumer
electronic devices which enable users to access the Internet, browse the World
Wide Web and send and receive e-mail using a standard television rather than a
PC. ZipLink has two customers in this device category, WebTV and WebSurfer, and
believes that the market for these devices is poised to grow rapidly. IDC
forecasts that 22% of U.S. homes will have a set-top box installed by the year
2002. ZipLink's customer relationships in this device category are described
below.
- WEBTV. We are one of four leading providers of Internet connectivity to
WebTV, a subsidiary of Microsoft Corporation. The WebTV set-top box
provides the leading Internet-enabling solution for televisions in the
United States. We entered into an agreement with WebTV in October, 1996 to
provide dial-up connectivity between WebTV subscribers and WebTV's own
Internet access facility over the ZipLink network. Under our agreement,
ZipLink receives a fixed amount per month with respect to certain WebTV
subscribers serviced by our network and an hourly rate with respect to
certain others. Since WebTV launched its service in December, 1996, its
subscriber traffic has grown to more than 700,000. See "Risk Factors--We
Are Dependent on WebTV."
- WEBSURFER. In September, 1998, we entered into an agreement with
WebSurfer, a Batra company, to serve as the preferred U.S. Internet access
provider for its WebSurfer set-top box. Like WebTV, WebSurfer allows for
Internet access and it offers added features such as a built-in handset
for Internet telephony. WebSurfer is presently marketed solely in Canada
(where we do not serve as an access provider) and is targeted for
commercial launch in the United States in May, 1999. As in the WebTV
relationship, we will provide dial-up connectivity between WebSurfer
subscribers and WebSurfer's own server facility. In addition to providing
this connectivity, we will also perform user authentication and
registration for WebSurfer, acting as a gateway to the WebSurfer service,
furnish customer and technical support to WebSurfer subscribers and
perform subscriber billing services. Our agreement with WebSurfer expires
in September, 2001; however, WebSurfer can reduce the volume of subscriber
traffic using our network over a six-to-twelve month ramp-down period in
the event we are unable or unwilling to match competing prices or services
of another provider.
PERSONAL COMMUNICATION DEVICES. Internet-enabled personal communications
devices combine existing wireless technology, typically paging, with Internet
functionality to add features such as the ability to send and receive e-mail.
According to the Multimedia Telecommunications Association, there were 54.5
million total paging subscribers in 1998 and we believe this market will move
rapidly to become Internet-enabled. ZipLink has created the tools to provide a
gateway between the Internet and wireless systems, delivering Internet
communications in a specially developed display format for transmission to
wireless devices, including pagers. We have developed two potential customer
relationships in this device category, each of which is discussed below, and
plan to pursue relationships with other developers.
- BEEPWEAR. We have been selected as the exclusive Internet service
provider for the Beepwear wristwatch pager, a device jointly developed by
Motorola, Inc. and Timex Corporation and
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marketed by Beepwear Paging Products, LLC. The Beepwear watch is enabled
to receive alphanumeric paging messages on a local or nationwide basis
under an agreement with SkyTel Communications, Inc., a major paging
company. ZipLink will enhance this product by providing a central, unified
e-mail address for each watch, filtering and forwarding received e-mail,
providing instant notification on the watch that an e-mail message has
been received (including the sender's e-mail address and the time, date
and subject header of the e-mail) and by providing a repository where the
complete e-mail message text and attachments can be accessed. ZipLink and
Beepwear have engaged in a variety of co-marketing and co-branding efforts
at trade shows and other venues, including placement of co-branded
materials in a nationwide retail office supply chain and co-branded direct
mailings. We believe these joint marketing programs will increase
ZipLink's visibility as a provider of Internet access services to the
Internet appliance market. Our agreement with Beepwear expires in
December, 2002 but may be earlier terminated if certain established
targets are not met.
- CUE DATA. ZipLink has entered into a letter of intent with CUE Data
Corporation to provide full-service, nationwide Internet connectivity and
e-mail filtering, forwarding and notification to car radios that use
Microsoft's Auto PC technology. This technology allows a car radio to
receive, send and display e-mail and text pages and real-time traffic,
weather and emergency alerts. Limited shipments of AutoPC car radios
manufactured by Clarion Corporation which offer e-mail are scheduled for
Spring, 1999.
FUTURE APPLICATIONS OF OUR INTERNET APPLIANCE SERVICES. We have identified
three Internet appliance categories, in particular, which we believe present
particularly strong market opportunities for us: Internet telephones, online
gaming and Internet-enabled computing devices. We believe that our network
experience and specialized service offerings for Internet appliances will
position us to establish relationships with marketers and developers of Internet
appliances in these and other categories.
- INTERNET TELEPHONES. Internet-enabled cellular and conventional
telephones will use the Internet to deliver and send voice and data
communications including e-mail, and to receive electronic content such as
news and stock quotes. IDC projects that there will be 6.1 million
Internet screen telephones sold in the United States in 2002. We believe
that the use of the Internet for local and long distance phone calls, or
Internet telephony, will be one of the fastest growing areas of the
Internet appliance market. We also believe that Internet-enabled cellular
phones, sometimes called "smart phones," will be attractive to mobile
professionals because they combine the ability to talk, send and receive
e-mail and receive content from the Web in a single portable device.
- ONLINE GAMING. Internet-enabled electronic games represent the
convergence of popular Internet games, and ubiquitous in-home gaming
platforms such as those made by Sega Enterprises, Ltd. and Nintendo
Corporation. These new devices will allow relatively inexpensive in-home
gaming platforms that use a standard TV set to support multiplayer games
over the Internet. We have upgraded our network to accommodate streaming
audio and video and multicasting applications and plan further upgrades of
this capability in order to capitalize on what we believe will be a
significant market opportunity in this area. The Yankee Group anticipates
that online gaming of this type will encompass more than 9 million
households by the year 2000.
- INTERNET-ENABLED COMPUTING DEVICES. Computing products, such as handheld
computers and network computers, are becoming increasingly
Internet-enabled. These products include palmtop computers from 3Com
Corporation and handheld scanners from Hewlett-Packard Corporation that
use wireless technology to connect to the Internet.
ZIPDIAL WHOLESALE ISP SERVICES
We provide an array of wholesale Internet access services under the name
ZipDial to ISPs which, in turn, offer Internet access to their subscribers using
ZipLink's network. The use of this service is wholly
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transparent to the subscriber, preserving the ISP's own brand identity as the
service provider. The ZipDial program is specifically designed to afford local
and regional ISPs a high quality, cost-effective means of quickly expanding
their existing network capacity, geographic reach and product offerings without
investing in a costly network infrastructure and to allow them to focus their
efforts and resources on their core competency of marketing Internet access and
other complementary products.
ZipLink's current service offerings through its ZipDial program include
local dial-up access in any area covered by our national network as well as ISDN
accounts in certain areas. By contracting with ZipLink for Internet access
services, ISPs can offer their subscribers a broader range of products than
would otherwise be possible, allowing them to compete favorably with large
national ISPs possessing greater resources. For example, ISPs can obtain DSL
connections in certain markets; a capability made possible by our relationship
with Covad, a leading provider of DSL service, and our investment in
infrastructure to support DSL. We believe that this service is particularly
significant to ISPs since the initial infrastructure costs associated with
supporting DSL exceed the financial resources of many local and regional ISPs.
In addition, ISPs using our network can offer streaming video and audio and
multicasting applications in certain areas.
ZipLink's wholesale service offerings are priced in a manner designed to
encourage ISPs to enroll in the ZipDial program by minimizing barriers to entry.
ISPs pay a nominal enrollment fee and are charged monthly for local dial-up
access on the basis of the number of unique subscribers who actually use the
ZipLink network in that month rather than on the gross number of subscribers
capable of accessing the network during that month. This allows ISPs to enter
new local calling areas without first acquiring a critical mass of subscribers
to support network expansion, a common limiting factor for local and regional
ISPs. Furthermore, enrollment is processed very quickly, typically within 72
hours after receipt of an enrollment form and any required fees.
Our ZipDial service uses a RADIUS software product called Access Registrar
from Cisco Systems to streamline the process of subscriber log-on and
authentication, thereby reducing our administrative overhead and increasing our
service scalability, efficiency and reliability. Many wholesale Internet access
providers perform all subscriber log-ons and authentication directly on their
own servers. Customer account information is stored on the wholesale ISP's
system and updated remotely by the customer ISP. This method requires active
maintenance of customer accounts by the wholesale ISP and creates security risks
and a risk of data entry errors. By using an Access Registrar product, however,
subscribers dialing into our network are passed through Ziplink's RADIUS server
back to their ISP's own server for log-on and authentication before being
connected to the Internet. As a result, all subscriber information, including
service authorization and billing status, is maintained by the ZipDial ISP,
eliminating the need for labor intensive monitoring and record-keeping by our
personnel. We believe that the RADIUS server system is, as a result, more
scaleable and more reliable than the system presently used by many of our
competitors, reducing our overhead, streamlining our service and further
enhancing our ability to offer ISPs a cost-effective outsourcing solution.
Our ZipDial program was launched in November, 1998. Since its inception, we
have enrolled 52 local and regional ISPs (as of March 1, 1999). We believe that
we will be able to enroll wholesale customers at a growing rate as our marketing
efforts begin to generate demand and as competitive pressures increase in the
ISP industry due to the increasing commodity quality of Internet access services
and rising demands from subscribers for more sophisticated and reliable product
offerings.
DIRECT INTERNET ACCESS SERVICES
We provide direct Internet access under the ZipLink name to a limited number
of retail users. Service offerings in this area include all of our services
which are made available to wholesale customers. We regard the direct provision
of Internet access as outside of our core business focus and have expended
minimal efforts at marketing retail Internet access service since March, 1997.
Those direct users currently
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serviced by ZipLink consist largely of accounts generated by our early efforts
at marketing direct access or through referrals. We are currently exploring our
opportunities with respect to these direct user accounts, but intend to devote
minimal resources to marketing in this segment.
Although we do not presently contemplate marketing retail Internet access
services, there are circumstances under which we may provide such services in
conjunction with a strategic relationship. For example, in connection with our
strategic relationship with Batra, Batra and ZipLink will jointly offer Internet
access to U.S. purchasers of Batra's "Innovator" line of low-cost PCs which is
expected to be released in the United States in April, 1999. This Internet
access service, to be known as "WebInfinity," will be activated by clicking on
an icon installed on the start-up screen of all new Batra Innovator PCs. In
addition to providing Internet access, ZipLink will perform all registration and
authentication of Web Infinity subscribers, customer support services for
subscribers and billing of subscribers for Batra.
CUSTOMER SERVICE AND TECHNICAL SUPPORT
We provide technical support services to our ZipDial customers from our call
center in Lowell, Massachusetts as a part of the ZipDial program. These services
assist our customers in technical aspects of using the ZipDial service. We also
provide customer support to our direct subscribers and possess the
infrastructure to provide customer or subscriber support to Internet appliance
customers and ZipDial customers as the need for such services grows with limited
additional capital expenditures. We anticipate that we will be required to
expand our customer support capabilities in the event of significant sales of
WebSurfer, Beepwear or the WebInfinity service.
SALES AND MARKETING
We focus our marketing efforts and organize our marketing strategy around
our two primary service offerings: Internet appliance services and wholesale
Internet access services for ISPs.
INTERNET APPLIANCE SERVICES
The market for Internet appliances is at a very early stage of development.
Accordingly, most of our marketing efforts in this area are targeted toward
identifying and establishing relationships with innovators and early marketers
of Internet appliances and toward raising the visibility and profile of ZipLink
as a provider of Internet access services to this market. Our methods for
identifying prospective relationships and increasing ZipLink's visibility
include attendance, presentations and joint exhibitions with existing customers
at trade shows and joint marketing efforts with these customers. For example, we
display co-branded advertising with Beepwear in nationwide locations of a retail
office supply chain. We have given presentations on Internet appliances at trade
shows and internal forums sponsored by strategic partners such as Nortel
Networks.
ZIPDIAL WHOLESALE INTERNET ACCESS SERVICES
Our marketing efforts for the ZipDial program are organized into four tiers:
joint marketing, direct mail campaigns, proactive telemarketing and attendance
at trade shows. We are developing joint marketing programs for ZipDial with our
strategic partners. ZipLink and Nortel Networks have announced a co-marketing
campaign for our ZipDial service which will feature co-branded print advertising
and direct mail solicitations, to approximately 4,800 ISPs nationwide. In
addition, we are planning joint marketing efforts focusing on our DSL service
offering with Covad and intend to pursue additional co-marketing opportunities
with our other strategic partners and suppliers. We will also market ZipDial
through our internal sales force, which was comprised of six sales
representatives as of February 28, 1999. Our internal sales force operates out
of our Lowell offices. This sales force is dedicated to generating leads,
executing direct mail and proactive telemarketing campaigns and handling
inquiries prompted by any of our sales
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channels. In connection with ZipDial, we intend to attend and exhibit at trade
shows as a way of raising our visibility and building our brand.
STRATEGIC ALLIANCES
As a key component of our strategy to become a leading provider of Internet
access services for Internet appliances and to ISPs, we intend to identify,
establish and maintain strategic alliances with important customers and
suppliers to create and exploit early access to new markets and new
technologies. Consistent with this strategy, ZipLink has entered into the
following strategic relationships:
NORTEL NETWORKS. Nortel Networks has provided ZipLink with $7.5 million of
convertible debt financing and made a $2.5 million equity investment in ZipLink.
Concurrently with the closing of this offering, the outstanding $7.5 million
convertible debt to Nortel Networks will be converted into shares of common
stock. Nortel Networks provides us with remote access servers, routers and
related services to facilitate our network buildout. In connection with our use
of Nortel Networks equipment, we have served as a beta site for new product
offerings, have performed field testing for and have received pre-released
versions of, their equipment and software. In addition, Nortel and ZipLink are
currently collaborating on a joint marketing campaign for the ZipDial service.
See "Certain Transactions--Purchases from Nortel Networks and --Nortel Networks
Funding."
COVAD. ZipLink is a master reseller of Covad's DSL services, allowing us to
market DSL access to our ZipDial customers in areas covered by Covad's network.
Covad and ZipLink are collaborating on a joint marketing campaign with respect
to the ZipDial service. In addition, Covad has marketed our ZipDial service to
ISPs in conjunction with its direct offering of DSL services and has referred
smaller ISPs seeking DSL service to us for integration into our ZipDial program.
BATRA. In September, 1998, we signed a three-year agreement with Batra, to
become the preferred provider of Internet access and other services for the
WebSurfer set-top box in the United States. In addition, the two companies
subsequently agreed to jointly develop the WebInfinity Internet access service
to be offered through an icon placed on the start-up screen of Batra's Innovator
line of PCs. See "Services--Direct Internet Access Services."
THE ZIPLINK NETWORK
The ZipLink network is comprised of 19 SuperPOPs covering 16 of the 20
largest metropolitan areas in the United States. Once connected, traffic is
routed using primarily Nortel Networks equipment through the network to the
desired Internet location via our high-speed 45 Mbps ATM backbone provided by
MCI WorldCom. Users may connect to the network at multiple speeds, according to
their needs, including analog speeds up to 56 Kbps and digital speeds from 64
Kbps to T-1. The network supports analog, ISDN, xDSL, Frame-Relay and ATM
connection technologies.
Our network is engineered to provide superior quality of service, including
high connection success rates, low latency, fast download times and reliability
enabled by redundant circuits and remote monitoring and diagnostic capabilities.
BACKBONE ARCHITECTURE
ZipLink currently operates on MCI WorldCom's SONET-based, redundant ATM
backbone, linking POPs and NAP connections across the nation. All of our
SuperPOPs have 45 Mbps ports and dual-homed Permanent Virtual Circuits, or PVCs,
to both San Francisco and Boston for traffic shaping, reduced latency and
redundancy. ZipLink uses primarily Nortel Networks remote access equipment for
high density dial-up aggregation of incoming calls, coupled with Nortel BCN
routers for high quality, scaleable WAN management. ZipLink also has some legacy
Cisco Systems and Ascend equipment.
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TRANSIT
ZipLink connects its users to the Internet through transit agreements with
UUNet and SAVVIS. Paid transit allows for high-speed connectivity, bypassing
public NAPs which are subject to considerable congestion. We believe that this
arrangement minimizes latency when users of our network connect to hosts through
the Internet. In Boston, we have a 10 Mbps connection to UUNet over an HSSI link
and, in San Francisco, we have a 12 Mbps ATM connection to SAVVIS. The capacity
of each of these connections can be increased as required to accommodate traffic
demands.
PEERING
The establishment and maintenance of additional high-speed peering
relationships with other ISPs connected to our network is critical in order to
exchange traffic with other ISPs. We have peering connections with multiple ISPs
through an FDDI link in MAE-East from our Washington, D.C. POP, and an ATM DS-3
into Pac Bell in San Francisco. At March 1, 1999, ZipLink connected with
approximately 44 other providers at MAE-East and Pac Bell.
SUPERPOP ARCHITECTURE
ZipLink's network architecture features 19 SuperPOPs created by exploiting
relatively new dial tone products designed by CLECS such as Focal, XCOM and
Global Naps, which aggregate local calls from a broad geographic area and
deliver them to a single POP. Typically, these SuperPOPs aggregate traffic from
local telephone company central offices throughout the applicable LATA or state.
This SuperPOP architecture creates significant operating efficiencies and
affords cost advantages over older network architectures. In ISP networks
developed before 1996, individual POPs were physically located in each local
telephone company's central office where local dial access was to be provided.
In order to afford adequate access to a large number of subscribers throughout a
region, these networks deployed numerous POPs, each providing one access number.
ZipLink's SuperPOP architecture allows the installation of a large number of
local access numbers into a single POP, significantly reducing the number of
POPs needed to service a given region and the corresponding investment required
to expand the network. The SuperPOP architecture also enhances economies of
scale from larger modem installations, lowers maintenance costs and allows for
easier, more efficient capacity upgrades since equipment is located centrally
within a given region. The resulting cost savings and efficiencies contribute to
our ability to offer Internet appliance and ZipDial customers low-priced
Internet connectivity. These SuperPOPs are designed to support both local
dial-up and dedicated line access.
We believe that ISPs using older network architectures cannot easily convert
these systems to a SuperPOP configuration because of existing network traffic
and contractual commitments (although new POPs are largely being constructed as
SuperPOPs). Reconfiguring their older active POPs may require inconvenient
changes to local dial-up numbers, difficult re-routing reconfigurations, and in
many cases results in penalty payments for contractual commitments to LECs that
require ISPs to maintain minimum traffic on their lines.
SCALEABLE INFRASTRUCTURE
We believe that our existing network infrastructure is highly scaleable and
that some expansion in capacity could be achieved without significant capital
expenditures by increasing the number of telephone lines delivered to existing
hardware which currently has excess capacity. In the past we have pursued a
"smart-build" strategy of network expansion, by adding POPs where we believed
our investment would be substantially supported by traffic from WebTV's
subscriber base. We plan to continue this approach, to the extent possible, with
other customers and generally to target areas served by a CLEC in order to
implement a SuperPOP architecture.
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NETWORK INTEGRITY
The integrity of our network is continuously monitored by on-line software
and hardware tools at ZipLink's network operations center located at our
executive offices in Lowell, Massachusetts. Anomalies in the function of the
various network elements are displayed on computer screens and the pertinent
information sent to text pagers carried by members of the engineering staff. The
network operations center is staffed 24 hours per day, 7 days per week, which
helps enable us to mount a rapid response in the event of a telecommunications
outage or an equipment failure. All elements of the network are remotely
configurable and dial-in "backdoor" access can be used to reach the server and
routers at all SuperPOPs in case of failure. This remote access capability helps
to support the speedy diagnosis and repair of network problems, whether at
ZipLink's main facility or at a remote network site.
Each ZipLink SuperPOP is connected to both Boston and San Francisco allowing
for automatic and rapid re-routing of traffic in the event of a problem in
either path. There are also backup T-1s connecting Washington, D.C. to the
servers in Lowell in case of a failure of the connection at MAE-East. To date,
network and server downtime has been minimal. We have in the past, and intend in
the future to continue to, periodically increase network capacity consistent
with our projections of traffic flow and customer requirements. These
projections are, in part, assisted by network monitoring tools which analyze
traffic flow and usage patterns helping us to place orders with
telecommunications carriers sufficiently early to add capacity before congestion
occurs. Scheduled maintenance is pre-announced and, if significant disruption to
any service appears likely, is performed during an off-hours maintenance window.
COMPETITION
We face intense competition. There are no substantial barriers to entry in
the market for our services, and we expect that competition will further
intensify in the future. We believe that our ability to compete successfully
depends upon a number of factors, including:
- market presence and, with respect to Internet appliances, our success at
developing relationships with innovators and early marketers of such
devices;
- the capacity, reliability and security of our network infrastructure;
- technical expertise and functionality, performance and quality of services
and our ability to anticipate and meet the changing service needs of the
marketplace;
- our ability to create and market wholesale Internet access solutions that
are attractive to ISPs in terms of price, quality and breadth of service
offerings;
- our ability to establish and maintain successful strategic relationships
with key customers and suppliers and to gain early access to new markets
and new technologies;
- our ability to support industry standards; and
- industry and general economic trends.
Our competitors may be divided into two groups: those with whom we presently
compete and those who may, in the future, compete with us. Our present
competitors with respect to the WebTV relationship consist of the other current
providers to WebTV: PSINet, UUNet, Concentric, and a number of other, smaller
ISPs. Our present competitors with respect to ZipDial consist of a variety of
companies who are, in some form or another, offering wholesale Internet access
services. This group includes ISPs such as GTE Internetworking, Concentric,
PSINet, UUNet, IDT Corp., Splitrock Services, Inc. and Epoch Internet, Inc., as
well as CLECs in selected markets, such as XCOM Technologies, Inc. in Boston,
Massachusetts, Intermedia Communications, Inc. in Vienna, Virginia and ICG
Communications, Inc. in Englewood, Colorado. Our potential future competitors
include all of our present competitors as well as telecommunications companies,
such as AT&T Corporation, Williams Communications, Inc., Qwest
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Communications International, Inc. and Level 3 Communications, Inc., and other
national and regional ISPs. Many of our present and potential competitors have
greater market presence, engineering and marketing capabilities, and larger
financial, technological and personnel resources than those available to us.
They may also enjoy certain price advantages with respect to the purchase of
bandwidth from telecommunications carriers if, for example, they are a carrier
themselves, or if they are affiliated with a carrier, or if their usage enables
them to secure volume discounts. As a result, these present and future
competitors may be able to develop and expand their communications and network
infrastructures more quickly, adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products and services than we can.
In addition to possessing greater financial, technological and personnel
resources, a number of our present and future competitors have the ability to
bundle other services and products with Internet access services which could
place us at a competitive disadvantage. Certain companies are also exploring the
possibility of providing or are currently providing Internet services using
alternative delivery methods, such as over the cable television infrastructure,
through direct broadcast satellites and over wireless cable. See "Risk
Factors--We Face Risks From New Access Technologies."
We also anticipate increasing vertical and horizontal integration in our
industry. As a result of increased competition and this integration in the
industry, we could encounter significant pricing pressure both from our Internet
appliance and our ZipDial customers. This pricing pressure could result in
significant reductions in the average selling price of our services. For
example, telecommunications companies that compete with us may be able to
provide customers with reduced communications costs in connection with their
Internet access services, reducing the overall cost of their solutions and
significantly increasing price pressures on us. We cannot assure you that we
will 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.
PROPRIETARY RIGHTS
Although we believe our success is more dependent upon our technological
expertise than on our proprietary rights, our success and ability to compete is
dependent in part on our technology and know-how. We rely upon a combination of
copyright, trademark and trade secret laws and contractual restrictions to
protect our proprietary technology and know-how. It is and has been our policy
to require all employees and consultants to execute confidentiality agreements
upon commencement of their relationships with ZipLink. These agreements
generally provide that confidential information developed or made known during
the course of a relationship with us is to be kept confidential and not
disclosed except in specific circumstances. We cannot assure you that such
measures have been, or will be, adequate to prevent misappropriation of our
proprietary technology or know-how. Our competitors may also independently
develop technologies that are substantially equivalent or superior to our
technology.
We have applied for or received certain trademarks for use in the United
States. None of our technology is patented by us. We use certain "open source"
and "shareware" software in our business, such as Linux and MRTG. We believe
that such software is in the public domain and that its use by ZipLink and
others is not subject to any charge or licensing fee, although we may, on a
voluntary basis, make contributions to developers or, in some cases, incur
charges for support materials or services relating to such software. However, we
have not investigated our use of any open source or shareware software to
determine whether it constitutes infringement of any third party proprietary
rights. Although we do not believe our trademarks or use of technology infringe
the proprietary rights of any third parties, we cannot assure you that third
parties will not assert such claims against us in the future or that such claims
will not be successful. We could incur substantial costs and diversion of
management resources to defend any claims relating to proprietary rights, which
could have a material adverse effect on our business, financial condition and
results of operations. Furthermore, parties making such claims could secure a
judgment
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awarding substantial damages, as well as injunctive or other equitable relief
that could effectively block our ability to use such trademarks or technology.
Such a judgment would have a material adverse effect on our business, financial
condition and results of operations. If someone asserts a claim relating to
proprietary technology or information against us, we may seek licenses to such
intellectual property. We cannot assure you, however, that we could obtain
licenses on commercially reasonable terms, if at all. The failure to obtain the
necessary licenses or other rights could have a material adverse effect on our
business, financial condition and results of operations.
EMPLOYEES
As of December 31, 1998, we had 49 full-time and five part-time employees.
Our employees are not covered by a collective bargaining agreement. We have
never experienced an employment-related work stoppage and consider our employee
relations to be good.
FACILITIES
ZipLink's headquarters are located in Lowell, Massachusetts, where we
currently lease an approximately 50,000 square foot facility and a 1,000 square
foot data center. The Lowell facility contains our call center, data center,
network operations center, marketing department and most administrative
personnel.
We lease the bulk of our Lowell facility from iGuide, Inc. under a sublease
which expires on May 14, 2010 and sublet 25,000 square feet of presently unused
space to a third party under a sublease which expires on December 31, 1999.
We also lease approximately 3,500 square feet of office and collocation
space in Hartford, Connecticut from Henry Zachs, our Co-Chairman and Chief
Executive Officer, under a lease that expires in December, 2000. See "Certain
Transactions--Real Property Leases."
In addition, we lease space (typically less than 500 square feet) in various
locations to house the telecommunications equipment for each of our SuperPOPs.
LEGAL PROCEEDINGS
On March 10, 1999, ZipLink commenced an arbitration proceeding against a
former employee seeking a ruling that such employee has forfeited an
approximately 0.8% membership interest in ZipLink, LLC, a Connecticut limited
liability company (which would be convertible into shares of Ziplink, based
upon an assumed initial public offering price of $ per share) due to the
violation of a restrictive covenant under the Operating Agreement of ZipLink,
LLC. The basis for such claim is a written agreement between such employee and
ZipLink which provided that the employee's membership interest would be
forfeited in the event he violated a restrictive covenant. Our outstanding
capital stock as described in this prospectus excludes this employee's forfeited
membership interest and shares which would be received in exchange
therefor upon consummation of the Reorganization. Although we believe we will
prevail in this arbitration proceeding, there can be no assurance that we will
prevail and an adverse outcome may result in dilution to our stockholders.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning ZipLink's
executive officers and directors and those persons who will become directors
upon consummation of this offering:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Henry M. Zachs......................... 64 Chief Executive Officer and Co-Chairman of the Board
Eric M. Zachs.......................... 39 Co-Chairman of the Board
Christopher W. Jenkins................. 39 President, Chief Financial Officer and Director
Ronald C. Lipof........................ 36 Chief Marketing and Strategic Officer
James G. Cocks......................... 60 Director of Networking
Kathleen A. Stillson................... 33 Director of Operations
Jai P. Bhagat.......................... 52 Nominee for Director
Wayne A. Martino....................... 39 Nominee for Director
Alan M. Mendelson...................... 51 Nominee for Director
</TABLE>
HENRY M. ZACHS has served as Co-Chairman since our inception and is
Co-Chairman of our Board of Directors. Mr. Zachs has served as our Chief
Executive Officer since June, 1997. Mr. Zachs will devote approximately 50% of
his time to our business following the consummation of the offering. Prior to
our inception, Mr. Zachs was for 34 years the Chief Executive Officer of Message
Center USA, Inc. ("MCUSA"), a paging company he founded which had approximately
349,000 subscribers when it was sold to AirTouch Communications, Inc. in
December, 1995. Mr. Zachs also serves on the advisory board of Axiom Venture
Partners, L.P., a venture capital firm, as President of the Greater Hartford
Jewish Federation and as a Trustee of Trinity College in Hartford, Connecticut
and the Williston Northampton School. Mr. Zachs received a B.A. from Trinity
College and an M.B.A. from the Wharton School of the University of Pennsylvania.
ERIC M. ZACHS founded ZipLink in November, 1995, has served as Co-Chairman
since that time and is Co-Chairman of our Board of Directors. Mr. Zachs served
as our President and Chief Executive Officer from our inception until June,
1997. Prior to our inception, Mr. Zachs served as President and as Chief
Operating Officer at MCUSA from 1993 until the sale of MCUSA in December, 1995.
Mr. Zachs serves as general partner of Bantry Bay Ventures, a venture capital
firm, and as a director of NetActive Internet (Pty.) Ltd., a South African ISP.
Mr. Zachs received a B.A. from Tufts University and a J.D. from Columbia
University School of Law.
CHRISTOPHER W. JENKINS has served as our President since June, 1997 and,
from time to time since our inception, as our Chief Financial Officer, and is a
director. Previously, Mr. Jenkins served as our Chief Financial Officer from our
inception until June, 1997. From June, 1993 until December, 1995, Mr. Jenkins
served as Vice President of Operations at MCUSA. Mr. Jenkins also served as
acting Chief Financial Officer of MCUSA from June, 1995 to December, 1995. From
December, 1987 to June, 1993, Mr. Jenkins was President of Worcester
Communications, a regional paging company. Mr. Jenkins also served as a Vice
President at Arch Communications, and an Experienced Senior at Arthur Andersen,
LLP. Mr. Jenkins received a B.S. from Indiana University and an M.S. from the
Sloan School of Management at the Massachusetts Institute of Technology.
RONALD C. LIPOF has been our Chief Marketing and Strategic Officer since
October, 1997. From 1993 to 1997, Mr. Lipof was the President of Arch Nationwide
Paging, a division of Arch Communications Group, Inc. Prior to joining Arch, Mr.
Lipof was the founder and managing director of RC Consultants, a
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telecommunications consulting and brokerage firm. Previously, Mr. Lipof was an
asset-based and communications lender at Fleet Credit Corporation, a subsidiary
of Fleet Bank, N.A. Mr. Lipof filed for personal bankruptcy in August, 1995. Mr.
Lipof received a B.S. from Boston University.
JAMES G. COCKS has been our Director of Networking since April, 1998. Prior
to joining ZipLink, Mr. Cocks was the Director of Network Engineering at UNIFI
Communications from June, 1996 until February, 1998, and held the position of
Service Line Manager for Internet Dial-up at BBN Planet from April, 1995 to
June, 1996. Previously, Mr. Cocks held various positions at Digital Equipment
Corporation, Wang Laboratories, Incoterm Corporation and Univac (UK and USA).
Mr. Cocks received a B.Sc. from London University, UK.
KATHLEEN A. STILLSON has been our Director of Operations since December,
1996. Ms. Stillson was Manager of Operations at EDS Personal Communications, a
provider of services for the cellular telephone industry, from July, 1995 to
December, 1996 and an Operations Supervisor from June, 1994 until July, 1995.
Ms. Stillson received a B.A. from the University of Michigan.
JAI P. BHAGAT will become a director of ZipLink upon consummation of this
offering. Mr. Bhagat has been the Vice Chairman and a Director of SkyTel
Communications, Inc. (formerly Mtel), a leading provider of nationwide wireless
messaging services, since 1995. From 1988 until 1995, Mr. Bhagat was an
Executive Vice President of SkyTel. Mr. Bhagat was Chairman of the Board of
Directors of the Personal Communications Industry Association (PCIA) in 1988,
has served as a member of its Board since 1985, and has served as a member of
its Paging and Messaging Alliance Council since 1997. He also served as Chairman
of the Board of Directors of American Mobile Satellite Corporation from 1988 to
1991 and as a member of its Executive Committee from 1988 to 1994. Mr. Bhagat
received a B.S. from Birla Institute of Technology and Science, Pilani, India
and an M.S. from Howard University.
WAYNE A. MARTINO will become a director of ZipLink upon consummation of this
offering. Mr. Martino has been a principal of Brenner, Saltzman & Wallman, LLP
since 1991. Mr. Martino was a director of Mecklermedia Corporation, a
publicly-held Internet media company from December, 1993 until November, 1998
when it was acquired by Penton Media, Inc. Mr. Martino received a B.A. from
American University and a J.D. from the University of Connecticut Law School.
ALAN M. MENDELSON will become a director of ZipLink upon consummation of
this offering. Mr. Mendelson has been a general partner of Axiom Venture
Partners, L.P. since April, 1994. From November, 1969 until April, 1994, Mr.
Mendelson served with Aetna Life & Casualty in Hartford, Connecticut in various
capacities, most recently as Vice President of Investment Strategy and Policy.
In 1988, Mr. Mendelson founded Systemix, Inc., a biotechnology company, where he
initially served as Chief Executive Officer until 1991. Mr. Mendelson is also a
director of Cellomics, Inc., and Purilens, Inc., and sits on the advisory boards
of Battery Ventures I, II and III, Syncom Inc. and Connecticut Innovations, Inc.
Mr. Mendelson received a B.A. from Trinity College and a J.D. from the
University of Connecticut.
BOARD COMPOSITION
Directors are elected for a period of one year at ZipLink's annual meeting
of stockholders and each serves until the next annual meeting or until his
successor has been duly elected and qualified. Officers are elected and serve at
the discretion of the Board of Directors. Eric Zachs, the Co-Chairman of the
Board of Directors is the son of Henry Zachs, the Chief Executive Officer and
Co-Chairman of the Board of Directors.
BOARD COMMITTEES
Our Board of Directors will establish an Audit Committee and a Compensation
Committee promptly following the closing of the offering. The Audit Committee
will review ZipLink's annual audit and meet with our independent auditors to
review our internal controls and financial management practices. The
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Compensation Committee will determine compensation for certain of ZipLink's
personnel and may administer our 1999 Stock Option Plan.
DIRECTOR COMPENSATION
Directors who are employees of ZipLink do not receive additional
compensation for serving as directors. Each director who is not an employee of
ZipLink will receive $1,000 for attendance at each Board of Directors and
Committee meeting. Pursuant to our 1999 Stock Option Plan, each non-employee
director will automatically receive a non-discretionary grant of options to
purchase 10,000 shares of common stock upon first becoming a director. At each
annual meeting of our stockholders, each director who is re-elected and has
served continuously as a director for at least six months prior to such meeting
will be automatically granted an option to purchase 2,000 shares of common
stock. The exercise price of all options granted to directors will be equal to
the fair market value of the common stock on the date of the grant. Directors
are also reimbursed for their out-of-pocket expenses in attending board and
committee meetings in accordance with ZipLink's expense reimbursement policies.
To date, no director has received any cash payments or been granted stock
options as compensation for service as a director. See "--Employee Benefit
Plans--Stock Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning all cash and
non-cash compensation awarded to, earned by, or paid to, our Chief Executive
Officer and to all other executive officers whose total cash consideration
exceeded $100,000 for services rendered to ZipLink during the fiscal year ended
December 31, 1998 (collectively, with the Chief Executive Officer, the "Named
Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1) COMPENSATION
- ----------------------------------------------- ---------- --------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Henry Zachs.................................... $ --(2) $ -- -- -- $ --
Co-Chairman and Chief
Executive Officer
Christopher Jenkins............................ $ 135,000 $ 25,000 6,000(3) $ 1,685(4)
President, Chief Financial Officer and
Director
Ronald Lipof................................... $ 97,692 $ 13,500 -- $ --
Chief Marketing and
Strategic Officer
</TABLE>
- ------------------------
(1) All option grants were initially grants of options to purchase membership
interests in ZipLink, LLC. The number in this column gives effect to the
Reorganization as if it had occurred prior to January 1, 1998.
(2) Mr. Zachs served as an employee and a director without compensation during
1998. Upon the closing of this offering, Mr. Zachs' salary will be $100,000
per year.
(3) Represents a car allowance.
(4) Represents matching contributions under its 401(k) plan.
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<PAGE>
STOCK OPTION GRANTS
The following table sets forth certain information regarding stock options
granted to the Named Executives during the fiscal year ended December 31, 1998.
The exercise price of all such options was not less than the fair market value
on the date of the grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
----------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION --------------------
NAME GRANTED IN 1998 SHARE DATE 5% 10%
- ---------------------------- ----------- --------------- ----------- ---------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Henry Zachs................. -- -- $ -- -- $ -- $ --
Christopher Jenkins......... 14% November 20, 2008
Ronald Lipof................ 22 1.80 February 15, 2008
</TABLE>
- ------------------------
(1) All of the options reflected in this table were granted pursuant to our Unit
Option Plan and in connection with the Reorganization will be converted to
options under our 1999 Stock Option Plan. Options granted under such plan
prior to the completion of this offering are subject to vesting as follows:
50% of all then-unvested options vest upon the completion of this offering,
40% of all then-unvested options vest on the date which is two years after
the date of the option grant, and the remaining unvested options vest
ratably on the third, fourth and fifth anniversary of the date of the grant.
See "--Employee Benefit Plans."
(2) These amounts represent assumed rates of appreciation in the price of our
common stock during the terms of the options in accordance with rates
specified in applicable federal securities regulations. Actual gains, if
any, on stock option exercises will depend on the future price of the common
stock and overall stock market conditions. There is no representation that
the rates of appreciation reflected in the table will be achieved.
AGGREGATED YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of exerciseable and unexerciseable stock options held by each of the Named
Executives at December 31, 1998. No options were exercised by any of the Named
Executives during the fiscal year ended December 31, 1998.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END (1)
---------------------------- --------------------------
NAME EXERCISEABLE UNEXERCISEABLE EXERCISEABLE UNEXERCISEABLE
- ------------------------------------------------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Henry Zachs............................................ -- -- $ -- $ --
Christopher Jenkins.................................... -- $ $
Ronald Lipof........................................... -- $ $
</TABLE>
- ------------------------
(1) The dollar values have been calculated by determining the difference between
the fair market value of the securities underlying the options at December
31, 1998 and the exercise prices of the options. Solely for purposes of
determining the value of options at December 31, 1998, we have assumed that
the fair market value of shares of common stock issuable upon exercise of
options was $ per share, the assumed initial public offering price, since
the common stock was not traded in an established market prior to this
offering.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We intend to establish a Compensation Committee promptly following the
closing of this offering. All matters concerning executive officer compensation
have historically been addressed by Henry Zachs, our Co-Chairman of the Board
and Chief Executive Officer, and Eric Zachs, our Co-Chairman and former Chief
Executive Officer, because we did not have a compensation committee.
EMPLOYMENT AGREEMENTS
Christopher Jenkins, our President and Chief Financial Officer, is employed
under an Employment Agreement that expires in December, 2001, unless earlier
terminated by either party. The Agreement provides for a compensation package
consisting of a base salary equal to $150,000 per year and an annual performance
bonus in an amount to be determined by ZipLink. Mr. Jenkins is also eligible to
participate in all of our fringe benefit programs. In the event that we
terminate Mr. Jenkins' employment without cause, Mr. Jenkins will receive
severance compensation equal to his base salary for the one-year period
following termination. The Agreement contains non-competition and
non-solicitation covenants which restricts Mr. Jenkins during and after his
employment.
EMPLOYEE BENEFIT PLANS
Since 1995, we have issued options to purchase membership interests in
ZipLink, LLC, a Connecticut limited liability company, under the ZipLink, LLC
Unit Option Plan. In connection with the merger of ZipLink, LLC, a Connecticut
limited liability company, into ZipLink, LLC, a Delaware limited liability
company, in March, 1999, all outstanding options issued to purchase membership
interests under the ZipLink, LLC Unit Option Plan were assumed by ZipLink, LLC,
a Delaware limited liability company and converted into options to purchase
membership interests in that limited liability company. In connection with the
Reorganization, all outstanding options to purchase membership interests in
ZipLink, LLC, a Delaware limited liability company, will be assumed by ZipLink,
Inc. and will be converted into options to purchase shares of common stock under
the 1999 Stock Option Plan described below. Each such option will be converted
into an option to purchase common stock based upon a ratio of shares of
common stock for each .01% membership interest, based upon an assumed initial
public offering price of $ per share. The options outstanding to purchase
membership interests in ZipLink, LLC, a Delaware limited liability company, on
December 31, 1998 will be converted into options to purchase shares
of common stock, at a weighted average exercise price of $ per share
(assuming the Reorganization occurred as of such date, based upon an assumed
initial public offering price of $ per share). Upon the completion of this
offering, under most option agreements 50% of the then-unvested options will
become vested.
STOCK OPTION PLAN
Prior to the closing of this offering, we will adopt a stock option plan to
be designated the ZipLink, Inc. 1999 Stock Option Plan (the "Stock Option
Plan"). The total number of shares of common stock to be reserved for issuance
under our Stock Option Plan will be 1,500,000. The total number of shares
authorized, as well as shares subject to outstanding options, will be adjusted
in the event of changes to our capital structure, such as stock dividends, stock
splits or other recapitalizations. If any shares subject to an award are
forfeited, canceled, exchanged, or surrendered, or if an award otherwise
terminates or expires without a distribution of shares to the holder of such
award, the shares of common stock with respect to such award will, to the extent
of any such forfeiture, cancellation, exchange, surrender, termination, or
expiration, again be available for awards under the Stock Option Plan.
The Stock Option Plan will provide for the granting of awards to such
officers, other employees, consultants, and directors of ZipLink and its
affiliates as our Board may select from time to time. The
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<PAGE>
Stock Option Plan will provide that no person may be granted options to purchase
more than 500,000 shares of common stock during any one calendar year.
Our Board will have the authority to administer the Stock Option Plan and to
exercise all the powers and authorities either specifically granted to it under,
or necessary or advisable in the administration of, the Stock Option Plan,
including, without limitation, the authority to grant awards; to determine the
persons to whom and the time or times at which awards shall be granted; to
determine the type and number of awards to be granted, the number of shares of
common stock to which an award may relate and the terms, conditions,
restrictions and performance goals relating to any award; to determine whether,
to what extent, and under what circumstances an award may be settled, canceled,
forfeited, exchanged, or surrendered; to construe and interpret the Stock Option
Plan and any award; to prescribe, amend and rescind rules and regulations
relating to the Stock Option Plan; to determine the terms and provisions of
agreements evidencing awards; and to make all other determinations deemed
necessary or advisable for the administration of the Stock Option Plan. Our
Board may appoint a committee to administer the Stock Option Plan.
The purchase price per share payable upon the exercise of an option will be
established by the Board, provided, however, that incentive stock options within
the meaning of Section 422 of the Internal Revenue Code (the "Code") may not
have an exercise price less than the fair market value of a share of common
stock on the date of grant. The option exercise price is payable by any one of
the following methods or a combination thereof, to the extent permitted by the
Board: (i) in cash or by personal check, certified check, bank cashier's check
or wire transfer and/or (ii) subject to the approval of the Board, in common
stock owned by the participant.
Options granted under the Stock Option Plan will have a maximum term of 10
years. Options will generally vest in equal installments over a five-year
period, but in no event will an option be exerciseable more than 10 years
following the date of its grant, subject to acceleration in the event of certain
transactions involving ZipLink.
Options granted under the Stock Option Plan will generally expire three
months after the termination of the optionee's service, except in the case of
death or disability, in which case the options generally will be exerciseable up
to 12 months following the date of death or termination of service. Options will
generally terminate immediately upon termination for cause. In the event of a
sale of all or substantially all of ZipLink's assets, a merger, consolidation,
or other capital reorganization of ZipLink with or into another corporation, or
a dissolution or liquidation of ZipLink, the vesting of the options will be
accelerated, unless the Board determines otherwise.
The Stock Option Plan will also provide for certain automatic and
non-discretionary grants of options to members of our Board who are not
employees of ZipLink or of any affiliated company. The exercise price of such
options will be the fair market value of the common stock on the date of grant.
The Stock Option Plan will provide that each eligible director will be granted
an option to purchase 10,000 shares of common stock upon first becoming a member
of the Board, which options will vest as to 33.3% of such shares on each
anniversary of the option grant date. At each annual meeting of stockholders,
upon re-election each eligible director will automatically be granted an
additional option to purchase 2,000 shares if he or she has served continuously
as a member of the Board for at least six months, which options will vest on the
first anniversary of such grant provided such director served continuously as a
director for such period. The options granted to Board members will have 10 year
terms. Options granted under these provisions will generally expire seven months
after the date the director ceases to be a director of ZipLink, except in the
case of death or disability. In the event of a sale of all or substantially all
of our assets, a merger, consolidation, or other capital reorganization of
ZipLink with or into another corporation, or a dissolution or liquidation of
ZipLink, the vesting of the options will be accelerated.
Our Board may suspend, revise, terminate, or amend the Stock Option Plan at
any time, provided, however, that: (i) stockholder approval will be sought if
and to the extent required under Rule 16b-3
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<PAGE>
promulgated under the Exchange Act or if and to the extent the Board determines
that such approval is required for purposes of satisfying Section 162(m) or
Section 422 of the Code and (ii) no such suspension, revision, termination or
amendment may, without the consent of a participant, reduce the participant's
rights under any outstanding option.
The Stock Option Plan will terminate ten years after its adoption, unless
sooner terminated in accordance with its terms.
Concurrently with the consummation of this offering, ZipLink will grant
options to purchase shares of common stock under the Stock Option Plan to
certain of its directors and employees at an exercise price equal to the public
offering price.
401(K) PLAN. We intend to adopt a defined contribution plan intended to
qualify under Section 401 of the Code to be designated the ZipLink, Inc. 401(k)
Savings Plan. We intend that such plan will be the successor to a 401(k) Plan
adopted by ZipLink, LLC. All personnel who have completed one year of service
with ZipLink and have attained the age of 21 will be eligible to participate and
enter the plan as of the earlier of the first day of January or the first day of
July coinciding with or next following the date the participant satisfies the
eligibility requirements. Participants will be entitled to make pre-tax
contributions to the plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. The 401(k) plan will provide that ZipLink
will make matching contributions equal to 25% of the participant's contribution.
Each participant will be fully vested in his or her contributions and the
investment earnings thereon. Participants will become fully vested in the
matching contributions made by ZipLink after five years of service.
Contributions by the participants or ZipLink, and the income earned on such
contributions, will generally not be taxable to the participants until
withdrawn. Contributions by ZipLink will generally be deductible by ZipLink when
made. Contributions will be held in trust as required by law. Individual
participants will be entitled to direct the trustee to invest their accounts in
authorized investment alternatives.
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<PAGE>
CERTAIN TRANSACTIONS
FORMATION TRANSACTIONS. ZipLink was originally organized as a Connecticut
limited liability company (the "Connecticut LLC") in November, 1995. In
connection with the formation of the Connecticut LLC, Henry Zachs, our
Co-Chairman and Chief Executive Officer, and Eric Zachs, our Co-Chairman, each
received a 1% membership interest in the Connecticut LLC in exchange for a
capital contribution of $100, the Zachs Family Limited Partnership Number One
(the "Zachs Partnership"), an affiliate of Henry and Eric Zachs, received a 90%
membership interest in the Connecticut LLC in exchange for a capital
contribution of $9,300, and Christopher Jenkins, our President, Chief Financial
Officer and a director, received a 5% membership interest for no consideration.
The Operating Agreement of the Connecticut LLC contemplated that Henry and Eric
Zachs and the Zachs Partnership (collectively, the "Zachs Founders") would make
additional capital contributions without an increase in their percentage
ownership of the Connecticut LLC, but that, in exchange, they would receive a
preferential return of capital contributions over certain members of the
Connecticut LLC (including Mr. Jenkins) to the extent that such capital
contributions exceeded $2.0 million. During 1996, Henry and Eric Zachs and their
affiliates made net capital contributions to the Connecticut LLC of $5.8
million. During 1997, the Connecticut LLC made net capital distributions to
Henry and Eric Zachs and their affiliates of $2.5 million. No contributions or
distributions were made in 1998.
REORGANIZATION OF LLC. In March, 1999, the Connecticut LLC was merged with
and into a newly-formed Delaware limited liability company (the "Delaware LLC"),
retaining the name ZipLink, LLC. As a result of such merger, all of the assets
and liabilities of the Connecticut LLC were acquired by the Delaware LLC and all
membership interests and options and warrants to acquire membership interests in
the Connecticut LLC were exchanged for economically equivalent interests in the
Delaware LLC. The merger of the Connecticut LLC into the Delaware LLC was the
first step in the conversion of our business form to a corporation in order to
have a business organization that is more typical of other publicly-traded
entities in our market.
Immediately prior to the closing of this offering, the Delaware LLC will
merge with and into a newly-formed Delaware corporation known as ZipLink, Inc.,
as a result of which all of the assets and liabilities of the Delaware LLC will
be transferred to ZipLink, Inc. In connection with such merger, each .01%
membership interest in the Delaware LLC will be exchanged into shares of
common stock of ZipLink, Inc. and each option and warrant to acquire a .01%
membership interest in the Delaware LLC will be exchanged for an option or
warrant, as the case may be, to purchase shares of our common stock, based
upon an assumed initial public offering price of $ per share. After such
exchange, Henry Zachs, Eric Zachs, and Zachs Partnership, will own, ,
, and shares of our common stock, respectively. Christopher Jenkins
will own shares of our common stock and Nortel Networks will own shares of
our common stock.
NORTEL NETWORKS FUNDING. In December, 1997 Nortel Networks, a holder of
more than 5% of our common stock, acquired $2.5 million of equity and $7.5
million of debt convertible into additional equity. Interest on such convertible
debt has been accruing at a floating rate equal to LIBOR plus .80% and has been
paid currently. Concurrently with the closing of this offering, $2.5 million of
the convertible debt will be converted into shares of common stock at a
conversion price of $ per share, and $5.0 million of the convertible debt
will be converted into shares of common stock at the initial public
offering price, based upon an assumed initial public offering price of $ per
share.
PURCHASES FROM NORTEL NETWORKS. We purchased equipment and services from
Nortel Networks, in the aggregate amounts of $6.1 million in 1997 and $1.0
million in 1998. Commencing 100 days after the installation of our fifteenth
SuperPOP using Nortel Networks equipment, we will obtain hardware maintenance
and software subscription services from Nortel Networks at the rate of $423,000
per annum and intend to continue to obtain such services and purchase additional
equipment from Nortel Networks on terms no less favorable than those which could
be obtained from an independent third party.
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ZACHS FAMILY ADVANCES. During the period from 1996 through December 1997,
ZipLink acted as a collection and dispersal agent for affiliates of the Zachs
Founders. Certain proceeds collected by ZipLink were retained by ZipLink and
recorded as non-interest bearing advances. The principal amount of such advances
at the end of 1997 was $479,600 and at the end of 1998 was $476,100. Such
advances were repaid in March, 1999. Ziplink ceased to act as a collection or
dispersal agent for affiliates of the Zachs Founders in January, 1999 and does
not intend to reinstitute such arrangement in the future.
HENRY AND ERIC ZACHS GUARANTEES. During the period 1996 through 1998,
BancBoston Connecticut, N.A. made loans to ZipLink under a $20.0 million line of
credit which was personally guaranteed by Henry and Eric Zachs. Henry and Eric
Zachs received an aggregate of $175,000 in compensation for providing such
guarantees through 1997. The principal amount outstanding under the BancBoston
line of credit was $3.5 million at the end of 1996, $15.0 million at the end of
1997, and $15.0 million upon repayment at March, 1998. Such outstanding balance
bore interest at a floating rate equal to the LIBOR plus 0.50%. The BancBoston
loans were repaid in March, 1998 with the proceeds of a $15.0 million line of
credit to ZipLink from Fleet Bank, which amount was increased to $20.0 million
in October, 1998. The Fleet Bank line of credit is secured by a pledge of all of
ZipLink's assets and supported by a personal guarantee from Henry Zachs. Henry
Zachs did not receive any compensation for providing such personal guarantee of
the Fleet Bank Line of Credit. The Fleet Bank loan bears interest at a floating
rate equal to LIBOR plus 0.30%. ZipLink believes that the loans from both
BancBoston and Fleet Bank were at interest rates, in amounts and on other terms
which were more favorable to ZipLink than those which we could have obtained
without the guarantee of Henry Zachs or Eric Zachs. As of February 28, 1999, the
outstanding balance under the Fleet Bank line of credit was $18.5 million and we
anticipate that such balance will increase prior to closing of this offering. We
intend to use approximately $20.0 million of the net proceeds of this offering
to repay the entire outstanding indebtedness to Fleet Bank. Henry Zachs has
agreed to guarantee up to $10.0 million of additional indebtedness to ZipLink
from institutional lenders acceptable to Mr. Zachs. We do not intend to incur
any such indebtedness which is guaranteed by Mr. Zachs prior to the consummation
of this offering and Mr. Zachs' agreement to provide such guaranty will
terminate upon the closing of this offering. After the closing of this offering,
we do not believe that any further loans to ZipLink will be supported by a
guarantee from either Henry or Eric Zachs. See "Risk Factors--Our Co-Chairmen
and Our Chief Executive Officer Will Benefit From This Offering," and "--We Will
Need Substantial Additional Capital, Which We May Be Unable To Obtain."
HENRY ZACHS' CONVERSION OPTION. In connection with the issuance of the
convertible debt to Nortel Networks, Henry Zachs received an option to convert
certain indebtedness of ZipLink into additional equity and, under certain
circumstances, is obligated to convert such indebtedness into additional equity
in the event of certain conversions of the convertible debt. Mr. Zachs'
obligation to convert indebtedness and acquire additional equity will not be
triggered by the conversion of the convertible debt in connection with this
offering. Prior to the closing of this offering, Mr. Zachs' option to acquire
additional membership interests will terminate.
REAL PROPERTY LEASES. We have leased certain office and co-location space
in Hartford, Connecticut from Henry Zachs. Our rental expenses to Mr. Zachs were
$64,000 during 1996, $45,000 during 1997 and $39,000 during 1998. In January,
1999 we terminated our then-existing lease with Mr. Zachs and entered into a two
year lease with him for approximately 3,500 square feet of office and
co-location space in Hartford, Connecticut. Rent payable under such lease is
$39,000 per annum, including taxes, insurance, and certain utilities.
SALARY ACCRUALS. ZipLink accrued, but did not pay, salary to Henry Zachs of
$90,000 per year for each of 1996 and 1997, a salary to Christopher Jenkins of
$50,000 for 1997 and bonus of $25,000 to Christopher Jenkins for 1998. In March,
1999 Mr. Zachs' agreed to forgive Ziplink's obligation to pay his accrued
salary. Mr. Jenkins' accrued salary and bonus were paid in March, 1999.
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TRADEMARK LICENSE. Under an oral royalty-free license, ZipLink has used
certain trademarks owned by Henry Zachs or subject to pending applications made
by him. In March, 1999, Mr. Zachs granted ZipLink a royalty-free, perpetual
non-exclusive license to use all such trademarks and trademark applications for
Internet related applications. Mr. Zachs will not grant any further licenses to
any of such trademarks or trademark applications without the consent of ZipLink.
Under certain circumstances, Ziplink has an option to purchase all of such
trademarks and trademark applications for nominal consideration. Mr. Zachs
received no payment or other consideration for granting such license.
OTHER ZACHS FAMILY TRANSACTIONS. ZipLink provided certain administrative
and accounting services to a number of entities affiliated with the Zachs
Family, including ZipCall Long Distance, Inc. ("ZipCall Long Distance"), Message
Center Management, Inc. and Brainbug, LLC during 1996, 1997 and 1998. Such
services were provided without charge in 1996 and 1997, and ZipLink accrued
$24,000 in 1998 for reimbursement for such services. We engaged in the resale of
long distance telephone services under a reseller agreement dated February 15,
1996 with ZipCall Long Distance. The total amounts paid to ZipCall Long Distance
in 1996, 1997 and 1998 were $88,000, $233,000 and $83,000 respectively. ZipLink
terminated the provision of administrative and accounting services and the
resale of long distance telephone services in 1997 and will not provide such
services in the future.
STOCK OPTIONS. We have granted certain stock options to Christopher Jenkins
and Ronald Lipof, as well as certain other employees. See "Management--Stock
Option Grants." Concurrently with the closing of this offering, ZipLink will
grant and options to purchase shares of common stock to Christopher
Jenkins and Ronald Lipof, respectively.
REGISTRATION RIGHTS. The Zachs Founders, Christopher Jenkins and Nortel
Networks have been granted certain registration rights with respect to shares of
common stock held by them. See "Description of Capital Stock--Registration
Rights."
OTHER TRANSACTIONS. For the past several years, Wayne A. Martino, a
director nominee of ZipLink, has performed legal services on our behalf in his
capacity as a principal of the New Haven, Connecticut law firm of Brenner,
Saltzman & Wallman, LLP, as have other principals and employees of such firm.
The fees paid by ZipLink to such law firm during 1996, 1997 and 1998 were
$55,000, $106,000 and $26,000, respectively. However, at no time were the fees
paid by ZipLink to such law firm in excess of 5% of the law firm's gross
revenues. In addition, Mr. Martino has received options to purchase membership
interests in ZipLink, LLC which will be converted into options to purchase
shares of common stock at an exercise price of $ per share, based on an
assumed initial public offering price of $ per share.
We believe that all of the related party transactions described above (other
than the provision of administrative and accounting services) were on terms no
less favorable than terms we could have obtained from independent third parties.
All future transactions with our officers, directors and principal stockholders
and their affiliates will be on terms no less favorable than terms we could
obtain from independent third parties and will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 1998 and as adjusted to reflect
the sale of the shares of common stock offered hereby and the conversion of
convertible debt concurrently with the closing of this offering by (i) each
person who we know owns beneficially more than 5% of our outstanding common
stock, (ii) each of our directors and director nominees, (iii) each of the Named
Executives, and (iv) all of our executives officers, directors and director
nominees as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock issuable pursuant to
options, to the extent those options are currently exercisable or convertible
within 60 days as of the date hereof, are treated as outstanding for computing
the percentage securities held by a person but are not treated as outstanding
for computing the percentage of any other person. Unless otherwise noted, each
person or group identified possesses sole voting and investment power with
respect to shares, subject to applicable community property laws.
The information in the table below gives effect to the Reorganization as if
it had occurred on December 31, 1998 and includes shares issuable upon the
conversion of convertible debt, based upon an assumed initial public offering
price of $ per share, which conversion will occur concurrently with the
closing of this offering. There were, as of December 31, 1998, outstanding
options to purchase shares of common stock, exerciseable at a weighted
average price of $ per share, and an outstanding warrant to purchase
shares of common stock, with an exercise price of $ per share, based upon
an assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
NUMBER OF BENEFICIALLY OWNED
SHARES -----------------------------
BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED OFFERING OFFERING
- -------------------------------------------------------------------- ------------ -------------- -------------
<S> <C> <C> <C>
Zachs Family Limited Partnership Number One(1)...................... % %
Henry M. Zachs(1)(2)................................................
Eric M. Zachs(1)(2).................................................
Northern Telecom Limited(3).........................................
Christopher W. Jenkins(4)...........................................
Jai P. Baghat.......................................................
Wayne A. Martino(5).................................................
Alan M. Mendelson...................................................
All executive officers, directors and director nominees as a Group
(9 persons).......................................................
</TABLE>
- ------------------------
(1) The address for the Zachs Family Limited Partnership Number One, Henry M.
Zachs and Eric M. Zachs is 40 Woodland Street, Hartford, Connecticut 06105.
(2) Includes shares owned by Zachs Family Limited Partnership Number One.
Henry M. and Eric M. Zachs are each general partners of the Zachs Family
Limited Partnership Number One.
(3) Consists of shares owned by Bay Networks, Inc., an indirect, wholly
owned subsidiary of Northern Telecom Limited, and shares issuable upon
the conversion of convertible debt held by Bay Networks, Inc. The address
for Northern Telecom Limited is 8200 Dixie Road, Suite 100, Brampton,
Ontario, Canada L6T 5P6.
(4) Represents shares issuable upon exercise of options exerciseable upon
the closing of this offering.
(5) Represents shares issuable upon exercise of options exerciseable upon
the closing of this offering.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $.001 per share, and 1,000,000 shares of undesignated preferred stock,
par value $.001 per share. Immediately after this offering, after giving effect
to the Reorganization and the conversion of all convertible debt into shares of
common stock, there will be outstanding shares of common stock, based upon an
assumed initial public offering price of $ per share, and no shares of
preferred stock.
The following description of our capital stock and selected provisions of
our Certificate of Incorporation and By-Laws is a summary and is qualified in
its entirety by reference to our Certificate of Incorporation and By-Laws,
copies of which are filed as exhibits to the registration statement of which
this prospectus is a part.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefor. In
the event of a liquidation, dissolution or winding up of ZipLink holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preferences of any outstanding shares of
preferred stock. Holders of common stock have no preemptive rights and no right
to convert their common stock into any other securities. There are no redemption
or sinking fund provisions applicable to common stock. Each outstanding share of
common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be upon payment therefor, duly and validly
issued, fully paid and non-assessable. As of the date of this prospectus, there
were five holders of record of our common stock.
PREFERRED STOCK
ZipLink's Certificate of Incorporation provides that we may issue up to
1,000,000 shares of preferred stock in one or more series and as may be
determined by our Board of Directors, who may establish from time to time the
number of shares to be included in each series, and who may fix the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereon, including the
dividend rights, voting rights, redemption and sinking fund provisions,
liquidation preferences, conversion rights and preemptive rights, and the number
of shares constituting any series. The Board of Directors may authorize, without
stockholder approval, the issuance of preferred stock with voting and conversion
rights that could adversely affect the voting power and other rights of holders
of common stock and, under certain circumstances, make it more difficult or
costly for a third party to acquire, or discourage a third party from attempting
to acquire, control of ZipLink. See "Risk Factors-- We Are Subject to
Anti-takeover Provisions Which Could Negatively Impact Our Stockholders." In
certain circumstances, this could have the effect of decreasing the market price
of the common stock. We do not have any present plans to issue any shares of
preferred stock.
WARRANTS
As of the date of this prospectus, we had outstanding one warrant to
purchase shares of common stock at an exercise price of $ , based
upon an assumed initial public offering price of $ per share. This warrant
expires on September 2, 2002.
OPTIONS
Immediately after the closing of the offering, after giving effect to the
options being granted to certain directors and employees concurrently with the
closing of this offering, there will be outstanding options to
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purchase shares of common stock at a weighted average exercise price of
$ per share, based upon an assumed initial public offering price of $ per
share.
REGISTRATION RIGHTS
FOUNDERS' REGISTRATION RIGHTS AGREEMENT. Henry M. Zachs, our Co-Chairman
and Chief Executive Officer, Eric M. Zachs, our Co-Chairman and Chief Executive
Officer, Zachs Family Limited Partnership Number One, of which Messrs. Henry and
Eric Zachs are the general partners, and Christopher Jenkins, our President and
a director (collectively, the "Founding Stockholders") are entitled to certain
registration rights (the "Founders' Registration Rights") with respect to such
shares of common stock as may be held by them under the terms of a registration
rights agreement dated as of December 23, 1997. Subject to certain limitations,
in the event that we elect to register any of our common stock under the
Securities Act (other than in connection with this offering), either for our own
account or for the account of any other stockholder, we are required to include
in such registration the shares of common stock held by such Founding
Stockholders as request registration. The Founding Stockholders also have two
demand registration rights respecting the common stock, exercisable at any time
after the date which is six months from the closing of this offering by Founding
Stockholders who hold not less than 20% of the aggregate shares of common stock
held by all of the Founding Stockholders. The Founders' Registration Rights will
terminate as to any Founding Stockholder who can sell an unlimited number of
shares under Rule 144. ZipLink will bear the expenses of the registration of the
common stock, except any underwriting discounts and commissions.
NORTEL NETWORKS REGISTRATION RIGHTS AGREEMENT. Pursuant to an agreement
dated as of December 23, 1997 (the "Nortel Purchase Agreement"), Nortel Networks
is entitled to certain registration rights (the "Nortel Registration Rights")
with respect to shares of common stock owned by Nortel Networks, based
upon an assumed initial public offering price of $ per share. Subject to
certain limitations, in the event that we elect to register any of our common
stock under the Securities Act (other than in connection with this offering),
either for our own account or for the account of any other stockholder, we are
required to include in such registration shares of common stock held by Nortel
Networks to the extent requested by Nortel Networks to do so. Nortel Networks
also has two demand registration rights respecting its common stock which may be
exercised at any time after the date which is six months from the closing of
this offering. The registration rights granted under the Nortel Purchase
Agreement terminate on the earlier of (i) three years from the closing of this
offering, or (ii) at such time as Nortel Networks has been entitled to sell,
during any three-month period, all of its common stock subject to registration
rights. ZipLink will bear the expenses of the registration of its common stock
under the Nortel Purchase Agreement, except any underwriting discounts and
commissions.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of Delaware law and ZipLink's charter documents could
make the acquisition of ZipLink and the removal of incumbent officers and
directors more difficult. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of ZipLink to negotiate with us
first. We believe that the benefits of increased protection of the potential
ability to negotiate with the proponent of an unfriendly or unsolicited proposal
to acquire or restructure ZipLink outweigh the disadvantages of discouraging
such proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.
ZipLink is subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions): the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. The term "business combination"
is defined generally to include a merger, asset or stock sale, or other
transaction
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resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior did own) 15% or more of the corporation's voting stock.
These provisions may have the effect of delaying, deferring or preventing a
change in control of ZipLink.
ZipLink's Certificate of Incorporation provides for authorized but unissued
shares of preferred and common stock. Such shares are available for issuance
without stockholder approval and may be used by us for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. This could make it more
difficult or discourage any attempt to take control of us by means of a proxy
contests, tender offer, merger or otherwise.
Our Certificate of Incorporation further provides that stockholder action
can be taken only at an annual or special meeting of stockholders and may not be
taken by written consent. The Certificate of Incorporation and By-Laws provide
that special meetings of stockholders can be called only by the Board. Moreover,
the business permitted to be conducted at any special meeting of stockholders is
limited to the business brought before the meeting by the Board. The By-Laws
also set forth an advance notice procedure with regard to the nomination, other
than by or at the direction of the Board, of candidates for election as
directors and with regard to business to be brought before a meeting of
stockholders. The Certificate of Incorporation further provides that the
provisions respecting the powers, number and election of directors, stockholder
action by written consent, special meetings of stockholders and the By-Laws may
only be amended by a supermajority vote of the stockholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
To the extent permitted by the Delaware General Corporation Law, ZipLink has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions. In
addition, our Certificate of Incorporation requires us to indemnify our officers
and directors under certain circumstances, including those circumstances in
which indemnification would otherwise be discretionary, and is required to
advance expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. We also intend to
enter into indemnity agreements with our directors and executive officers. We
are seeking to obtain directors' and officers' liability insurance.
We believe that our charter provisions and indemnity agreements are
necessary to attract and retain qualified persons as directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is .
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SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options or warrants, in the
public market following this offering, the market price of our common stock
could fall. These sales might adversely affect the prevailing market price and
our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options or
warrants, based upon an assumed initial public offering price of $ per share.
Of these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" as that term is defined in Rule 144
under the Securities Act. The remaining shares of common stock held
by existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act, which
rules are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144 and 701, the restricted securities will become eligible
for sale in the public market not earlier than 180 days after the date of this
prospectus.
LOCK-UP AGREEMENTS
All of our officers, directors and stockholders will sign lock-up agreements
under which they will agree not to transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into or
exercisable or exchangeable for shares of common stock, for a period of 180 days
after the date of this prospectus. Transfers or dispositions can be made sooner
with the prior written consent of Jefferies & Company, Inc.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering,
based upon an assumed initial public offering price of $ per share; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
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RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares of our common
stock from us in connection with a compensatory stock or option plan or other
written agreement is eligible to resell such shares 90 days after the effective
date of this offering in reliance on Rule 144, but without compliance with
certain restrictions, including the holding period, contained in Rule 144.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of our
common stock, or their transferees, will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. See
"Description of Capital Stock--Registration Rights." After such a registration
and the expiration of any applicable contractual restrictions, these shares
becoming freely tradable without restriction under the Securities Act. These
sales of securities could have a material adverse effect on the market price of
our common stock.
STOCK OPTIONS
Immediately after this offering, we intend to file a registration statement
in Form S-8 under the Securities Act covering shares of common stock
reserved for issuance under our Stock Option Plan. As of February 28, 1999,
options to purchase shares of common stock were issued and
outstanding. Upon the expiration of the lock-up agreements described above, at
least shares of common stock will be subject to vested options
(based on options outstanding as of February 28, 1999). This S-8 registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares of our common
stock registered under such S-8 registration statement will, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates, be
available for sale in the open market immediately after the 180-day lock-up
agreements expire.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated the
date hereof, the underwriters named below, through their representatives,
Jefferies & Company, Inc. and First Albany Corporation, have severally agreed to
purchase from ZipLink the number of shares of common stock set forth opposite
their respective names in the table below at the public offering price less the
underwriting discount set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Jefferies & Company, Inc............................................................................
First Albany Corporation............................................................................
------------
Total...........................................................................................
------------
------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase the shares of common stock offered hereby are subject to certain
conditions. The underwriters are obligated to purchase all of the shares of
common stock offered hereby (other than those covered by the over-allotment
option described below), if any of such shares are purchased.
The underwriters propose to offer the shares of common stock to the public
initially at the public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may re-allow, a
discount not in excess of $ per share to certain other dealers. After the
initial public offering, the representatives of the underwriters may change the
offering price, the concession to selected dealers and the reallowance to other
dealers.
ZipLink has granted to the underwriters an option, exercisable not later
than 30 days after the date of this prospectus, to purchase, from time to time,
in whole or in part, up to additional shares of common stock at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus. The underwriters may exercise such option only to cover
over-allotments, if any, made in connection with the sale of the common stock
offered hereby. To the extent that the underwriters exercise such option, each
of the underwriters will become obligated, subject to certain conditions, to
purchase additional shares of common stock proportionate to such underwriter's
initial commitment as indicated in the table above.
The following table shows the underwriting fees to be paid to the
underwriters by ZipLink in connection with this offering. The amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
FULL
NO EXERCISE EXERCISE
----------- ------------
<S> <C> <C>
Per share.......................................................... $ $
Total.............................................................. $ $
</TABLE>
Other expenses of this offering payable by ZipLink are estimated to be
$ .
ZipLink has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, or will
contribute to payments the underwriters may be required to make in respect
thereof.
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Each of ZipLink, its executive officers and directors and stockholders has
agreed, subject to certain exceptions, not to offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Jefferies & Company, Inc. Such consent may be given at any time without public
notice.
The representatives of the underwriters have advised ZipLink that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
The representatives of the underwriters have advised ZipLink that, pursuant
to Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the market price of the common stock. Specifically, the underwriters may
over-allot shares of the common stock in connection with this offering, thereby
creating a short position in the common stock for their own account.
Additionally, to cover such over-allotments or to stabilize the market price of
the common stock, the underwriters may bid for, and purchase, shares of the
common stock in the open market. Finally, the representatives, on behalf of the
underwriters, also may reclaim selling concessions allowed to an underwriter or
dealer if the underwriting syndicate repurchases shares distributed by that
underwriter or dealer. Any of these activities may maintain the market price of
the common stock at a level above that which might otherwise prevail in the open
market. The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time. These transactions may
be effected on the Nasdaq National Market, the over-the-counter market or
otherwise.
Prior to this offering, there has been no public market for ZipLink's common
stock. Consequently, the initial public offering price for ZipLink's common
stock will be determined by negotiation among ZipLink and the representatives of
the underwriters. The factors to be considered in determining the initial public
offering price will include the history of and the prospects for the industry in
which ZipLink competes, an assessment of ZipLink's management, the past and
present operations of ZipLink, the historical results of operations of ZipLink,
the recent market prices of securities of companies that ZipLink and the
representatives of the underwriters believe to be comparable to ZipLink and the
general condition of the securities markets at the time of this offering.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
ZipLink by Brenner, Saltzman & Wallman LLP, New Haven, Connecticut. As of the
date of this prospectus, attorneys at Brenner, Saltzman & Wallman, LLP,
including Wayne A. Martino, a director nominee of ZipLink and a principal of
such firm, own options to purchase an aggregate of shares of our common
stock, based upon an assumed initial public offering price of $ per share.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Fulbright & Jaworski L.L.P., New York, New York.
EXPERTS
The financial statements and schedule included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission ("SEC") a
registration statement, of which this prospectus constitutes a part, on Form S-1
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with
respect to ZipLink and the common stock offered hereby, reference is made to the
registration statement and to the exhibits and schedules thereto. Statements
made in this prospectus concerning the contents of any document referred to
herein are not necessarily complete. With respect to each such document filed as
an exhibit to the registration statement, reference is made to the exhibit for a
more complete description of the matter involved. The registration statement and
the exhibits and schedules thereto may be inspected without charge at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, 13(th) Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any part of the registration statement may be obtained from the SEC's offices
upon payment of certain fees prescribed by the SEC. The SEC maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors and quarterly reports
containing unaudited financial information.
67
<PAGE>
ZIPLINK, LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets............................................................................................. F-3
Statements of Operations................................................................................... F-4
Statements of Changes In Members' Equity (Deficit)......................................................... F-5
Statements of Cash Flows................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZipLink, LLC:
We have audited the accompanying balance sheets of ZipLink, LLC (a Delaware
limited liability company, formerly a Connecticut limited liability company) as
of December 31, 1997 and 1998, and the related statements of operations, changes
in members' deficit and cash flows for the three years ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ZipLink, LLC as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
three years ended December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 10, 1999
F-2
<PAGE>
ZIPLINK, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 1,081,505 $ 512,055
Accounts receivable, less allowance for doubtful accounts of approximately
$153,000 and $68,000 in 1997 and 1998, respectively............................ 474,780 678,683
Prepaid expenses and other current assets........................................ 56,224 70,964
------------- --------------
Total current assets......................................................... 1,612,509 1,261,702
------------- --------------
Property and Equipment, at cost:
Network equipment................................................................ 11,719,967 12,659,088
Computer equipment and software.................................................. 289,973 356,789
Leasehold improvements........................................................... 595,706 756,901
Furniture, fixtures and equipment................................................ 105,948 107,764
Vehicles......................................................................... 20,416 20,416
------------- --------------
12,732,010 13,900,958
Less--Accumulated depreciation and amortization.................................. 1,460,805 4,097,553
------------- --------------
11,271,205 9,803,405
Other Assets....................................................................... 100,772 108,772
------------- --------------
Total assets................................................................. $ 12,984,486 $ 11,173,879
------------- --------------
------------- --------------
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Current portion of convertible debentures........................................ $ -- $ 500,000
Current portion of capital lease obligation...................................... 410,029 464,531
Accounts payable................................................................. 4,840,141 881,199
Accrued expenses................................................................. 971,051 1,882,424
Deferred revenue................................................................. 228,921 119,672
Amounts due to affiliates, net................................................... 479,561 476,140
------------- --------------
Total current liabilities.................................................... 6,929,703 4,323,966
Note Payable To a Bank............................................................. 15,000,000 17,600,000
Capital Lease Obligation, less current portion..................................... 803,112 338,580
Convertible Debentures............................................................. -- 7,000,000
------------- --------------
Total liabilities............................................................ 22,732,815 29,262,546
------------- --------------
Commitments and Contingencies (Notes 12, 14 and 16)
Members' Deficit................................................................... (9,748,329) (18,088,667)
------------- --------------
Total liabilities and members' deficit....................................... $ 12,984,486 $ 11,173,879
------------- --------------
------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ZIPLINK, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues............................................... $ 755,655 $5,235,830 $7,088,200
---------- ---------- ----------
Costs and Expenses:
Cost of revenues..................................... 1,782,430 3,186,777 6,271,169
Selling, general and administrative.................. 7,372,740 6,507,490 5,174,370
Depreciation and amortization........................ 383,965 1,084,393 2,636,748
---------- ---------- ----------
Total costs and expenses......................... 9,539,135 10,778,660 14,082,287
---------- ---------- ----------
Loss from operations............................. (8,783,480) (5,542,830) (6,994,087)
---------- ---------- ----------
Other Expenses:
Interest expense..................................... (30,492) (1,098,119) (1,344,285)
Interest income...................................... 11,217 426 37,029
Other (expense) income............................... 630 (68,902) (144,514)
---------- ---------- ----------
(18,645) (1,166,595) (1,451,770)
---------- ---------- ----------
Net loss......................................... $(8,802,125) $(6,709,425) $(8,445,857)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ZIPLINK, LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
ZACHS
(INDIVIDUALS NORTEL
AND LIMITED NETWORKS,
PARTNERSHIP) INC. TOTAL
-------------- ------------ --------------
<S> <C> <C> <C>
Members' Equity, December 31, 1995 (unaudited)..................... $ 989 $ -- $ 989
Net loss......................................................... (8,802,125) -- (8,802,125)
Members' contributions, net of distributions..................... 5,776,994 -- 5,776,994
-------------- ------------ --------------
Members' Equity (Deficit), December 31, 1996....................... (3,024,142) -- (3,024,142)
Net loss......................................................... (6,694,719) (14,706) (6,709,425)
Members' contributions, net of distributions..................... (2,514,762) 2,500,000 (14,762)
-------------- ------------ --------------
Member's Equity (Deficit), December 31, 1997....................... (12,233,623) 2,485,294 (9,748,329)
Net loss......................................................... (7,601,271) (844,586) (8,445,857)
Compensation associated with the issuance of unit options and
warrants......................................................... 94,967 10,552 105,519
-------------- ------------ --------------
Members' Equity (Deficit), December 31, 1998....................... $ (19,739,927) $ 1,651,260 $ (18,088,667)
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
ZIPLINK, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................................. $(8,802,125) $(6,709,425) $(8,445,857)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization...................... 383,965 1,084,393 2,636,748
Loss on disposal of property and equipment......... -- 53,053 143,844
Compensation expense associated with the granting
of unit options and warrants..................... -- -- 105,519
Changes in operating assets and liabilities--
Accounts receivable, net......................... (159,940) (314,840) (203,903)
Prepaid expenses and other current assets........ (81,603) 57,221 (14,740)
Accounts payable................................. 1,292,629 3,476,809 (3,958,942)
Accrued expenses................................. 1,444,417 (473,366) 911,373
Deferred revenue................................. 177,136 51,785 (109,250)
Due to affiliates................................ (206,101) (578,276) (3,421)
---------- ---------- ----------
Net cash used in operating activities.......... (5,951,622) (3,352,646) (8,938,629)
---------- ---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment.................. (4,218,716) (6,969,558) (1,312,792)
Proceeds from sale of property and equipment......... -- 20,765 --
Increase in other assets............................. (80,772) (20,000) (8,000)
---------- ---------- ----------
Net cash used in investing activities.......... (4,299,488) (6,968,793) (1,320,792)
---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from convertible debentures................. -- -- 7,500,000
Net proceeds from borrowings under notes payable..... 2,700,970 11,450,000 2,600,000
Payments of principal made on capital lease
obligations........................................ -- (333,388) (410,029)
Members' contributions............................... 5,776,994 2,500,000 --
Members' distributions............................... -- (2,514,762) --
---------- ---------- ----------
Net cash provided by financing activities...... 8,477,964 11,101,850 9,689,971
---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents... (1,773,146) 780,411 (569,450)
Cash and Cash Equivalents, beginning of period......... 2,074,240 301,094 1,081,505
---------- ---------- ----------
Cash and Cash Equivalents, end of period............... $ 301,094 $1,081,505 $ 512,055
---------- ---------- ----------
---------- ---------- ----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................... $ 30,402 $1,034,506 $1,242,138
---------- ---------- ----------
---------- ---------- ----------
Supplemental Disclosure of Non-Cash Financing and
Investing Activities:
Acquisition of equipment pursuant to capital lease
obligation......................................... $ -- $1,546,529 $ --
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) ORGANIZATION
ZipLink, LLC (the Company) was organized as a Connecticut limited liability
company (LLC) on November 21, 1995. The Company had no significant operations
prior to January 1, 1996. On March 9, 1999, the Company was merged into a
Delaware LLC and will be subsequently merged into a Delaware corporation upon
the closing of the Company's proposed initial public offering (IPO). The Company
intends to file for an IPO. See Note 16.
The Company has operations in Lowell, Massachusetts and Hartford,
Connecticut and is a national backbone provider offering wholesale Internet
access services in the United States to two distinct target markets: Internet
appliances and local and regional Internet service providers.
The Company is subject to a number of risks common to companies in similar
stages of development, including dependence on key personnel, customers and
suppliers, competition from substitute services and larger companies, the need
for adequate financing to fund future operations, the continued successful
development and marketing of its services and the attainment of profitable
operations. See "Risk Factors" included elsewhere in this prospectus for
additional discussion.
The Company has incurred cumulative net loss from operations of $24 million
since inception and has funded these losses principally through the issuance of
debt and equity securities. The Company has a members' deficit of $18 million as
of December 31, 1998 and is dependent on raising additional capital in the short
term to satisfy ongoing capital needs. As discussed in Note 6, the Capital
Member has agreed to personally guarantee an additional $10 million of
borrowings. These additional proceeds should be sufficient to continue
operations through 1999.
(2) SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
significant accounting policies as described in this note and elsewhere in the
accompanying notes to financial statements.
(A) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates market, and include
overnight investments in U.S. Treasury securities.
(C) REVENUE RECOGNITION
The Company recognizes revenue over the period in which the services are
performed. Deferred revenue relates to advanced service billings and are
$228,921 and $119,672 at December 31, 1997 and 1998, respectively.
F-7
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(D) DEPRECIATION AND AMORTIZATION
Depreciation and amortization is provided using the straight-line method
over the following estimated useful lives of the assets:
<TABLE>
<S> <C>
Network equipment..................................... 3-5 years
Computer equipment and software....................... 5 years
Leasehold improvements................................ Life of the lease
Furniture, fixtures and equipment..................... 5 years
Vehicles.............................................. 5 years
</TABLE>
Expenditures for major renewals and betterments are capitalized.
Expenditures for maintenance and repairs that do not improve or extend the
life of the respective assets are expensed as incurred.
(E) TRANSACTIONS WITH AFFILIATES
The Company collects and disburses funds on behalf of other entities
owned by some of the Company's members. The amount of non-interest bearing
advances due these entities is $479,561 and $476,140 at December 31, 1997
and 1998, respectively, and is therefore reflected as a liability on the
accompanying balance sheets. These amounts will be paid in 1999.
(F) OTHER ASSETS
Other assets consist primarily of security deposits on the Company's
leased facilities.
(G) LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 121, ACCOUNTING FOR LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE
DISPOSED OF. SFAS No. 121 requires that long-lived assets be reviewed for
impairment by comparing the fair value of the assets with their carrying
amount. Any write-downs are to be treated as permanent reductions in the
carrying amount of the assets. Accordingly, the Company evaluates the
possible impairment of long-lived assets at each reporting period based on
the undiscounted projected cash flows of the related asset. Should there be
impairment, the cash flow estimates that will be used will contain
management's best estimates, using appropriate and customary assumptions and
projections at the time. To date, the Company does not believe that an
impairment exists.
(H) CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents
and accounts receivable. The Company's cash equivalents are invested in
financial instruments with high credit ratings. Concentration of credit risk
with respect to accounts receivable is limited to customers to whom the
Company makes significant sales. To control credit risk, the Company
performs periodic credit evaluations of its customers and has recorded
allowances for estimated losses. One customer accounted for approximately
80% and 85% of accounts receivable at December 31, 1997 and 1998,
respectively.
F-8
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(I) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and cash equivalents,
accounts receivable, accounts payable, amounts due to affiliates, notes
payable, and convertible debentures approximates its fair value.
(J) STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION
in 1997. SFAS No. 123 defines a fair-value-based method of accounting for
employee stock options and other stock-based compensation. The compensation
expense arising from this method of accounting can be reflected in the
financial statements or alternatively, pro forma net income and earnings per
share effect of the fair-value-based accounting can be disclosed in the
financial footnotes. The Company has adopted the disclosure-only
alternative.
(K) SIGNIFICANT VENDORS
The Company relies on other companies to supply certain key components
of their network infrastructure. These components include critical
telecommunications services and networking equipment, which, are available
only from sole-or limited-sources. Six companies provide the backbone data
communications facilities and capacity for the Company. The Company is also
dependent upon local exchange carriers to provide telecommunications
services to the Company and its customers. One company is the sole supplier
of the servers primarily used in the Company's network infrastructure.
(L) POSTRETIREMENT BENEFITS
The Company has no obligations for postretirement benefits.
(3) SIGNIFICANT CUSTOMER
In October 1996, the Company entered into a wholesale network services
agreement with WebTV Networks (WebTV). Under the terms of this agreement, the
Company provides dial-up connectivity between WebTV subscribers and WebTV's own
internet access facility over the ZipLink network. The agreement expires in
December 2000. During the years ended December 31, 1996, 1997 and 1998, WebTV
represented approximately 4%, 48% and 68%, respectively, of the Company's
revenues.
(4) SEGMENT DISCLOSURE
In July 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires certain financial and
supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. The Company has determined that it
only operates in one segment.
(5) INCOME TAXES
As a result of the Company's organization as an LLC, taxation does not occur
at the Company level, but is shared individually by the members. Accordingly, no
provision for federal or state income taxes is required in the accompanying
statements of operations for the years ended December 31, 1996, 1997 and 1998.
Upon the consummation of the reorganization discussed in Note 16, the Company
will be subject to
F-9
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
federal and state income tax based upon the taxable income generated after the
date of the reorganization and will begin accounting for income taxes in
accordance with SFAS No. 109 ACCOUNTING FOR INCOME TAXES.
(6) NOTE PAYABLE
On March 31, 1998, the Company entered into a revolving credit agreement, as
amended on October 15, 1998 (the Financing Agreement) that provides for
borrowings up to $20.0 million and matures on April 1, 2001. Borrowings under
the Financing Agreement are for working capital purposes and are secured by a
pledge of certain collateral owned by a Capital Member of the Company and
substantially all the assets of the Company. Borrowings are limited to the
lesser of 60% of the current market value of certain collateral, subject to
adjustment, or $20 million and bear interest at LIBOR (5.066 % at December 31,
1998) plus .3%.
In March 1999, the Capital Member agreed to personally guarantee an
additional $10 million of borrowings from an institutional lender (Additional
Guarantee). The Additional Guarantee will expire, upon the earlier of the
closing of the proposed IPO, as long as the net proceeds from the offering
exceed $30 million or January 1, 2000. Although the Company has not arranged
additional financing with an institutional lender as of the date of this report,
the Capital Member has the ability to make this guarantee.
On December 24, 1997, the Company amended its existing revolving credit
agreement to allow for borrowing up to $20 million. Borrowings were secured by
certain collateral of a Capital Member and bore interest at LIBOR plus 0.5%. At
December 31, 1997, the Company had borrowings of $15 million outstanding under
this agreement. The Company refinanced these borrowings in 1998 with the above
described Financing Agreement.
(7) CONVERTIBLE DEBENTURES
In December 1997, the Company also entered into two unsecured convertible
debenture agreements (the Debenture Agreements) with a Senior Member (Nortel
Networks) for $2.5 million and $5 million, Debenture One and Debenture Two,
respectively. In 1998, the Company received proceeds of $7.5 million under these
Debenture Agreements. The Debenture Agreements both bear interest at the six
month LIBOR rate (5.066 % at December 31, 1998) plus 0.8%. The Debenture
Agreements are payable in 60 equal monthly installments of principal of
$125,000, commencing on September 15, 1999.
Both Debenture Agreements contain automatic and voluntary conversion rights.
Debenture One and Debenture Two each convert into a number of units, as defined
in the Debenture Agreements. The Debenture Agreements cannot be converted prior
to June 30, 1999 unless certain events occur causing an automatic conversion, as
defined in the Debenture Agreements, including but not limited to an IPO. The
Senior Member and the Company each have voluntary conversion rights after June
30, 1999 into units at the defined conversion prices. In the event the Company
voluntarily elects to convert Debenture Two into units of the Company, the
Company must cause a Capital Member to repay a certain amount of the Company's
borrowings and convert that amount into additional units of the Company. The
amount which must be repaid and converted into units of the Company is equal to
the lesser of (i) $7.5 million or (ii) 150% of the outstanding principal balance
of Debenture Two. The indebtedness under both Debenture Agreements is
subordinate to the Financing Agreement.
F-10
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
The future principal payments in accordance with the Debenture Agreements
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1999............................................................................ $ 500,000
2000............................................................................ 1,500,000
2001............................................................................ 1,500,000
2002............................................................................ 1,500,000
2003............................................................................ 1,500,000
Thereafter...................................................................... 1,000,000
------------
$ 7,500,000
------------
------------
</TABLE>
(8) MEMBERS' EQUITY
At December 31, 1998, the Company's membership was comprised of the three
Capital Members-- 85.4% (all Zachs family members and/or partnerships), one
Senior Member--10% (Nortel Networks) and one Service Member--4.6% (the Company's
president).
The Capital Members contributed an aggregate of $9,500 for their initial
interests, Nortel Networks contributed $2.5 million for its interest and the
Service Members received their interests for no consideration. The estimated
fair market value of the Service Members' interests was not material at the date
of grant.
Income of the Company shall be allocated first, to members with senior units
based on their percentage interest; second to Capital Members until the
cumulative amount of income equals the Cumulative Preferred Distributions made
to the Capital Members; third, until the cumulative amount of income allocated
equals the cumulative amount of loss previously allocated to the Members in the
same proportions in which such losses were allocated; and fourth, the balance,
if any, to all Members in proportion to their percentage interests.
Losses of the Company shall be allocated first, to members with senior units
based on their percentage interest, second, until the cumulative amount of
losses equals the cumulative amount of income previously allocated to the
Members in the same proportions in which such income was allocated and the
balance, if any, to all Capital Members in proportion to their percentage
interests. No allocation shall be made to the Service Member.
On January 1, 1998, the Company effected a ten-for-one unit split. The
accompanying financial statements have been retroactively restated to reflect
this unit split.
In December 1997, the Company entered into a securities purchase agreement
(the Securities Agreement) with Nortel Networks for the purchase of a 10%
interest in the Company for an aggregate investment of $2.5 million. In
connection with the Securities Agreement, the Company also entered into two
unsecured convertible debentures (see Note 7).
(9) UNIT OPTION PLAN
In September, 1996, the Company adopted the Ziplink, LLC Unit Option Plan
(the Unit Plan). Pursuant to the Unit Plan, unit options may be granted to
certain employees of the Company at no less than fair market value on the date
of grant. Options granted under the Unit Plan expire 10 years subsequent to the
date of grant. In addition, option vesting is determined by the Company, however
F-11
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
options generally vest over a five year period, except that 50% of the unvested
portion of any option outstanding prior to the completion of an initial public
offering shall become vested upon completion of such offering.
Unit option activity from the Unit Plan's inception is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------- ---------------
<S> <C> <C>
Outstanding at December 31, 1995................................... -- --
Granted.......................................................... 55,044 .22
---------- -----
Outstanding at December 31, 1996................................... 55,044 .22
Granted.......................................................... 82,566 1.46
Cancelled........................................................ (128,440) .93
---------- -----
Outstanding at December 31, 1997................................... 9,170 1.46
Granted.......................................................... 452,369 2.18
Cancelled........................................................ (10,675) 1.61
---------- -----
Outstanding at December 31, 1998................................... 450,864 $ 2.20
---------- -----
---------- -----
</TABLE>
There were no options exercisable at December 31, 1996, 1997 and 1998. The
weighted average grant date value of options granted during 1996, 1997 and 1998
are $0.16, $1.08, and $1.72, respectively. As of December 31, 1998 the weighted
average remaining contractual life of options outstanding under the Unit Plan is
9.8 years.
In 1998, the Company granted 24,500 unit options to non-employees. The
Company has valued these options at $43,945 using the Black-Scholes method as
prescribed in SFAS No. 123. The Company is amortizing the expense associated
with these options over the vesting period of the options. During 1998, the
Company recognized $8,789 of compensation expense associated with these options.
In 1999, the Company granted 137,500 options to employees at prices ranging
from $9.60 per unit to $14 per unit.
The Company has computed the pro forma disclosures required under SFAS 123
for options granted using the Black-Scholes pricing model prescribed by SFAS
123. The weighted average assumptions used are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Risk free interest rate........................................ 5.94% 5.71% 4.62%
Expected dividend yield........................................ -- -- --
Expected lives................................................. 5 years 5 years 5 years
Expected volatility............................................ 65% 65% 65%
</TABLE>
F-12
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
Had compensation cost for the Company's unit option plan been determined
based on the fair value at the grant dates of awards under the plan consistent
with the method of SFAS 123, net loss would have been as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net loss--as reported............................ $ (8,802,125) $ (6,709,425) $ (8,445,857)
Net loss--pro forma.............................. (8,803,910) (6,711,403) (8,473,744)
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions included expected stock price volatility. Because the
Company's employee unit options have characteristics significantly different
from those of traded options, and because changes in the subjective imputed
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its unit options.
(10) BENEFIT PLAN
Substantially all full-time employees of the Company who have met certain
age and service requirements, are eligible to participate in a 401(k) savings
plan sponsored by the Company. The Company is required to make a matching
contribution equal to 25% of the amount that the participant has elected to
contribute. The Company match is limited to employee contributions up to 5% of
the employee's annual compensation. The Company's expense for matching
contributions was approximately $16,000, $8,000 and $17,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
(11) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Accrued payroll and related......................................... $ 608,512 $ 407,994
Accrued installation costs.......................................... -- 566,000
Accrued professional fees........................................... 177,210 228,546
Accrued other....................................................... 185,329 679,884
---------- ------------
$ 971,051 $ 1,882,424
---------- ------------
---------- ------------
</TABLE>
(12) RELATED PARTY TRANSACTIONS
In December 1997, the Company entered into a purchase and license agreement
with Nortel. Pursuant to this agreement, the Company purchased certain network
equipment from Nortel for approximately $6.1 million in 1997 (of which $2
million was paid during December 1997 and $4.1 million is included in accounts
payable in the accompanying balance sheet at December 31, 1997 which was
subsequently paid in 1998). In 1998, the Company purchased approximately $1
million of equipment and services from Nortel Networks. In addition, Nortel has
agreed to provide certain services to the Company, as defined (see Note 14).
The Company rents office space from a related party. Rent expense related to
this office space was approximately $64,000, $45,000 and $39,000 for the years
ended December 31, 1996, 1997 and 1998,
F-13
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
respectively. In January 1999, the Company entered into a two year lease with
the related party with annual payments of $39,000.
The Company was engaged in the resale of long distance telephone services
pursuant to the terms of a Reseller Agreement dated February 15, 1996 with
ZipCall Long Distance, Inc., a company controlled by two of the Capital Members
of the Company. The Company paid ZipCall Long Distance its long distance carrier
cost plus 5%. The accompanying statements of operations reflects $88,000,
$233,000 and $83,000 of expense paid to Zip Call Long Distance for the years
ended December 31, 1996, 1997 and 1998, respectively. During October 1997, the
Company sold its long distance telephone services to a third party.
At December 31, 1997 and 1998, the Company had $230,000 and $255,000 of
accrued compensation payable to the Capital and Service Members which is
included in the accompanying balance sheet. In addition, there is $280,000,
$192,000 and $25,000 of compensation expense which is included in the statement
of operations for the years ended December 31, 1996, 1997 and 1998,
respectively. In March 1999, the Capital member agreed to forgive $180,000 of
the accrued compensation.
(13) ACQUISITION
In June 1996, the Company acquired certain property and equipment from
iGuide, Inc. (iGuide) for approximately $2.7 million. The Company also assumed
certain contracts related to the operation of the equipment from iGuide. The
purchase price was allocated to property and equipment based on the estimated
fair value of the assets acquired. No allocation was made to the contracts as
they were deemed to have only a nominal value.
(14) COMMITMENTS AND CONTINGENCIES
(A) OPERATING LEASES
The Company has various leasing arrangements for real estate and
equipment. In most cases, the Company expects that in the normal course of
business, leases will be renewed or replaced by other leases. In addition,
the Company subleases office space to a third party. As of December 31,
1998, future minimum lease payments required under operating leases that
have initial or remaining noncancellable lease terms in excess of one year,
net of any subleases, are as follows:
<TABLE>
<S> <C>
1999............................................................ $ 121,000
2000............................................................ 359,000
2001............................................................ 323,000
2002............................................................ 323,000
2003............................................................ 323,000
Thereafter...................................................... 2,684,000
---------
Total....................................................... $4,133,000
---------
---------
</TABLE>
Net rental expense relating to these operating leases was approximately
$325,000, $425,000 and $198,000 for the years ending December 31, 1996, 1997
and 1998, respectively.
(B) CAPITAL LEASES
In June 1997, the Company entered into a capital lease for network
equipment. The lease is payable in an initial installment of $233,491, made
in June 1997 and 36 monthly installments of
F-14
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
$44,052, including interest at 10.78%, commencing in September 1997. The
outstanding capital lease obligation as of December 31, 1998 is $803,111.
Repayments required under this capital lease agreement are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 528,624
2000.............................................................................. 352,416
----------
881,040
Less--Amount representing interest................................................ (77,929)
----------
Present value of future minimum payments.......................................... 803,111
Less--Current portion............................................................. 464,531
----------
$ 338,580
----------
----------
</TABLE>
(C) PURCHASE AND LICENSE AGREEMENT
Pursuant to the Company's purchase and license agreement with Nortel,
Nortel is committed to provide and the Company may purchase certain services
for annual fees aggregating $666,000. The fees are payable at various times
during 1998 and 1999 depending on the respective service. During 1998, the
Company purchased approximately $566,000 of services pursuant to this
arrangement. Upon the installation of certain equipment, as defined, the
Company will be required to enter into hardware and software maintenance
agreement with Nortel for $423,000 per annum.
(D) EMPLOYMENT AGREEMENTS
The Company has an employment agreement with an employee, which provides
for an aggregate base salary of approximately $150,000 per annum through
2001.
(15) ADVISORY AGREEMENT
In May 1997, as amended in June 1998, the Company entered into an agreement
with a financial advisor (the Advisor) for the purpose of obtaining further
sources of equity related financing. Under the terms of the agreement the
Advisor obtained a cash fee in connection with the Nortel transaction and is
entitled to 1% of the gross proceeds received by the Company from the future
conversion of the Nortel debentures. However, the aggregate amount of the
additional payment shall not exceed $25,000. In addition, on December 22, 1997,
for further consideration of advisory services performed on behalf of the
Company, the Company issued a warrant in 1998 to the Advisor to purchase up to
.7142% of the Company's units, or part there of, for an exercise price of
$100,000. The Company valued this warrant using the Black-Scholes model and has
recorded an expense of approximately $97,000. This warrant terminates on
September 2, 2002.
(16) REORGANIZATION
The Company has formed a wholly owned subsidiary, ZipLink, Inc., a Delaware
corporation. In March 1999, ZipLink, Inc. plans to file for an IPO of its common
stock. Prior to the closing of such IPO, the Company will be merged into the
Delaware corporation and the members' equity will be converted to capital stock
of ZipLink, Inc. (the Reorganization).
F-15
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
The Delaware corporation has authorized capital stock consisting of
50,000,000 shares of common stock, par value $.001 per share and 1,000,000
shares of undesignated preferred stock, par value $.001 per share.
Prior to the completion of the Reorganization, the Company will adopt the
1999 Stock Option Plan (the 1999 Plan) which provides for the granting of common
stock options to officers, employees, consultants and directors of the Company.
The 1999 Plan will be administered by the Company's board of directors. The
total number of shares of common stock reserved for the 1999 Plan is 1,500,000.
Options granted under the 1999 Plan will generally vest in equal installments
over a five-year period and are subject to acceleration in certain events, as
defined. The options will expire 10 years from the date of grant, and the plan
terminates ten years from the date of adoption. The options issued under the
Company's Unit Plan will be converted to the 1999 Plan upon the completion of
the Reorganization. In addition, upon the completion of the Reorganization, the
convertible debentures will be converted to common stock.
F-16
<PAGE>
GLOSSARY OF TERMS
56 KBPS: Equivalent to a single high-speed telephone service line; capable
of transmitting one voice call or 56 Kbps of data.
ATM: Asynchronous Transfer Mode. An information transfer standard for
routing traffic based on an address contained within the first five bytes of a
fifty-three byte-long, fixed length packet. The ATM format can be used by many
different information systems, including LANs, to deliver traffic at varying
rates, permitting a mix of data, voice and video.
BACKBONE: A centralized high-speed network that interconnects smaller,
independent networks.
BANDWIDTH: The number of bits of information which can move through a
communications medium in a given amount of time.
CAP: Competitive Access Provider. An alternative competitive local exchange
carrier.
CLEC: Competitive Local Exchange Carrier. A category of telecommunications
service provider that offers services similar to LECs. A CLEC may also provide
other types of services such as long distance, Internet access and
entertainment.
DSL: Digital subscriber line, a high-speed data delivery technology that
uses standard copper phone wires. DSL is the main broadband alternative to cable
modems.
DEDICATED LINES: Telecommunications lines dedicated to particular customers
along predetermined routes.
DS-3: Digital Service 3. A data communications circuit capable of
transmitting data at 45 Mbps (sometimes called T-3).
FDDI: Fiber Distribution Data Interface. A standard for transmitting data
on fiber-optic cables at a rate of 100 Mbps.
FRAME-RELAY: A variable delay information standard for relaying traffic.
Frame relay can be an economical means to backhaul traffic to an ATM Network.
HSSI: High Speed Serial Interface. A synchronous transmission medium
capable of speeds of up to 45 Mbps using T-3/DS-3 circuits.
INTERNET: A global collection of interconnected computer networks which use
TCP/IP, a common communications protocol.
IP: Internet Protocol. A standard for software that keeps track of the
inter-network addresses for different nodes, routes outgoing message and
recognizes incoming messages.
ISDN: Integrated Services Digital Network. An information transfer standard
for transmitting digital voice and data over telephone lines at speeds up to 128
Kbps.
KBPS: Kilobits per second. A transmission rate. One kilobit equals 1,024
bits of information. Normally, 10 bits are used for each alphanumeric character.
LAN: Local Area Network. A data communications network designed to
interconnect personal computers, workstations, minicomputers, file servers and
other communications and computing devices within a localized environment.
LATENCY: The time that elapses between the moment when a command is sent to
the time that a response is received. On a network, latency is due to delays in
routers or switches, congestion delays on a crowded backbone, and the time
required for electrons to travel a great distance between nodes on a network.
G-1
<PAGE>
LATA: Local Access and Transport Area. A geographic area inside of which a
local telephone company can offer switched telecommunications services,
including long distance (known as toll). There are 196 LATAs in the United
States.
LEC: Local Exchange Carrier. A telecommunications company that provides
telecommunications services in a geographic area in which calls are generally
transmitted without toll charges.
MAE-EAST: A major peering point (exchange point for traffic) among ISPs,
located in Falls Church, Virginia.
MBPS: Megabits per second. A transmission rate. One megabit equals 1,024
kilobits.
MODEM: A device for transmitting digital information over an analog
telephone line or a coaxial cable.
NAP: Network Access Point. A location at which ISPs peer, or exchange each
other's traffic.
PEERING: The commercial practice under which nationwide ISPs exchange each
other's traffic without the payment of settlement charges.
POPS: Points-of-Presence. Geographic areas within which a communications
network allows access.
RBOC: Regional bell operating companies such as Bell Atlantic.
REMOTE ACCESS SERVER: A device that terminates a number of dial-in DS-1 or
PRI circuits, provides modem tone and aggregates the customer data into a single
stream.
SERVER: Software that allows a computer to offer a service to another
computer. Other computers contact the server program by means of matching
software.
SONET: Synchronous Optical Network. A technology that uses fiber optic
networks to provide multiple fault-tolerant telecommunication pathways for high
speed data.
SUPERPOP: A SuperPOP is a ZipLink POP that is directly connected to the
ZipLink ATM backbone. SuperPOPs typically support dial access from the region
surrounding the SuperPOP (typically within 200 miles) of the SuperPOP) using the
services of a CLEC. SuperPOPs also support dedicated access connections to
customer locations using LEC and/or CAP facilities to connect the customer to
the ZipLink SuperPOP.
TCP/IP: Transmission Control Protocol/Internet Protocol. A suite of network
protocols that allow computers with different architectures and operating system
software to communicate with other computers on the Internet.
T-1: A data communications circuit capable of transmitting data at 1.5 Mbps
(sometimes called DS-1).
T-3: A data communications circuit capable of transmitting data at 45 Mbps
(sometimes called DS-3).
TRANSIT: A transit provider (such as UUNet or SAVVIS) carries ISP traffic
directly into the Internet over low latency, high speed links.
WAN: Wide Area Network. A data communications network designed to
interconnect personal computers, workstations, minicomputers, file servers and
other communications and computing devices across multiple locations within an
enterprise.
VPN: Virtual Private Network. A network capable of providing the tailored
services of a private network (i.e., low latency, high throughput, security and
customization) while maintaining the benefits of a public network (i.e.,
ubiquity and economies of scale).
WORLD WIDE WEB OR WEB: A collection of computer systems supporting a
communications protocol that permits multimedia presentation of information over
the Internet.
XDSL: Digital Subscriber Line. A data communications circuit capable of
supporting speeds from 144 Kbps to multi megabits per second over the copper
wires into the residence or business. There are many variants such as Asymetric
DSL (ADSL) and High bit rate DSL (HDSL).
G-2
<PAGE>
ZIPLINK WHOLESALE INTERNET ACCESS SERVICES
INTERNET ACCESS SOLUTIONS FOR WEB APPLIANCES
[ILLUSTRATION OF ZIPLINK NETWORK APPLIANCES]
ZIPDIAL
[ILLUSTRATION OF ZIPDIAL NETWORK FOR ISPS]
ZIPLINK WHOLESALE DSL SERVICE
[ILLUSTRATION OF ZIPLINK NETWORK FOR DSL SERVICE]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES
AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 26
Dividend Policy................................. 26
Capitalization.................................. 27
Dilution........................................ 28
Selected Financial Data......................... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 32
Business........................................ 37
Management...................................... 49
Certain Transactions............................ 56
Principal Stockholders.......................... 59
Description of Capital Stock.................... 60
Shares Eligible for Future Sale................. 63
Underwriting.................................... 65
Legal Matters................................... 66
Experts......................................... 66
Where You Can Find Additional Information....... 67
Index to Financial Statements................... F-1
Glossary of Terms............................... G-1
</TABLE>
------------------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT EFFECT
TRANSACTIONS IN SHARES OF COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO A
DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND
WITH RESPECT TO AN UNSOLD ALLOTMENT OR SUBSCRIPTION.
SHARES
[LOGO OF ZIPLINK, INC.]
ZIPLINK, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
Jef
feries & Company, Inc.
FAC/EQUITIES
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discount. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC registration fee.................................................... $13,427.40
NASD filing fee......................................................... 4,985.00
Nasdaq National Market listing fee...................................... *
Accounting fees and expenses............................................ *
Legal fees and expenses................................................. *
Printing and mailing expenses........................................... *
Blue Sky fees and expenses.............................................. *
Transfer Agent and Registrar fees....................................... *
Miscellaneous........................................................... *
---------
Total............................................................... $
---------
---------
</TABLE>
----------------------------
* To be completed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law (the "DGCL")
permits a corporation, in its certificate of incorporation, to limit or
eliminate, subject to certain statutory limitations, the liability of directors
to the corporation or its stockholders for monetary damages for breaches of
fiduciary duty, except for liability (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the DGCL, or (d) for any transaction from which
the director derived an improper personal benefit. Article VII B of the
Registrant's Certificate of Incorporation provides that the personal liability
of directors of the Registrant is eliminated to the fullest extent permitted by
Section 102(b)(7) of the DGCL.
Under Section 145 of the DGCL, a corporation has the power to indemnify
directors and officers under certain prescribed circumstances, and subject to
certain limitations, against certain costs and expenses, including attorneys'
fees actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of being a director or officer of the
corporation if it is determined that the director or officer acted in accordance
with the applicable standard of conduct set forth in such statutory provision.
Article VII A of the Registrant's Certificate of Incorporation provides that the
Registrant will indemnify any director and any officer, employee or agent of the
Registrant selected by its Board of Directors for indemnification, such
selection to be evidenced by an indemnification agreement, who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding by reason of the fact that he is or was a director,
officer, employee or agent of the Registrant, or is or was serving at the
request of the Registrant as a director, officer, employee or agent of another
entity, against certain liabilities, costs and expenses. Article VII A further
permits the Registrant to maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Registrant, or is or was
serving at the request of the Registrant as a director, officer, employee or
agent of another entity, against any liability asserted against such person and
incurred by such person in any such capacity or arising out of his status as
such,
II-1
<PAGE>
whether or not the Registrant would have the power to indemnify such person
against such liability under the DGCL. The Registrant intends to enter into
indemnification agreements with its officers and directors and to obtain
directors' and officers' liability insurance.
Under Section 6(b) of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933. Reference is made to the form of Underwriting Agreement
filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since March, 1996, the Registrant, or its predecessors, ZipLink, LLC, a
Connecticut limited liability company (the "Connecticut LLC") and ZipLink, LLC,
a Delaware limited liability company (the "Delaware LLC"), issued and sold
unregistered securities as follows:
On December 23, 1997, the Connecticut LLC issued to Bay Networks, Inc., an
indirect wholly owned subsidiary of Northern Telecom Limited ("Nortel"), (i) a
10% membership interest in the Connecticut LLC for $2.5 million in cash, and
(ii) a $2.5 million convertible debenture and a $5.0 million convertible
debenture, both convertible into membership units of the Connecticut LLC at
defined conversion prices, in consideration for $7.5 million in cash.
From prior to March, 1996 through March, 1999, the Connecticut LLC granted
options to purchase, an aggregate of membership interests in the
Connecticut LLC to certain employees and consultants.
On January 1, 1998, the Connecticut LLC effected a 10 for 1 unit split on
its outstanding membership interest, options and warrants.
On December 22, 1997, the Connecticut LLC issued warrants to purchase up to
.7142% of the membership interests in the Connecticut LLC, for $100,000, to an
investment banker, Jonathan Greenwald, in consideration of investment banking
services performed.
On March 9, 1999, the Connecticut LLC merged with and into the Delaware LLC.
In connection with the merger, all outstanding membership interests in, and
convertible debt of, the Connecticut LLC were converted into economically
equivalent membership interests in, and convertible debt of, the Delaware LLC.
In connection with the merger, all outstanding options and warrants to purchase
membership interests in the Connecticut LLC were converted into a like number of
options and warrants to acquire membership interests in the Delaware LLC.
Prior to the closing of this offering, the Delaware LLC will merge with
ZipLink, Inc., a Delaware corporation, and all membership interests in and
convertible debt of the Delaware LLC will be converted into common stock of
ZipLink, Inc. and convertible debt of ZipLink, Inc. In connection with this
merger, all outstanding options and warrants to purchase membership interests in
the Delaware LLC will be converted into options and warrants to acquire common
stock in ZipLink, Inc.
Concurrently with the closing of this offering, the convertible debentures
held by Nortel will be converted into shares of common stock of ZipLink at
defined conversion prices.
No underwriters were engaged in connection with the foregoing sales of
securities. The sales of membership interests and warrants described above were
made in reliance upon the exemption from registration set forth in Section 4(2)
of the Securities Act of 1933 (the "Act") for transactions not involving a
public offering. Issuances of options to employees and consultants of the
Connecticut LLC were made pursuant to Rule 701 promulgated under the Act. The
issuances of membership interests, convertible debentures, options and warrants
of the Delaware LLC pursuant to the merger with the Connecticut LLC described
above were exempt from the registration requirements of the Act pursuant to
Section 3(a)(9) thereof because a security was exchanged by the issuer thereof
with existing security holders exclusively
II-2
<PAGE>
and no commission or other renumeration was paid or given directly or indirectly
for soliciting such exchange.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Plan of Merger between ZipLink, LLC, a Connecticut limited liability company, and ZipLink, LLC, a
Delaware limited liability company
2.2* Form of Agreement and Plan of Merger between the Registrant and ZipLink, LLC, a Delaware limited
liability company, to be filed and become effective prior to the effective date of the offering
3.1 Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1* Form of Specimen Stock Certificate for the Registrant's Common Stock
4.2 Registration Rights Agreement dated as of December 23, 1997 between ZipLink, LLC and Henry M. Zachs,
Eric M. Zachs, Zachs Family Limited Partnership Number One and Christopher Jenkins
5.1* Opinion of Brenner, Saltzman & Wallman, LLP regarding legality of the securities being registered
10.1 Securities Purchase Agreement made as of December 23, 1997 between ZipLink, LLC and Bay Networks, Inc.
10.2 Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks, Inc. in the
amount of $5,000,000
10.3 Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks, Inc. in the
amount of $2,500,000
10.4* Agreement for Purchase and License of Bay Networks Products and Services effective as of December 10,
1997 between ZipLink, LLC and Bay Networks, USA, Inc.
10.5* Form of Indemnification Agreement between the Registrant and its Directors and Officers
10.6* "ZipLink-WebTV" Network Services Agreement made and entered into on October 23, 1996 between ZipLink,
LLC and WebTV Networks, Inc. as amended by Amendment No. 1 thereto effective as of May 13, 1997,
Amendment No. 2 thereto effective as of February 1, 1998 and Amendment No. 3 thereto effective as of
March 9, 1999.
10.7* WorldCom Data Services (Revenue Plan) Agreement dated January 1, 1997 between ZipLink, LLC and WorldCom,
Inc., as amended by an Amendment thereto dated March 6, 1997.
10.8 Lease dated as of January 1, 1999 between ZipLink, LLC and Henry M. Zachs
10.9 Agreement of Sublease and License Agreement made and entered into as of July 1, 1996 between ZipLink,
LLC and iGUIDE, Inc.
10.10* ZipLink, Inc. 1999 Stock Option Plan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.11* Revolving Loan Agreement dated March 31, 1998 between the Registrant and Fleet National Bank as amended
by a modification agreement dated October 15, 1998
10.12 Employment Agreement dated as of March 4, 1999 between the Registrant and Christopher Jenkins
23.1* Consent of Brenner, Saltzman & Wallman, LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included in signature page to the Registration Statement)
27.1 Financial Data Schedule
99.1 Consent of Jai P. Bhagat to use his name as a director nominee
99.2 Consent of Alan M. Mendelson to use his name as a director nominee
99.3 Consent of Wayne A. Martino to use his name as a director nominee
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II: Valuation and qualifying accounts.
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements and notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provision or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Long Boat
Key, State of Florida on the 11th day of March, 1999.
ZIPLINK, INC.
By: /s/ HENRY ZACHS
-----------------------------------------
Henry Zachs
CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of Henry M. Zachs and Christopher W.
Jenkins, each acting alone, as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Registration Statement (including post-effective amendments), and any and
all Registration Statements filed pursuant to Rule 462 under the Securities Act
of 1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that any said
attorney-in-fact and agent, each acting alone, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer and
/s/ HENRY ZACHS Co-Chairman of the Board
- ------------------------------ (Principal Executive March 11, 1999
Henry M. Zachs Officer)
/s/ ERIC ZACHS Co-Chairman of the Board
- ------------------------------ March 11, 1999
Eric M. Zachs
President, Chief Financial
/s/ CHRISTOPHER JENKINS Officer and Director
- ------------------------------ (Principal Financial and March 11, 1999
Christopher W. Jenkins Accounting Officer)
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZipLink, LLC:
We have audited, in accordance with generally accepted auditing standards,
the financial statements included in this registration statement and have issued
our report thereon dated March 8, 1999. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14(a)(2) 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 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.
Boston, Massachusetts
March 8, 1999
S-1
<PAGE>
ZIPLINK, LLC
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF PERIOD ADDITIONS DEDUCTIONS PERIOD
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1997........................................................... $ 20,000 $ 133,390 $ -- $ 153,390
1998........................................................... $ 153,390 $ 66,320 $ 151,973 $ 67,737
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
2.1 Plan of Merger between ZipLink, LLC, a Connecticut limited liability company and ZipLink, LLC, a
Delaware limited liability company
2.2* Form of Agreement and Plan of Merger between the Registrant and ZipLink, LLC, a Delaware limited
liability company to be filed and become effective prior to the effective date of the offering
3.1 Certificate of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1* Form of Specimen Stock Certificate for the Registrant's Common Stock
4.2 Registration Rights Agreement dated as of December 23, 1997 between ZipLink, LLC and Henry M. Zachs,
Eric M. Zachs, Zachs Family Limited Partnership Number One and Christopher Jenkins
5.1* Opinion of Brenner, Saltzman & Wallman, LLP regarding legality of the securities being registered
10.1 Securities Purchase Agreement made as of December 23, 1997 between ZipLink, LLC and Bay Networks Inc.
10.2 Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks Inc. in the
amount of $5,000,000
10.3 Convertible Debenture dated December 23, 1997 made by ZipLink, LLC in favor of Bay Networks Inc. in the
amount of $2,500,000
10.4* Agreement for Purchase and License of Bay Networks Products and Services effective as of December 10,
1997 between ZipLink, LLC and Bay Networks, USA, Inc.
10.5* Form of Indemnification Agreement between Registrant and its Directors and Officers
10.6* "ZipLink-WebTV" Network Services Agreement made and entered into on October 23, 1996 between ZipLink,
LLC and WebTV Networks, Inc. as amended by Amendment No. 1 thereto effective as of May 13, 1997 and
Amendment No. 2 thereto effective as of February 1, 1998 and Amendment No. 3 thereto effective March 9,
1999.
10.7* WorldCom Data Services (Revenue Plan) Agreement dated January 1, 1997 between ZipLink, LLC and WorldCom,
Inc., as amended by an Amendment thereto dated March 6, 1997.
10.8 Lease dated as of January 1, 1999 between ZipLink, LLC and Henry M. Zachs
10.9 Agreement of Sublease and License Agreement made and entered into as of July 1, 1996 between ZipLink,
LLC and iGUIDE, Inc.
10.10* ZipLink, Inc. 1999 Stock Option Plan
10.11* Revolving Loan Agreement dated March 31, 1998 between the Registrant and Fleet National Bank as amended
by a modification agreement dated October 15, 1998
10.12 Employment Agreement dated as of March 4, 1999 between the Registrant and Christopher Jenkins
23.1* Consent of Brenner, Saltzman & Wallman, LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney (included as signature page to the Registration Statement)
27.1 Financial Data Schedule
99.1 Consent of Jai P. Bhagat to use his name as a director nominee
99.2 Consent of Alan M. Mendelson to use his name as a director nominee
99.3 Consent of Wayne A. Martino to use his name as a director nominee
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
OF
ZIPLINK, LLC
(a Delaware limited liability company)
AND
ZIPLINK, LLC
(a Connecticut limited liability company)
AGREEMENT AND PLAN OF MERGER (the "Agreement") approved on March 9,
1999 pursuant to Section18-209 of the Delaware Limited Liability Company Act by
ZipLink, LLC, a limited liability company of the State of Delaware, and in
accordance with its Operating Agreement on said date, and approved on March 9,
1999 pursuant to Section 34-194 of the Connecticut Limited Liability Company Act
by ZipLink, LLC, a limited liability company of the State of Connecticut, and in
accordance with its Operating Agreement on said date.
WHEREAS, ZipLink, LLC, a Delaware limited liability company and
ZipLink, LLC, a Connecticut limited liability company and their appropriate
managers declare it advisable and to the advantage, welfare and best interests
of said limited liability companies and their respective members to merge
ZipLink, LLC, a Connecticut limited liability company with and into ZipLink,
LLC, a Delaware limited liability company pursuant to the provisions of the
Delaware Limited Liability Company Act and the provisions of the Connecticut
Limited Liability Company Act upon the terms and conditions hereinafter set
forth:
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly approved by the
appropriate managers of ZipLink, LLC, a Delaware limited liability company and
ZipLink, LLC, a Connecticut limited liability company, the Agreement and the
terms and conditions thereof and the mode of carrying the same into effect,
together with any provisions required or permitted to be set forth herein, are
hereby determined and agreed upon as hereinafter in the Agreement set forth.
1. ZipLink, LLC, a Delaware limited liability company, and ZipLink,
LLC, a Connecticut limited liability company, shall, pursuant to the provisions
of the Connecticut Limited Liability Company Act and the provisions of the
Delaware Limited Liability Company Act, be merged with and into a single limited
liability company, to wit, ZipLink, LLC, a Delaware limited liability company,
which shall be the surviving company from and after the effective time of the
merger, and which is sometimes hereinafter referred to as the "Surviving
Company", and which shall continue to exist under its present name pursuant to
the provisions of the Delaware Limited Liability Company Act.
<PAGE>
EXHIBIT 2.1
The separate existence of ZipLink, LLC, a Connecticut limited liability company,
which is hereinafter sometimes referred to as the `Terminating Company", shall
cease at the said effective time in accordance with the provisions of the
Connecticut Limited Liability Company Act.
2. The Operating Agreement of Terminating Company, as now in force and
effect, shall become the Operating Agreement of Surviving Company in all
respects, except that the Delaware Limited Liability Company Act shall be
substituted wherever reference is made to the Connecticut Limited Liability
Company Act and any and all references to the State of Connecticut shall be
deemed to refer to the State of Delaware (except any of same which are intended
to indicate addresses). Said Operating Agreement as herein amended and changed
shall continue in full force and effect until further amended and changed in the
manner prescribed by the provisions of the Delaware Limited Liability Company
Act.
3. The ZipLink, LLC Unit Option Plan ("Option Plan") of Terminating
Company, as now in force and effect, shall become the Option Plan of Surviving
Company in all respects. All membership interests, and options and warrants to
acquire membership interests, including, without limitation, any options and/or
warrants issued pursuant to the Option Plan of Terminating Company shall, from
and after the effective time of the merger, be converted into equivalent
membership interests and options and warrants to acquire membership interests in
Surviving Company.
4. Surviving Company agrees (i) that it may be served with process in
the State of Connecticut in any proceeding for enforcement of any obligation of
Terminating Company, as well as for enforcement of any obligation of Surviving
Company arising from the Merger and (ii) to irrevocably appoint the Secretary of
State of the State of Connecticut as its agent for service of process in any
such proceeding. A copy of the process shall be mailed by the Secretary of State
of the State of Connecticut to Surviving Company at the following address:
900 Chelmsford Street
Tower One, Fifth Floor
Lowell, Massachusetts 01851
5. In the event that the Agreement shall have been fully approved and
adopted upon behalf of Terminating Company in accordance with the provisions of
the Connecticut Limited Liability Company Act and upon Surviving Company in
accordance with the provisions of the Delaware Limited Liability Company Act,
the said limited liability companies agree that they will cause to be executed
and filed and recorded any document or documents prescribed by the laws of the
State of Delaware and the State of Connecticut, and that they will cause to be
performed all necessary acts within the State of Delaware and the State of
Connecticut and elsewhere to effectuate the merger herein provided for.
<PAGE>
EXHIBIT 2.1
6. The managers and members of Surviving Company and Terminating
Company are hereby authorized, empowered, and directed to do any and all acts
and things, and to make, execute, deliver, file, and record any and all
instruments, papers, and documents which shall be or become necessary, proper,
or convenient to carry out or put into effect any of the provisions of the
Agreement or of the merger herein provided for.
IN WITNESS WHEREOF, this Agreement is hereby signed upon behalf of each
of the parties thereto.
Dated:March 9, 1999 ZipLink, LLC
(a Delaware limited liability company)
By: /s/ Henry M. Zachs
-----------------------------------
Henry M. Zachs
Manager
Dated:March 9, 1999 ZipLink, LLC
(a Connecticut limited liability company)
By: /s/ Henry M. Zachs
-----------------------------------
Henry M. Zachs
Manager
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ZIPLINK, INC.
ARTICLE I
The name of the corporation is ZipLink, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, Delaware 19805. The name of its registered
agent at such address is Corporation Service Company.
ARTICLE III
The nature of the business to be conducted or promoted by the Corporation
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware (the
"DGCL").
ARTICLE IV
A. The Corporation shall have authority to issue the following classes of
stock, in the number of shares and at the par value as indicated opposite the
name of the class:
<TABLE>
<CAPTION>
NUMBER OF SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
- -------------------------------------- ---------------- ---------
<S> <C> <C>
Common Stock (the "Common Stock") 50,000,000 $.001
Preferred Stock (the "Preferred Stock") 1,000,000 $.001
</TABLE>
1
<PAGE>
A. The designations and the powers, preferences and relative,
participating, optional or other rights of the capital stock and the
qualifications, limitations or restrictions thereof are as follows:
1. COMMON STOCK.
a. VOTING RIGHTS: Except as otherwise required by law or
expressly provided herein, the holders of shares of Common Stock shall
be entitled to one vote per share on each matter submitted to a vote
of the stockholders of the Corporation.
b. DIVIDENDS: Subject to the rights of the holders, if any, of
Preferred Stock, the holders of Common Stock shall be entitled to
receive and share ratably in cash dividends as, when and if declared,
and at such times and in such amounts as may be determined, by the
Board of Directors of the Corporation.
c. LIQUIDATION RIGHTS: In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and
other liabilities of the Corporation and the preferential amounts to
which the holders of any outstanding shares of Preferred Stock shall
be entitled upon dissolution, liquidation or winding up, the assets of
the Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the shares of Common Stock.
2. PREFERRED STOCK. Preferred Stock may be issued from time to time
in one or more series. Subject to the other provisions of this Certificate
of Incorporation and any limitations prescribed by law, the Board of
Directors is authorized to provide for the issuance of and to issue shares
of the Preferred Stock in one or more series, and by filing a certificate
pursuant to the laws of the State of Delaware, to establish from time to
time the number of shares to be included in each such series, and to fix
the designation, powers, preferences and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the Common Stock,
without a vote of the holders of any Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to the
certificate or certificates establishing such series of Preferred Stock.
ARTICLE V
The business and affairs of the Corporation shall be managed by or under
the direction of a Board of Directors. The number of directors shall be
determined from time to time by resolution adopted by the affirmative vote of a
majority of the directors in office at the time of adoption of such resolution.
Initially, the number of directors shall be three.
2
<PAGE>
At each annual meeting of stockholders, directors will be elected by those
stockholders entitled to vote for directors to succeed those directors whose
terms are expiring. A director shall hold office until the annual meeting of
stockholders in the year in which his or her term expires and until his or her
successor shall be elected and shall qualify, subject, however, to such
director's prior death, resignation, retirement or removal from office. Except
as required by law or the provisions of this Certificate of Incorporation, all
vacancies on the Board of Directors and newly-created directorships shall be
filled by the Board of Directors. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation and any resolutions of the Board of
Directors applicable thereto. Notwithstanding anything to the contrary contained
in this Certificate of Incorporation, the affirmative vote of the holders of at
least 80% of the voting power of the shares entitled to vote generally in the
election of directors shall be required to amend, alter or repeal, or to adopt
any provision inconsistent with, this Article V.
ARTICLE VI
The Board of Directors of the Corporation may adopt a resolution proposing
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute.
ARTICLE VII
A. Indemnification of Officers, Directors, Employees and Agents: The
Corporation shall:
1. indemnify, to the fullest extent permitted by the DGCL, any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that such person is or
was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and, with
3
<PAGE>
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
such person reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful; and
2. indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee
or agent of the Corporation , or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or
suit if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged
to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper; and
3. to the extent that a present or former director or officer of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Article VII.A.1. and 2., or
in defense of any claim, issue or matter therein, indemnify such person
against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith; and
4. make any indemnification under Article VII.A.1. and 2. (unless
ordered by a court) only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Article VII.A.1. and 2. Such
determination shall be made, with respect to a person who is an officer or
director at the time of such determination, (1) by the Board of Directors
by a majority vote of the directors who are not parties to such action,
suit or proceeding, even if less than a quorum, or (2) by a committee of
such directors designated by a majority vote of such directors, even if
less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or
(4) by the stockholders of the Corporation; and
5. pay expenses (including attorneys' fees) incurred by a director or
officer in defending a civil or criminal action, suit or proceeding in
advance of the final disposition
4
<PAGE>
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified
by the Corporation as authorized in this Article VII; such expenses
(including attorneys' fees) incurred by former directors and officers or
other employees and agents to be so paid upon such terms and conditions, if
any, as the Corporation deems appropriate.
Notwithstanding anything to the contrary contained in this Article
VII.A, (i) the Corporation shall not be obligated to pay expenses incurred
by a director or officer with respect to any threatened, pending, or
completed claims, suits or actions, whether civil, criminal,
administrative, investigative or otherwise ("Proceedings"), initiated or
brought voluntarily by such director or officer and not by way of defense
(other than Proceedings brought to establish or enforce a right to
indemnification under the provisions of this Article VII, unless a court of
competent jurisdiction determines that each of the material assertions made
by such director or officer in such Proceedings were not made in good faith
or were frivolous) and (ii) the Corporation shall not be obligated to
indemnify such director or officer for any amount paid in settlement of a
Proceeding covered hereby without the prior written consent of the
Corporation to such settlement; and
6. not deem the indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Article VII as
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, or
vote of stockholders or disinterested directors, or otherwise, both as to
action in such person's official capacity and as to action in another
capacity while holding such office; and
7. have the right, authority and power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article VII; and
5
<PAGE>
8. deem the provisions of this Article VII to be a contract between
the Corporation and each director, or appropriately designated officer,
employee or agent who serves in such capacity at any time while this
Article VII is in effect, and any repeal or modification of this Article
VII shall not affect any rights or obligations then existing with respect
to any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought or threatened based in whole
or in part upon such state of facts. The provisions of this Article VII
shall not be deemed to be a contract between the Corporation and any
directors, officers, employees or agents of any other corporation (the
"Second Corporation") which shall merge into or consolidate with the
Corporation when the Corporation shall be the surviving or resulting
Corporation, and any such directors, officers, employees or agents of the
Second Corporation shall be indemnified to the extent required under the
DGCL only at the discretion of the Board of Directors of the Corporation;
and
9. continue the indemnification and advancement of expenses provided
by, or granted pursuant to, this Article VII, unless otherwise provided
when authorized or ratified, as to a person who has ceased to be a
director, officer, employee or agent of the Corporation, and the
indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VII shall inure to the benefit of the heirs,
executors and administrators of such a person.
B. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS: No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation existing at the time of such elimination or limitation, in addition
to the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended DGCL. Any repeal or modification of this
Article VII shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
ARTICLE VIII
A director of the Corporation shall not, in the absence of fraud, be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that such director, or any firm of which such
director is a
6
<PAGE>
member or any corporation of which such director is an officer, director or
stockholder, was interested in such transaction or contract if such transaction
or contract has been authorized, approved or ratified in a manner provided in
the DGCL for authorization, approval or ratification of transactions or
contracts between the Corporation and one or more of its directors or officers
or between the Corporation and any other corporation, partnership, association
or other organization in which one or more of its directors or officers are
directors or officers or have a financial interest.
ARTICLE IX
A. WRITTEN CONSENT. At any time after the closing of an initial public
offering of the Corporation's Common Stock, any action required or permitted to
be taken by the stockholders of the Corporation shall be effected only at a duly
called annual or special meeting of stockholders of the Corporation and shall
not be effected by consent in writing by the holders of outstanding stock
pursuant to Section 228 of the DGCL or any other provision of the DGCL.
B. SPECIAL MEETINGS. Special meetings of stockholders of the Corporation
may be called upon not less than ten (10) nor more than sixty (60) days' written
notice only by the Board of Directors pursuant to a resolution approved by a
majority of the Board of Directors.
C. AMENDMENT. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the shares entitled to vote generally in the election of directors shall
be required to amend, alter or repeal, or to adopt any provision inconsistent
with, this Article IX.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware as the By-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors of the Corporation
or in the By-laws of the Corporation. Election of directors need not be by
written ballot unless the By-laws of the Corporation so provide.
7
<PAGE>
ARTICLE XI
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of the DGCL or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under the provisions of
Section 279 of the DGCL, order a meeting of the creditors or class of creditors
and/or the stockholders or class of stock of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths (3/4) of the value of the creditors or class
of creditors and/or the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement or to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, said compromise or arrangement or said reorganization shall, if
sanctioned by the Court to which said application has been made, be binding on
all the creditors or class of creditors and/or on all the stockholders or class
of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE XII
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, alter amend or repeal
the By-laws of the Corporation. The By-laws of the Corporation may be altered,
amended, or repealed or new By-laws may be adopted, by the Board of Directors in
accordance with the preceding sentence or by the vote of the holders of at least
80% of the voting power of the shares of the Corporation entitled to vote
generally in the election of directors at an annual or special meeting of
stockholders, provided that if such alteration, amendment, repeal or adoption of
new By-laws is effected at a duly called special meeting, notice of such
alteration, amendment, repeal or adoption of new By-laws is contained in the
notice of such special meeting.
ARTICLE XIII
The Corporation is to have perpetual existence.
8
<PAGE>
ARTICLE XIV
The name and mailing address of the Incorporator is:
Name: Wayne A. Martino, Esq.
Address: Brenner, Saltzman & Wallman LLP
271 Whitney Avenue
New Haven, Connecticut 06511
IN WITNESS WHEREOF, the undersigned, being the Incorporator hereinbefore
named, hereby declares and certifies under penalties of perjury that the facts
herein stated are true, and accordingly has hereunder set his hand this 4th day
of March, 1999.
/s/ Wayne A. Martino
----------------------------------
WAYNE A. MARTINO, ESQ.
Incorporator
9
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
ZIPLINK, INC.
ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of ZipLink, Inc. (the
"Corporation") shall be in the City of Wilmington, State of Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. PLACE OF MEETING. All meetings of the stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated by the Board of Directors in its notice of
the meeting or in a duly executed waiver of notice thereof.
SECTION 2.2. TIME OF ANNUAL MEETING. Annual meetings of stockholders at
which stockholders shall elect directors as provided in the Corporation's
Certificate of Incorporation and Section 2.4 of Article II of these By-laws and
transact such other business as may properly be brought before the meeting in
accordance with Section 2.4 of Article II of these By-laws shall be held on such
business day within the 180-day period following the end of the Corporation's
fiscal year as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting.
SECTION 2.3. NOTICE OF ANNUAL MEETINGS. Except as otherwise required by
law, written notice of the annual meeting stating the place, date and hour of
the meeting shall be given to each stockholder entitled to vote at such meeting
not fewer than 10 nor more than 60 days before the date of the meeting.
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SECTION 2.4 PROPOSALS BY STOCKHOLDERS. Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be transacted by the stockholders may be made at an annual meeting
of stockholders (i) pursuant to the Corporation's notice with respect to such
meeting, (ii) by or at the direction of the Board of Directors of the
Corporation or (iii) by any stockholder of record of the Corporation who was a
stockholder of record at the time of the giving of the notice provided for in
the following paragraph, who is entitled to vote at the meeting and who has
complied with the notice procedures set forth in this Article II, Section 2.4.
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (iii) of the foregoing paragraph,
(a) the stockholder must have given timely notice thereof in writing to the
secretary of the Corporation at the principal executive offices of the
Corporation, (b) such business must be a proper matter for stockholder action
under the General Corporation Law of the State of Delaware, (c) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in this Article II, Section 2.4, such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder (the number of voting shares required to carry the proposal or elect
the nominees being the "Required Number"), and must, in either case, have
included in such materials the Solicitation Notice and (d) if no Solicitation
Notice relating thereto has been timely provided pursuant to this section, the
stockholder or beneficial owner proposing such business or nomination must not
have solicited proxies for a number of shares equal to or greater than the
Required Number. To be timely, a stockholder's notice shall be delivered to the
Secretary of the Corporation at the principal executive offices of the
Corporation not less than 45 nor more than 75 days prior to the first
anniversary (the "Anniversary") of the date on which the Corporation first
mailed its proxy materials for the preceding year's annual meeting of
stockholders; provided, however, that if the date of the annual meeting is
advanced more than 30 days prior to, or delayed by more than 30 days after, the
anniversary of the preceding year's annual meeting, or if it is the first annual
meeting of stockholders of the Corporation, notice by the stockholder to be
timely must be so delivered not later than the close of business on the later of
(i) the 90th day prior to such annual meeting or (ii) the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all information
relating to such person as would be required to be disclosed in solicitations of
proxies for the election of such nominees as directors pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and such person's written consent to serve as a director if elected, (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of such business, the reasons for conducting such business at
the meeting
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and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made, and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the Corporation that are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of a proposal, at
least the percentage of the Corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the Corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent being
a "Solicitation Notice").
Notwithstanding anything in the second sentence of the second paragraph of
this Section 2.4 to the contrary, in the event that the number of directors to
be elected to the Board of Directors is increased and there is no public
announcement naming all of the nominees for director or specifying the size of
the increased Board of Directors made by the Corporation at least 55 days prior
to the Anniversary, a stockholder's notice required by these By-laws shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not later than
the close of business on the 10th day following the day on which such public
announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in this
Section 2.4 shall be eligible to serve as directors, and only such business
shall be conducted at an annual meeting of stockholders, as shall have been
brought before the meeting in accordance with the procedures set forth in this
section. The chair of the meeting shall have the power and the duty to determine
whether a nomination or any business proposed to be brought before the meeting
has been made in accordance with the procedures set forth in these By-laws and,
if any proposed nomination or business is not in compliance with these By-laws,
to declare that such defective proposed business or nomination shall not be
presented for stockholder action at the meeting and shall be disregarded.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the Corporation's
notice of meeting. Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the Corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of record of the
Corporation who is a stockholder of record at the time of the giving of notice
provided for in this paragraph, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 2.4.
Nominations by stockholders of persons for election to the Board of Directors
may be made at such a special meeting of stockholders if the stockholder's
notice required by the second paragraph of this Section 2.4 shall be delivered
to the Secretary of the Corporation at the principal executive offices of the
Corporation not later than the close of business on the later of the 90th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the
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date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
For purposes of this section, "public announcement" shall mean disclosure
in a press release reported by the Dow Jones News Service, Associated Press or a
comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 2.4, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to matters set forth in this
Section 2.4. Nothing in this Section 2.4 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
SECTION 2.5. SPECIAL MEETINGS OF THE STOCKHOLDERS. Special meetings of the
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the Board of Directors. The
business transacted at any special meeting of the stockholders shall be limited
to the purposes stated in the notice for the meeting transmitted to
stockholders.
SECTION 2.6. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given by the Secretary of the
Corporation, not fewer than 10 nor more than 60 days before the date of the
meeting, to each stockholder entitled to vote at such meeting.
SECTION 2.7. FIXING OF RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted, and which shall be (i) not more than 60 nor less
than 10 days before the date of a meeting, and (ii) not more than 60 days prior
to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for any adjourned meeting.
SECTION 2.8. VOTING LISTS. The officer who has charge of the stock ledger
of the Corporation shall prepare and make available, at least 10 days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so
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specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.9. QUORUM AND ADJOURNMENTS. The holders of a majority of the
voting power of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business, except as
otherwise provided by statute or by the Corporation's Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any such meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented; provided, that if the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed by the directors for the adjourned meeting, a new notice shall be
transmitted to the stockholders of record entitled to vote at the adjourned
meeting. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
SECTION 2.10. VOTE REQUIRED. When a quorum is present at any meeting of all
stockholders, the affirmative vote of the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote thereat, present
in person or represented by proxy, shall decide any question brought before such
meeting, unless the question is one upon which, by express provision of statute
or of the Corporation's Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question; provided, however, that all elections of directors
shall be determined by a plurality of the votes cast.
SECTION 2.11. VOTING RIGHTS. Unless otherwise provided in the Corporation's
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period. At any meeting of the stockholders, every stockholder entitled to
vote may vote in person or by proxy authorized by an instrument in writing or by
a transmission permitted by law filed in accordance with the procedure
established for the meeting. Any copy, facsimile telecommunication or other
reliable reproduction of the writing or transmission created pursuant to this
paragraph may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used; provided, that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. All voting, including on the election
of directors, may (except where otherwise required by law) be by a voice vote;
provided, however, that upon demand therefor by a stockholder entitled to vote
or by his or her proxy, a stock vote shall be taken. Every stock vote shall be
taken by ballots, each of which shall state the name of the stockholder or proxy
voting and such other information as may be required under the procedure
established
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for the meeting. The Corporation may, and to the extent required by law shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath to faithfully execute the duties of inspector with strict
impartiality and according to the best of his or her ability. Every vote taken
by ballots shall be counted by an inspector or inspectors appointed by the
chairman of the meeting.
SECTION 2.12. PRESIDING OVER MEETINGS. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders. In the absence or
inability to act of the Chairman, the Vice Chairman or the President (in that
order) shall preside, and in their absence or inability to act another person
designated by one of them shall preside. The Secretary of the Corporation shall
act as Secretary of each meeting of the stockholders. In the event of his or her
absence or inability to act, the chairman of the meeting shall appoint a person
who need not be a stockholder to act as Secretary of the meeting.
SECTION 2.13. CONDUCTING MEETINGS. Meetings of the stockholders shall be
conducted in a fair manner but need not be governed by any prescribed rules of
order. The presiding officer of the meeting shall establish an agenda for the
meeting. The presiding officer's rulings on procedural matters shall be final.
The presiding officer is authorized to impose reasonable time limits on the
remarks of individual stockholders and may take such steps as such officer may
deem necessary or appropriate to assure that the business of the meeting is
conducted in a fair and orderly manner.
ARTICLE III
DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the Corporation
shall be under the direction of and managed by a Board of Directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not required by statute, by the Corporation's Certificate of
Incorporation or by these By-laws to be done by the stockholders. Directors need
not be residents of the State of Delaware or stockholders of the Corporation.
The number of directors shall be determined from time to time by resolution
adopted by the affirmative vote of a majority of the directors in office at the
time of adoption of such resolution.
SECTION 3.2. ELECTION. Directors shall be elected for a term of one year or
other term as specified in the Corporation's Certificate of Incorporation, and
each director elected shall hold office during the term for which he or she is
elected and until his or her successor is
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elected and qualified, subject, however, to his or her prior death, resignation,
retirement or removal from office.
SECTION 3.3. VACANCIES. Any vacancies occurring in the Board of Directors
and newly created directorships shall be filled in the manner provided in the
Corporation's Certificate of Incorporation.
SECTION 3.4. PLACE OF MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. The first meeting of each newly elected Board of Directors shall be
held immediately following the adjournment of the annual meeting of the
stockholders at the same place as such annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order to legally
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at such time and place, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
SECTION 3.5 PARTICIPATION BY CONFERENCE TELEPHONE. Unless otherwise
restricted by the Corporation's Certificate of Incorporation or these By-laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any such
committee, by means of conference telephone or similar communications equipment
through which all persons participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at such meeting.
SECTION 3.6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
SECTION 3.7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman or Vice Chairman of the Board on at least one
day's notice to each director, either personally or by courier, telephone,
telefax, mail or telegram. Special meetings shall be called by the Chairman or
Vice Chairman of the Board in like manner and on like notice at the written
request of two or more of the directors comprising the Board of Directors,
stating the purpose or purposes for which such meeting is requested. Notice of
any meeting of the Board of Directors for which a notice is required may be
waived in writing signed by the person or persons entitled to such notice,
whether before or after the time of such meeting, and such waiver shall be
equivalent to the giving of such notice. Attendance of a director at any such
meeting shall constitute a waiver of notice thereof, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because such meeting is not lawfully convened. Neither the business to
be transacted at nor the purpose of any meeting of the Board of Directors for
which a notice is required need be specified in the notice, or waiver of notice,
of such meeting. The Chairman of the Board shall preside at all meetings of the
Board of Directors. In the absence or inability to act of the Chairman of the
Board, the Vice Chairman of the Board or the President (in that order) shall
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preside, and in their absence or inability to act, another director designated
by one of them shall preside.
SECTION 3.8. QUORUM; NO ACTION ON CERTAIN MATTERS. At all meetings of the
Board of Directors, a majority of the then duly elected directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Corporation's Certificate of Incorporation. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 3.9. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors or to the Chairman
or Vice Chairman of the Board. Such resignation shall take effect at the time
specified therein and, unless tendered to take effect upon acceptance thereof,
the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.10. INFORMAL ACTION. Unless otherwise restricted by the
Corporation's Certificate of Incorporation or these By-laws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or such committee consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
such committee.
SECTION 3.11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the Secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
SECTION 3.12. COMPENSATION OF DIRECTORS. In the discretion of the Board of
Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors or a committee thereof, may be paid a
stated salary or a fixed sum for attendance at each meeting of the Board of
Directors or a committee thereof, and may be awarded other compensation for
their services as directors. No such payment or award shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
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ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 4.1. APPOINTMENT AND POWERS. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have
power or authority in reference to the following matters: (a) approving or
adopting, or recommending to the stockholders, any action or matter expressly
required by the General Corporation Law of the State of Delaware to be submitted
to stockholders for approval; or (b) adopting, amending or repealing these
By-laws.
SECTION 4.2. COMMITTEE MINUTES. Each committee shall keep regular minutes
of its meetings and shall file such minutes and all written consents executed by
its members with the Secretary of the Corporation. Each committee may determine
the procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third of the members shall constitute a quorum unless the committee shall
consist of one or two members, in which event one member shall constitute a
quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
ARTICLE V
NOTICES
SECTION 5.1. MANNER OF NOTICE. Whenever, under applicable law or the
Corporation's Certificate of Incorporation or these By-laws, notice is required
to be given to any director or stockholder, unless otherwise provided in the
Corporation's Certificate of Incorporation or these By-laws, such notice may be
given in writing, by courier or mail, addressed to such director or stockholder,
at such director's or stockholder's address as it appears on the records of the
Corporation, with freight or postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall have been deposited with such
courier or in the United States mail. Notice may be given orally if such notice
is confirmed in writing in a
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manner provided therein. Notice to directors may also be given by telegram,
mailgram, telex or telecopier.
SECTION 5.2. WAIVER. Whenever any notice is required to be given under
applicable law or the provisions of the Corporation's Certificate of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
OFFICERS
SECTION 6.1. NUMBER AND QUALIFICATIONS. The officers of the Corporation
shall be elected by the Board of Directors and shall be a Chairman of the Board,
a Vice Chairman of the Board, a Chief Executive Officer, a President, a Chief
Financial Officer, one or more Vice Presidents and a Secretary. Membership on
the Board of Directors shall not be a prerequisite to the holding of any other
office. Any number of offices may be held by the same person, unless the
Corporation's Certificate of Incorporation or these By-laws otherwise provide.
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Board of Directors may from
time to time choose such other officers and agents as it shall deem necessary,
which officers and agents shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined by the Board
of Directors.
SECTION 6.3. SALARIES. The salaries or other compensation of the officers
and agents of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer shall be prevented from receiving such salary or other
compensation by reason of the fact that such officer is also a director of the
Corporation.
SECTION 6.4. TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualified or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the directors then in office at any meeting of
the Board of Directors. If a vacancy shall exist among the officers of the
Corporation, the Board of Directors may elect any person to fill such vacancy,
such person to hold office as provided in this Article VI.
SECTION 6.5. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall see that orders and resolutions of the Board of Directors are carried into
effect. The Chairman of the Board shall perform such duties as may be assigned
to him by the Board of Directors.
SECTION 6.6. THE VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board
shall, in the absence of the Chairman of the Board or in the event of the
Chairman of the
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Board's inability or refusal to act, perform the duties and exercise the powers
of the Chairman of the Board and shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe. In the
absence or incapacity of the Chairman of the Board, if the Chairman of the Board
has been designated Chief Executive Officer, the Vice Chairman of the Board
shall perform the duties of the Chief Executive Officer and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer.
SECTION 6.7. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
be the principal executive officer of the Corporation and shall, in general,
supervise and control all of the business and affairs of the Corporation, unless
otherwise provided by the Board of Directors. The Chief Executive Officer may
sign bonds, mortgages, certificates for shares and all other contracts and
documents whether or not under the seal of the Corporation except in cases where
the signing and execution thereof shall be expressly delegated by law, by the
Board of Directors or by these By-laws to some other officer or agent of the
Corporation. The Chief Executive Officer shall have general powers of
supervision and shall be the final arbiter of all differences between officers
of the Corporation, and the Chief Executive Officer's decision as to any matter
affecting the Corporation shall be final and binding as between the officers of
the Corporation, subject only to its Board of Directors.
SECTION 6.8. THE PRESIDENT. The President shall keep the Chairman of the
Board fully informed concerning the business of the Corporation under his
supervision. The President shall have concurrent power with the Chief Executive
Officer to sign bonds, mortgages, certificates for shares and other contracts
and documents, whether or not under the seal of the Corporation except in cases
where the signing and execution thereof shall be expressly delegated by law, by
the Board of Directors, or by these By-laws to some other officer or agent of
the Corporation. In general, the President shall perform all duties incident to
the office of the President and such other duties as the Chief Executive Officer
or the Board of Directors may from time to time prescribe.
SECTION 6.9. THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be the principal financial and accounting officer of the Corporation. The Chief
Financial Officer shall: (a) have charge of and be responsible for the
maintenance of adequate books of account for the Corporation; (b) have charge
and custody of all funds and securities of the Corporation, and be responsible
therefor and for the receipt and disbursement thereof; and (c) perform all the
duties incident to the office of the Chief Financial Officer and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors. If required by the Board of Directors, the Chief Financial
Officer shall give a bond for the faithful discharge of the Chief Financial
Officer's duties in such sum and with such surety or sureties as the Board of
Directors may determine.
SECTION 6.10. THE VICE PRESIDENTS. In the absence of the President, the
Vice Presidents (in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall
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perform such other duties and have such other powers as the Chief Executive
Officer or the Board of Directors may from time to time prescribe.
SECTION 6.11. THE SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose, and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or the Chief Executive Officer, under whose supervision
the Secretary shall be. The Secretary shall have custody of the corporate seal
of the Corporation and the Secretary shall have authority to affix the same to
any instrument requiring it; and when so affixed, it may be attested by the
Secretary's signature. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
such officer's signature.
SECTION 6.12. CHAIRMAN AND VICE CHAIRMAN MAY SERVE AS CO-CHAIRMEN. The
Chairman of the Board and the Vice Chairman of the Board may, at the discretion
of the Board of Directors, be designated and serve as Co-Chairmen of the Board.
In the event of any such designation, the Co-Chairmen of the Board shall share
the authority and responsibility otherwise ascribed under these By-laws to the
Chairman of the Board and the Vice Chairman of the Board in such manner as the
Board of Directors may from time to time determine.
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ARTICLE VII
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
SECTION 7.1. FORM OF CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by (a) the Chairman of the Board, the Vice Chairman of the Board,
the President or the Chief Executive Officer, and (b) the Chief Financial
Officer or the Secretary of the Corporation; in any such case, certifying the
number of shares owned by such holder in the Corporation. If the Corporation
shall be authorized to issue more than one class of stock or more than one
series of any class, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock; provided that, except as otherwise provided in Section 202 of
the General Corporation Law of the State of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Subject to the foregoing, certificates of stock of the
Corporation shall be in such form as the Board of Directors may from time to
time prescribe.
SECTION 7.2. FACSIMILE SIGNATURES. Where a certificate is countersigned by
a transfer agent other than the Corporation or its employee, or by a registrar
other than the Corporation or its employee, any other signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
SECTION 7.3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as the Corporation shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation or its transfer agent or registrar with respect to the
certificate alleged to have been lost, stolen or destroyed.
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SECTION 7.4. TRANSFERS OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 7.5. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends and to vote as such owner and to hold liable for
calls and assessments a person registered on its books as the owner of shares,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person, whether or not the
Corporation shall have express or other notice thereof, except as otherwise
provided by applicable law.
ARTICLE VIII
CONFLICT OF INTERESTS
SECTION 8.1. CONTRACT OR RELATIONSHIP NOT VOID. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
that reason, or solely because such director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because such director's or
officer's vote is counted for such purpose, if:
(i) the material facts as to such director's or officer's relationship
or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the
Board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors
be less than a quorum; or
(ii) the material facts as to such director's or officer's relationship
or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by
vote of the stockholders; or
(iii) the contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the stockholders.
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SECTION 8.2. QUORUM. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the subject contract or transaction.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to applicable law. Dividends may be paid in cash, in property
or in shares of the capital stock of the Corporation or rights to acquire same,
subject to the provisions of the Corporation's Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for such other purpose as the directors
shall think conducive to the interest of the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
SECTION 9.2. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 9.3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 9.4. SEAL. The corporate seal shall have inscribed thereon the name
of the Corporation and the words "Corporate Seal, Delaware." The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
SECTION 9.5. STOCK IN OTHER CORPORATIONS. Shares of any other corporation
which may from time to time be held by this Corporation may be represented and
voted at any meeting of stockholders of such corporation by the Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer or a Vice President of the Corporation,
or by any proxy appointed in writing by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or a Vice President of the Corporation, or by any other person
or persons thereunto authorized by the Board of Directors. Shares represented by
certificates standing in the name of the Corporation may be endorsed for sale or
transfer in the name of the Corporation by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or a Vice President of the Corporation, or by any other
officer of officers thereunto authorized by the Board of
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Directors. Shares belonging to the Corporation need not stand in the name of the
Corporation, but may be held for the benefit of the Corporation in the
individual name of the Chief Financial Officer or of any other nominee
designated for the purpose by the Board of Directors.
ARTICLE X
AMENDMENTS
These By-laws may be altered, amended, or repealed, or new by-laws may be
adopted, only in the manner provided in the Corporation's Certificate of
Incorporation.
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EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the 23rd day of
December, 1997, by and among ZipLink, LLC, ("ZipLink") having a usual place of
business at 40 Woodland Street, Hartford, Connecticut 06105, and the persons and
organizations listed on SCHEDULE I (as such Schedule may be amended from time to
time) (the "Holders").
RECITALS
WHEREAS, the Holders are the founding members and key employees of ZipLink;
and
WHEREAS, ZipLink has agreed to provide the Holders the registration rights
set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. REGISTRATION RIGHTS.
1.1 DEFINITIONS. As used in this Agreement:
(a) "Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
(b) "Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(c) "Holder" means any person or organization listed on SCHEDULE I (as
such Schedule may be amended from time to time) or anyone who holds
Registrable Securities to whom the registration rights conferred by
this Section 1 have been transferred in compliance with Section 1.8.
(d) "Initiating Holders" means Holders requesting registration pursuant to
Section 1.2(a).
(e) "Participating Holders" means any Holder or Holders who have, by
proper notice, requested inclusion of their Registrable Securities in
the relevant public offering and who have, if applicable, agreed to
participate in any related underwriting.
(f) "Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in
compliance with the Securities Act and the declaration or ordering of
effectiveness of such registration statement.
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(g) "Registrable Securities" means units of ownership of ZipLink now or
hereafter held by any Holder or a transferee pursuant to Section 1.8,
any and all shares of capital stock issued or exchanged in consequence
of an Incorporation Transaction (as defined in ZipLink's Operating
Agreement dated as of November 21, 1995), as it may be amended or
supplemented, and any and all securities issued or exchanged, as the
case may be, in respect of any of the foregoing securities as a result
of a split or dividend of a security, reorganization, recapitalization
or similar transaction.
(h) "Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder, all
as the same shall be in effect at the time.
1.2 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. If ZipLink receives from the Holders a written
request that ZipLink register Registrable Securities equivalent to not less
than twenty percent (20%) of the Registrable Securities then outstanding,
or a lesser percentage if the anticipated aggregate offering price of the
Registrable Securities to be registered, net of standard underwriting
discounts, would exceed $5,000,000, ZipLink will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its best efforts to register
such securities as requested and to facilitate the sale and
distribution of the Holders' Registrable Securities as specified in
such request, together with the Registrable Securities of any
Holders joining in such request as are specified in a written
request given within 20 days after receipt of such written notice
from ZipLink.
Notwithstanding the foregoing, ZipLink shall not be obligated to take
any action to effect such registration pursuant to this Section 1.2 (a
"Demand Registration") in the following instances:
(A) If the registration would become effective prior to the date
six months following the effective date of ZipLink's Initial Public
Offering;
(B) If the registration would become effective within 180 days
following the effective date of a pubic offering by ZipLink of its
securities for its own account;
(C) in any particular jurisdiction in which ZipLink would be
required to execute a general consent to service of process, unless
ZipLink is already subject to service in such jurisdiction and except
as required by the Securities Act; or
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(D) after ZipLink has effected two (2) registrations pursuant to
this Section 1.2(a) and such registrations have been declared or
ordered effective.
Subject to the foregoing clauses (A) through (D), ZipLink shall file a
registration statement covering the Registrable Securities requested to be
registered as soon as practical, but in any event within 90 days after
receipt of the request of the Holders. If ZipLink furnishes to the Holders
a certificate signed by the Manager of ZipLink stating that, in the good
faith judgment of the Manager of ZipLink, (i) the filing of the
registration statement would require the disclosure of information not
otherwise required to be disclosed and that such disclosure would adversely
affect any material business opportunity, transaction or negotiation then
contemplated by ZipLink, or (ii) such registration is not in the best
interests of ZipLink, ZipLink shall have an additional period of not more
than 120 days after the expiration of the initial 90 day period within
which to file the registration statement.
(b) UNDERWRITING. If the Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise ZipLink as part of their request made pursuant to Section 1.2(a)
(a "Request for Registration") and ZipLink shall include such information
in the written notice referred to in Section 2.2(a)(i). In such event, the
underwriters shall be selected by ZipLink and must be reasonably acceptable
to a majority in interest of the Initiating Holders. The right of any
Holder to a Demand Registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Participating Holders and such
Holder) to the extent provided herein. ZipLink and all Holders registering
securities shall enter into an underwriting agreement in customary form
with the underwriters. Notwithstanding any other provision of this Section
2.2(a), if the underwriters advise ZipLink in writing that marketing
factors require a limitation of the number of shares to be underwritten,
ZipLink shall so advise all Holders of Registrable Securities. The number
of shares of Registrable Securities that may be included in the
registration and underwriting shall be reduced as the underwriter and
ZipLink require and those securities included in the registration shall be
allocated FIRST among the Initiating Holders in proportion, as nearly
as practicable, as the respective amounts of Registrable Securities then
held by each Initiating Holder bears to the total number of Registrable
Securities held by all Initiating Holders, and SECOND among the remaining
Participating Holders in proportion, as nearly as practicable, as
the respective amounts of Registrable Securities then held by each such
Participating Holder bears to the total number of Registrable Securities
held by all such Participating Holders. If any Participating Holder
disapproves of the terms of the underwriting, such Holder may elect to
withdraw therefrom by written notice to ZipLink, the underwriter and the
other Participating Holders. Any Registrable Securities which are excluded
from the underwriting by reason of the underwriters' marketing limitation
or withdrawn from
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such underwriting at the request of the Holder thereof shall be withdrawn
from such registration.
1.3 PIGGY-BACK REGISTRATION.
(a) Whenever ZipLink proposes to register any of its securities under the
Securities Act for its own account or for any of its shareholders (other
than its initial public offering or a registration on Form S-4 or S-8 or
any successor or similar forms) and the registration form to be used may be
used for the registration of Registrable Securities (a "Piggy-back
Registration"), ZipLink will give prompt written notice to all Holders of
Registrable Securities of its intention to effect such a registration
(which notice shall include a list of jurisdictions in which ZipLink
intends to attempt to qualify such securities under applicable blue sky or
other state securities laws) and will include in such registration and in
any underwriting involved therein, subject to Section 1, all Registrable
Securities with respect to which ZipLink has received written requests for
inclusion therein within 15 days after the date of the notice of the
Holders.
(b) If a Piggy-back Registration includes an underwriting on behalf of ZipLink
or the parties initiating such registration, ZipLink shall so advise the
Holders as a part of the notice given pursuant to Section 1.3(a). In such
event, the right of any Holder to registration pursuant to Section 1.3(a)
shall be conditioned on such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. ZipLink and the Holders
proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the
underwriters selected by ZipLink or the parties initiating such
registration, as the case may be. If any Holder disapproves of any of the
terms of any such underwriting, it may elect to withdraw therefrom by
written notice to ZipLink and the underwriter. Any Registrable Securities
withdrawn from such underwriting shall be withdrawn from such registration.
(c) If a Piggy-back Registration is an underwritten primary registration and
the managing underwriters advise ZipLink, in writing that, in their
opinion, one or more marketing factors require a limitation on the number
of securities to be underwritten, ZipLink shall so advise all Holders of
Registrable Securities. The number of shares of securities included in such
Piggy-back Registration shall be reduced as the underwriter and ZipLink
require and those securities included in the registration shall be
allocated among the Registrable Securities and any other securities
requested to be included in such registration (except those with Superior
Registration Rights) pro-rata among the Holders of such Registrable
Securities and other securities on the basis of the number of shares
requested to be registered by each such Holder.
(d) If a Piggy-back Registration is an underwritten secondary registration on
behalf of holders of ZipLink's securities, and the managing underwriters
advise ZipLink in writing that, in their opinion, one or more marketing
factors require a limitation on
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the number of securities to be underwritten, ZipLink shall so advise all
Holders of Registrable Securities. The number of shares of securities
included in such Piggy-back Registration shall be reduced as the
underwriter and ZipLink require and those securities included in such
registration shall be allocated FIRST to those held by the party requesting
such registration, and SECOND among the Registrable Securities and any
other securities requested to be included in such registration pro-rata
among the Holders of such Registrable Securities and other securities on
the basis of the number of shares requested to be registered by each such
Holder
1.4 EXPENSE OF REGISTRATION. All expenses incurred in effecting registration
pursuant to this Section 1, including, without limitation, all registration and
filing fees, printing expenses, expensed of compliance with blue sky laws, fees
and disbursements of counsel for ZipLink, and any accounting and audit expenses
incidental to or required by any such registration, shall be borne by ZipLink
except as follows:
(i) ZipLink shall not be required to pay for expenses of any Demand
Registration, the request for which has been subsequently withdrawn by a
majority in interest of the Participating Holders, unless the requested
registration is withdrawn due to a material change in ZipLink or its
business of which the Participating Holders were previously unaware.
(ii) ZipLink shall not be required to pay fees and disbursements of
more than one counsel for all Holders who are selling Registrable
Securities in such registration, qualifications or compliance.
(iii) ZipLink shall not be required to pay underwriter's fees,
discounts, commissions or transfer taxes relating to Registrable
Securities.
All expenses of any registration not otherwise borne by ZipLink shall be
borne pro rata among the Participating Holders (and ZipLink and the other
Holders registering securities in the offering) on the basis of the number of
shares registered.
1.5 REGISTRATION PROCEDURES. In the case of each registration effected by
ZipLink pursuant to this Agreement, ZipLink will keep each Participating Holder
advised in writing as to the initiation of registration, qualification and
compliance and as to the completion thereof. Except as otherwise provided in
Section 1.4, at its expense ZipLink will:
(i) Prepare and file with the SEC a registration statement with
respect to the offering of such Registrable Securities and use its best
efforts to cause such registration statement to become effective, and, upon
the request of a majority in interest of the Participating Holders, keep
such registration statement effective for up to 120 days.
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the
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Securities Act with respect to the disposition of all securities covered by
such registration statement.
(iii) Furnish to the Participating Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of their
securities covered by such registration statement.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as shall be reasonably requested by the
Participating Holders provided that ZipLink shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions.
(v) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each
Participating Holder shall also enter into and perform its obligations
under such an agreement.
(vi) In the event of any underwritten public offering, use its best
efforts to furnish, at the request of the managing underwriter, on the date
that such Registrable Securities are delivered to the underwriters for sale
in connection with a registration pursuant to this Section 1.5:
(A) an opinion, dated such date, of the counsel representing
ZipLink for the purposes of such registration, in form and
substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, and
(B) a letter dated such date, from the independent certified
public accountants of ZipLink, in form and substance as is
customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
underwriters.
(vii) Notify each Participating Holder at any time when a prospectus
relating thereto is required to be delivered under the Securities Act or
upon the happening of any event as a result of which 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 light of the circumstances then existing.
1.6 INDEMNIFICATION. In the event any of the Registrable Securities are
included in a registration statement under Section 1:
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(a) To the extent permitted by law, ZipLink will indemnify and hold harmless
each Holder, each officer, director and partner of a Holder, and each
person, if any, who controls such Holder within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which they may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue or
alleged untrue statement of any materials fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make
the statements therein not misleading or arise out of or are based on any
violation by ZipLink of any rule or regulation promulgated under the
Securities Act applicable to ZipLink and relating to any action or
non-action required of ZipLink in connection with any such registration;
and will reimburse each such Holder, such officer, director and partner or
such controlling person for any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 1.6(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of ZipLink (which
consent shall not be unreasonably withheld), nor shall ZipLink be liable
to a particular Holder, officer, director, partner or controlling person
in any such case for any such loss, claim, damage, liability or action
to the extent that it arises our of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
connection with such registration statement, preliminary prospectus,
final prospectus, or amendments or supplements thereto in reliance upon
and in conformity with written information furnished expressly for use
in connection with such registration by such Holder, officer, director,
partner or controlling person or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary
prospectus, final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished by
such Holder, officer, director, partner or controlling person expressly
for use in connection with such registration;
(b) To the extent permitted by law, each Holder including Registrable
Securities in such registration statement severally and not jointly, will
indemnify and hold harmless ZipLink, each person, if any, who controls
ZipLink within the meaning of the Securities Act, each officer of ZipLink
and director of ZipLink against all losses, claims, damages or liabilities,
joint or several, to which ZipLink or such officer, director, or
controlling person may become subject under the Securities Act or
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otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
registration statement, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse ZipLink and each such
officer, director and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action, PROVIDED, HOWEVER, that
such Holder will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with information
pertaining to such Holder, as such, furnished in writing to ZipLink by such
Holder specifically for use in such registration statement or prospectus
and under no circumstances or events will such Holder's liability exceed
such Holder's proceeds from the sale of Registrable Securities pursuant to
such registration statement or prospectus.
(c) Promptly after receipt by an indemnified party under this Section 1.6 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 1.6, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party desires, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to
notify an indemnifying party promptly of the commencement of any such
action, if prejudicial to his ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under
this Section 1.6, but the omission so to notify the indemnifying party will
not relieve him of any liability which he may have to any indemnified party
other than under this Section 1.6.
(d) If the indemnification provided for in this Section 2.6 is for any reason
unavailable to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material
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fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
1.7 INFORMATION BY HOLDERS. The Holder or Holders of Registrable Securities
included in any registration shall furnish to ZipLink such information regarding
such Holder or Holders and the distribution proposed by such Holder or Holders
as ZipLink may request in writing and as shall be required in connection with
any registration, qualification or compliance referred herein.
1.8 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the Holders
under this Section 1.8 may only be transferred or assigned, in whole or in part,
to any transferee of Registrable Securities provided ZipLink is given written
notice by the Holder at the time of such transfer stating the name and address
of the transferee and identifying the shares with respect to which the rights
under this Section 1.8 are being assigned. As a condition to the transfer or
assignment of any registration rights hereunder, the transferee or assignee will
enter into an agreement with ZipLink and its underwriter to the affect that such
transferee or assignee for a period of up to 180 days following the effective
date of the any registration statement of ZipLink filed under the Securities Act
of 1933 with respect to any underwritten public offering, will not, to the
extent requested by ZipLink and any underwriter, sell, agree to sell, grant
options to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of ZipLink owned by him/her/it
during such period except securities included in such registration.
In order to enforce the foregoing covenant, ZipLink may impose
stop-transfer instructions with respect to the Registration Securities until the
end of such period.
Section 2. MARKET STAND-OFF AGREEMENT. Each Holder hereby agrees that during
the 180 day period following the effective date of any registration statement of
ZipLink filed under the Securities Act of 1933 with respect to any underwritten
public offering, it shall not, to the extent requested by ZipLink and the
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of ZipLink (other than Registrable Securities included in
such registration statement) and that ZipLink may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares or securities of every other person subject to the foregoing
registration) until the end of such period.
Section 3. TERMINATION OF REGISTRATION RIGHTS. The obligations of ZipLink
pursuant to Section 1 shall terminate with respect to each Holder at such time
as
(i) ZipLink is then providing current public information within the
meaning of Rule 144(c)(1) issued under the Securities Act, and
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<PAGE>
(ii) such Holder is, or has been, able to sell under Rule 144 during any
3-month period all of the remaining Registrable Securities issued or issuable
to such Holder.
Section 4. MISCELLANEOUS.
4.1 ASSIGNMENT. The terms and conditions of this agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties hereto, provided, however, that except as provided in Section 1.8, no
Holders shall not assign this Agreement or its rights hereunder without the
prior written consent of ZipLink.
4.2 THIRD PARTIES. Nothing in this agreement, express or implied, is intended
to confer upon any party, other than the parties hereto, and their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this agreement, except as expressly provided herein.
4.3 GOVERNING LAW. This agreement shall be governed by and construed under the
laws of the State of Delaware.
4.4 COUNTERPARTS. This agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
4.5 NOTICES. Except as otherwise expressly provided herein, any notice required
or permitted hereunder shall be given in writing and shall be deemed effectively
given upon receipted personal delivery (professional courier permissible),
receipted United States certified mail delivery or confirmed telegraph or telex
transmission to the following addresses: (a) if to ZipLink, 40 Woodland Street,
Hartford, Connecticut 06105 Attention: President, with a copy to Wayne A.
Martino, Esq., Brenner, Saltzman & Wallman, 271 Whitney Avenue, New Haven, CT
06511, or (b) if to any Holder, to the address set forth on SCHEDULE I (or such
other address as such Holder may have provided to ZipLink for such purpose), or
(c) if to any Holder, to such address as such Holder shall have provided to
ZipLink for such purpose.
4.6 SEVERABILITY. If one or more provisions of this agreement are held to be
unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this agreement, and the balance of this agreement shall be enforceable in
accordance with its terms.
4.7 AMENDMENT AND WAIVER. Any provision of this agreement may be amended,
modified, waived or terminated with the written consent of ZipLink and the
Holders of at least two-thirds (2/3) of the outstanding Registrable Securities;
PROVIDED that no such amendment, modification, waiver or termination shall
reduce the aforesaid percentage of Registrable Securities without the consent of
all of the Holders of Registrable Securities. ZipLink shall provide prompt
notice of any such amendment, modification, waiver or termination to all Holders
of Registrable Securities and such amendment, modification, waiver or
termination effected in accordance with this paragraph shall be binding upon
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each Holder and ZipLink. In addition, ZipLink may waive performance of any
obligation owing to it, as to some or all of the Holders or agree to accept
alternatives to such performance, without obtaining the consent of any Holder.
4.8 EFFECT OF AMENDMENT OR WAIVER. The Holders and their respective successors
and assigns acknowledge that by operation of Section 4.7. the Holders of
two-thirds of the outstanding Registrable Securities, acting in conjunction with
ZipLink, will have the right and power to diminish or eliminate all rights
pursuant to this agreement.
4.9 RIGHTS OF HOLDERS. Each Holder shall have the absolute right to exercise or
refrain from exercising any right or rights that such Holder may have by reason
of this agreement, including, without limitation, the right to consent to the
waiver or modification of any obligation under this agreement, and such Holder
shall not incur any liability to any other holder of any securities of ZipLink
as a result of exercising or refraining from exercising any such right or
rights.
4.10 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power or
remedy accruing to any party to this agreement, upon any breach or default of
the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
agreement, or any waiver on the part of any part of any provisions or conditions
of this agreement, must be made in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this
agreement, or by law or otherwise afforded to any Holder, shall be cumulative
and not alternative.
4.11 COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall, when taken together, be deemed to
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the day and year first above written.
ZIPLINK, LLC
By: /s/HENRY M. ZACHS
-----------------
Its Manager
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SCHEDULE I
HOLDERS
<TABLE>
<S> <C>
/s/HENRY M. ZACHS Date:12/23/97
- ----------------- --------
Henry M. Zachs
/s/HENRY M. ZACHS UNDER POA FOR Date:12/23/97
- ------------------------------- --------
Eric M. Zachs
Zachs Family Limited Partnership
Number One
By:/s/HENRY M. ZACHS UNDER POA FOR Date:12/23/97
------------------------------- --------
Eric M. Zachs
Its General Partner
/s/CHRISTOPHER JENKINS Date:12/23/97
- ---------------------- --------
Christopher Jenkins
</TABLE>
ADDRESSES FOR NOTICE
<TABLE>
<S> <C>
Henry M. Zachs Zachs Family Limited
40 Woodland Street Partnership Number One
Hartford, CT 06105 40 Woodland Street
Hartford, CT 06105
Eric M. Zachs Christopher Jenkins
40 Woodland Street 40 Woodland Street
Hartford, CT 06105 Hartford, CT 06105
</TABLE>
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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
BETWEEN
ZIPLINK, LLC
AND
BAY NETWORKS, INC.
December 23, 1997
<PAGE>
Agreement made as of December 23, 1997, by and between ZipLink, LLC, a
Connecticut limited liability company (the "Company"), and Bay Networks, Inc., a
Delaware corporation (the "Purchaser"). The Company and the Purchaser are
referred to collectively in this Agreement as the "Partners."
W I T N E S S E T H:
WHEREAS, to provide additional working capital for the Company, the Company
has agreed to sell, and the Purchaser has agreed to purchase, the Initial
Purchaser Units and Debentures (each as hereinafter defined) on the terms and
subject to the conditions as set forth herein.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
ARTICLE I
ISSUE AND SALE OF SECURITIES
1.1. DESCRIPTION OF SECURITIES. The Company has duly authorized the issue
and sale, in accordance with the terms and conditions of this Agreement (i)
100,000 units of ownership in the Company ("Units"), (ii) a $2,500,000 aggregate
principal amount unsecured, convertible debenture substantially in the form of
EXHIBIT A attached hereto ("Debenture #1") and (iii) a $5,000,000 aggregate
principal amount unsecured, convertible debenture ("Debenture #2," and together
with Debenture #1, the "Debentures") substantially in the form of EXHIBIT B
attached hereto. Each Unit purchased by the Purchaser hereunder or acquired or
acquirable upon conversion of either both of the Debentures is referred to
herein as a "Purchaser Unit" and, collectively, as the "Purchaser Units."
In addition to the rights granted to the Purchaser in this Agreement, the
Units shall have the rights set forth in the Operating Agreement of ZipLink LLC,
dated as of November 21, 1995 (the "Operating Agreement"), as supplemented by
the Certificate of Senior in the form attached as EXHIBIT C (the "Certificate of
Designation").
1.2. PURCHASE AND SALE. On the basis of the representations and warranties
and on the terms and subject to the conditions set forth in this Agreement, the
Company agrees to issue and deliver to the Purchaser, and the Purchaser agrees
to acquire from the Company, the Purchaser Units to be purchased in accordance
with Section 1.1(i) (the "Initial Purchaser Units") and the Debentures.
1.3. THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Brenner, Saltzman &
Wallman LLP, in New Haven, Connecticut, commencing at 4:00 p.m. on December ,
1997, or, if all of the conditions to the obligations of the Parties to
consummate the transactions contemplated by this Agreement have not been
satisfied or waived by such date, on such mutually agreeable later date as soon
as
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practical after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated by
this Agreement (the "Closing Date").
1.4. DELIVERY. At the Closing, and pursuant to Article VI hereof, the
Company will deliver a duly executed Certificate of Designation and the
Debentures, against payment of the purchase price for the Initial Purchaser
Units by check payable to the order of the Company or by wire transfer.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer that the statements contained
in this Article II are true and correct, except as set forth in the disclosure
schedule attached to this Agreement as EXHIBIT D hereto (the "Disclosure
Schedule").
2.1. ORGANIZATION, QUALIFICATION AND CORPORATE POWER. The Company is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Connecticut. The Company is duly qualified to
conduct business as a foreign limited liability company and is in good standing
under the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification except where
the failure to be so qualified would not have a material adverse effect. The
Company has all requisite power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
Company has delivered the Articles of Organization, as amended, the Operating
Agreement and other charter documents, as amended, of the Company, in effect as
of the date hereof (the "Charter Documents").
2.2. CAPITALIZATION. The issued and outstanding Units immediately after
Closing, will consist of 999,083 Units. The Disclosure Schedule sets forth, as
of the date hereof, a complete and accurate list of all Members of the Company,
indicating the number of Units held by each Member, all holders of options for
the purchase of Units (each an "Option"), including the number of Units subject
to each such Option, and all plans or arrangements pursuant to which such
Options have been granted (the "Option Plans"). All of the issued and
outstanding Units are, and all Units that may be issued upon exercise of Options
will be, duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights. Upon issuance of the Initial Purchaser Units in
accordance herewith and upon issuance of the Purchaser Units other than the
Initial Purchaser Units (the "Debenture Purchaser Units") in accordance herewith
and in accordance with the Debentures, the Initial Purchaser Units and the
Debenture Purchaser Units will be duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. All of the issued and
outstanding Units were issued in compliance with applicable federal and state
securities laws. Upon issuance of the Initial Purchaser Units and the Debentures
in accordance herewith, and the Debenture Purchaser Units upon conversion of the
Debentures, the Initial Purchaser Units and the Debentures and the Debenture
Purchaser Units will be issued in compliance with applicable federal and state
securities laws. In addition to the rights provided under statute and common
law, the rights of the Units will be stated in the Operating Agreement,
2
<PAGE>
as supplemented by the Certificate of Designation. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its Units, other than the Options
listed in Section 2.2 of the Disclosure Schedule. There are no plans providing
for options to purchase Units or similar rights other than the Option Plans
listed in Section 2.2 of the Disclosure Schedule. There are no outstanding or
authorized unit appreciation, phantom unit or any similar rights with respect to
the Company. Except as set forth on the Disclosure Schedule, there are no
agreements, voting trusts, proxies or understandings with respect to the voting,
or registration under the Securities Act of 1933, of any Units.
2.3. AUTHORIZATION. The Company has all requisite power and authority to
execute and deliver this Agreement, the Debentures and the Certificate of
Designation and to perform its obligations hereunder and under the Debentures.
The execution and delivery of this Agreement, the Debentures and the Certificate
of Designation and the performance by the Company of this Agreement and the
Debentures and the consummation by the Company of the transactions contemplated
by this Agreement and the Debentures have been duly and validly authorized by
all necessary action on the part of the Company and the Members. This Agreement,
the Debentures and the Certificate of Designation have been duly and validly
executed and delivered by the Company and this Agreement and the Debentures
constitute a valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights and (ii) general
principles of equity that restrict the availability of equitable remedies.
2.4. NONCONTRAVENTION. The execution and delivery of this Agreement by the
Company, and/or the consummation by the Company of the transactions contemplated
by this Agreement will not (a) conflict with or violate any provision of the
Charter Documents, as amended by the Certificate of Designation, (b) require on
the part of the Company any filing with, or any permit, authorization, consent
or approval of, any court, administrative agency or commission or other
governmental or regulatory authority or agency (each a "Governmental Entity")
except for any filing, notice, approval, authorization or consent required under
California securities laws, or (c) conflict with, result in a breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any material agreement, instrument, commitment or other obligation
(including any obligation under any offer to acquire the Company, its Units or
material assets through merger or otherwise) to which the Company is a party or
by which the Company is bound.
2.5. SUBSIDIARIES. The Company has no wholly-owned or partially-owned
subsidiaries.
2.6. FINANCIAL STATEMENTS. The Company has furnished to the Purchaser an
audited balance sheet and income statement, changes in equity and cash flows of
the Company for the fiscal year ending September 30, 1996 and an unaudited
balance and income statement for the year-to-date through September 30, 1997
(such financial statements being collectively referred to
3
<PAGE>
herein as the "Financial Statements"). The Financial Statements fairly present,
in all material respects, the financial position of the Company in accordance
with generally accepted accounting principles ("GAAP") applied on a consistent
basis throughout the periods indicated, for the periods then indicated (subject
to normal year-end adjustments in the case of the September 30, 1997 Financial
Statements).
2.7. ABSENCE OF CERTAIN CHANGES. Since September 30, 1997, there has not
been to the Company's knowledge:
(a) Any change in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Financial Statements, other
than changes in the ordinary course of business and changes attributable to
general economic conditions or conditions affecting the internet access and
service provider industry generally, none of which individually or in the
aggregate has had or is expected to have a material adverse effect on such
assets, liabilities, financial condition or operations of the Company taken as a
whole;
(b) Any resignation or termination of any Manager or Service Member of
the Company other than the resignation of Eric Zachs as Manager and the
appointment of Henry M. Zachs as Manager; and the Company, to the best of its
knowledge, does not know of the impending resignation or termination of
employment of any such Manager or Service Member;
(c) Any material change, except in the ordinary course of business, in
the contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any Member,
Manager or employee of the Company, other than advances made in the ordinary
course of business;
(g) Any material change in any compensation arrangement or agreement
with any Manager or material employee;
(h) Any declaration or payment of any distribution of the assets of
the Company;
(i) Any labor organization activity;
4
<PAGE>
(j) Any debt, obligation or liability incurred, assumed or guaranteed
by the Company, except those for immaterial amounts and for current liabilities
incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of Intellectual Property (as
defined in Section 2.9 herein);
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company, including compensation agreements with the Company's employees; or
(m) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company taken as a whole.
2.8. TAX MATTERS. The Company has filed on a timely basis all federal,
state, local and foreign Taxes (as defined below) returns that were required to
be filed, all of which returns were accurate and complete in all material
respects. The Company has paid when due all Taxes which have become due as they
became due and withheld and remitted any Taxes required to be withheld by it
other than taxes the failure of which to pay, withhold or remit would not
materially adversely affect the Company. No unsatisfied deficiencies have been
asserted or assessed against the Company as a result of any audit by the
Internal Revenue Service or any state or local taxing authority, and no
examination or audit by any such authority is currently in progress or, to the
best of the knowledge of the Company, threatened. The Company has properly filed
all of its federal, state, local and foreign tax returns as a partnership and
will be able to continue to so file after the issuance of the Debentures and the
Initial Purchaser Units. "Taxes" means all taxes, and all charges, fees and
similar assessments (including without limitation those relating to income,
receipts, excise, real property, personal property, sales, use, transfer,
withholding, employment, payroll and franchises) imposed by the United States of
America or any state, local or foreign government, or any agency thereof.
2.9. INTELLECTUAL PROPERTY.
(a) The Company owns or has the right to use all Intellectual Property
(as defined below and set forth in Section 2.9.(a) of the Disclosure Schedule)
used in the operation of its business or necessary for the operation of its
business as currently conducted and as currently proposed to be conducted. The
Company has taken reasonable measures to protect the proprietary nature of the
Company's Intellectual Property that is material to its business and to maintain
in confidence all trade secrets and confidential information, that it owns or
uses and that is material to its business. No other person or entity has any
rights to any of the Intellectual Property owned or used by the Company and
material to its business, and, to the best of the Company's knowledge, no other
person or entity is infringing, violating or misappropriating any of the
Intellectual Property that the Company owns or uses and that is material to its
business. To the extent requested, the Company has made available to the
Purchaser correct and complete copies of all written documentation evidencing
ownership of, any claims or disputes relating to,
5
<PAGE>
each item of its Intellectual Property. For purposes of this Agreement,
"Intellectual Property" means all (i) patents and patent applications; (ii)
copyrights and registrations and applications for registration thereof; (iii)
mask works and registrations and applications for registration thereof; (iv)
computer software, data and documentation; (v) trade secrets and confidential
business information, whether patentable or unpatentable and including but not
limited to (to the extent secret, confidential or proprietary), know-how,
manufacturing and production processes and techniques, research and development
information, copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans, and customer and
supplier lists and information; (vi) tradenames, trademarks and service marks
and registrations thereof, and applications for registration thereof; and (vii)
other proprietary rights relating to any of the foregoing; provided, however,
that Intellectual Property does not include off-the-shelf software that is
generally commercially available.
(b) To the best of the Company's knowledge, none of the activities or
business currently conducted by the Company infringes or violates, or
constitutes a misappropriation of, any Intellectual Property rights of any other
person or entity. The Company has not received any complaint, claim or notice
alleging any such infringement, violation or misappropriation.
(c) The Company has not granted any rights to any third party with
respect to any of its Intellectual Property.
2.10. TITLE TO PROPERTY AND ASSETS. The Company has good and marketable
title to all of its properties and assets free and clear of all mortgages, liens
and encumbrances, except liens for current taxes and assessments not yet due and
possible minor liens and encumbrances which do not, in any case, in the
aggregate, materially detract from the value of the property subject thereto or
materially impair the operations of the Company. With respect to the property
and assets it leases, the Company is in material compliance with such leases and
holds a valid leasehold interest free of all liens, claims or encumbrances. The
Company's properties and assets are in operating condition and repair in all
material respects.
2.11. CONTRACTS. [Section 2.11 of the Disclosure Schedule lists each
contract, agreement or commitment (written or oral) to which the Company is a
party that is material to the Company or its business, including without
limitation (a) any contract, agreement or commitment providing for the payment
by the Company of an amount in excess of $25,000 or which the Company cannot
terminate on less than 30 days' notice (other than licenses for the Company's
Intellectual Property identified in Section 2.9(c) of the Disclosure Schedule);
(b) any contract, agreement or commitment concerning non-competition; (c) any
contract, agreement or commitment with any Member or employee of the Company;
(d) any contract, agreement or commitment with any distributors or resellers of
the Company's products or services; and (e) any contract, agreement or
commitment pursuant to which the Company has granted any exclusive marketing or
other rights to any third party, (collectively, together with the agreements and
licenses listed in Section 2.9(c) and 2.9(d) of the Disclosure Schedule, the
"Contracts"). The Company has previously delivered or made available for
inspection to the Buyer a complete and accurate copy of each Contract. Each
Contract is a valid and binding agreement between the
6
<PAGE>
Company, and to the knowledge of the Company, the other party or parties
thereto; and with respect to the Company, and to the knowledge of the Company,
with respect to the other party or parties thereto, no defaults or breaches
exist under any of the Contracts.] [Subject to revision upon inspection of
agreements by Bay Networks.]
2.12. INSURANCE. Section 2.12 of the Disclosure Schedule lists all
insurance policies of the Company and includes a summary description of the
businesses and properties of the Company, which description includes the
property or liabilities covered, the insurer and the amount and period of
coverage. The Company has not incurred any loss, damage, expense or liability
covered by any such insurance policy for which it has not properly asserted a
claim under such policy. The Company is covered by insurance in scope and amount
customary and reasonable in light of the business in which it is engaged and its
stage of development.
2.13. LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened before any court,
administrative agency or other governmental body against the Company which
questions the validity of this Agreement, the Debentures or the Operating
Agreement, as supplemented by the Certificate of Designation or the right of the
Company to enter into either of them, or to consummate the transactions
contemplated hereby or thereby, or which could result, either individually or in
the aggregate, in any material adverse change in the condition (financial or
otherwise), business, results of operations, property, assets or liabilities of
the Company, execept as set forth in Section 2.13 of the Disclosure Schedule.
The foregoing includes, without limitation, actions, suits, proceedings or
investigations pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to, and none of its assets is bound by, the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality.
2.14. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation or
default of (i) any provision of any instrument, mortgage, deed of trust, loan,
contract, commitment, judgment, decree, order or obligation to which it is a
party or by which it or any of its properties or assets are bound which could
materially adversely affect the condition (financial or otherwise), results of
operations, business, property, assets or liabilities of the Company or (ii) of
any provision of any federal, state or local statute, rule or governmental
regulation which could materially adversely affect the condition (financial or
otherwise), results of operations, business, property, assets or liabilities of
the Company. The execution, delivery and performance of and compliance with this
Agreement, the Debenture and the Operating Agreements as supplemented by the
Certificate of Designation, and the issuance and sale of the Debentures and the
Purchase Units, will not result in any such violation, be in conflict with or
constitute, with or without the passage of time or giving of notice, a default
under any such provision, require any consent or waiver under any such provision
(other than any consents or waivers that have been obtained), or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company pursuant to any such provision which could
have a material adverse effect on the Company.
7
<PAGE>
2.15. PERMITS. The Company has all franchises, permits, licenses, and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, condition (financial or otherwise), or results
of operations of the Company, and the Company believes it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as planned to be conducted or as currently proposed to be conducted. The Company
is not in default in any material respect under any of such franchises, permits,
licenses, or other similar authority.
2.16. EMPLOYEES.
(a) Substantially all and each key employee of the Company has entered
into a confidentiality and assignment of inventions agreement with the Company,
a copy of which has previously been delivered to the Buyer. To the best of the
knowledge of the Company, no key employee or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement.
(b) All employment agreements, employee benefit plans or policies
(including without limitation bonus programs, insurance plans, policies relating
to vacations, sick days and leaves of absence, and pension or retirement plans)
of the Company, including those subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") arose or were created in the ordinary
course of business. The Company has complied in all material respects with the
terms of each such plan or policy and with the provisions of all laws and
regulations applicable to such plan or policy. The Company has no material
liability or obligation under any such plan or policy, except as may be
reflected on the Financial Statements.
2.17. ENVIRONMENTAL MATTERS.
(a) To the best of the Company's knowledge, the Company has complied
with all applicable Environmental Laws (as defined below) except for violations
of Environmental Laws that do not and will not have a material adverse effect on
the Company. There is no pending or, to the best of the knowledge of the
Company, threatened civil or criminal litigation, written notice of violation,
formal administrative proceeding or investigation, inquiry or information
request by any Governmental Entity, relating to any Environmental Law involving
the Company, except those that will not, individually or in the aggregate, have
a material adverse effect on the Company. For purposes of this Agreement,
"Environmental Law" means any federal, state or local law, statute, rule or
regulation or the common law relating to the environment or occupational health
and safety, including without limitation any statute, regulation or order
pertaining to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous substances or solid or hazardous waste; (ii) air,
water and noise pollution; (iii) groundwater and soil contamination; (iv) the
release or threatened release into the environment of industrial, toxic or
hazardous substances, or solid or hazardous waste, including without limitation
emissions, discharges, injections, spills, escapes or dumping of pollutants,
contaminants or chemicals; (v) the protection of wild life, marine sanctuaries
and wetlands, including without limitation all endangered and threatened
species; (vi) storage tanks, vessels
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and containers; (vii) underground and other storage tanks or vessels, abandoned,
disposed or discarded barrels, containers and other closed receptacles; (viii)
health and safety of employees and other persons; and (ix) manufacture,
processing, use, distribution, treatment, storage, disposal, transportation or
handling of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or oil or petroleum products or solid or hazardous waste.
As used above, the terms "release" and "environment" shall have the meaning set
forth in the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA").
(b) To the best of the Company's knowledge, there have been no
releases of any Materials of Environmental Concern (as defined below) into the
environment at any parcel of real property or any facility formerly or currently
owned, operated or controlled by the Company except for those that would not,
individually or in the aggregate, have a material adverse effect on the Company.
With respect to any such releases of Materials of Environmental Concern, the
Company has given all required notices to governmental entities (copies of which
have been provided to the Buyer). To the best of the Company's knowledge, there
have not been any releases of Materials of Environmental Concern at parcels of
real property or facilities other than those owned, operated or controlled by
the Company that could reasonably be expected to have an impact on the real
property or facilities owned, operated or controlled by the Company except for
those that would not, individually or in the aggregate, have a material adverse
effect on the Company. For purposes of this Agreement, "Materials of
Environmental Concern" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid wastes and
hazardous wastes (as such terms are defined under the federal Resources
Conservation and Recovery Act), toxic materials, oil or petroleum and petroleum
products.
2.18. CERTAIN BUSINESS RELATIONSHIPS WITH AFFILIATES. No affiliate of the
Company (a) owns any property or right, tangible or intangible, which is used in
the business of the Company, (b) has any claim or cause of action against the
Company, or (c) owes any money to the Company. Section 2.18 of the Disclosure
Schedule describes any transactions or relationships between the Company and any
affiliate thereof.
2.19. BROKERS' FEES. Except as set forth in Section 2.19 of the Disclosure
Schedule, the Company has no liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
2.20. OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 3.3 hereof, the offer, sale and
issuance of the Purchaser Units and the Debentures will be exempt from the
registration requirements of the Securities Act of 1933, as amended (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, including under the
California Corporations Code, as amended. Neither the Company nor any agent on
its behalf has solicited or will solicit any offers to sell or has offered to
sell or will offer to sell all or any part of the Purchaser Units to any
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person or persons so as to bring the sale of such Purchaser Units by the Company
within the registration provisions of the Securities Act.
2.21. DISCLOSURE. To the best of the Company's knowledge, the Company has
fully provided the Purchaser with all the information that Purchaser has
requested for deciding whether to purchase the Purchaser Units and the
Debentures. Neither this Agreement, nor any other statements or certificates
made or delivered in connection herewith or therewith contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements herein or therein not misleading in light of the circumstances
under which it was made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
3.1. AUTHORIZATION. Purchaser has all necessary power and authority under
all applicable provisions of law to execute and deliver this Agreement and to
carry out its provisions. All action on Purchaser's part required for the lawful
execution and delivery of this Agreement has been or will be effectively taken
prior to the Closing. Upon its execution and delivery, this Agreement will be a
valid and binding obligation of Purchaser, enforceable in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights and (ii) general principles of equity that
restrict the availability of equitable remedies.
3.2. CONSENTS. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in this
Agreement have been or shall have been obtained prior to and be effective as of
the Closing.
3.3. INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Purchaser Units nor the Debentures have been registered under the Securities
Act. Purchaser also understands that neither the Purchase Units nor the
Debentures are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement. Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Initial Purchaser Units, Debentures or
Debenture
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Purchaser Units issuable to the Purchaser upon a conversion of the Debentures
are registered pursuant to the Securities Act, or an exemption from registration
is available. Purchaser understands that the Company has no present intention of
registering the Initial Purchaser Units, Debentures or Debenture Purchase Units.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Initial Purchaser Units, Debentures or Debenture Purchase Units issuable
to the Purchaser upon a conversion of the Debentures under the circumstances, in
the amounts or at the times Purchaser might propose.
(b) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that by
reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement.
(c) ACCREDITED INVESTOR. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(d) INVESTMENT. Purchaser is acquiring the Initial Purchaser Units and
Debentures for investment for its own account and not with a view to, or for
resale in connection with, any distribution thereof, and Purchaser has no
present intention of selling or distributing the Initial Purchaser Units and
Debentures or the Debenture Purchaser Units. Purchaser understands that the
Initial Purchaser Units, Debentures or Debenture Purchaser Units have not been
registered under the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein.
(e) COMPANY INFORMATION. Purchaser has received and read the Financial
Statements and has had an opportunity to discuss the Company's business,
management and financial affairs with directors, officers and management of the
Company and has had the opportunity to review the Company's operations and
facilities. Purchaser has also had the opportunity to ask questions of and
receive answers from, the Company and its management regarding the terms and
conditions of this investment and has had full access to such other information
concerning the Company as it has requested.
(f) RESTRICTED SECURITIES. Purchaser acknowledges and agrees that the
Initial Purchaser Units, Debentures and Debenture Purchaser Units issuable to
the Purchaser upon a conversion of the Debentures must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption
from such registration is available. Purchaser has been advised or is aware of
the provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of securities purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the
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Securities Exchange Act of 1934) and the number of securities being sold during
any three-month period not exceeding specified limitations.
3.4. TRANSFER RESTRICTIONS. Purchaser acknowledges and agrees that the
Purchaser Units are subject to restrictions on transfer as set forth in the
Operating Agreement, as supplemented by the Certificate of Designation.
3.5. NO BROKERS. Purchaser has no liability or obligation to pay any
fees or commissions to, and has not been solicited or contacted by, any
broker, finder or agent with respect to the transactions contemplated by this
Agreement.
ARTICLE IV
COVENANTS
The parties hereby covenant and agree as follows:
4.1. BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will furnish to Purchaser as soon as practicable after
the end of each fiscal year of the Company, and in any event within 90 days
thereafter, a balance sheet of the Company, as at the end of such fiscal year,
and a consolidated statement of income and a consolidated statement of cash
flows of the Company, for such year, all 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. Such financial statements shall be
accompanied by a report and opinion thereon by independent public accountants of
national standing selected by the Company's Manager or Managers, as the case may
be.
(b) The Company will furnish to Purchaser (i) at least thirty (30)
days prior to the beginning of each fiscal year an annual budget of sales and
expenses for such fiscal year; and (ii) within thirty (30) days after the end of
each quarter, an unaudited balance sheet and statements of income and cash
flows, prepared in accordance with GAAP, with the exception that no notes need
be attached to such statements and year-end audit adjustments may not have been
made, but such statement shall set forth applicable budget figures and variances
from budget.
4.2. INSPECTION RIGHTS. For legitimate business purposes solely in
connection with its investment and provided Purchaser is not a competitor to or
competitive with the Company. Purchaser shall have the right to visit and
inspect any of the properties of the Company, and to discuss the affairs,
finances and accounts of the Company with its officers, all at such reasonable
times and as often as may be reasonably requested after notice and during normal
business hours provided Purchaser does not interfere with the Company's ongoing
business operations; provided, however, that the Company shall not be obligated
under this Section 4.2 with respect to a competitor of the Company or with
respect to information which the Company determines in good faith is
confidential and should not, therefore, be disclosed.
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4.3. OBSERVER RIGHTS. For legitimate business purposes solely in connection
with its investment and provided Purchaser is not a competitor to or competitive
with the Company, the Purchaser shall have the right to have a representative
(the "Representative") reasonably acceptable to the Company attend all formal
proceedings and meetings of the Company (the "Proceedings") relating to the
governance thereof in a nonvoting observer capacity, to receive notice of such
Proceedings, and to receive the written information provided by the Company to
voting participants (the "Participants") in connection with such Proceedings;
provided, however, that the Representative and each person having access to any
of the information provided by the Company to the Participants must agree, in
writing, to hold in confidence and trust and to act in a fiduciary manner with
respect to all information so received during such Proceedings or otherwise
(which agreement shall be presumed by their attendance at any such Proceedings
or their acceptance of any such information); provided, further, that the
Company reserves the right not to provide information and to exclude the
Representative from any Proceeding or portion thereof if delivery of such
information or attendance at such meeting by such Representative would result in
disclosure of trade secrets to such Representative or would adversely affect the
attorney-client privilege between the Company and its counsel.
4.4. USE OF PROCEEDS. The Company agrees to use the proceeds of the Initial
Purchase Units and the Debentures for working capital purposes to finance the
anticipated growth of the Company.
4.5. ADDITIONAL FINANCING.
(a) The Company shall not be permitted to incur any additional
indebtedness which by its terms require repayment of such indebtedness prior to
repayment of the Debentures other than any debt arising out of the refinancing
or restructuring of the then outstanding principal balance of any currently
outstanding indebtedness of the Company to the Bank of Boston, Henry M. Zachs
and his affiliates ("Founders' Debt") which Founders' Debt as at the date hereof
is approximately $15,000,000 and which may be secured by any and all of the
existing or hereafter acquired assets of the Company. No such refinancing shall
cause the Company to incur any indebtedness in excess of the outstanding
principal amount at the time of any refinancing. Purchaser shall (i) execute and
deliver a Subordination Agreement, the terms of which shall be reasonably
consistent with the terms of subordination contained in the Debentures, and (ii)
not unreasonably withhold consent to additional terms of such Subordination
Agreement not contained in such Debentures, reasonably required by the holders
of the Founders' Debt (except for the holders of the Founder's Debt on the date
hereof).
(b) Simultaneously with any Borrower Voluntary Conversion (as defined
in Debenture #2), the Company will cause a portion of the Founders' Debt equal
to the lesser of (a) $7.5 million, and (b) 150% of the balance of Debenture #2
so converted to be contributed to capital of the Company with the issuance of
additional Units to the holders of the Founders' Debt. Such Units shall be
identical in all respects to the Debenture Purchase Units. The number of Units
to be issued upon any conversion of the Founders' Debt shall be determined by
dividing the amount of indebtedness converted by the then-applicable Conversion
Price (as defined in Debenture #2).
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4.6. UNIT PURCHASE RIGHTS
4.6.1 RIGHT TO MAINTAIN PARTICIPATION
(a) Subject to Section 4.6.1(b) and Section 4.6.2 hereof, prior to any
sale and/or issuance by the Company of any Senior Units, as defined in the
Certificate of Designation, or any security exercisable for or convertible into
such Units (the "Senior Units Equivalents"), the Company shall give Purchaser
written notice (the "Notice of Issuance") of the Company's intention to sell
and/or issue such Senior Units or Senior Units Equivalents, setting forth the
proposed price, quantity and other material terms and conditions under which the
Company proposes to make such sale and/or issuance. If the Company consummates
the sale or issuance of Senior Units or Senior Units Equivalents described in
the Notice of Issuance (a "Senior Units Transaction"), Purchaser shall have the
right (the "Senior Units Participation Right") to purchase or otherwise acquire
up to a number of Senior Units or Senior Units Equivalents on terms which are at
least as favorable to Purchaser as the terms on which the Company sold or
otherwise issued such Senior Units or Senior Units Equivalents in such Senior
Units Transaction, such that, immediately after the purchase or other
acquisition by the Purchaser, Purchaser's ownership of the total number of
outstanding shares of Senior Units equals the same percentage of the total
shares of Units on a Fully Diluted Basis (as described below) as Purchaser held
immediately prior to the sale or issuance described in the Notice of Issuance.
Purchaser shall have thirty (30) days from the giving of the Notice of Issuance
(the "Participation Election Period") to notify the Company in writing that it
elects to purchase or otherwise acquire some or all of its share of the Senior
Units or Senior Units Equivalents which it is entitled to purchase or otherwise
acquire under this Section 4.6.1. Any such notice is not revocable upon
expiration of the Participation Election Period, and the Purchaser must close
within fifteen (15) days of of such notice of election.
"Fully Diluted Basis" in this Section 4.6.1 means, without duplication, (i)
all of the Company's Units outstanding, (ii) all of the Company's Units issuable
upon the exercise of any option, warrant or similar right outstanding, whether
or not presently exercisable, and (iii) all of the Company's Units issuable upon
the exercise of any conversion or exchange right contained in any security
convertible into or exchangeable for the Company's units.
(b) Purchaser's Senior Units Participation Right shall terminate upon
and not be exercisable in connection with the closing of the Company's initial
registered public offering.
4.6.2 ZACHS UNIT PARTICIPATION RIGHT
(a) Prior to any sale and/or issuance by the Company (a "Zachs
Issuance") of any Units of the Company to Henry M. Zachs or an Affiliate (as
defined below) of Henry M. Zachs (the "Zachs Units") or any security exercisable
for or convertible into such Units (the "Zachs Units Equivalents"), except for
securities exercisable or convertible into units pursuant to an Option Plan or
other employee benefit plan, the Company shall give Purchaser written notice of
the Company's intention to sell and/or issue such Zachs Units or Zachs Units
Equivalents, setting forth the proposed price, quantity and other material terms
and conditions under which
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the Company proposes to make such sale and/or issuance. Purchaser shall have
the right (the "Zachs Units Participation Right") to purchase or otherwise
acquire up to fifty percent (50%) of Zachs Units and/or Zachs Units
Equivalents, or any portion thereof, proposed to be purchased by Henry M.
Zachs or his Affiliates in such Zachs Issuance on terms which are at least as
favorable to Purchaser as the terms on which the Company proposes to sell or
otherwise issue such Zachs Units or Zachs Units Equivalents in such Zachs
Issuance. Purchaser shall have thirty (30) days from the giving of the Notice
of Issuance (the "Purchaser Election Period") to notify the Company in
writing that it elects to purchase or otherwise acquire some or all of its
share of the Zachs Units or Zachs Unit Equivalents which it is entitled to
purchase or otherwise acquire under this Section 4.6.2(a). Any such notice is
not revocable upon expiration of the Participation Election Period, and the
Purchaser must close within fifteen (15) days of of such notice of election.
"Affiliate" as used in this Section 4.6.2(a) means any individual or
entity that, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control, with another
individual or entity.
(b) In the event that the Manager of the Company decides that in the
good-faith judgment of the Company, it would be seriously detrimental to the
Company and its shareholders to have the Purchaser exercise the Zachs Units
Participation Right pursuant to the terms of Section 4.6.2(a), the Company may
effect a Zachs Issuance without the Purchaser's participation as set forth in
Section 4.6.2(a); PROVIDED HOWEVER, that (i) the Company shall promptly notify
the Purchaser upon the closing of the Zachs Issuance that a Zachs Issuance has
occurred pursuant to this Section 4.6.2(b) (the "Post-Issuance Notice") and (ii)
the Purchaser shall have the right (the "Post-Issuance Right") to purchase or
otherwise acquire that number of Zachs Units, on terms at least as favorable on
which the Company sold or otherwise issued Zachs Units or Zachs Units
Equivalents in such Zachs Issuance, equal to the number of Zachs Units and/or
Zachs Units sold or otherwise issued in the Zachs Issuance, or any portion
thereof, and shall notify the Company of such election within thirty (30) days
of receipt of the Post-Issuance Notice. Any such notice is not revocable upon
expiration of such thirty (30) day period, and the Purchaser must close within
fifteen (15) days of of such notice of election.
(c) Purchaser's Zachs Units Participation Right and Post-Issuance
Right shall terminate upon the closing of the Company's initial registered
public offering.
4.7. CONFIDENTIALITY; ANNOUNCEMENTS.
(a) The Company and Purchaser shall not use or disclose to others, or
permit the use or disclosure of, any and all existing and hereafter obtained
non-public information furnished by each to the other (including confidential
information transmitted by each to its managers, officers, directors,
representatives, accountants, counsel, advisors or bankers) except as required
by law or to the extent that any such information may become generally available
to the public other than through the actions of the parties or any other person
under a duty of confidentiality. The parties may, as reasonably necessary,
disclose the terms of the Agreement herein for purposes of due diligence
relating to acquisition transactions and financings.
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(b) Neither party shall issue any press release or make any public
announcement relating to the subject matter of this Agreement without the prior
written approval of the other party; provided, however, that after the Closing
the parties may (i) make appropriate announcements to customers, and (ii) make a
public announcement to the effect that the transaction has occurred (without any
financial information), each after consultation with the other party; and
provided further that either party may make any public disclosure it believes in
good faith is required by applicable law.
ARTICLE V
REGISTRATION RIGHTS
5.1. DEFINITIONS. As used in this Agreement, the terms "register,"
"registered" and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act, and
the declaration or ordering of the effectiveness of such registration statement.
The term "Registrable Securities" means (i) the Initial Purchaser Units and the
Purchase Units issued or issuable on conversion of either or both of the
Debentures; (ii) any and all shares of capital stock issued in consequence of an
Incorporation Transaction, as defined in the Operating Agreement, as
supplemented by the Certificate of Designation; or (iii) any and all securities
issued or exchanged, as the case may be, in respect of any of the securities
referred to in clauses (i) and (ii) as a result of a split or dividend of a
security, reorganization, recapitalization or the like; PROVIDED THAT, in every
case, particular units or shares of any of the foregoing shall cease to be
Registrable Securities once they have been sold in any public offering or can be
resold without limitation, under Rule 144(k) or any successor provision of the
Securities Act.
5.2. DEMAND TO REGISTRATION.
(a) NOTICE: If the Company (including, for purposes of this Section 5,
any shares of capital stock received by Purchaser pursuant to the Incorporation
Transaction) receives from Purchaser a written request that the Company register
Registrable Securities equivalent to at least twenty percent (20%) of the
aggregate number then outstanding, or a lesser percentage if the anticipated
aggregate offering price of the Registrable Securities to be registered, net of
standard underwriting discounts, would exceed $5,000,000, the Company will (i)
promptly give notice of the proposed registration to all other holders of the
Company's securities and (ii) as soon as practicable, use its best efforts to
register such Registrable Securities as requested and to facilitate the sale and
distribution of the Purchasers' Registrable Securities as specified in such
request
(b) UNDERWRITING: The Purchaser agrees to provide the Company with the
name of a nationally-recognized managing underwriter or underwriters that they
propose to employ, subject to the approval of the Company, which shall not be
unreasonably withheld as a part of Purchaser's request made pursuant to this
Section 5.2. The right of Purchaser to register
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its Registrable Securities is conditioned upon Purchaser's participation in the
underwriting, including its entering into an underwriting agreement in customary
form with the underwriters.
(c) CUTBACKS: If the managing underwriter advises the Company and
Purchaser in writing that in its good faith judgment the number of securities
requested to be included in such registration exceeds the number of securities
that can be sold in such offering, then the number of Registrable Securities
requested to be included in such registration shall be reduced to that number of
Registrable Securities which in the good faith judgment of the managing
underwriter can be sold in the offering.
(d) COMPANY PARTICIPATION: The Company and other holders of the
Company's securities may include securities for its (or their) own account in
such registration if the managing underwriter so agrees and if the number of
securities that would otherwise have been included in such registration and
underwriting will not thereby be limited.
(e) LIMITATIONS: No demand for registration under this Section 5.2
shall be made until at least six (6) months after an initial public offering by
the Company. The Company shall not be obligated to effect any demand
registration pursuant to this Section 5.2, if the Company has already effected
two registrations upon request from Purchaser pursuant to this Section 5.2. In
the event that the Company has received a request for registration pursuant to
this Section 5.2 and if the registration would become effective within one
hundred eighty (180) days following the effective date of a public offering by
the Company of securities for its own account, the Company shall have the right,
upon prompt notification to the Purchaser, to decline the request for
registration; provided that the Company shall take such actions as may be
reasonably necessary in order that the registration pursuant to this Section 5.2
shall be declared effective as soon as practicable after the expiration of such
one hundred eighty (180) days period, and in the event that the Company has
received a request for registration pursuant to this Section 5.2 and if at the
time of such receipt the Company has a bona fide good faith intention to file
within 120 days a registration statement for its own account of any of the
Company's securities, the Company shall have the right, upon prompt notification
to Purchaser to decline the request for registration, provided that Purchaser is
entitled to join in the offering initiated by the Company in the manner and to
the extent provided in Section 5.3 below. Any such declined request for
registration shall not count as a request for registration pursuant to this
Section 5.2.
5.3. PIGGYBACK REGISTRATION.
(a) NOTICE: If, after the Company's initial registered public
offering, the Company decides to register any of its securities in an
underwritten offering (other than a registration on any form which does not
permit secondary sales or does not include substantially the same information as
would be required to be included in a registration statement covering the
Registrable Securities), the Company will (i) promptly give Purchaser written
notice, and (ii) include in such registration all Registrable Securities
specified in a written response, made within 15 calendar days after the date of
such written notice from the Company, by Purchaser.
(b) UNDERWRITING: Purchaser shall have the right to select a
co-managing underwriter reasonably acceptable to the Company for any
registration in which Purchaser is
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including Registrable Securities pursuant to this Section 5.3. The right of
Purchaser to register its Registrable Securities is conditioned upon Purchaser's
participation in the underwriting, including its entering into an underwriting
agreement in customary form with the underwriters.
(c) CUTBACKS: The underwriters may limit the amount of securities to
be included in the registration by the Company's shareholders in view of market
conditions. If, however, such a limitation is required, the securities that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner: first to the holders of securities of the Company
initiating such registration pursuant to the exercise of demand registration
rights or to the Company for its own account if such registration was initiated
by the Company, second, to the extent permitted by such limitation, by the
Purchaser and all other holders of securities of the Company having registration
rights which are pari passu with the rights of the Purchaser, pro rata based on
the total number of securities proposed to be registered.
5.4. COMPANY DELAY OF REGISTRATION. The Company shall file a registration
statement as soon as practicable after receipt of a request specified in Section
5.2 or 5.3; however, if in the good faith judgment of the management of the
Company that it would be of serious detriment to the Company and its
shareholders for such registration statement to be filed promptly, such
detriment including, without limitation, (i) such filing of the registration
statement requiring disclosure of information not otherwise then required to be
disclosed, the disclosure of which would adversely affect any material business
opportunity, transaction or negotiation then contemplated by the Company or (ii)
such filing of the registration statement not reasonably being in the best
interests of the Company, the Company shall have the right to defer such filing
for a period of not more than 120 calendar days.
5.5. EXPENSES OF REGISTRATION. All Registration Expenses relating to
securities registered by Purchaser shall be borne by the Company. "Registration
Expenses" means all expenses incurred by the Company in complying with this
Section 5, including all registration, qualification and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, fees
and disbursements of one counsel for the selling shareholders, blue sky fees,
and expenses and the expense of any special audits incident to or required by
any such registration but shall not include underwriting discounts, commissions
or fees (which discounts, commissions and fees shall be borne pro rata by the
Purchaser and any other holder of Company Securities requesting registration on
the basis of the number of their shares registered); provided, however, that the
Company shall not be required to pay any Registration Expenses if, as a result
of the withdrawal of a request for registration by a majority in interest of the
holders of company securities requesting registration (other than as a result of
a material adverse change in the Company's business, financial condition or
operating results or as a result of an event which materially and adversely
affect the holders' ability to sell their shares in compliance with Federal
securities laws), the registration statement does not become effective, in which
case the Purchaser and any other holder of Company securities requesting
registration shall bear such Registration Expenses PRO RATA on the basis of the
number of their securities included in the registration request.
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5.6. REGISTRATION PROCEDURES. In the case of each registration effected
pursuant to this Article V, the Company will, upon request, inform Purchaser as
to the status of each such registration. At its expense, the Company will:
(a) Keep such registration, and any qualification or compliance under
state securities laws which the Company determines to obtain, effective for a
period of 180 calendar days or until Purchaser has completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that the Company, in good faith, may delay the filing
of any required amendment or supplement to the registration for a reasonable
period of time, not to exceed one hundred twenty (120) days in order to permit
the Company (i) to effect disclosure or disposition or consummation of any
transaction requiring confidential treatment which is being actively pursued at
such time and which would require disclosure in the registration statement or
(ii) to negotiate, effect or complete any transaction which the Company
reasonably believed might be jeopardized, delayed or made more costly to the
Company by disclosure in the registration statement;
(b) Furnish such number of prospectuses and other documents incident
thereto as Purchaser from time to time may reasonably request;
(c) Supply to Purchaser drafts of the registration statement for its
review and Purchaser shall have the right to approve the portions of the
registration statement which relate to Purchaser, provided that such approval is
not to be unreasonably withheld or delayed;
(d) Use its best efforts to register and quality the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by Purchaser,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions; and
(e) Notify Purchaser when a prospectus relating thereto is required to
be delivered under the Securities Act, at any time that the Company becomes
aware of the happening of any event as a result of which 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.
5.7. FORM S-3. Following the Company's Initial Public Offering, the Company
shall use its best efforts to become eligible to register offerings of
securities on SEC Form S-3 or its successor form. After the Company has
qualified for the use of Form S-3, the Purchaser shall have the right to request
registration on Form S-3 (which request shall be in writing and shall state the
number of shares of Registrable Securities to be registered and the intended
method of disposition of shares by the Purchaser).
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Notwithstanding the foregoing:
(a) The Company shall not be required to effect a registration
pursuant to this Section 5.7 within 180 days of the effective date of any
registration referred to in Sections 5.2 and 5.3 above or the effective date of
the last registration pursuant to this Section 5.7;
(b) The Company shall not be required to effect a registration
pursuant to this Section 5.7 unless the Purchaser requesting registration
propose to dispose of Registrable Securities having an anticipated aggregate
price to the public (before deduction of underwriting discounts and expenses of
sale) of at least $5,000,000; and
(c) The Company shall have the right to defer filing a registration
statement pursuant to this Section 5.7 for a period of up to 120 days following
the requested filing date if the Company furnishes to the Purchaser requesting
registration a certificate signed by an authorized officer of the Company
stating that in the good faith judgment of the Company, it would be a serious
detriment to the Company and its shareholders for such registration statement to
be filed at the time requested, such detriment including, without limitation,
(i) such filing of the registration statement requiring disclosure in the
registration statement of information not otherwise then required to be
disclosed, the disclosure of which would adversely affect any material business
opportunity, transaction or negotiation then contemplated by the Company or (ii)
such filing of the registration statement not reasonably being in the best
interests of the Company.
Subject to the foregoing, the Company shall give notice to the holders of
all Company securities of a request for registration pursuant to this Section
5.7 and shall provide a reasonable opportunity for other holders to participate
in the registration; provided that if the registration is for an underwritten
offering, the terms of Sections 5.2(b), (c) and (d) shall apply to such
offering. The Company will use its best efforts to effect promptly the
registration of all shares of Registrable Securities on Form S-3 to the extent
requested by the Purchaser thereof for purposes of disposition.
5.8. INDEMNIFICATION.
(a) BY THE COMPANY: To the extent permitted by law, the Company will
indemnify the Purchaser with respect to which registration has been effected
pursuant to this Agreement, each of its officers, directors and partners, each
person controlling such Purchaser, each manager and controlling person of the
Company and each officer of the Company who signed the registration statement,
each underwriter of offerings effected pursuant to this Agreement, if any, and
each person who controls any such underwriter, against all claims, losses,
expenses, damages and liabilities (or actions in respect thereto), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation or alleged violation by the Company
20
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of the Securities Act, the Securities Exchange Act of 1934 (the "Exchange Act")
or any state securities law applicable to the Company or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any such state law and
relating to action or inaction required of the Company in connection with any
such registration. The Company will reimburse the Purchaser, each of its
officers, directors and partners, and each person controlling the Purchaser,
each such underwriter and each person who controls any such underwriter, within
a reasonable amount of time after such expense is incurred for any reasonable
legal and any other expenses incurred in connection with investigating,
defending or settling any such claim, loss, damage, liability or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 5.8(a)
shall not apply to amounts paid in settlement of any such claim, loss, damage,
liability, or action if such settlement is effected without the consent of the
Company; AND PROVIDED FURTHER, that the Company will not be liable in any such
case to the extent that any such claim, loss, damage or liability arises out of
or is based on any untrue statement or omission based upon written information
furnished to the Company by such Purchaser or underwriter specifically for use
therein.
(b) BY THE PURCHASER. The Purchaser will, as to each registration in
which such Purchaser is participating, indemnify the Company, each of its
directors, managers and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company within the meaning of the Securities Act and each other holder of
Company securities as to such registration is being effected and such other
holders, officers, directors and each person controlling such other holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereof) including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and its officers, persons and underwriters and such
other holders, officers, managers and directors for any reasonable legal or any
other expenses incurred in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Purchaser
specifically for use therein; PROVIDED, HOWEVER, that (i) the indemnity
agreement contained in this Section 5.8((b)) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Purchaser and (ii) that the
total amount for which the Purchaser shall be liable under this Section 5.8(b)
shall not in any event exceed the aggregate proceeds received by such Purchaser
from the sale of Registrable Securities held by such Purchaser in such
registration.
5.9. INDEMNIFICATION PROCEDURES. Each party entitled to indemnification
under this Section 5.9 ("Indemnification") (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the
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Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom; PROVIDED THAT counsel for the Indemnifying Party proposed
to conduct the defense of such claim or litigation shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such Indemnified Party's
election and expense; PROVIDED FURTHER, THAT the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations hereunder, unless such failure resulted in prejudice to the
Indemnifying Party; AND PROVIDED FURTHER, THAT an Indemnified Party (together
with all other Indemnified Parties which may be represented without conflict by
one counsel) shall have the right to retain one separate counsel, with the fees
and expenses of such counsel to be paid by the Indemnifying Party, if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by
counsel for the Indemnifying Party in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to all Indemnified Parties of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defenses of and claim and litigation resulting
therefrom.
5.10. RULE 144 REPORTING. With a view to making available to the Purchaser
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act ("Rule
144"), after 90 days after the effective date of the registration for the
Initial Public Offering;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after the Company has become subject to such reporting
requirements); and
(c) so long as the Purchaser owns any Registrable Securities, to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the registration statement filed
by the Company for the Initial Public Offering) and the Securities Act and
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents filed with the SEC by the Company
as the Purchaser may reasonably request in complying with any rule or regulation
of the SEC allowing the Purchaser to sell any such securities without
registration.
5.11. TERMINATION OF REGISTRATION RIGHTS. The obligations of the Company
pursuant to this Section 5 ("Registration Rights") shall terminate with respect
to the Purchaser on the earlier
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of (i) three years following the effective date of the Company's initial public
offering or (ii) at such time as (a) the Company is then providing current
public information within the meaning of Rule 144(c)(1), and (b) such Purchaser
is, or has been, able to sell under Rule 144 during any one 3-month period all
of the remaining Registrable Securities issued to the Purchaser.
5.12. MARKET STANDOFF AGREEMENT. Purchaser agrees that it will not sell,
grant an option to purchase or otherwise transfer or dispose of any Company
securities held by Purchaser during the 180 day period following the effective
date of a registration statement filed under the Securities Act (other than
Registrable Securities included in such Registration statement) without the
prior written consent of the Company; provided, however, that all holders of
greater than 5% of the Company's securities enter into similar agreements on
substantially similar terms.
ARTICLE VI
CLOSING DELIVERIES
6.1. THE COMPANY'S ACTIONS AT THE CLOSING: At the Closing, the Company will
deliver to the Purchaser the following against delivery of the purchase price
specified in Section 6.2 hereof:
(a) originals, executed by the Manager on behalf of Company, of the
Certificate of Designation;
(b) originals, executed by the Company; of the Debentures; and
(c) an opinion of Brenner, Saltzman & Wallman LLP, in the form
attached hereto as EXHIBIT E.
6.2. THE PURCHASER'S ACTIONS AT THE CLOSING. At the Closing, the Purchaser
will deliver to the Company the sum of Two Million Five Hundred Thousand Dollars
($2,500,000) in cash by check or wire transfer to an account designated by the
Company on the Closing Date against delivery of the items specified in Section
6.1 hereof.
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ARTICLE VII
MISCELLANEOUS
7.1. GOVERNING LAW. This Agreement will be governed in all respects by the
laws of the State of Connecticut as such laws are applied to agreements between
Connecticut residents entered into and to be performed entirely within
Connecticut.
7.2. SURVIVAL. The representations, warranties, covenants and agreements
made herein will survive the execution of this Agreement and the Closing of the
transactions contemplated hereby.
7.3. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof will inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto,
including, without limitation the Incorporation Transaction Corporation.
Purchaser may not assign its rights to purchase the Purchase Units or either of
the Debentures and the Company may not assign its rights to receive the proceeds
of such purchase, except to the Reincorporation Corporation.
7.4. ENTIRE AGREEMENT. This Agreement, the exhibits to this Agreement and
the other documents delivered pursuant hereto or incorporated by reference
herein constitute the full and entire understanding and agreement among the
parties with regard to the subjects hereof and thereof and supersede all prior
oral and written understandings, agreements and commitments with regard to such
subjects by or among the parties hereto.
7.5. NOTICES, ETC. All notices and other communications required or
permitted hereunder will be in writing and will be mailed by nationally
recognized overnight courier, addressed, if to
the Purchaser: Bay Networks, Inc.
4401 Great America Parkway
Santa Clara, CA 95052-8182
Attention: General Counsel
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301-1825
Attention: Bruce E. Schaeffer, Esq.
the Company: Ziplink LLC
40 Woodland Street
Hartford, CT 06105
Attention: Henry M. Zachs or Manager
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with a copy each to:
Ziplink LLC
900 Chelmsford Street
Tower One, Fifth Floor
Lowell, Massachusetts 01857
Attn: President
Brenner, Saltzman & Wallman, LLP
271 Whitley Avenue
New Haven, CT 05511
Attention: Wayne A. Martino, Esq.
7.6. NO WAIVERS. No failure on the part of any party to exercise or delay
in exercising any right hereunder will be deemed a waiver thereof, nor will any
such failure or delay, or any single or partial exercise of any such right,
preclude any further or other exercise of such right or any other right.
7.7. SEPARABILITY. If any provision of this Agreement, or the application
thereof, is for any reason and to any extent determined by a court of competent
jurisdiction to be invalid or unenforceable, the remainder of this Agreement and
the application of such provision to other persons or circumstances will be
interpreted so as best to reasonably effect the intent of the parties hereto.
The parties agree to use their best efforts to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent greatest possible, the economic, business and
other purposes of the void or unenforceable provision.
7.8. EXPENSES. The Company and the Purchaser shall each bear its respective
expenses and legal fees incurred with respect to this Agreement and the
transactions contemplated hereby.
7.9. 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.
7.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be an original, but all of which together will
constitute one instrument.
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The parties have executed this Agreement as of the day and year first above
written.
ZIPLINK, LLC
By: /s/HENRY M. ZACHS
-----------------------
, Henry M. Zachs, Manager
BAY NETWORKS, INC.:
By:/s/ David Rynne
--------------------------
CFO
--------------------------
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EXHIBIT 10.2
CONVERTIBLE DEBENTURE
$5,000,000 December 23, 1997
FOR VALUE RECEIVED, the undersigned, ZIPLINK, LLC ("BORROWER"), hereby
promises to pay to BAY NETWORKS, INC. ("LENDER"), or order, the principal sum or
so much of the principal sum of Five Million Dollars ($5,000,000) as may from
time to time have been advanced and be outstanding, together with accrued
interest as provided herein.
This Debenture is issued pursuant to the Securities Purchase Agreement,
dated of even date hereof, between the Borrower and the Lender, as may be
amended from time to time (the "PURCHASE AGREEMENT"). Lender is entitled to the
benefits of the Purchase Agreement and may enforce the Borrower's agreements
contained therein and may exercise the remedies provided for thereby or
otherwise available with respect thereof.
A. PRINCIPAL.
1. ADVANCES. Borrower may from time to time and in any event no later
than March 25, 1998, request advances in increments of not less than Five
Hundred Thousand Dollars ($500,000) from Lender (individually an "ADVANCE" and
collectively the "ADVANCES") by giving written notice to Lender in accordance
with the terms hereof, which notice shall indicate the amount of the Advance
requested and the proposed use of the Advance proceeds. Provided that no Event
of Default is in existence and that the requested Advance would not cause an
Event of Default to occur, Lender shall make the Advance to Borrower within five
(5) days of receipt of Borrower's notice. Lender shall not be obligated to make
an Advance to the extent that such Advance, when aggregated with all prior
Advances, would exceed Five Million Dollars ($5,000,000). Borrower shall not
have the right to re-borrow any Advance to the extent that it has been repaid.
2. USE OF PROCEEDS. The proceeds of Advances shall be used exclusively
for the buildout of Borrower's national Internet access network and for general
working capital purposes.
B. INTEREST. Interest shall accrue with respect to the principal sum outstanding
hereunder at a floating per annum rate equal to the London Interbank Offered
Rate for U.S. Dollar deposits for six (6) month periods ("LIBOR") as listed in
THE WALL STREET JOURNAL Money Rates report as of the date hereof plus
eight-tenths percent (0.8%). Any change in interest rate resulting from a change
in LIBOR shall be effective as of each six (6) month interval following the date
hereof and shall remain in effect for the following six (6) interval. However,
if an Event of Default, as defined herein, occurs, then interest shall accrue at
the rate per annum equal to two percent (2%) plus the rate that would otherwise
be in effect (the "DEFAULT RATE"). Interest payable hereunder shall be
calculated on the basis of a three hundred sixty (360) day year for actual days
elapsed. Interest shall be due and payable in arrears on the fifteenth day of
each calendar month, commencing with the first payment on February 15, 1998.
<PAGE>
C. PAYMENT.
1. SCHEDULED PAYMENT. The principal indebtedness shall be payable in
sixty (60) equal monthly installments with the first installment payable on
September 15, 1999 and each subsequent installment due on the fifteenth day of
each month thereafter. On September 15, 2004, all outstanding principal and all
accrued and unpaid interest shall become due and payable.
2. PREPAYMENT. Borrower shall not have the right to prepay, in whole or
in part, any outstanding principal and accrued interest hereunder without
Lender's prior consent.
3. FORM OF PAYMENT. Principal and interest and all other amounts due
hereunder are to be paid in lawful money of the United States of America in
federal or other immediately available funds.
D. EVENTS OF DEFAULT; REMEDIES.
1. DEFINITION OF EVENT OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an "EVENT OF DEFAULT" hereunder:
a. PAYMENT DEFAULT. The Borrower's breach of the obligation to
pay the principal outstanding and interest accrued hereunder or under Debenture
#1 on the applicable due date if such breach is not cured within two business
days (2) after notice by Lender to Borrower of such breach;
b. BREACHES OF OTHER COVENANTS. The Borrower's breach of any
covenant, obligation, condition or agreement contained in this Debenture or the
Purchase Agreement, other than those specified in Section D.1.a., if such breach
continues for thirty (30) days after notice by Lender to Borrower of such breach
or, if such breach is not curable within such thirty (30) day period, but is
reasonably capable of cure within forty-five (45) days after notice by Lender to
Borrower of such breach, either (1) such breach continues for forty-five (45)
days, or (2) the Borrower has not commenced a cure in a manner reasonably
satisfactory to the Lender during the initial thirty (30) day period;
c. MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein, the Purchase Agreement or in any certificate delivered to the
Lender pursuant to this Debenture or the Purchase Agreement;
d. BANKRUPTCY. The institution by the Borrower of proceedings
against it or the filing by it of a petition or answer or consent seeking
reorganization or release under the federal Bankruptcy Code, or any other
applicable federal or state law, or the consent by it to the filing of any such
petition or the appointment of a receiver, liquidator, assignee, trustee or
other similar official of the Borrower or of any substantial part of its
property, or the making by it of an
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assignment for the benefit of creditors, or the taking of corporate action in
furtherance of such action;
e. CROSS-DEFAULT. The occurrence and continuance of any
default under any indebtedness of Borrower in excess of Two Hundred Thousand
Dollars ($200,000) that gives the creditor of such indebtedness the right to
accelerate such indebtedness;
f. ATTACHMENT. If any material portion of the Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within fifteen
(15) days, or if the Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim in excess of Two Hundred
Thousand Dollars ($200,000) becomes a lien or encumbrance upon any material
portion of the Borrower's assets, or if a notice of lien, levy, or assessment is
filed of record with respect to any of the Borrower's assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, and the same is not paid
within fifteen (15) days after the Borrower receives notice thereof, provided
that none of the foregoing shall constitute an Event of Default where such
action or event is stayed or an adequate bond has been posted pending a good
faith contest by the Borrower; or
g. JUDGMENTS. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Two Hundred
Thousand Dollars ($200,000) shall be rendered against the Borrower and shall
remain unsatisfied or unstayed for a period of thirty (30) days.
2. REMEDIES. During the continuance of any Event of Default, the Lender
may accelerate payment of the principal outstanding and interest accrued
hereunder and may exercise all rights and remedies granted by law. Upon the
occurrence of any Event of Default described in Section D.1.d., payment of the
principal outstanding and interest accrued hereunder shall be automatically
accelerated without any action by Lender.
E. CONVERSION RIGHTS.
1. AUTOMATIC CONVERSION. The outstanding principal balance of this
Debenture shall be automatically converted, together with all accrued interest
due and payable on the conversion date with respect to the principal balance so
converted (an "AUTOMATIC CONVERSION"), into fully paid and nonassessable Units
upon the occurrence of (i) an IPO of the Borrower, (ii) a Sale of Business Event
or (iii) a Sale of Units Event, unless an Event of Default exists on the date of
such occurrence, in which case the Automatic Conversion shall not occur until no
Events of Default exist. The number of Units issuable upon an Automatic
Conversion shall be determined by dividing the principal balance hereunder being
converted by the IPO Price Per Unit in the case of an IPO or by the Conversion
Price in the event of a Sale of Business Event or a Sale of Units Event.
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2. LENDER VOLUNTARY CONVERSION. Lender may, in its sole discretion, at
any time and from time to time after June 30, 1999, elect to convert (the
"LENDER VOLUNTARY CONVERSION RIGHT") all or any part of the principal balance to
be converted into such number of fully paid and nonassessable Units, as
determined by dividing the principal balance hereunder being converted together
with all accrued interest due and payable on the conversion date with respect to
the principal balance so converted by the Conversion Price.
3. BORROWER CONVERSION. Borrower may, in its sole discretion, at any
time and from time to time after June 30, 1999, elect to convert (the "BORROWER
CONVERSION RIGHT") all of the principal balance to be converted into such number
of fully paid and nonassessable Units of the Lender, as determined by dividing
the principal balance hereunder together with all accrued interest due and
payable on the conversion date with respect to the principal balance so
converted by the Conversion Price. No exercise of the Borrower Conversion Right
shall be effective unless, simultaneously with the exercise of such right,
Borrower causes a portion of the Senior Debt equal to the lesser of (a) $7.5
million, and (b) 150% of the principal balance to be converted to be contributed
to capital of the Borrower with the issuance of additional Units to the holders
of the Senior Debt. Such Units shall be identical in all respects to the
Borrower Conversion Units (as defined herein). The number of Units to be issued
upon any conversion of the Senior Debt shall be determined by dividing the
amount of indebtedness converted by the Conversion Price. In the event Borrower
exercises its Borrower Conversion Right, Lender shall be entitled to the
additional preferential return or distribution of proceeds, as the case may be,
as set forth in the Certificate of Designation.
4. EXERCISE OF CONVERSION RIGHTS
a. PROCEDURE UPON AUTOMATIC CONVERSION. In the event of an
Automatic Conversion, Borrower shall, as soon as practicable thereafter, deliver
to Lender a certificate or certificates, registered in Lender's name, for the
number of Units to which Lender shall be entitled by virtue of such Automatic
Conversion (the "AUTOMATIC CONVERSION UNITS"). The Automatic Conversion shall be
deemed to have occurred on the date of the event triggering the Automatic
Conversion and Lender shall be treated for all purposes as the record holder of
the Automatic Conversion Units as of such date.
b. PROCEDURE FOR LENDER VOLUNTARY CONVERSION. To convert any
of the principal balance hereunder into Units by exercise of the Voluntary
Conversion Right, Lender shall deliver to Borrower a written notice of election
to exercise the Voluntary Conversion Right (the "VOLUNTARY CONVERSION NOTICE").
Borrower shall, as soon as practicable thereafter, issue and deliver to Lender a
certificate or certificates, registered in Lender's name, for the number of
Units to which Lender shall be entitled by virtue of such exercise (the
"VOLUNTARY CONVERSION UNITS"). The conversion of the principal balance shall be
deemed to have been made on the date that Borrower receives the Voluntary
Conversion Notice (the "CONVERSION DATE") and Lender shall be treated for all
purposes as the record holder of the Voluntary Conversion Units as of such date.
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c. PROCEDURE FOR BORROWER CONVERSION. To convert any of the
principal balance hereunder into Units pursuant the exercise of a Borrower
Conversion Right, Borrower shall deliver to Lender a written notice of election
to exercise the Borrower Conversion Right (the "BORROWER CONVERSION NOTICE").
Borrower shall, together with delivery of the Borrower Conversion Notice or
promptly thereafter, issue and deliver to Lender a certificate or certificates,
registered in Lender's name, for the number of Units to which Lender shall be
entitled by virtue of such exercise (the "BORROWER CONVERSION UNITS"). The
conversion of the principal balance shall be deemed to have been made on the
date that Lender receives the Borrower Conversion Notice and Lender shall be
treated for all purposes as the record holder of the Voluntary Conversion Units
as of such date.
d. ADDITIONAL DISCLOSURE. In connection with any conversion
hereunder and prior to the effectiveness of such conversion, at the request of
the Borrower, Lender shall make representations substantially similar to those
representations in Article III of the Purchase Agreement. Prior to the
effectiveness of any conversion, Borrower may offer to the Lender the
opportunity to receive information concerning the Borrower that is in the
Borrower's possession at that time and has not previously been disclosed to
Lender or its representatives. Borrower shall make such offer without disclosing
whether any material nonpublic information exists but may condition the offer on
the agreement (i) to keep any material non-public information confidential until
such time as Borrower releases such information to the public and (ii) if
applicable, to only use information to withdraw its exercise of Lender's
Voluntary Conversion Right. The foregoing shall not in any manner limit Lender's
right to receive information with respect to Borrower pursuant to the Purchase
Agreement, the Operating Agreement, as supplemented by the Certificate of
Designation or as Lender may be otherwise be entitled to receive under
applicable law.
5. FRACTIONAL UNITS. Borrower shall not issue fractional Units upon an
Automatic Conversion or upon exercise of the Voluntary Conversion Right or the
Borrower Conversion Right. As to any fractional Unit which Lender would
otherwise be entitled to receive, Lender shall receive from Borrower an amount
in cash equal to an amount calculated by multiplying such fractional Unit by the
Conversion Price. Payment of such amount shall be made in cash or by check
payable to the order of Lender at the time of delivery of any certificate or
certificates.
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<PAGE>
6. CONVERSION PRICE ADJUSTMENTS.
a. ADJUSTMENTS FOR UNIT SPLITS AND SUBDIVISIONS. If Borrower
at any time or from time to time after the date hereof splits or subdivides the
outstanding Units or makes a payment or other distribution payable in additional
Units or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional Units (hereinafter
referred to as "UNIT EQUIVALENTS") without payment of any consideration by such
holder for the additional Units or the Unit Equivalents (including the
additional Units issuable upon conversion or exercise thereof), then, as of the
date of such dividend, distribution, split or subdivision, the Conversion Price
shall be appropriately decreased so that the number of Units issuable upon
conversion of this Debenture shall be increased in proportion to such increase
of outstanding Units.
b. ADJUSTMENTS FOR REVERSE UNIT SPLITS. If the number of Units
outstanding at any time after the date hereof is decreased by a combination of
the outstanding Units then, following the date of such combination, the
Conversion Price shall be appropriately increased so that the number of Units
issuable on conversion hereof shall be decreased in proportion to such decrease
in outstanding Units.
c. ADJUSTMENTS FOR DILUTIVE ISSUANCES WITHOUT CONSIDERATION.
Upon each Issuance of Units after the date hereof without consideration (a
"DILUTIVE ISSUANCE"), the number of Units issuable upon a Conversion of this
Debenture shall be increased by the number of Units determined under the
following formula:
X= (B X A)-(B X C)
---------------
C
Where: X= The increase in the number of Units acquirable hereunder
B= The number of Units acquirable hereunder immediately prior to
the Issuance of Units
A= The Conversion Price in effect immediately prior to the
Issuance of Units
C= The Adjusted Unit Value.
For purposes hereof, the Adjusted Unit Value, upon the closing of any Dilutive
Issuance shall be the amount equal to the amount obtained by multiplying the
Units Outstanding immediately prior to the Dilutive Issuance by the Conversion
Price in effect immediately prior to the Issuance of Units, and dividing the
resulting product by the Units Outstanding immediately after the Dilutive
Issuance.
Concurrent with each adjustment in the number of Units acquirable hereunder as a
result of a Dilutive Issuance, the Conversion Price shall be adjusted to the
amount equal to the price obtained by multiplying the Conversion Price in effect
immediately prior to the Dilutive Issuance
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by a fraction, the numerator of which is the number of Units acquirable
hereunder immediately prior to the Dilutive Issuance and the denominator of
which is the number of Units acquirable hereunder immediately after the Dilutive
Issuance.
7. DOWN ROUND. Borrower agrees that so long this Debenture is
outstanding, it shall not, without Lender's consent, make any Issuance of Units
or Deemed Issuance of Units at a price per Unit (or the applicable conversion or
Option exercise price per Unit in the case of a Deemed Issuance of Units) (the
"DOWN ROUND PRICE") which is less than the Conversion Price (a "DOWN ROUND").
Notwithstanding the foregoing, Lender's consent shall not be required (a) for
the Issuance or Deemed Issuance of Units of up to 2,000,000 Units subject to
equitable adjustment in the event of any dividend, distribution, split,
subdivision or combination of Units without payment of additional consideration,
upon the exercise of currently outstanding or subsequently issued Options to
employees, managers and consultants of the Borrower (other than to Henry Zachs,
his immediate family and his affiliates) or (b) if the Borrower unilaterally
elects to adjust the Conversion Price downward to the Down Round Price. In the
event Borrower elects to adjust the Conversion Price downward pursuant to the
preceding sentence, Lender shall have the further right to waive some or all of
the benefit of any Down Round adjustment. The provisions of this Section E.7
shall not apply to the Issuance of Units pursuant to the conversion of Debenture
#1.
8. LOOKBACK EVENTS.
a. IPO LOOKBACK. If, following an exercise of the Borrower
Conversion Right, there shall occur an IPO and the Transaction Value of Borrower
is less than $100 Million Dollars, then Lender shall be entitled to receive that
number of additional Units determined by the following formula:
X= P - Y
--
(A)(.85)
Where: X= The number of Units acquirable pursuant to this subsection
P= The amount of principal converted
A= The IPO Price Per Unit, as applicable
Y= The number of Units Issued to Lender upon the exercise of the
Borrower Conversion Right
b. SALE LOOKBACK. Upon the occurrence of an Automatic
Conversion caused by a Sale of Business Event or a Sale of Units Event, Lender
shall under certain circumstances be entitled to preferential distribution as
set forth in the Certificate of Designation.
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F. SUBORDINATION.
1. SUBORDINATION TO SENIOR DEBT. The Lender, by accepting this
Debenture, agrees for itself and its successors and assigns that payment of
principal, interest and other amounts due to the Lender hereunder (collectively
the "SUBORDINATED DEBT") is subordinated in right of payment to the prior
payment in full of the Senior Debt on the terms set forth herein. Without the
consent of the Senior Debtholder, no payment on account of the Subordinated Debt
shall be made except for regularly scheduled monthly installments of principal
and/or interest hereunder.
2. SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE
BORROWER.
a. PRIORITY OF PAYMENT UPON DISTRIBUTION OF ASSETS. Upon any
Distribution of Assets in the event of any dissolution or winding up or total or
partial liquidation or reorganization, whether voluntary or involuntary, or
adjustment or protection or relief or composition of the Borrower or the
Borrower's debts, or in any bankruptcy, insolvency, receivership, arrangement,
reorganization, relief or other proceeding of the Borrower or upon an
arrangement for the benefit of creditors of the Borrower or any other
marshalling of the assets and liabilities of the Borrower:
(i) all amounts payable under or on account of the
Senior Debt shall first be paid in full before the Lender shall be entitled to
receive any Distribution of Assets with respect to the Subordinated Debt; and
(ii) before any payment may be made on account of the
Subordinated Debt, any such Distribution of Assets to which Lender would be
entitled, except for the provisions of this Section F.2.a., shall be made
directly to Senior Debtholders to the extent necessary to pay all Senior Debt in
full, after giving effect to any concurrent payment or distribution to Senior
Debtholders. In the case of a non-cash Distribution of Assets with respect to
the Subordinated Debt which is delivered to Senior Debtholder under this Section
F.2.a., the Senior Debt shall be deemed satisfied in the amount equal to the
cash realized by Senior Debtholders upon disposition of such Distribution of
Assets; until such disposition, the non-cash Distribution of Assets shall be
held as security for the Senior Debt.
b. NOTICE OF DISTRIBUTION OF ASSETS. The Borrower shall give
prompt written notice to Senior Debtholders and Lender of any Distribution of
Assets of the nature described in this Section F.2.
c. LENDER RELIANCE. Upon any Distribution of Assets, Lender
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation,
bankruptcy or reorganization proceeding is pending, or a certificate of the
liquidating trustee or the Senior Debtholders or other person making such
distribution to Lender, for the purpose of ascertaining the persons entitled to
participate in such Distribution of Assets, the Senior Debtholders, the amount
thereof or payable thereon, the
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amount or amounts paid or distributed thereon and all other facts pertinent
thereto and this Section F.2.
d. AUTHORIZATION OF SENIOR DEBTHOLDERS. Senior Debtholders are
hereby irrevocably authorized and empowered (in their own name or in the name of
Lender or otherwise), but shall have no obligation, to demand, sue for, collect
and receive every Distribution of Assets and give acquittance therefor and to
file claims and proofs of claim in respect of the Subordinated Debt and take
such other action (but excluding voting the Subordinated Debt) on behalf of
Lender as they may reasonably deem necessary or advisable for the exercise or
enforcement of any of their rights or interests hereunder if Lender does not
take such actions within a reasonable period of time after the Senior
Debtholders' request. Lender shall duly and promptly take such action as Senior
Debtholders may reasonably request (A) to collect the Subordinated Debt for the
account of Senior Debtholders and to file appropriate claims or proofs of claim
in respect of the Subordinated Debt, (B) to execute and deliver to Senior
Debtholders such powers of attorney, assignments, or other instruments as they
may request in order to enable them to enforce any and all claims with respect
to the Subordinated Debt, and (C) to collect and receive any and all
Distribution of Assets which may be payable or deliverable upon or with respect
to the Subordinated Debt.
3. SUBORDINATION ON SENIOR PAYMENT DEFAULT. If there has occurred and
is continuing a Senior Payment Default, Lender may not receive payment under or
on account of the Subordinated Debt, directly or indirectly, in cash or other
property or by set-off or in any other manner or take any action respecting the
Borrower (including, without limitation, any attachment or prejudgment remedy
against Borrower's assets), if Senior Debtholder has suspended such right to
receive payment in the manner and for the period specified below (the "PAYMENT
DEFAULT STANDSTILL PERIOD"). The Payment Default Standstill Period shall
commence upon the date of receipt by Lender from Senior Debtholder of a notice
of the commencement of such period (a "PAYMENT DEFAULT STANDSTILL NOTICE"). The
Payment Default Standstill Period shall end on the earlier of (1) the waiver of
the Senior Payment Default by Senior Lender, (2) the cure of the Senior Payment
Default in a manner reasonably acceptable, in writing, to the Senior Debtholder,
or (3) the ninetieth (90th) calendar day after the commencement of such Payment
Default Standstill Period, unless Senior Debtholder accelerates payment of the
Senior Debt, in which case the Payment Default Standstill Period shall not end
until such acceleration is rescinded by Senior Debtholder or the Senior Debt is
paid in full. Immediately following the expiration of any such Payment Default
Standstill Period, all payments of Subordinated Debt which, but for such
suspension, Lender would have been entitled to receive, shall be immediately due
and payable.
4. SUBORDINATION ON NONPAYMENT DEFAULTS. If there has occurred and is
continuing a Senior Default, Lender may not receive payment under or on account
of the Subordinated Debt, directly or indirectly, in cash or other property or
by set-off or in any other manner or take any action respecting the Borrower
(including, without limitation, any attachment or prejudgment remedy against
Borrower's assets), if Senior Lender has suspended such right to receive
payments in the manner and for the period specified below (the "NONPAYMENT
DEFAULT STANDSTILL PERIOD"). The Nonpayment Default Standstill Period shall
commence upon the date that Senior Lender notifies Lender of the commencement of
such period (a "NONPAYMENT DEFAULT STANDSTILL
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<PAGE>
NOTICE"). The Nonpayment Default Standstill Period shall end on the earlier of
(1) the waiver of the Senior Default by Senior Lender, (2) the cure of the
Senior Default in a manner reasonably acceptable, in writing, to the Senior
Debtholder, or (3) the ninetieth (90th) calendar day after the commencement of
the Nonpayment Default Standstill Period; unless the Senior Debtholder
accelerates payment of the Senior Debt, in which case the Nonpayment Default
Standstill Period shall end on the earlier of (1) recission of the acceleration,
or (2) payment in full of the Senior Debt. Notwithstanding the foregoing, Senior
Debtholder may not declare a Nonpayment Default Standstill Period more than
twice in any one hundred and eighty day (180) day period. Immediately following
the expiration of any Standstill Period, all regularly scheduled monthly
payments of Subordinated Debt which, but for such suspension, Lender would have
been entitled to receive, shall become immediately due and payable.
5. SUBROGATION. Subject to the payment in full of all Senior Debt, the
Lender shall be subrogated to the Senior Debtholders' rights (to the extent of
the payments or distributions made to the Senior Debtholders pursuant to the
provisions of this Section F) to receive payments and Distributions of Assets
applicable to the Senior Debt. No such payments or Distributions of Assets
applicable to the Senior Debt shall, as between Borrower and its creditors,
other than the Senior Debtholders and the Lender, be deemed to be a payment by
Borrower to or on account of this Debenture; and for purposes of such
subrogation, no payments or Distributions of Assets to the Senior Debtholders to
which the Lender would be entitled except for the provisions of this Section F
shall, as between Borrower and its creditors, other than the Senior Debtholders
and the Lender, be deemed to be a payment by Borrower to or on account of the
Senior Debt.
6. NO IMPAIRMENT. Nothing contained in this Section F shall impair, as
between Borrower and Lender, Borrower's obligation, subject to the terms and
conditions of this Section F, to pay to the Lender the principal hereof and
interest hereon as and when the same become due and payable, or shall prevent
the Lender, upon an Event of Default, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, subject to the Senior
Debtholders' rights under this Section F.
7. RELIANCE OF SENIOR DEBTHOLDERS. Lender, by its acceptance hereof,
shall be deemed to acknowledge and agree that the foregoing subordination
provisions are, and are intended to be, an inducement to and a consideration of
each Senior Debtholder, whether such Senior Debtholder's Senior Debt was created
or acquired before or after the creation of the indebtedness evidenced by this
Debenture, and each such Senior Debtholder shall be deemed conclusively to have
relied on such subordination provisions in acquiring and holding, or in
continuing to hold, such Senior Debt.
8. NO IMPAIRMENT OF SUBORDINATION. No right of any present or future
Senior Debtholder to enforce the subordination provisions of this Section F
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the Borrower's part or by any act or failure to act, in good faith, by
such Senior Debtholder, or by any noncompliance by the Borrower with the terms,
provisions and covenants of this Debenture or the Purchase Agreement, regardless
of any knowledge thereof which such Senior Debtholder may have or otherwise be
charged with.
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<PAGE>
9. AMENDMENT RESTRICTIONS. No amendment of this Debenture shall
directly or indirectly modify the provisions of this Section F in any manner
which might terminate or impair the subordination of the Subordinated Debt to
the Senior Debt; PROVIDED, HOWEVER, that such amendments may be effected with
the written consent of the Majority Senior Debtholders.
10. CONFIRMATION OF SUBORDINATION. Lender shall execute such other
documents or agreements required by the Senior Debtholders, other then the
Senior Debtholders as of the date hereof, respecting the subordination of the
Debenture to the Senior Debt so long as such documents or agreements are
reasonably consistent with the terms of subordination of the Subordinated Debt
set forth herein. Lender shall not unreasonably withhold consent to any other
terms of subordination as may be reasonably requested by such Senior
Debtholders.
11. SUBORDINATION OF SECURITY INTEREST. In the event Lender at any time
obtains a security interest, pledge, lien, attachment, garnishment, mortgage,
encumbrance or other interest (individually and collectively a "Lender Security
Interest") in any assets or properties of the Borrower, such Lender Security
Interest shall be junior and subordinate in right to any and all existing or
hereafter created security interest, pledge, lien, attachment, garnishment,
mortgage, encumbrance or other interest of the Senior Debtholders (a "Senior
Security Interest") in any assets or properties of the Borrower irrespective of
the time, order, existence or perfection of the Lender Security Interest or the
Senior Security Interest. Nothing contained herein is intended to, or shall be
deemed to be, a consent by the Senior Debtholders to a Lender Security Interest
or a grant by the Borrower of a Lender Security Interest.
F. OTHER PROVISIONS.
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"CERTIFICATE OF DESIGNATION" means the certificate of Borrower
dated of even date herewith setting forth, among other things, the rights and
preferences of the Lender in its capacity as a member of Borrower.
"CONVERSION PRICE" shall be as follows:
(a) in the event there has been no conversion of all or any
part of Debenture #1, the Conversion Price shall be $86.837; and
(b) in the event Debenture #1 has been converted in full, the
Conversion Price shall be $77.195.
In the event some but not all of Debenture #1 has been converted, the Conversion
Price set forth in subsection (b) above shall be adjusted accordingly. The
Conversion Price set forth herein is intended to provide for the issuance of
that number of Units equal to 4.9% of the Units Outstanding (including the Units
purchased by the Lender pursuant to the Purchase Agreement)
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<PAGE>
as of the date hereof plus the number of Units issued upon conversion of this
Debenture and any issuance of Units upon conversion of Debenture #1.
"CONVERTIBLE SECURITIES" means evidence of indebtedness or
other securities which are convertible into or exchangeable for, with or without
payment of additional consideration, Units, either immediately or upon the
arrival of a specified date or the happening of a specified event or both.
"DEBENTURE # 1" means the $2,500,000 Convertible Debenture of
the Borrower in favor of the Lender dated of even date herewith.
"DEEMED ISSUANCE OF UNITS" means an issuance by Borrower of a
Convertible Security or an Option.
"DISTRIBUTION OF ASSETS" any distribution of assets of the
Borrower of any kind or character, whether in cash, property or securities, and
whether in respect of repayment of indebtedness or otherwise, including, but not
limited to, adequate protection payments under the Bankruptcy Code.
"IPO" means an initial registered firm commitment offering of
the Borrower's securities.
"IPO PRICE PER UNIT" means the price per Unit of Units issued
by the Borrower in an IPO.
"ISSUANCE OF UNITS" means an issuance of one or more Units.
"MAJORITY SENIOR DEBTHOLDERS"; at any time the Senior
Debtholders holding a majority, measured by principal amount, of the Senior Debt
outstanding.
"OPERATING AGREEMENT" means the operating agreement of the
Borrower, dated November 21, 1995, as supplemented by the Certificate of
Designation or otherwise.
"OPTION" means any right, warrant or option to subscribe or
purchase Units or Convertible Securities.
"SALE OF BUSINESS EVENT" means the sale, transfer or
disposition of all or substantially all of the assets of Borrower whether in a
merger, combination, reorganization, outright sale or otherwise unless the
equity holders of the Company prior to such sale, transfer or disposition own
more than fifty (50%) percent of the equity interest in the purchaser or
transferee after such sale, transfer or disposition.
"SALE OF UNITS EVENT" means the sale, transfer or disposition
of all or substantially all of the outstanding Units in any single transaction
or series of related transaction whether in a
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<PAGE>
merger, combination, reorganization, outright sale or otherwise unless the
equity holders of the Company prior to such sale, transfer or disposition own
more than fifty (50%) percent of the equity interest in the purchaser or
transferee after such sale, transfer or disposition.
"SENIOR DEBT" shall mean (i) indebtedness of the Borrower to
Bank of Boston, and Henry M. Zachs and his affiliates outstanding as of the date
hereof to the extent that the aggregate principal amount thereof does not exceed
Fifteen Million Dollars ($15,000,000); provided, however, that the principal
amount of the Senior Debt under this clause (i) shall be reduced by the
principal payments made with respect to the indebtedness described in this
clause (i) after the date hereof and (ii) the indebtedness of the Borrower that
refinances the indebtedness described in clause (i) of this definition to the
extent that the principal amount of such refinancing does not to exceed the then
outstanding principal amount of the refinanced indebtedness.
"SENIOR DEBTHOLDER" means any holder of the Senior Debt.
"SENIOR DEFAULT" means any event of default or default with
respect to any of the Senior Debt other than a Senior Payment Default.
"SENIOR PAYMENT DEFAULT"; any event of default or default with
respect to any of the Senior Debt relating to the failure to pay when due any
principal outstanding or interest accrued under the Senior Debt.
"TRANSACTION VALUE" means with respect to an IPO, the IPO
Price Per Unit multiplied by the number of Units Outstanding immediately prior
to the IPO. Units.
"UCC" means the Uniform Commercial Code in effect from time to
time in the relevant jurisdiction.
"UNITS" shall mean membership interests in the Borrower or any
security issued in exchange for Units in connection with an Incorporation
Transaction (as defined in the Operating Agreement).
"UNITS OUTSTANDING" means as of any date (i) all Units that
are outstanding as of such date, PLUS (ii) all Units issuable upon conversion of
Convertible Securities outstanding as of such date, whether or not convertible
as of such date, PLUS (iii) all Units issuable upon exercise of Options
outstanding as of such date, whether or not such Options are exercisable as of
such date (assuming for this purpose that Convertible Securities acquirable upon
exercise of any such Options are converted into Units as of such date).
2. GOVERNING LAW; VENUE. This Debenture shall be governed by the laws
of the State of California, without giving effect to conflicts of law
principles. Borrower and Lender
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agree that all actions or proceedings arising in connection with this Debenture
shall be tried and litigated only in the state and federal courts located in the
County of Santa Clara, State of California or, at Lender's option, any court in
which Lender determines it is necessary or appropriate to initiate legal or
equitable proceedings in order to exercise, preserve, protect or defend any of
its rights and remedies under this Debenture. Borrower waives any right it may
have to assert the doctrine of forum non conveniens or to object to such venue,
and consents to any court ordered relief. Borrower waives personal service of
process and agrees that a summons and complaint commencing an action or
proceeding in any such court shall be promptly served and shall confer personal
jurisdiction if served by registered or certified mail to Borrower. The choice
of forum set forth herein shall not be deemed to preclude the enforcement of any
judgment obtained in such forum, or the taking of any action under this
Debenture to enforce the same, in any appropriate jurisdiction.
3. NOTICES. Any notice or communication required or desired to be
served, given or delivered hereunder shall be in the form and manner specified
below, and shall be addressed to the party to be notified as follows:
If to Lender: Bay Networks, Inc.
4401 Great America Parkway
Santa Clara, CA 95052
Attention:
Telecopier: (408) 495-1991
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Bruce Schaeffer, Esq.
Telecopier: (650) 327-3699
If to Borrower: ZipLink, LLC
40 Woodland Street
Hartford, CT 06105
Attention:
Telecopier: (860) 418-5780
and
ZipLink, LLC
90 Chelmsford Street
Tower #1, 15th Floor
Lowell, MA 01859
with a copy to: Brenner, Saltzman & Wallman LLP
271 Whitney Avenue
New Haven, CT 06511
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Attention: Wayne A. Martino, Esq.
Telecopier: (203) 772-3907
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iii) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; PROVIDED, HOWEVER, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
4. LENDER'S RIGHTS; BORROWER WAIVERS. Lender's acceptance of partial or
delinquent payment from Borrower hereunder, or Lender's failure to exercise any
right hereunder, shall not constitute a waiver of any obligation of Borrower
hereunder, or any right of Lender hereunder, and shall not affect in any way the
right to require full performance at any time thereafter. Borrower waives
presentment, diligence, demand of payment, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Debenture. In any action on this Debenture, Lender need not
produce or file the original of this Debenture, but need only file a photocopy
of this Debenture certified by Lender be a true and correct copy of this
Debenture in all material respects.
5. ENFORCEMENT COSTS. Borrower shall pay all out-of-pocket third-party
costs and expenses, including, without limitation, reasonable attorneys' fees
and expenses Lender expends or incurs in connection with the enforcement of this
Debenture, the collection of any sums due hereunder, any actions for declaratory
relief in any way related to this Debenture, or the protection or preservation
of any of Lender's rights hereunder.
6. SEVERABILITY. Whenever possible each provision of this Debenture
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision is prohibited by or invalid under
applicable law, it shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of the provision or the remaining
provisions of this Debenture.
7. AMENDMENT PROVISIONS. This Debenture may not be amended or modified,
nor may any of its terms be waived, except by written instruments signed by
Borrower and Lender.
8. BINDING EFFECT. This Debenture shall be binding upon, and shall
inure to the benefit of, Borrower and the holder hereof and their respective
successors and assigns; PROVIDED, HOWEVER, that Borrower's rights and
obligations shall not be assigned or delegated without
15
<PAGE>
Lender's prior written consent, given in its sole discretion, and any purported
assignment or delegation without such consent shall be void AB INITIO.
9. HEADINGS. Section headings used in this Debenture have been set
forth herein for convenience of reference only. Unless the contrary is compelled
by the context, everything contained in each section hereof applies equally to
this entire Debenture.
ZIPLINK, LLC
By: s/Henry M. Zachs___
Henry M. Zachs
Manager
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EXHIBIT 10.3
CONVERTIBLE DEBENTURE
$2,500,000 December 23, 1997
FOR VALUE RECEIVED, the undersigned, ZIPLINK, LLC ("BORROWER"), hereby
promises to pay to BAY NETWORKS, INC. ("LENDER"), or order, the principal sum or
so much of the principal sum of Two Million Five Hundred Thousand Dollars
($2,500,000) as may from time to time have been advanced and be outstanding,
together with accrued interest as provided herein.
This Debenture is issued pursuant to the Securities Purchase Agreement,
dated of even date hereof, between the Borrower and the Lender, as may be
amended from time to time (the "PURCHASE AGREEMENT"). Lender is entitled to the
benefits of the Purchase Agreement and may enforce the Borrower's agreements
contained therein and may exercise the remedies provided for thereby or
otherwise available with respect thereof.
A. PRINCIPAL.
1. ADVANCES. Borrower may from time to time and in any event no later
than March 25, 1998, request advances in increments of not less than Five
Hundred Thousand Dollars ($500,000) from Lender (individually an "ADVANCE" and
collectively the "ADVANCES") by giving written notice to Lender in accordance
with the terms hereof, which notice shall indicate the amount of the Advance
requested and the proposed use of the Advance proceeds. Provided that no Event
of Default is in existence and that the requested Advance would not cause an
Event of Default to occur, Lender shall make the Advance to Borrower within five
(5) days of receipt of Borrower's notice. Lender shall not be obligated to make
an Advance to the extent that such Advance, when aggregated with all prior
Advances, would exceed Two Million Five Hundred Thousand Dollars ($2,500,000).
Borrower shall not have the right to re-borrow any Advance to the extent that it
has been repaid.
2. USE OF PROCEEDS. The proceeds of Advances shall be used exclusively
for the buildout of Borrower's national Internet access network and for general
working capital purposes.
B. INTEREST. Interest shall accrue with respect to the principal sum outstanding
hereunder at a floating per annum rate equal to the London Interbank Offered
Rate for U.S. Dollar deposits for six (6) month periods ("LIBOR") as listed in
THE WALL STREET JOURNAL Money Rates report as of the date hereof plus
eight-tenths percent (0.8%). Any change in interest rate resulting from a change
in LIBOR shall be effective as of each six (6) month interval following the date
hereof and shall remain in effect for the following six (6) interval. However,
if an Event of Default, as defined herein, occurs, then interest shall accrue at
the rate per annum equal to two percent (2%) plus the rate that would otherwise
be in effect (the "DEFAULT RATE"). Interest payable hereunder shall be
calculated on the basis of a three hundred sixty (360) day year for actual days
elapsed.
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Interest shall be due and payable in arrears on the fifteenth day of each
calendar month, commencing with the first payment on February 15, 1998.
C. PAYMENT.
1. SCHEDULED PAYMENT. The principal indebtedness shall be payable in
sixty (60) equal monthly installments with the first installment payable on
September 15, 1999 and each subsequent installment due on the fifteenth day of
each month thereafter. On September 15, 2004, all outstanding principal and all
accrued and unpaid interest shall become due and payable.
2. PREPAYMENT. Borrower shall not have the right to prepay, in whole or
in part, any outstanding principal and accrued interest hereunder without
Lender's prior consent.
3. FORM OF PAYMENT. Principal and interest and all other amounts due
hereunder are to be paid in lawful money of the United States of America in
federal or other immediately available funds.
D. EVENTS OF DEFAULT; REMEDIES.
1. DEFINITION OF EVENT OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an "EVENT OF DEFAULT" hereunder:
a. PAYMENT DEFAULT. The Borrower's breach of the obligation to
pay the principal outstanding and interest accrued hereunder or under Debenture
#2 on the applicable due date if such breach is not cured within two business
days (2) after notice by Lender to Borrower of such breach;
b. BREACHES OF OTHER COVENANTS. The Borrower's breach of any
covenant, obligation, condition or agreement contained in this Debenture or the
Purchase Agreement, other than those specified in Section D.1.a., if such breach
continues for thirty (30) days after notice by Lender to Borrower of such breach
or, if such breach is not curable within such thirty (30) day period, but is
reasonably capable of cure within forty-five (45) days after notice by Lender to
Borrower of such breach, either (1) such breach continues for forty-five (45)
days, or (2) the Borrower has not commenced a cure in a manner reasonably
satisfactory to the Lender during the initial thirty (30) day period;
c. MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein, the Purchase Agreement or in any certificate delivered to the
Lender pursuant to this Debenture or the Purchase Agreement;
d. BANKRUPTCY. The institution by the Borrower of proceedings
against it or the filing by it of a petition or answer or consent seeking
reorganization or release under the federal Bankruptcy Code, or any other
applicable federal or state law, or the consent by it to the filing of any such
petition or the appointment of a receiver, liquidator, assignee, trustee or
other
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similar official of the Borrower or of any substantial part of its property, or
the making by it of an assignment for the benefit of creditors, or the taking of
corporate action in furtherance of such action;
e. CROSS-DEFAULT. The occurrence and continuance of any
default under any indebtedness of Borrower in excess of Two Hundred Thousand
Dollars ($200,000) that gives the creditor of such indebtedness the right to
accelerate such indebtedness;
f. ATTACHMENT. If any material portion of the Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within fifteen
(15) days, or if the Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs, or if a judgment or other claim in excess of Two Hundred
Thousand Dollars ($200,000) becomes a lien or encumbrance upon any material
portion of the Borrower's assets, or if a notice of lien, levy, or assessment is
filed of record with respect to any of the Borrower's assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, and the same is not paid
within fifteen (15) days after the Borrower receives notice thereof, provided
that none of the foregoing shall constitute an Event of Default where such
action or event is stayed or an adequate bond has been posted pending a good
faith contest by the Borrower; or
g. JUDGMENTS. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Two Hundred
Thousand Dollars ($200,000) shall be rendered against the Borrower and shall
remain unsatisfied or unstayed for a period of thirty (30) days.
2. REMEDIES. During the continuance of any Event of Default, the Lender
may accelerate payment of the principal outstanding and interest accrued
hereunder and may exercise all rights and remedies granted by law. Upon the
occurrence of any Event of Default described in Section D.1.d., payment of the
principal outstanding and interest accrued hereunder shall be automatically
accelerated without any action by Lender.
E. CONVERSION RIGHTS.
1. AUTOMATIC CONVERSION. The outstanding principal balance of this
Debenture shall be automatically converted, together with all accrued interest
due and payable on the conversion date with respect to the principal balance so
converted (an "AUTOMATIC CONVERSION"), into fully paid and nonassessable Units
upon the occurrence of (i) an IPO of the Borrower, (ii) a Sale of Business Event
or (iii) a Sale of Units Event, unless an Event of Default exists on the date of
such occurrence, in which case the Automatic Conversion shall not occur until no
Events of Default exist. The number of Units issuable upon an Automatic
Conversion shall be determined by dividing the principal balance hereunder being
converted by the Conversion Price. Upon the occurrence of an Automatic
Conversion caused by a Sale of Business Event or a Sale of Units
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Event, Lender shall under certain circumstances be entitled to preferential
distribution as set forth in the Certificate of Designation.
2. LENDER VOLUNTARY CONVERSION. Lender may, in its sole discretion, at
any time and from time to time after June 30, 1999, elect to convert (the
"LENDER VOLUNTARY CONVERSION RIGHT") all or any part of the principal balance to
be converted into such number of fully paid and nonassessable Units, as
determined by dividing the principal balance hereunder being converted together
with all accrued interest due and payable on the conversion date with respect to
the principal balance so converted by the Conversion Price.
3. EXERCISE OF CONVERSION RIGHTS
a. PROCEDURE UPON AUTOMATIC CONVERSION. In the event of an
Automatic Conversion, Borrower shall, as soon as practicable thereafter, deliver
to Lender a certificate or certificates, registered in Lender's name, for the
number of Units to which Lender shall be entitled by virtue of such Automatic
Conversion (the "AUTOMATIC CONVERSION UNITS"). The Automatic Conversion shall be
deemed to have occurred on the date of the event triggering the Automatic
Conversion and Lender shall be treated for all purposes as the record holder of
the Automatic Conversion Units as of such date.
b. PROCEDURE FOR LENDER VOLUNTARY CONVERSION. To convert any
of the principal balance hereunder into Units by exercise of the Voluntary
Conversion Right, Lender shall deliver to Borrower a written notice of election
to exercise the Voluntary Conversion Right (the "VOLUNTARY CONVERSION NOTICE").
Borrower shall, as soon as practicable thereafter, issue and deliver to Lender a
certificate or certificates, registered in Lender's name, for the number of
Units to which Lender shall be entitled by virtue of such exercise (the
"VOLUNTARY CONVERSION UNITS"). The conversion of the principal balance shall be
deemed to have been made on the date that Borrower receives the Voluntary
Conversion Notice (the "CONVERSION DATE") and Lender shall be treated for all
purposes as the record holder of the Voluntary Conversion Units as of such date.
c. ADDITIONAL DISCLOSURE. In connection with any conversion
hereunder and prior to the effectiveness of such conversion, at the request of
the Borrower, Lender shall make representations substantially similar to those
representations in Article III of the Purchase Agreement. Prior to the
effectiveness of any conversion, Borrower may offer to the Lender the
opportunity to receive information concerning the Borrower that is in the
Borrower's possession at that time and has not previously been disclosed to
Lender or its representatives. Borrower shall make such offer without disclosing
whether any material nonpublic information exists but may condition the offer on
the agreement (i) to keep any material non-public information confidential until
such time as Borrower releases such information to the public and (ii) if
applicable, to only use information to withdraw its exercise of Lender's
Voluntary Conversion Right. The foregoing shall not in any manner limit Lender's
right to receive information with respect to Borrower pursuant to the Purchase
Agreement, the Operating Agreement, as supplemented by the Certificate of
Designation or as Lender may be otherwise be entitled to receive under
applicable law.
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4. FRACTIONAL UNITS. Borrower shall not issue fractional Units upon an
Automatic Conversion or upon exercise of the Voluntary Conversion Right. As to
any fractional Unit which Lender would otherwise be entitled to receive, Lender
shall receive from Borrower an amount in cash equal to an amount calculated by
multiplying such fractional Unit by the Conversion Price. Payment of such amount
shall be made in cash or by check payable to the order of Lender at the time of
delivery of any certificate or certificates.
5. CONVERSION PRICE ADJUSTMENTS.
a. ADJUSTMENTS FOR UNIT SPLITS AND SUBDIVISIONS. If Borrower
at any time or from time to time after the date hereof splits or subdivides the
outstanding Units or makes a payment or other distribution payable in additional
Units or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional Units (hereinafter
referred to as "UNIT EQUIVALENTS") without payment of any consideration by such
holder for the additional Units or the Unit Equivalents (including the
additional Units issuable upon conversion or exercise thereof), then, as of the
date of such dividend, distribution, split or subdivision, the Conversion Price
shall be appropriately decreased so that the number of Units issuable upon
conversion of this Debenture shall be increased in proportion to such increase
of outstanding Units.
b. ADJUSTMENTS FOR REVERSE UNIT SPLITS. If the number of Units
outstanding at any time after the date hereof is decreased by a combination of
the outstanding Units then, following the date of such combination, the
Conversion Price shall be appropriately increased so that the number of Units
issuable on conversion hereof shall be decreased in proportion to such decrease
in outstanding Units.
c. ADJUSTMENTS FOR DILUTIVE ISSUANCES WITHOUT CONSIDERATION.
Upon each Issuance of Units after the date hereof without consideration (a
"DILUTIVE ISSUANCE"), the number of Units issuable upon a Conversion of this
Debenture shall be increased by the number of Units determined under the
following formula:
X= (B X A)-(B X C)
---------------
C
Where: X= The increase in the number of Units acquirable hereunder
B= The number of Units acquirable hereunder immediately prior to
the Issuance of Units
A= The Conversion Price in effect immediately prior to the
Issuance of Units
C= The Adjusted Unit Value.
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For purposes hereof, the Adjusted Unit Value, upon the closing of any Dilutive
Issuance shall be the amount equal to the amount obtained by multiplying the
Units Outstanding immediately prior to the Dilutive Issuance by the Conversion
Price in effect immediately prior to the Issuance of Units, and dividing the
resulting product by the Units Outstanding immediately after the Dilutive
Issuance.
Concurrent with each adjustment in the number of Units acquirable hereunder as a
result of a Dilutive Issuance, the Conversion Price shall be adjusted to the
amount equal to the price obtained by multiplying the Conversion Price in effect
immediately prior to the Dilutive Issuance by a fraction, the numerator of which
is the number of Units acquirable hereunder immediately prior to the Dilutive
Issuance and the denominator of which is the number of Units acquirable
hereunder immediately after the Dilutive Issuance.
6. DOWN ROUND. Borrower agrees that so long this Debenture is
outstanding, it shall not, without Lender's consent, make any Issuance of Units
or Deemed Issuance of Units at a price per Unit (or the applicable conversion or
Option exercise price per Unit in the case of a Deemed Issuance of Units) (the
"DOWN ROUND PRICE") which is less than the Conversion Price (a "DOWN ROUND").
Notwithstanding the foregoing, Lender's consent shall not be required (a) for
the Issuance or Deemed Issuance of Units of up to 2,000,000 Units subject to
equitable adjustment in the event of any dividend, distribution, split,
subdivision or combination of Units without payment of additional consideration,
upon the exercise of currently outstanding or subsequently issued Options to
employees, managers and consultants of the Borrower (other than to Henry Zachs,
his immediate family and his affiliates) or (b) if the Borrower unilaterally
elects to adjust the Conversion Price downward to the Down Round Price. In the
event Borrower elects to adjust the Conversion Price downward pursuant to the
preceding sentence, Lender shall have the further right to waive some or all of
the benefit of any Down Round adjustment. The provisions of this Section E.6
shall not apply to the Issuance of Units pursuant to the conversion of Debenture
#2.
F. SUBORDINATION.
1. SUBORDINATION TO SENIOR DEBT. The Lender, by accepting this
Debenture, agrees for itself and its successors and assigns that payment of
principal, interest and other amounts due to the Lender hereunder (collectively
the "SUBORDINATED DEBT") is subordinated in right of payment to the prior
payment in full of the Senior Debt on the terms set forth herein. Without the
consent of the Senior Debtholder, no payment on account of the Subordinated Debt
shall be made except for regularly scheduled monthly installments of principal
and/or interest hereunder.
2. SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE
BORROWER.
a. PRIORITY OF PAYMENT UPON DISTRIBUTION OF ASSETS. Upon any
Distribution of Assets in the event of any dissolution or winding up or total or
partial liquidation or reorganization, whether voluntary or involuntary, or
adjustment or protection or relief or composition of the Borrower or the
Borrower's debts, or in any bankruptcy, insolvency, receivership, arrangement,
reorganization, relief or other proceeding of the Borrower or upon an
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arrangement for the benefit of creditors of the Borrower or any other
marshalling of the assets and liabilities of the Borrower:
(i) all amounts payable under or on account of the
Senior Debt shall first be paid in full before the Lender shall be entitled to
receive any Distribution of Assets with respect to the Subordinated Debt; and
(ii) before any payment may be made on account of the
Subordinated Debt, any such Distribution of Assets to which Lender would be
entitled, except for the provisions of this Section F.2.a., shall be made
directly to Senior Debtholders to the extent necessary to pay all Senior Debt in
full, after giving effect to any concurrent payment or distribution to Senior
Debtholders. In the case of a non-cash Distribution of Assets with respect to
the Subordinated Debt which is delivered to Senior Debtholder under this Section
F.2.a., the Senior Debt shall be deemed satisfied in the amount equal to the
cash realized by Senior Debtholders upon disposition of such Distribution of
Assets; until such disposition, the non-cash Distribution of Assets shall be
held as security for the Senior Debt.
b. NOTICE OF DISTRIBUTION OF ASSETS. The Borrower shall give
prompt written notice to Senior Debtholders and Lender of any Distribution of
Assets of the nature described in this Section F.2.
c. LENDER RELIANCE. Upon any Distribution of Assets, Lender
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation,
bankruptcy or reorganization proceeding is pending, or a certificate of the
liquidating trustee or the Senior Debtholders or other person making such
distribution to Lender, for the purpose of ascertaining the persons entitled to
participate in such Distribution of Assets, the Senior Debtholders, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto and this Section F.2.
d. AUTHORIZATION OF SENIOR DEBTHOLDERS. Senior Debtholders are
hereby irrevocably authorized and empowered (in their own name or in the name of
Lender or otherwise), but shall have no obligation, to demand, sue for, collect
and receive every Distribution of Assets and give acquittance therefor and to
file claims and proofs of claim in respect of the Subordinated Debt and take
such other action (but excluding voting the Subordinated Debt) on behalf of
Lender as they may reasonably deem necessary or advisable for the exercise or
enforcement of any of their rights or interests hereunder if Lender does not
take such actions within a reasonable period of time after the Senior
Debtholders' request. Lender shall duly and promptly take such action as Senior
Debtholders may reasonably request (A) to collect the Subordinated Debt for the
account of Senior Debtholders and to file appropriate claims or proofs of claim
in respect of the Subordinated Debt, (B) to execute and deliver to Senior
Debtholders such powers of attorney, assignments, or other instruments as they
may request in order to enable them to enforce any and all claims with respect
to the Subordinated Debt, and (C) to collect and receive any and all
Distribution of Assets which may be payable or deliverable upon or with respect
to the Subordinated Debt.
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3. SUBORDINATION ON SENIOR PAYMENT DEFAULT. If there has occurred and
is continuing a Senior Payment Default, Lender may not receive payment under or
on account of the Subordinated Debt, directly or indirectly, in cash or other
property or by set-off or in any other manner or take any action respecting the
Borrower (including, without limitation, any attachment or prejudgment remedy
against Borrower's assets), if Senior Debtholder has suspended such right to
receive payment in the manner and for the period specified below (the "PAYMENT
DEFAULT STANDSTILL PERIOD"). The Payment Default Standstill Period shall
commence upon the date of receipt by Lender from Senior Debtholder of a notice
of the commencement of such period (a "PAYMENT DEFAULT STANDSTILL NOTICE"). The
Payment Default Standstill Period shall end on the earlier of (1) the waiver of
the Senior Payment Default by Senior Lender, (2) the cure of the Senior Payment
Default in a manner reasonably acceptable, in writing, to the Senior Debtholder,
or (3) the ninetieth (90th) calendar day after the commencement of such Payment
Default Standstill Period, unless Senior Debtholder accelerates payment of the
Senior Debt, in which case the Payment Default Standstill Period shall not end
until such acceleration is rescinded by Senior Debtholder or the Senior Debt is
paid in full. Immediately following the expiration of any such Payment Default
Standstill Period, all payments of Subordinated Debt which, but for such
suspension, Lender would have been entitled to receive, shall be immediately due
and payable.
4. SUBORDINATION ON NONPAYMENT DEFAULTS. If there has occurred and is
continuing a Senior Default, Lender may not receive payment under or on account
of the Subordinated Debt, directly or indirectly, in cash or other property or
by set-off or in any other manner or take any action respecting the Borrower
(including, without limitation, any attachment or prejudgment remedy against
Borrower's assets), if Senior Lender has suspended such right to receive
payments in the manner and for the period specified below (the "NONPAYMENT
DEFAULT STANDSTILL PERIOD"). The Nonpayment Default Standstill Period shall
commence upon the date that Senior Lender notifies Lender of the commencement of
such period (a "NONPAYMENT DEFAULT STANDSTILL Notice"). The Nonpayment Default
Standstill Period shall end on the earlier of (1) the waiver of the Senior
Default by Senior Lender, (2) the cure of the Senior Default in a manner
reasonably acceptable, in writing, to the Senior Debtholder, or (3) the
ninetieth (90th) calendar day after the commencement of the Nonpayment Default
Standstill Period; unless the Senior Debtholder accelerates payment of the
Senior Debt, in which case the Nonpayment Default Standstill Period shall end on
the earlier of (1) recission of the acceleration, or (2) payment in full of the
Senior Debt. Notwithstanding the foregoing, Senior Debtholder may not declare a
Nonpayment Default Standstill Period more than twice in any one hundred and
eighty day (180) day period. Immediately following the expiration of any
Standstill Period, all regularly scheduled monthly payments of Subordinated Debt
which, but for such suspension, Lender would have been entitled to receive,
shall become immediately due and payable.
5. SUBROGATION. Subject to the payment in full of all Senior Debt, the
Lender shall be subrogated to the Senior Debtholders' rights (to the extent of
the payments or distributions made to the Senior Debtholders pursuant to the
provisions of this Section F) to receive payments and Distributions of Assets
applicable to the Senior Debt. No such payments or Distributions of Assets
applicable to the Senior Debt shall, as between Borrower and its creditors,
other than the Senior Debtholders and the Lender, be deemed to be a payment by
Borrower to or on account of
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this Debenture; and for purposes of such subrogation, no payments or
Distributions of Assets to the Senior Debtholders to which the Lender would be
entitled except for the provisions of this Section F shall, as between Borrower
and its creditors, other than the Senior Debtholders and the Lender, be deemed
to be a payment by Borrower to or on account of the Senior Debt.
6. NO IMPAIRMENT. Nothing contained in this Section F shall impair, as
between Borrower and Lender, Borrower's obligation, subject to the terms and
conditions of this Section F, to pay to the Lender the principal hereof and
interest hereon as and when the same become due and payable, or shall prevent
the Lender, upon an Event of Default, from exercising all rights, powers and
remedies otherwise provided herein or by applicable law, subject to the Senior
Debtholders' rights under this Section F.
7. RELIANCE OF SENIOR DEBTHOLDERS. Lender, by its acceptance hereof,
shall be deemed to acknowledge and agree that the foregoing subordination
provisions are, and are intended to be, an inducement to and a consideration of
each Senior Debtholder, whether such Senior Debtholder's Senior Debt was created
or acquired before or after the creation of the indebtedness evidenced by this
Debenture, and each such Senior Debtholder shall be deemed conclusively to have
relied on such subordination provisions in acquiring and holding, or in
continuing to hold, such Senior Debt.
8. NO IMPAIRMENT OF SUBORDINATION. No right of any present or future
Senior Debtholder to enforce the subordination provisions of this Section F
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the Borrower's part or by any act or failure to act, in good faith, by
such Senior Debtholder, or by any noncompliance by the Borrower with the terms,
provisions and covenants of this Debenture or the Purchase Agreement, regardless
of any knowledge thereof which such Senior Debtholder may have or otherwise be
charged with.
9. AMENDMENT RESTRICTIONS. No amendment of this Debenture shall
directly or indirectly modify the provisions of this Section F in any manner
which might terminate or impair the subordination of the Subordinated Debt to
the Senior Debt; PROVIDED, HOWEVER, that such amendments may be effected with
the written consent of the Majority Senior Debtholders.
10. CONFIRMATION OF SUBORDINATION. Lender shall execute such other
documents or agreements required by the Senior Debtholders, other then the
Senior Debtholders as of the date hereof, respecting the subordination of the
Debenture to the Senior Debt so long as such documents or agreements are
reasonably consistent with the terms of subordination of the Subordinated Debt
set forth herein. Lender shall not unreasonably withhold consent to any other
terms of subordination as may be reasonably requested by such Senior
Debtholders.
11. SUBORDINATION OF SECURITY INTEREST. In the event Lender at any time
obtains a security interest, pledge, lien, attachment, garnishment, mortgage,
encumbrance or other interest (individually and collectively a "Lender Security
Interest") in any assets or properties of the Borrower, such Lender Security
Interest shall be junior and subordinate in right to any and all existing or
hereafter created security interest, pledge, lien, attachment, garnishment,
mortgage,
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encumbrance or other interest of the Senior Debtholders (a "Senior Security
Interest") in any assets or properties of the Borrower irrespective of the time,
order, existence or perfection of the Lender Security Interest or the Senior
Security Interest. Nothing contained herein is intended to, or shall be deemed
to be, a consent by the Senior Debtholders to a Lender Security Interest or a
grant by the Borrower of a Lender Security Interest.
F. OTHER PROVISIONS.
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"CERTIFICATE OF DESIGNATION" means the certificate of Borrower
dated of even date herewith setting forth, among other things, the rights and
preferences of the Lender in its capacity as a member of Borrower.
"CONVERSION PRICE" shall be determined as follows:
(a) in the event there has been no conversion of all or any
part of Debenture #2, the Conversion Price shall be $42.499; and
(b) in the event Debenture #2 has been converted in full, the
Conversion Price shall be $37.87.
In the event some but not all of Debenture #2 has been converted, the Conversion
Price set forth in subsection (b) above shall be adjusted accordingly. The
Conversion Price set forth herein is intended to provide for the issuance of
that number of Units equal to 5% of the Units Outstanding (including the Units
purchased by the Lender pursuant to the Purchase Agreement) as of the date
hereof plus the number of Units issued upon conversion of this Debenture and any
issuance of Units upon conversion of Debenture #2..
"CONVERTIBLE SECURITIES" means evidence of indebtedness or
other securities which are convertible into or exchangeable for, with or without
payment of additional consideration, Units, either immediately or upon the
arrival of a specified date or the happening of a specified event or both.
"DEBENTURE # 2" means the $5,000,000 Convertible Debenture of
the Borrower in favor of the Lender dated of even date herewith.
"DEEMED ISSUANCE OF UNITS" means an issuance by Borrower of a
Convertible Security or an Option.
"DISTRIBUTION OF ASSETS" any distribution of assets of the
Borrower of any kind or character, whether in cash, property or securities, and
whether in respect of repayment of indebtedness or otherwise, including, but not
limited to, adequate protection payments under the Bankruptcy Code.
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"IPO" means an initial registered firm commitment offering of
the Borrower's securities.
"ISSUANCE OF UNITS" means an issuance of one or more Units.
"MAJORITY SENIOR DEBTHOLDERS"; at any time the Senior
Debtholders holding a majority, measured by principal amount, of the Senior Debt
outstanding.
"OPERATING AGREEMENT" means the operating agreement of the
Borrower, dated November 21, 1995, as supplemented by the Certificate of
Designation or otherwise.
"OPTION" means any right, warrant or option to subscribe or
purchase Units or Convertible Securities.
"SALE OF BUSINESS EVENT" means the sale, transfer or
disposition of all or substantially all of the assets of Borrower whether in a
merger, combination, reorganization, outright sale or otherwise unless the
equity holders of the Company prior to such sale, transfer or disposition own
more than fifty (50%) percent of the equity interest in the purchaser or
transferee after such sale, transfer or disposition.
"SALE OF UNITS EVENT" means the sale, transfer or disposition
of all or substantially all of the outstanding Units in any single transaction
or series of related transaction whether in a merger, combination,
reorganization, outright sale or otherwise unless the equity holders of the
Company prior to such sale, transfer or disposition own more than fifty (50%)
percent of the equity interest in the purchaser or transferee after such sale,
transfer or disposition.
"SENIOR DEBT" shall mean (i) indebtedness of the Borrower to
Bank of Boston, and Henry M. Zachs and his affiliates outstanding as of the date
hereof to the extent that the aggregate principal amount thereof does not exceed
Fifteen Million Dollars ($15,000,000); provided, however, that the principal
amount of the Senior Debt under this clause (i) shall be reduced by the
principal payments made with respect to the indebtedness described in this
clause (i) after the date hereof and (ii) the indebtedness of the Borrower that
refinances the indebtedness described in clause (i) of this definition to the
extent that the principal amount of such refinancing does not to exceed the then
outstanding principal amount of the refinanced indebtedness.
"SENIOR DEBTHOLDER" means any holder of the Senior Debt.
"SENIOR DEFAULT" means any event of default or default with
respect to any of the Senior Debt other than a Senior Payment Default.
"SENIOR PAYMENT DEFAULT"; any event of default or default with
respect to any of the Senior Debt relating to the failure to pay when due any
principal outstanding or interest accrued under the Senior Debt.
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"UCC" means the Uniform Commercial Code in effect from time to
time in the relevant jurisdiction.
"UNITS" shall mean membership interests in the Borrower or any
security issued in exchange for Units in connection with an Incorporation
Transaction (as defined in the Operating Agreement).
"UNITS OUTSTANDING" means as of any date (i) all Units that
are outstanding as of such date, PLUS (ii) all Units issuable upon conversion of
Convertible Securities outstanding as of such date, whether or not convertible
as of such date, PLUS (iii) all Units issuable upon exercise of Options
outstanding as of such date, whether or not such Options are exercisable as of
such date (assuming for this purpose that Convertible Securities acquirable upon
exercise of any such Options are converted into Units as of such date).
2. GOVERNING LAW; VENUE. This Debenture shall be governed by the laws
of the State of California, without giving effect to conflicts of law
principles. Borrower and Lender agree that all actions or proceedings arising in
connection with this Debenture shall be tried and litigated only in the state
and federal courts located in the County of Santa Clara, State of California or,
at Lender's option, any court in which Lender determines it is necessary or
appropriate to initiate legal or equitable proceedings in order to exercise,
preserve, protect or defend any of its rights and remedies under this Debenture.
Borrower waives any right it may have to assert the doctrine of forum non
conveniens or to object to such venue, and consents to any court ordered relief.
Borrower waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be promptly
served and shall confer personal jurisdiction if served by registered or
certified mail to Borrower. The choice of forum set forth herein shall not be
deemed to preclude the enforcement of any judgment obtained in such forum, or
the taking of any action under this Debenture to enforce the same, in any
appropriate jurisdiction.
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3. NOTICES. Any notice or communication required or desired to be
served, given or delivered hereunder shall be in the form and manner specified
below, and shall be addressed to the party to be notified as follows:
If to Lender: Bay Networks, Inc.
4401 Great America Parkway
Santa Clara, CA 95052
Attention:
Telecopier: (408) 495-1991
with a copy to: Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Bruce Schaeffer, Esq.
Telecopier: (650) 327-3699
If to Borrower: ZipLink, LLC
40 Woodland Street
Hartford, CT 06105
Attention:
Telecopier: (860) 418-5780
and
ZipLink, LLC
90 Chelmsford Street
Tower #1, 15th Floor
Lowell, MA 01859
with a copy to: Brenner, Saltzman & Wallman LLP
271 Whitney Avenue
New Haven, CT 06511
Attention: Wayne A. Martino, Esq.
Telecopier: (203) 772-3907
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iii) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; PROVIDED, HOWEVER, that if any
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notice is tendered to an addressee and delivery thereof is refused by such
addressee, such notice shall be effective upon such tender unless expressly set
forth in such notice.
4. LENDER'S RIGHTS; BORROWER WAIVERS. Lender's acceptance of partial or
delinquent payment from Borrower hereunder, or Lender's failure to exercise any
right hereunder, shall not constitute a waiver of any obligation of Borrower
hereunder, or any right of Lender hereunder, and shall not affect in any way the
right to require full performance at any time thereafter. Borrower waives
presentment, diligence, demand of payment, notice, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Debenture. In any action on this Debenture, Lender need not
produce or file the original of this Debenture, but need only file a photocopy
of this Debenture certified by Lender be a true and correct copy of this
Debenture in all material respects.
5. ENFORCEMENT COSTS. Borrower shall pay all out-of-pocket third-party
costs and expenses, including, without limitation, reasonable attorneys' fees
and expenses Lender expends or incurs in connection with the enforcement of this
Debenture, the collection of any sums due hereunder, any actions for declaratory
relief in any way related to this Debenture, or the protection or preservation
of any of Lender's rights hereunder.
6. SEVERABILITY. Whenever possible each provision of this Debenture
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision is prohibited by or invalid under
applicable law, it shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of the provision or the remaining
provisions of this Debenture.
7. AMENDMENT PROVISIONS. This Debenture may not be amended or modified,
nor may any of its terms be waived, except by written instruments signed by
Borrower and Lender.
8. BINDING EFFECT. This Debenture shall be binding upon, and shall
inure to the benefit of, Borrower and the holder hereof and their respective
successors and assigns; PROVIDED, HOWEVER, that Borrower's rights and
obligations shall not be assigned or delegated without Lender's prior written
consent, given in its sole discretion, and any purported assignment or
delegation without such consent shall be void AB INITIO.
9. HEADINGS. Section headings used in this Debenture have been set
forth herein for convenience of reference only. Unless the contrary is compelled
by the context, everything contained in each section hereof applies equally to
this entire Debenture.
ZIPLINK, LLC
By: s/Henry M. Zachs_____
Henry M. Zachs
Manager
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EXHIBIT 10.8
LEASE
THIS LEASE dated as of the 1st day of January, 1999, by and between HENRY
M. ZACHS, with an address of 40 Woodland Street, Hartford, Connecticut (the
"Landlord"), and ZIPLINK, LLC, with an address of 40 Woodland Street, Hartford,
Connecticut (the "Tenant").
1. DEMISED SPACE. Landlord leases to Tenant and Tenant rents from Landlord
those certain premises containing (i) approximately 3,400 square feet of floor
space to be designated by the Landlord from time to time on the second floor of
the building described below (hereinafter collectively called the "Demised
Space"), which Demised Space is located within a building located at 40 Woodland
Street, Hartford, Connecticut (the "Premises"), together with the (a) the
nonexclusive use in common with others of approximately 100 square feet of floor
space to be designated by the Landlord from time to time on the first floor of
the Premises for the placement of co-location equipment (b) the nonexclusive use
in common with others of all Common Areas appurtenant to the Premises (including
but not limited to, any parking spaces at the Premises) as may be designated by
the Landlord (collectively the "Common Areas"), and (c) right of access to and
from the Demised Space and the Common Areas to a publicly dedicated road at all
times.
2. TERM. The term of this Lease shall be for five (5) years commencing on
January 1, 1999 and expiring on December 31, 2001 unless sooner terminated as
hereinafter provided (the "Lease Term").
3. USE. Tenant shall use the Demised Space for the sole purpose of general
office use.
4. COMPLIANCE WITH LAWS, ORDINANCES, ETC. During the Lease Term, Tenant
shall, at Tenant's own cost and expense, promptly observe and comply with all
laws, orders, regulations, rules, ordinances and requirements of the federal,
state, town, county and municipal governments and of all other governmental and
public authorities affecting the Tenant's use and occupancy of the Demised
Space. Additionally, Tenant shall comply with the provisions of all insurance
policies from time to time in force with respect to the Premises or any part
thereof to the extent that Tenant has been notified in advance of such
requirements. Tenant shall further comply with reasonable rules and regulations
as may be adopted by Landlord from time to time to the extent that Tenant has
been notified in advance of such rules and regulations and all modifications
thereto and such rules and regulations do not substantially interfere with the
normal and customary use of the Demised Space as permitted under this Lease.
Tenant shall pay all costs, expenses, claims, fines, penalties and damages that
may in any manner arise out of or be imposed because of the failure of Tenant to
comply with the provisions of this paragraph within thirty (30) days of receipt
by Tenant of an invoice and supportive documentation thereof.
Tenant further agrees (a) that Tenant will not violate any environmental
laws, regulations, ordinances, etc.; (b) that Tenant will not use, store,
dispose, or generate any hazardous materials or contaminants in the Demised
Space or the Premises; (c) that the Tenant will not cause or permit any
condition which would create contamination on the Premises; (d) to give notice
to the Landlord immediately upon the Tenant's acquiring knowledge of the
presence of any hazardous materials or contamination at the Premises with a full
description thereof; (e) to give notice to the Landlord immediately of any
notice of violation of any laws, rules or regulations regulating hazardous
materials or contamination at the Premises; and (f) to promptly
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comply with any governmental requirements requiring the removal, treatment or
disposal of such hazardous materials or contamination generated, located, or
placed on or at the Demised Space or the Premises by the Tenant, its employees,
representatives, agents, contractors or invitees.
THE PROVISIONS OF THIS PARAGRAPH 4 SHALL SPECIFICALLY SURVIVE THE BREACH,
EXPIRATION, OR TERMINATION OF THIS LEASE.
5. RENT.
(a) The rental during the Lease Term shall be payable by Tenant to
Landlord at the annual rate of thirty-nine thousand ($39,000.00) Dollars (the
"Rent"). The Rent shall be due and payable, in advance, on the first day of
each month during the Lease Term in twelve (12) equal monthly installments of
$4,375 each commencing on January 1, 1999. The Rent shall be due and payable
without notice, deduction or setoff.
(b) If any installment of Rent due from Tenant is not received by
Landlord within ten (10) days of when such installment is due, Tenant shall pay
to Landlord an additional sum of 5% of the overdue rent as a late charge.
Acceptance of any late charge shall not constitute a waiver of Tenant's default
with respect to the overdue amount or prevent Landlord from exercising any of
the other rights and remedies available to Landlord.
(c) Tenant agrees to pay to the Landlord as additional rent, in
addition to the amounts payable pursuant to paragraph 5(a) above, Tenant's
proportionate share of any increase in the total Operating Expenses over the
Base Operating Expense (as hereinafter defined). "Operating Expenses" shall mean
all costs and expenses incurred by Landlord, including, but not limited to, (a)
utilities, sewer rents and charges for water, steam, electricity, heat, gas, hot
water, power and any other service or services furnished to the Premises; (b)
labor and materials in connection with the operation, improvement, repair,
replacement and/or maintenance of the Premises and Common Areas; (c) amounts
charged to the Landlord by contractors for services, materials and supplies
furnished in connection with the operation, improvement, repair, replacement
and/or maintenance of any part of the Premises, Common Areas, and/or the
heating, air conditioning, ventilating, plumbing, electrical, elevators and
other systems and utilities serving the Premises and the Common Areas; (d)
insurance premiums for insurance coverage obtained by the Landlord with respect
to the Premises and the Common Areas, including, but not limited to, All Risk
Insurance and/or public liability insurance obtained in connection with the
Premises and the Common Areas or any portion thereof; (e) any assessment, which
shall or may during the term of this Lease be charged, laid, levied, assessed or
imposed upon or in respect of the Premises and the Common Areas, including, but
not limited to, real property taxes and general and special assessments, or any
tax levied, assessed or imposed in lieu of the foregoing; (f) snow removal,
rubbish removal, landscaping and all other costs and expenses incurred by
Landlord with respect to the Common Areas; and (j) any excise, levy, license and
permit fees and other governmental charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, of any kind and nature whatsoever which
shall or may, during the term of this Lease be assessed, levied, charged,
confirmed or imposed upon or become payable out of or become a lien on the
Premises or any part thereof. "Base Operating Expense" shall mean the Operating
Expenses as hereinabove defined, in the amount of One Hundred Thousand
($100,000.00) Dollars. Tenant's proportionate share of the increases in the
Operating Expenses over the Base Operating Expense shall be 25%. Each year
Landlord shall notify Tenant of Landlord's calculation of Tenant's proportionate
share of the increase in the Operating Expenses and together with such notice
shall
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furnish a statement reflecting the new projected Operating Expenses. Tenant
agrees to pay its share of the increases in the Operating Expenses within thirty
(30) days after submission of the aforementioned statements. Following the
establishment and/or projection by Landlord of an increase in the Operating
Expenses for any year during the term of this Lease, Tenant shall, in addition
to the payments required above, pay to Landlord for the next succeeding twelve
month period in monthly installments in advance, with each monthly installment
equal to 1/12th of the amount of the Tenant's proportionate share of the
established and/or projected increases in the Operating Expenses subject to
adjustment at the expiration of such succeeding twelve month period, or at the
expiration of this Lease, whichever occurs sooner. All increases in Operating
Expenses which shall become payable for the last year of the term of this Lease
shall be apportioned pro rata between Landlord and Tenant in accordance with the
respective portions thereof.
6. UTILITIES; EXTRA SERVICES. Landlord shall be solely responsible for and
shall promptly pay directly to the proper utility company for reasonable
quantities, as determined in the sole discretion of the Landlord, of water,
steam, electricity, heat, gas, hot water, light, power, janitorial and
housekeeping services, security and alarm services, refuse removal, and any
other service or services furnished to the Demised Space as required for
Tenant's use of the Demised Space for commercial office space. Except for
"Excess Usage" (as defined below), any increase in the cost of said utilities
and services shall be paid by the Tenant in accordance with the provisions of
Paragraph 5(c) of this Lease relating to increases in the Operating Expenses.
The Tenant shall pay for all extra services and utilities, including, but not
limited to, telephone, that are not furnished to the Demised Space or the
occupants thereof by the Landlord during the term of this Lease but which
services are furnished to the Demised Space at the request of the Tenant. To the
extent that these utilities are not billed directly to Tenant, Tenant shall
reimburse Landlord on a monthly basis for Landlord's costs in furnishing the
above-mentioned utilities and services to the Demised Space within ten (10) days
after Tenant receives an invoice from Landlord, together with copies of the
applicable bill. Landlord shall not be liable for failure to furnish any and all
utilities or services to the Demised Space.
Notwithstanding anything herein to the contrary, if the Tenant's utility or
service requirements are or become excessive as determined by the Landlord in
the sole discretion of the Landlord or if Tenant's utility or service
requirements increase due to the installation or use of additional equipment,
then the Tenant shall be required to pay the increased cost of utilities or
services incurred that exceed the cost of reasonable quantities of utilities of
services required in connection with the rental of office space as determined by
the Landlord in the sole discretion of the Landlord (the "Excess Usage"). The
Landlord may, at its option and at the Tenant's sole cost and expense, install a
separate meter to measure such Excess Usage of utilities and services consumed
by the Tenant and/or determine such Excess Usage based upon a survey performed
by consultants selected by the Landlord at the sole cost and expense of the
Tenant. If Landlord constructs new or additional utilities installations,
including, without limitation, wiring, plumbing, conduits and mains, resulting
from Tenant's changed, increased, or excessive utility or service requirements,
the Tenant shall on demand pay to Landlord the total cost of these items. Tenant
must obtain the Landlord's prior written consent with respect to any and all
installations of utility or service fixtures, appliances and equipment within
the Demised Space.
7. PLACE OF PAYMENTS. All payments required to be paid by Tenant to
Landlord shall be delivered to the office of Landlord as above mentioned without
any prior demand for the same.
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8. TENANT'S INSTALLATIONS AND ALTERATIONS. Tenant agrees to accept the
Demised Space in its "AS IS CONDITION WITH ALL FAULTS". Tenant shall not make
any alterations to the Demised Space or install any equipment in the Demised
Space without (i) furnishing plans and specifications of each alteration or
equipment installation to Landlord; and (ii) obtaining Landlord's prior written
consent, which consent may be withheld in the sole discretion of the Landlord.
9. ASSIGNMENT. Tenant may not assign, mortgage or encumber this Lease, in
whole or in part, or sublet all or any part of the Demised Space.
Notwithstanding the foregoing, this Lease may be assigned to any successor to
Tenant by operation of law, including, but not limited to, consolidation or
merger. Accordingly, Tenant may assign this Lease or sublet the Demised Space to
any entity which acquires all or part of Tenant, or which is acquired in whole
or in part by Tenant, or which is controlled directly or indirectly by Tenant or
which entity controls, directly or indirectly, the Tenant, or which owns or is
owned by the affiliates of the Tenant.
10. MAINTENANCE AND SERVICES. Landlord shall maintain and repair the
structural components and the mechanical, electrical, fire safety, plumbing,
sprinkler systems and HVAC of the building at the Premises and the Common Areas
as may be necessary in the reasonable discretion of the Landlord.
Notwithstanding the foregoing, the Tenant shall pay for, at Tenant's sole cost
and expense, the foregoing maintenance and repair by the Landlord to the extent
such maintenance or repairs is necessitated by, caused, or arises out of the
negligence, misconduct or fault of the Tenant, its employees, agents,
representative, contractors or business customers. Tenant covenants and agrees
at the Tenant's sole cost and expense, to maintain in good order, condition and
repair all the nonstructural portions of the interior of the Demised Space, and
the fixtures and equipment therein and appurtenances thereto located within the
Demised Space. Landlord shall have the right to install or maintain in, over or
under the Demised Space or any portion thereof, such mains, conduits, pipes,
ducts or other facilities as may be necessary or desirable to service the
Premises or any part thereof. Tenant shall, at Tenant's sole cost and expense,
arrange with third parties and, pay for telephone services, equipment, and
fixtures furnished to the Demised Space.
11. LIENS. Should any mechanic's or other lien be filed against the
Premises or any part thereof for any reason whatsoever by reason of Tenant's
acts or omissions or because of a claim against Tenant, Tenant shall cause the
same to be canceled and discharged of record by bond or otherwise within thirty
(30) days after notice by the Landlord.
12. TENANT'S PERSONAL PROPERTY TAXES. Tenant shall pay, directly to the
applicable taxing authority, all taxes assessed, levied or charged against
Tenant's trade fixtures, furniture, improvements and other personal property
installed in, stored in or kept upon the Premises.
13. INSURANCE. Tenant covenants and agrees at Tenant's sole cost and
expense, to provide on or before the commencement of the Lease Term and to keep
in force during the entire Lease Term comprehensive public liability insurance
in the amount of at least $2,000,000 for any occurrence resulting in bodily or
personal injury to or the death of one or more persons and "All Risk" property
damage insurance covering liability for damages to all Tenant's personal
property in the amount of at least $500,000 per occurrence. Tenant shall deliver
to Landlord on the date hereof and thereafter at least thirty (30) days prior to
the expiration of any such policy, either a duplicate original or a certificate
and true copy of all policies procured by Tenant in
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compliance with its obligations hereunder, together with evidence of payment
therefor and including an endorsement which states that such insurance may not
be canceled except upon thirty (30) days written notice to Landlord and any
designee(s) of Landlord. Landlord hereby releases Tenant and Tenant hereby
releases Landlord, except as to deductible amounts, to the extent of their
insurance policies required under this Lease from all claims for loss or damages
to the property of the other, whether or not caused by the act or negligence of
the other and will assure that such insurance permits waiver of liability and
contains a waiver of subrogation.
14. DESTRUCTION. If the Premises or any portion thereof shall be damaged by
any casualty, the Landlord may terminate this Lease within ninety (90) days
after such casualty. In the event that Landlord does not terminate this Lease,
then Landlord shall, upon receipt of the insurance proceeds, repair the same
with due diligence; provided, however, the obligation of Landlord to restore the
Premises shall be limited to the extent of the insurance proceeds actually
received by Landlord, free and clear from collection by any mortgagees and after
deducting the cost and expense, if any, including reasonable attorney's fees of
settling with the insurer. The Rent shall be abated proportionately as to that
portion of the Demised Space rendered untenantable. If Landlord elects to
terminate this Lease, this Lease shall expire as of the termination date
specified by the Landlord and Tenant shall vacate and surrender the Demised
Space to Landlord. Tenant's liability for Rent upon the termination of this
Lease shall cease as of the termination date specified by the Landlord. In the
event Landlord elects to repair the damage insurable under Landlord's policies,
any abatement of Rent shall end upon notice from Landlord to Tenant of the
completion of all necessary repairs.
15. EMINENT DOMAIN. In the event that the whole of the Premises shall be
taken under the power of eminent domain, this Lease shall thereupon terminate as
of the date possession shall be so taken. If any portion of the Premises shall
be taken as aforesaid, then Landlord may, by written notice to Tenant, terminate
this Lease and termination of the Lease shall be effective as of the date
possession is taken. In the event that this Lease is not so terminated, Landlord
shall, upon receipt of the award in condemnation, make all necessary repairs or
alterations to the building in which the Premises are located, but Landlord
shall not be required to spend for such repairs an amount in excess of the
Amount Received by Landlord as damages for the part of the Premises so taken.
"Amount received by Landlord" shall mean that part of the award in condemnation
which is free and clear to Landlord of any collection by mortgagees and after
payment of all costs involved in collection, including but not limited to
attorney's fees. In the event that Landlord does not terminate this Lease upon a
partial taking of the Premises, (i) Tenant, at its own cost and expense shall,
restore all exterior signs, fixtures, equipment, leasehold improvements and
other installations of personality of Tenant which are not taken to as near its
former condition as the circumstance will permit; and (ii) all provisions of
this Lease shall remain in full force and effect, except that the Rent shall be
proportionately reduced in the event that any portion of the Demised Space is
the subject of such partial taking. The entire amount of any condemnation award
shall belong to the Landlord without any deduction therefrom for any present or
future estate of Tenant, and Tenant hereby expressly waives any claim and
assigns to all Tenant's right, title and interest to any such award to the
Landlord. Tenant shall be entitled to a separate claim for moving expenses and
Tenant's trade fixtures as may be permitted under applicable law provided such
claim is made separate and apart from any award to Landlord and only so long as
Tenant's claim and award shall not diminish, reduce or prejudice the award to be
received by Landlord in any way whatsoever.
16. DEFAULT. Upon the happening of any one or more of the following events,
the Landlord may give written notice to the Tenant stating that the term of this
Lease is terminated
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on a date set forth in the notice and if such notice shall be given, the term of
this Lease shall terminate on the date so stated in the written notice:
(a) The failure of the Tenant to timely and fully pay any rent or
other assessments, taxes, damages, amounts, charges, fees, sums, etc. required
by this Lease within ten (10) days of the day or dates appointed for the payment
thereof.
(b) The failure of the Tenant to perform any one or more of its other
covenants under this Lease within thirty (30) days after written notice to the
Tenant specifying the covenant or covenants the Tenant has not performed and the
failure of the Tenant to remedy such failure to perform within said thirty (30)
day period.
(c) The making by the Tenant of an assignment for the benefit of its
creditors.
(d) The levying of a writ of execution or attachment on or against the
Building if the same is not released or discharged within thirty (30) days
thereafter.
(e) The instituting of proceedings in a court of competent
jurisdiction for the involuntary or voluntary bankruptcy, arrangement,
reorganization, liquidation or dissolution of the Tenant under the Federal
Bankruptcy Rules (as now or hereafter in effect) or any federal or state
bankruptcy or insolvency act applicable to Tenant or Tenant's business, or for
its adjudication as a bankrupt or insolvent, or for the appointment of a
receiver of the property of the Tenant, and said proceedings are not dismissed,
or any receiver, trustee, or liquidator appointed therein is not discharged
within thirty (30) days after the institution of said proceedings.
Notwithstanding any such termination, the Tenant shall remain liable to the
Landlord as hereinafter provided in this Lease.
17. REMEDIES OF LANDLORD. If an event of default set forth in this Lease
occurs, the Landlord shall have the following rights and remedies, in addition
to all other remedies at law or equity, and none of the following, whether or
not exercised by Landlord, shall preclude the exercise of any other right or
remedy whether herein set forth or existing at law or equity:
(a) Landlord shall have the right to terminate this Lease by giving
the Tenant notice in writing of the termination date of this Lease, and upon the
giving of such notice this Lease as well as all the right, title and interest of
the Tenant under this Lease shall wholly cease on the termination date set forth
in the notice as if such date were the expiration date of the term of this
Lease, without the necessity of re-entry or any other act on the Landlord's
part. Upon termination the Tenant shall quit and surrender to the Landlord the
Building. If this Lease is so terminated by the Landlord, the Landlord shall be
entitled to recover from the Tenant as damages the worth at the time of such
termination of the excess, if any, of the amount of the rent reserved in this
Lease for the balance of the term of this Lease, over the then reasonable rental
value of the Building for the same period plus all costs and expenses of the
Landlord caused by the Tenant's default.
(b) The Landlord may, without demand or notice, re-enter and take
possession of the Demised Space or any part thereof, and repossess the same as
of the Landlord's former estate in the manner prescribed by the Connecticut
statute relating to summary process and expel the Tenant and those claiming
through or under the Tenant, and remove the effects of any and all such persons
without prejudice to any remedies for arrears of
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rent or preceding breach of covenants. Should the Landlord elect to re-enter as
provided in this Paragraph or should the Landlord take possession pursuant to
legal proceedings or pursuant to any notice provided for by law, the Landlord
may, from time to time, without terminating this Lease, relet the Demised Space
or any part thereof for such terms and at such rental, and upon such other
conditions as the Landlord may deem advisable, with the right to make
alterations and repairs to the Demised Space. No such re-entry or repossession
of the Demised Space by the Landlord shall be construed as an election on the
Landlord's part to terminate this Lease unless a written notice of termination
is given to the Tenant by the Landlord. No such re-entry or repossession of the
Demised Space shall relieve the Tenant of its liability and obligation under
this Lease, all of which shall survive such re-entry or repossession. Upon the
occurrence of such re-entry or repossession, the Landlord shall be entitled to
liquidated damages in the amount of the monthly rent, taxes, fees, charges,
assessments, and other sums, which would be payable hereunder if such re-entry
or repossession had not occurred, less the net proceeds, if any, of any
reletting of the Demised Space after deducting all the Landlord's expenses in
connection with such reletting, including, but without limitation, all
repossession costs, brokerage commissions, legal expenses, attorney's fees,
expenses of employees, alteration costs, and expenses of preparation for such
reletting. The Tenant shall pay such liquidated damages to the Landlord on the
days on which the rent or any other sums due hereunder would have been payable
hereunder retaken.
In determining the rent which would be payable by Tenant hereunder
subsequent if possession had not been to default, the annual rent for each year
of the unexpired term shall be equal to the average annual rent and all
additional rent paid by Tenant from commencement of the Lease to the time of
default.
18. ACCESS TO PREMISES. Landlord shall have the right to enter the Demised
Space during business hours upon reasonable notice to inspect the Demised Space,
make repairs, additions, alterations or improvements to the Demised Space as
Landlord may elect or as may be required hereunder, or for any other reasonable
purpose. In the event of an emergency, Landlord may enter the same by a master
key without incurring liability therefor and without in any manner affecting the
obligations of this Lease.
19. SUBORDINATION. The Tenant agrees that this Lease and the Tenant's
interest hereunder shall be subordinate to any security agreement and/or
mortgage to a bank or other institution as well as any easements granted to any
governmental or quasi-governmental authority or body or any utility company.
Upon request of the Landlord or Landlord's mortgagee, Tenant agrees to promptly
execute and deliver any and all documents subordinating its right under this
Lease as aforesaid. The word "mortgage" as used herein includes, but is not
limited to, mortgages, deeds of trust, or similar instruments and modifications,
consolidations, extensions, renewals, replacements or substitutions thereof.
This subordination shall be automatically effective at such time or times as any
and all future security agreements and/or mortgages come into existence without
the necessity for the Tenant to execute any further instruments.
20. QUIET ENJOYMENT. Tenant, upon paying the Rent and performing all of the
terms on its part to be performed, shall peaceably and quietly enjoy the Demised
Space subject, nevertheless, to the terms of this Lease and to any mortgage,
ground lease or agreements of record to which this Lease is subordinated.
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21. FORCE MAJEURE. Except for the payment by Tenant of the Rent and other
sums payable by Tenant under this Lease, the parties shall be excused for the
period of any delay in the performance of any obligations hereunder, when
prevented from so doing by cause or causes beyond their respective control which
shall include, without limitation, all labor disputes, civil commotion, war,
war-like operations, hostilities, sabotage, governmental regulations or
controls, fire or other casualty, inability to obtain any material, services or
through acts of God.
22. END OF TERM. At the expiration of this Lease, Tenant shall surrender
the Demised Space in the same condition as the Demised Space were in upon
delivery of possession thereto under this Lease, reasonable wear and tear
excepted, and shall deliver all keys and combinations of all locks, safes and
vaults to Landlord. Any leasehold improvements made to the Demised Space by
Tenant or by Landlord for Tenant's benefit, including but not limited to,
demising walls, ceilings, walls separating the Demised Space into office space
and all improvements which cannot be removed without damaging or leaving holes
in the Demised Space shall remain in the Demised Space and shall become the
property of the Landlord immediately upon the expiration of or earlier
termination of this Lease. Before surrendering the Demised Space, Tenant shall
remove all its personal property including all trade fixtures, and shall repair
any damage caused thereby. Tenant's obligations under this provision shall
specifically survive the expiration or termination of the Lease Term. If Tenant
fails to remove its property upon the expiration of this Lease, then said
property shall be deemed abandoned and become the property of the Landlord at
the option of the Landlord after (i) Landlord provides at least ten (10) days
prior notice to the Tenant; and (ii) Tenant fails to immediately remove any such
personal property and repair any damage caused thereby after receipt of such
notice from the Landlord.
23. HOLDING OVER. Tenant shall surrender possession of the Demised Space
immediately upon the expiration of the term of this Lease or earlier termination
of this Lease. Any holding over after the expiration of this term or termination
of this Lease shall be construed to be a month to month tenancy and terminable
by Landlord upon ten (10) days written notice to the Tenant. The Tenant shall
pay the Landlord twice the per diem rental paid by Tenant prior to such
expiration or earlier termination of this Lease per day along with the
additional rent and other charges to paid by Tenant pursuant to this Lease in
addition to all Landlord's costs and expenses in removing the Tenant from the
Demised Space, including reasonable attorneys' fees and shall otherwise be
subject to such other obligations and liabilities set forth in this Lease as may
be applicable to such occupancy of the Demised Space by the Tenant. In addition,
Tenant shall pay Landlord for any and all damages sustained by Landlord as a
result of Tenant's holding over or failure to surrender the Demised Space,
including, but not limited to, lost profits and amounts required to be paid to
any tenant or prospective tenant who was to occupy the Demised Space after the
expiration or sooner termination of the Lease, related attorney's fees and
brokerage commissions.
The Tenant hereby waives any notice to quit in the event that the Lease
terminates by the lapse of time in accordance with the provisions of Section
47a-25 of the Connecticut General Statutes, Revision of 1958, as amended. The
Tenant represents that this waiver is made knowingly and intelligently and that
the Tenant conferred with its legal advisors prior to agreeing to this waiver.
24. NO WAIVER. Failure of either party to insist upon the strict
performance of any provision of this Lease or to exercise any option or enforce
any rules and regulations herein
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contained shall not be construed as a waiver by such party for the future of any
such provision, rule or option. The receipt by Landlord of Rent with knowledge
of the breach of any provision of this Lease shall not be deemed a waiver of
such breach. No provision of this Lease shall be deemed to have been waived
unless such waiver be in writing signed by the party benefiting from such
provision.
25. NOTICES. Any notice, demand, request or other instrument which may be
or are required to be given under this Lease shall be delivered in person or
sent by United States Certified Mail, return receipt requested, postage prepaid,
and shall be addressed (a) if to Landlord, at the address as hereinabove set
forth and (b) if to Tenant, at the address specified in the introductory
paragraph of this Lease. Either party may designate such other address as shall
be given by written notice.
26. REMEDY OF TENANT. In the event of default by Landlord under the terms
of this Lease, Tenant's sole and exclusive remedy shall be against Landlord's
interest in the Premises subject to rights of mortgagees, and in no event,
however, shall any action be brought against other assets of the Landlord for
any claim by Tenant to recover for damages of any kind, nature or description.
In addition, any action brought by Tenant for damages arising from a default by
Landlord shall be solely limited to direct damage incurred as a result of such
default without any claim for consequential damages or lost profits. Tenant
hereby waives any and all claims and rights to recover consequential damages or
lost profits arising from a default by Landlord under this Lease.
27. PARKING. Tenant shall have the non-exclusive right in common with
others to the use of the parking spaces located at the Premises subject to such
restrictions and regulations as Landlord deems appropriate provided such
restrictions and regulations do not unreasonably interfere with Tenant's
permitted use of the Premises.
28. INDEMNIFICATION. Notwithstanding any other terms, covenants, and
conditions contained in this Lease, the Tenant shall indemnify and save harmless
Landlord and its agents from and against any and all loss (including, but not
limited to, loss of any rent payable by the Tenant pursuant to this Lease),
claims, actions, damages, liability and expense in connection with loss of life,
personal injury, damage to property or any other loss or injury whatsoever
arising from or out of the occupancy or use by the Tenant of the Premises, the
Demised Space and/or Common Areas Space or any part thereof or any work or thing
whatsoever done, or any condition created (other than by Landlord, its agents,
servants or employees) in or about the Premises and the Building during the term
of this Lease or during any other period of time that Tenant may have been given
access to the Premises and the Demised Space, or arising from any negligent or
otherwise wrongful act or omission of Tenant or any of its subtenants, assigns
or licensees or its or their employees, agents, contractors, guests or invitees.
In case any action or proceeding be brought against Landlord, by reason of any
such claim, Tenant, upon notice from Landlord, shall resist and defend such
action or proceeding by attorneys reasonably acceptable to Landlord. If the
Landlord shall, without fault on its part, be made a party to any litigation
commenced by or against the Tenant, then the Tenant shall protect, indemnify and
hold the Landlord harmless and shall pay all costs, expenses and reasonable
legal fees incurred or paid by the Landlord in connection with such litigation.
The Tenant shall also pay all costs, expenses and legal fees that may be
incurred or paid by the Landlord in enforcing the terms, covenants and
conditions in this Lease, unless a court shall decide otherwise. This paragraph
shall be read in conjunction with all other provisions of this Lease.
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29. NON-LIABILITY OF LANDLORD. Landlord shall not be liable for any failure
of water supply or electric current or of any service by any utility, not for
injury or damage to person (including death) or property caused by or resulting
from steam, gas, electricity, water, rain or snow which may flow or leak from
any part of the Premises, or from any pipes, appliances or plumbing works of the
same, or from any other cause, or from the street or subsurface or from any
other place, nor from interferences with light or easements, however caused,
except to the extent such injuries to person or damages to property arise as a
result of the negligent affirmative acts or intentional misconduct of the
Landlord. The Landlord shall have no liability to Tenant by reason of any
temporary inconvenience, annoyance, interruption or loss of business arising
from Landlord's making any repairs or changes which Landlord may make in or to
any portion of the Premises or in or to the fixtures, equipment or appurtenances
of the Premises.
The Landlord shall not be required to provide any services or perform any
act in connection with the Demised Space or the Premises except as otherwise
specifically provided in this Lease. Except as expressly provided otherwise in
this Lease, Rent shall be paid to the Landlord without any claim on the part of
the Tenant for diminution or abatement thereof, and the fact that the Tenant's
use and occupancy of the Demised Space shall be disturbed or prevented from any
cause whatsoever shall not in any way suspend, abate or reduce the rental to be
paid hereunder except as otherwise specifically provided in this Lease.
30. WASTE; NUISANCE. Tenant shall not use the Demised Space and the
Premises in any manner that will constitute waste, nuisance, or annoyance
(including, without limitation, the use of loudspeakers or an objectionable
sound or light apparatus that can be heard or seen outside the Demised Space) to
the Landlord, occupants of adjacent properties or other tenants of the Premises.
31. SIGNS. Tenant shall not erect or install any sign, awning or other type
display whatsoever, either upon the exterior of the building at the Premises,
upon or in any window, or in any lobby, hallway or door therein located, without
the prior express written consent of Landlord. The installation, size and design
of any signs, awnings or displays at the Premises shall also be subject to the
laws, ordinances, rules and regulations of any federal, state or local
governmental authority. Tenant shall, at Tenant's sole cost and expense,
maintain any such signs or other installation, as may be approved, in good
condition and repair. The Tenant shall pay all permit and license fees which may
be required to be paid for the erection and maintenance of any and all such
signs and other installation and provided such signs and other installations are
legally permitted to be installed. The Tenant agrees to exonerate, save
harmless, protect and indemnify the Landlord from, and against any and all
losses, damages, claims, suits or actions for any damage or injury to the person
or property caused by the erection and maintenance of such signs and other
installations or parts thereof, and insurance coverage for such signs and
installations shall be included in the public liability policy which the Tenant
is required to furnish under this Lease. At or before the expiration of this
Lease, or the date of any earlier termination of this Lease, all such signs and
other installations shall be removed by Tenant unless otherwise agreed to by
Landlord and Tenant shall repair any damage to the Premises resulting from such
removal and shall restore the Premises to the condition designated by Landlord.
32. MISCELLANEOUS.
(a) Tenant shall not record this Lease on the Hartford land records.
If it does so, Landlord may terminate this Lease by recording a Notice of
Termination of this Lease on the
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Hartford land records effective with Landlord's signature solely appearing as
such Notice of Termination.
(b) If any provision of this Lease or application thereof to any
person or circumstance shall to any extent by invalid, 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.
(c) Landlord and Tenant each represent and warrant that there are no
claims for brokerage commissions or finder's fees in connection with the
execution of this Lease and each agrees to indemnify the other against and hold
it harmless from all liabilities arising from any such claim, including
attorney's fees incurred by such other party in connection with any such claim.
(d) All provisions herein shall be binding upon and shall inure to the
benefit of the parties, their legal representatives, successors and assigns.
(e) Time is of the essence with respect to the performance of all of
the covenants, conditions, terms and obligations contained in this Lease.
(f) If Landlord sells or conveys its interest in the Premises,
thereafter Landlord shall be relieved of any liability to Tenant under this
Lease and Tenant shall look solely to the new owner or owners for performance of
the Landlord's obligations hereunder.
(g) This Lease contains the agreements between the parties hereto and
this Lease shall control over and supersede any and all prior understandings and
prior agreements relating to the Demised Space between the parties including,
but not limited to, a certain Lease dated July 1, 1996 by and between Landlord
and Tenant ("Prior Lease"). The Landlord and Tenant hereby terminate and
discharge the Prior Lease as of December 31, 1998. In addition, this Lease shall
not be modified in any manner except by an instrument in writing executed by the
parties, their heirs, administrators, executors, successors or assigns. No
representations have been made by either party other than those set forth in
this Lease and neither party shall be bound by or held to any representations
other than as are set forth in this Lease.
(h) This Lease shall be governed by and construed in accordance with
the Laws of the State of Connecticut. If any provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease shall not be affected
thereby and each provision of the Lease shall be valid and enforceable to the
fullest extent permitted by the Law.
(i) Landlord and Tenant hereby specifically and irrevocably consent to
the jurisdiction of the courts of the State of Connecticut with respect to all
matters concerning this Lease and the enforcement hereof.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
Signed, Sealed and Delivered LANDLORD:
in the Presence of:
/s/ Henry M. Zachs
------------------------------------
Henry M. Zachs
TENANT:
ZIPLINK, LLC
By /s/ Christopher Jenkins
----------------------------------
Christopher Jenkins
Its: President
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EXHIBIT 10.9
AGREEMENT OF SUBLEASE AND LICENSE AGREEMENT
This SUBLEASE AGREEMENT AND LICENSE AGREEMENT ("Sublease") is made and
entered into as of the 1st day of July, 1996 by and between iGUIDE, INC., a
Massachusetts corporation ("Sublessor") and ZIPCALL, LLC., a Connecticut limited
liability company ("Sublessee").
W I T N E S S E T H:
WHEREAS, CROSS POINT LIMITED PARTNERSHIP, a Massachusetts limited
partnership, as landlord ("Landlord") and Sublessor (formerly known as Delphi
Internet Services Corporation), as tenant, entered into a Lease dated as of
April 28, 1995, and First Amendment to Lease dated as of May 17, 1995
(collectively, the "Lease"), whereby Landlord leased to Sublandlord the entire
fifth (5th) and sixth (6th) floors of Tower 1 and the entire fifth (5th) and
sixth (6th) floors of Tower 2 ("Premises") of the building located at 900
Chelmsford Street, Lowell, Massachusetts (the "Building"), as more particularly
described in the Lease, upon the terms and conditions contained therein. All
capitalized terms used herein shall have the same meaning ascribed to them in
the Lease unless otherwise defined herein. The Lease is attached hereto as
Exhibit "A" and made a part hereof.
WHEREAS, Sublessor and Sublessee want to enter into a sublease of that
portion of the Premises consisting of the entire fifth (5th) and sixth (6th)
floors of Tower 1 of the Building, as shown on the floor plans annexed hereto as
Exhibit "B" and made a part hereof (the "Subleased Premises"), and also want to
enter into a non-exclusive license agreement for that portion of the Premises
located on the sixth (6th) floor of Tower 2 of the Building currently called and
known to the parties as the TELCO/LAN Room, and for ACCESS and egress with
respect thereto in the area described on EXHIBIT C hereto (collectively, the
"Licensed Area") on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually
covenant and agree as follows:
1A. SUBLEASING OF SUBLEASED PREMISES CONDITION OF SUBLEASED PREMISES.
(i) Sublessor hereby subleases to Sublessee and Sublessee
hereby hires from Sublessor, the Subleased Premises, upon and subject to all of
the terms, covenants, rentals and conditions hereinafter set forth.
(ii) Sublessee shall accept the Subleased Premises in the
condition and state of repair on the date hereof, "as is", subject to ordinary
wear and tear between the date hereof and the "Commencement Date" (as
hereinafter defined), and, except as specifically set forth herein, Sublessee
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expressly acknowledges and agrees that Sublessor has made no representations
with respect to the Subleased Premises or the Building and is not obligated to
make any improvements, installations, repairs or restorations with respect to,
or to perform any other work at, the Subleased Premises. All leasehold
improvements made by Sublessee after the Commencement Date shall be made at
Sublessee's sole cost and expense.
1B. LICENSING OF LICENSED AREA: TERMINATION OF LICENSE;
INDEMNIFICATION.
(i) Located in the TELCO/LAN Room of the Licensed Area and
housed on 19" racks (the "Racks") is certain electronic equipment purchased by
Sublessee from Sublessor pursuant to the Asset Purchase Agreement described in
SECTION 21a) hereof. In no event may Sublessee utilize more than ten (10) Racks
to house such equipment. The existing ASPECT Phone equipment is deemed to occupy
two (2) Racks. Provided Sublessee is not in default under this Sublease after
the giving of notice and the expiration of all applicable cure periods,
Sublessee, acting only through its executive officers or agents, contractors,
servants, employees, invitees or licensees professionally qualified to service,
upgrade, repair and otherwise deal with such equipment, shall be and hereby is
granted a non-exclusive license by Sublessor to enter into such TELCO/LAN Room
only for such purposes (the "License"). Sublessee shall enter and leave such
TELCO/LAN Room only by using the remainder of the licensed area described on
EXHIBIT D annexed hereto. In consideration of the provision to Sublessee of the
License, Sublessee will pay to Sublessor, at the time and place of payment by
Sublessee of "Fixed Rent" (hereinafter defined) a monthly license fee determined
by multiplying the number of Racks used by Sublessee to house its electronic
equipment in the TELCO/LAN Room on the first day of each month of the "Term"
(hereinafter defined) by an amount initially equal to $500. Commencing on June
l, 1997 and thereafter on June 1 of each succeeding year of the Term the monthly
amount due Sublessor hereunder per Rack shall be 104% greater than the monthly
amount per Rack imposed during the immediately preceding year. (By way of
example, the monthly amount per Rack on June l, 1997 shall be $520 and on June
l, 1998, $540.80.) There shall be no other payment, rental, charge or
consideration for the License. Such monthly License payments shall be due and
payable without setoff or deduction of any kind whatsoever, except that on the
Commencement Date such License payment shall be pro rated on a per diem basis.
(ii) In the event Sublessor (a) discontinues the operation of
its business in the space it occupies on the sixth floor of Tower 2 other than
the Licensed Area and (b) determines in its sole and absolute discretion that it
is no longer necessary for Sublessor to occupy the Licensed Area, then Sublessor
may, in the exercise of its sole and absolute discretion, terminate the License.
Such termination shall be effective on the one hundred twentieth (120th) day
following the giving of notice by Sublessor to Sublessee of such termination.
Provided Sublessee is not in default under the Sublease after the giving of
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notice and the expiration of all applicable grace periods, Sublessee shall have
the right to terminate the License. Such termination shall be effective on the
sixtieth (60th) day following the giving of notice by Sublessee to Sublessor of
such termination.
(iii) Sublessee agrees to indemnify Sublessor against and hold
Sublessor harmless from, any and all liabilities, losses, obligations, damages,
penalties, claims, costs and expenses (including, without limitation, reasonable
attorneys' fees and other charges) which are paid, suffered or incurred by
Sublessor as a result of (a) any act or omission of Sublessee or Sublessee s
agents, contractors, servants, employees, invitees or licensees or (b) any work
or thing done, or any condition created by any of them on or about the Licensed
Area, either of which cause, directly or indirectly, any personal injuries or
property damage occurring in, on or about the Licensed Area from and after the
Commencement Date.
(iv) Sublessor agrees to indemnify Sublessee against and hold
Sublessee harmless from, any and all liabilities, losses, obligations, damages,
penalties, claims, costs and expenses (including, without limitation, reasonable
attorneys' fees and other charges) which are paid, suffered or incurred by
Sublessee as a result of any personal injuries or property damage occurring in,
on or about the Licensed Area from and after the Commencement Date caused by the
negligence or willful misconduct of Sublessor or Sublessor s agents,
contractors, servants, employees, invitees or licensees.
2. TERM.
(a) The term (the "Term") of this Sublease shall commence
within five (5) days after the "Tri-Party Agreement" (as hereinafter defined) is
executed and delivered (the "Commencement Date") and shall expire at 11:59 P.M.
on May 14, 2010 (the "Expiration Date"), unless sooner terminated as hereinafter
provided.
(b) Provided that Sublessee is not in default under this
Sublease after the giving of notice and the expiration of all applicable cure
periods, Sublessor shall not, without Sublessee's consent (which consent may be
withheld by Sublessee in its sole and absolute discretion), exercise either
Tenant's First Termination Option pursuant of SECTION 29A of the Lease (unless
Sublessee has exercised "Sublessee's First Termination Option" below defined) or
Tenant's Second Termination Option (unless Sublessee has exercised "Sublessee's
Second Termination Option" below defined) pursuant to SECTION 29B of the Lease
without Sublessee's consent (which consent may be withheld by Sublessee in its
sole and absolute discretion) if any such termination would in any way affect
Sublessee's use and occupancy of the Subleased Premises or any obligations of
Sublessee relating thereto.
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(c) Provided Sublessee is not in default under this
Sublease after the giving of notice and the expiration of all applicable cure
periods, Sublessee shall have the right ("Sublessee's First Termination
Option") to terminate this Sublease as of May 14, 2000 (the "First Early
Termination Date") pursuant to the provisions of this Section 2(c).
Sublessor's First Termination Option shall be exercised by Sublessee by
written notice (the "First Termination Notice") to Sublessor on or before
March l, 1999 and by payment to Sublessor of an amount equal to the sum of
(i) the Fixed Rent and additional rent that would have been due and payable
hereunder for the six (6) month period following the First Early Termination
Date had the Sublease not been terminated pursuant to the provisions hereof
plus (ii) the "Proportionate Share" (hereinafter defined) of the unamortized
portion (as of the First Early Termination Date) of all of Landlord's Costs
plus (iii) any past due Fixed Rent and additional rent and other charges
payable by Sublessee to Sublessor hereunder as of the date of delivery of the
First Termination Notice (collectively, the "First Termination Payment"), In
determining the amount for subparagraph (ii) above, all of Landlord's Costs
in connection with the Lease shall be deemed to be $433,500 as of May 15,
1995 and such amount shall be reduced as if amortized on a straight-line
basis, with interest, at the annual rate of the prime rate of The First
National Bank of Boston, plus two percent (2%), over fifteen (15) years)
commencing on May 15, 1995. The First Termination Payment shall be paid to
Sublessor within thirty (30) days after receiving a statement therefor from
Sublessor showing the amount thereof and how it was computed in reasonable
detail. If Sublessee fails timely to give such First Termination Notice or
make such payment, then Sublessee shall have no further right to terminate
this Sublease except as set forth in Section 2(d) below, time being of the
essence with respect to the exercise of Sublessee's First Termination Option.
If Sublessee properly exercises Sublessee's First Termination Option by
giving Sublessor timely notice and by timely paying Sublessor the First
Termination Payment, then this Sublease shall terminate on the First Early
Termination Date.
(d) Provided Sublessee is not in default under this Sublease
after the giving of notice and the expiration of all applicable grace periods,
Sublessee shall have the right ("Sublessee's Second Termination Option") to
terminate this Sublease as of May 14, 2005 (the "Second Early Termination Date")
pursuant to the provisions of this Section 2(d). Sublessor's Second Termination
Option shall be exercised by Sublessee by written notice (the "Second
Termination Notice") to Sublessor on or before March 1, 2004 and by payment to
Sublessor of an amount equal to the sum of (i) the Fixed Rent and additional
rent that would have been due and payable hereunder for the twelve (12) month
period following the Second Early Termination Date had the Sublease not been
terminated pursuant to the provisions hereof plus (ii) the Proportionate Share
of the unamortized portion (as of the Second Early Termination Date) of all of
Landlord's Costs in connection with the Lease plus (iii) any past due Fixed Rent
and additional rent and other charges payable by Sublessee to Sublessor
hereunder as of the date of delivery of the Second Termination Notice
(collectively, the "Second Termination Payment"), In
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determining the amount for subparagraph (ii) above, all of Landlord's Costs
in connection with the Lease shall be deemed to be $433,500 as of May 15,
1995, 1995 and such amount shall be reduced as if amortized on a
straight-line basis, with interest, at the annual rate of the prime rate of
The First National Bank of Boston, plus two percent (2%), over fifteen (15)
years commencing on May 15, 1995. The Second Termination Payment shall be
paid to Sublessor within thirty (30) days after receiving a statement
therefor from Sublessor showing the amount thereof and how it was computed in
reasonable detail. If Sublessee fails timely to give such Second Termination
Notice or make such payment, then Sublessee shall have no further right to
terminate this Sublease, time being of the essence with respect to the
exercise of Sublessee's Second Termination Option. If Sublessee properly
exercises Sublessee's Second Termination Option by giving Sublessor timely
notice and by timely paying Sublessor the Second Termination Payment, then
this Sublease shall terminate on the Second Early Termination Date.
3. FIXED RENT.
(a) During the Term, Sublessee shall pay to Sublessor, in
lawful money of the United States, a fixed annual rent (the "Fixed Rent") at the
rate of $322,950 per annum ($26,912.50 per month) for the period from the
Commencement Date through and including May 14, 2005, and at the rate of
$439,212 per annum ($36,601 per month) for the period from May 15, 2005 through
and including May 14, 2010. Fixed Rent shall be paid in equal monthly
installments in advance.
(b) Such installments of Fixed Rent shall be due and payable
on the twenty-fifth (25th) day of each calendar month for the next succeeding
calendar month during the Term at the following place:
iGuide, Inc.
620 Avenue of the Americas
Sixth floor
New York, New York 10011
Attention: Controller
or at such other place as Sublessor may designate, at any time and from
time to time, without any setoff or deduction of any kind whatsoever, except
that on the Commencement Date Sublessee shall pay to Sublessor the Fixed Rent
due for the calendar month in which the Commencement Date shall occur, pro rated
on a per diem basis.
4. ADDITIONAL RENT.
(a) LEASE ESCALATIONS. During the Term, Sublessee shall pay to
Sublessor, as additional rent hereunder, Sublessee's Proportionate Share of all
amounts of Adjustment Rent payable by Sublessee pursuant to SECTION 2.B(ii) of
the Lease. Sublessee's "Proportionate Share" as such term is
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used in this Sublease shall mean a fraction, the numerator of which is the
rentable square footage of the Subleased Premises (51,672) and the denominator
of which is the rentable square footage of the Premises (114,762).
(b) ADDITIONAL RENT. All amounts payable by Sublessee to
Sublessor pursuant to this Sublease, shall be deemed to be and shall constitute
rent for all purposes hereunder and, in the event of any non-payment thereof,
Sublessor shall have all of the rights and remedies provided herein (including,
without limitation, those rights and remedies set forth in SECTION 10 hereof),
at law or in equity for non-payment of rent. The amounts described in this
SECTION 4 shall be payable together with Fixed Rent on the twenty-fifth (25th)
day of each month.
The obligation of Sublessee to pay all such amounts shall survive the
Expiration Date or earlier termination of this Sublease.
5. SURRENDER OF THE SUBLEASED PREMISES. Upon the Expiration Date or
earlier termination of the Term or License, Sublessee shall quit and surrender
the Subleased Premises in the condition required by Section 15 of the Lease and
shall perform all of the other obligations of Tenant under the Lease insofar as
they pertain to (a) the Subleased Premises and/or the electronic equipment of
Sublessee in the Licensed Area and (b) all alterations, improvements or
installations made by Sublessee. Sublessee shall remove all of its furniture,
equipment, trade fixtures and all other items of its personal property therefrom
as provided in such Section 15. If the Expiration Date, or earlier termination
of the Term or the License, falls on a Sunday, this Sublease or the License, as
the case may be, shall expire at noon on the immediately preceding Saturday
unless such Saturday is a legal holiday, in which case the Term or the License,
as the case may be, shall expire at noon on the first business day immediately
preceding such Saturday. Sublessee shall observe and perform each of the
covenants contained in this Sublease and Sublessee's obligations hereunder shall
survive the Expiration Date or earlier termination of this Sublease or the
License.
6. USE. Sublessee shall use and occupy the Subleased Premises solely
for the uses permitted under, and in compliance with, SECTION 3 of the Lease and
for no other purpose.
7. SUBORDINATION TO AND INCORPORATION OF TERMS OF THE LEASE. This
Sublease is in all respects subject and subordinate to all of the terms,
provisions, covenants, stipulations, conditions and agreements of the Lease, and
all of the terms, provisions, covenants, stipulations, conditions, rights,
obligations, remedies and agreements of the Lease are incorporated in this
Sublease by reference and made a part hereof as if herein set forth at length,
and shall, as between Sublessor and Sublessee (as if they were the Landlord and
Tenant, respectively, under the Lease, and as if the word "Lease" were
"Sublease" and the word "Premises" were "Subleased Premises"), constitute the
terms of this Sublease, (i) except for the
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second paragraph of Section 3 and all of Sections 4, 8B, 10B, 21, 26, 27, 28 and
29 of the Lease, (ii) except for such other terms, obligations, covenants and
other provisions of the Lease as do not relate to the Subleased Premises or are
inapplicable, inconsistent with, or specifically modified by, the terms of this
Sublease and (iii) except as may be otherwise expressly provided in this
Sublease. In furtherance of the foregoing, Sublessee shall not take any action
or do or permit to be done anything which (x) is or may be prohibited to
Sublessor, as tenant under the Lease, (y) might result in a violation of or
default under any of the terms, covenants, conditions or provisions of the Lease
or any other instrument to which this Sublease is subordinate, or (z) would
result in any additional cost or other liability to Sublessor. This clause shall
be self operative and no further instrument of subordination shall be required,
but Sublessee shall execute promptly any certificate confirming such
subordination that Sublessor may request. Unless expressly provided for
otherwise herein, in the event of any inconsistency between this Sublease and
the Lease, such inconsistency shall be resolved in favor of that obligation
which is more onerous to Sublessee or that restriction which is more restrictive
of Sublessee, as the case may be.
8. SUBLESSEE'S OBLIGATIONS; INDEMNIFICATION. Except as specifically set
forth herein to the contrary, all acts to be performed by, and all of the terms,
provisions, covenants, stipulations, conditions, obligations and agreements to
be observed by, Sublessor, as Tenant under the Lease, shall, to the extent that
the same relate to the Subleased Premises, be performed and observed by
Sublessee, and Sublessee's obligations in respect thereof shall run to Sublessor
or Landlord, as Sublessor may determine to be appropriate or as may be required
by the respective interests of Sublessor and Landlord. Sublessee shall indemnify
Sublessor against, and hold Sublessor harmless from, all liabilities, losses,
obligations, damages, penalties, claims, costs and expenses (including, without
limitation, attorneys' fees and other costs) which are paid, suffered or
incurred by Sublessor as a result of the nonperformance or nonobservance of any
such terms, provisions, covenants, stipulations, conditions, obligations or
agreements by Sublessee.
9. SUBLESSOR'S OBLIGATIONS; INDEMNIFICATION SELF-HELP.
(a) Notwithstanding anything contained in this Sublease to the
contrary, Sublessor shall have no responsibility to Sublessee for, and shall not
be required to provide, any of the services or make any of the improvements,
installation, repairs or restorations which Landlord has agreed to make or
provide, or cause to be made or provided, under the Lease, and, as more fully
provided in SECTIONS 9(c) AND 9(d) below, Sublessee shall rely upon Landlord for
the provision of such services and the making of such improvements,
installations, repairs and restorations. Sublessee shall not make any claim
against Sublessor for any damage which may result from, nor shall Sublessee's
obligations hereunder, including, without limitation, Sublessee's obligation to
pay all Fixed Rent and additional rent when due, be impaired by reason of, (i)
the failure of Landlord to keep, observe or perform any of its obligations under
the Lease,
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or (ii) the acts or omissions of Landlord or any of its agents, contractors,
servants, employees, invitees or licensees.
(b) Notwithstanding anything in this Sublease to the contrary,
Sublessor shall remain liable to Sublessee for, and shall indemnify, defend and
hold Sublessee harmless from and liabilities, damages, losses, claims or
expenses (including, without limitation, reasonable attorneys' fees and other
costs) that Sublessee may incur from any act or omission of the Landlord
(including, without limitation, the termination of services) if such act or
omission occurs as a result of Sublessor's nonperformance or non-observance any
term, provision, covenant, stipulation, condition, obligation, or agreement to
be performed or observed by Sublessor (i) as Tenant under the Lease or (ii)
under Section 2(b) of this Sublease, provided same is not caused by Sublessee or
was the result of Sublessee's action or inaction with respect to an obligation
of Sublessee hereunder.
(c) Sublessor shall cooperate with Sublessee and after notice
shall, at no cost to Sublessor, use reasonable good faith efforts in seeking to
obtain the performance by Landlord of the terms, covenants, conditions,
provisions and agreements contained in the Lease on its part to be performed.
Sublessee shall be entitled to received all services to be rendered to Sublessor
under the Lease as applicable to the Subleased Premises and Sublessee's use of
the Building. Moreover, if Landlord fails to repair or maintain the Subleased
Premises or the Building, or fails to provide Landlord's Services, in such a
manner as would render Section 33 of the Lease (Limited Self Help Rights)
applicable then, upon request by Sublessee, Sublessor, after proper notice to
Landlord, shall make such repairs or cause such services to be provided,
pursuant to such Section 33, on the condition that Sublessee pays all of the
costs thereof directly to the contractors, subcontractors, materialman,
professionals and others retained in that regard by Sublessor. Sublessor shall
not be obligated to re-pay the amount of such costs to Sublessee or allow
Sublessee to offset such amount against any Fixed Rent or additional rent
payments due Sublessor unless Sublessor pursuant to such Section 33 has received
such amount from Landlord or, with respect to offsets, Sublessor may properly
offset such amount against Rent due Landlord.
(d) If Landlord shall default in any of its obligations to
Sublessor with respect to the Subleased Premises, or there shall exist a bona
fide dispute between Sublessee and Landlord under the terms, covenants,
conditions, provisions and agreements of this Sublease and/or the Lease, and
Sublessee notifies Sublessor in writing that Sublessee has previously notified
Landlord of such dispute and that such default or notice has been disregarded or
not reasonably satisfactorily acted upon, then Sublessor shall notify Landlord
of such default or dispute in its name on Sublessee's behalf. Sublessee shall be
entitled to participate with Sublessor in the enforcement of Sublessor's rights
against Landlord, but Sublessor shall have no obligation to bring any action or
proceeding or to take any steps to enforce
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Sublessor's rights against Landlord. If, after written request from Sublessee,
Sublessor shall fail or refuse to take appropriate action for the enforcement of
Sublessor's rights against Landlord with respect to the Subleased Premises,
Sublessee shall have the right to take such action in its own name, and for such
purpose and only to such extent, all of the rights of Sublessor under the Lease
are hereby conferred upon and assigned to Sublessee and Sublessee hereby is
subrogated to such rights to the extent that the same shall apply to the
Subleased Premises. If any such action against Landlord in Sublessee's name
shall be barred by reason of lack of privity, nonassignability or otherwise,
Sublessee may take such action in Sublessor's name provided Sublessee has
obtained the prior written consent of Sublessor, which consent shall not be
unreasonably withheld or delayed (and if it is apparent that Sublessee must act
promptly in order to preserve its rights, any failure on Sublessor's part to
respond to Sublessee's request to take action in Sublessor's name within ten
(10) business days after Sublessee's request shall be automatically deemed
Sublessor's consent thereto), and in connection therewith, Sublessee does hereby
agree to indemnify and hold Sublessor harmless from and against all liability,
loss or damage, including, without limiting the foregoing, reasonable attorneys'
fees and disbursements, which Sublessor shall suffer by reason of such action.
In any event, Sublessee shall not be allowed any abatement or diminution of
Fixed Rent or additional rent under this Sublease because of Landlord's failure
to perform any of its obligations under the Lease, unless such abatement or
diminution is permitted under SECTION 9(c) above. Notwithstanding the foregoing,
in the event Sublessor receives an abatement or diminution of Fixed Rent or
additional rent from Landlord that relates to the Subleased Premises, Sublessee
shall be entitled to an equivalent abatement or diminution of Fixed Rent or
additional rent.
10. COVENANTS WITH RESPECT TO THE LEASE. In the event that Sublessee
shall be in default of any term, provision, covenant, stipulation, condition,
obligation or agreement of, or shall fail to perform any obligation under, this
Sublease, Sublessor, on giving the notice required by the Lease (as modified
pursuant to SECTION 15 hereof) and subject to the right, if any, of Sublessee to
cure any such default within any applicable grace period provided in the Lease
(as modified pursuant to SECTION 15 hereof), shall have available to it all of
the remedies available to Landlord under the Lease in the event of a like
default or failure on the part of Sublessor, as tenant thereunder. Such remedies
shall be in addition to all other remedies available to Sublessor at law or in
equity.
11. BROKER. Sublessor and Sublessee, each for itself, represent and
warrant to each other that it has not dealt with any broker or finder in
connection with this Sublease and each does hereby agree to indemnify and hold
the other harmless from and against any and all liabilities, losses,
obligations, damages, penalties, claims, costs and expenses (including, without
limitation, attorneys' fees and other charges) arising out of any claim, demand
or proceeding for a real estate brokerage commission, finder's fee or other
compensation made by any person or entity in connection with this Sublease
claiming to have dealt with Sublessee.
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12. ADDITIONAL INDEMNIFICATION OF SUBLESSEE. Sublessee agrees to
indemnify Sublessor and Landlord against and hold Sublessor harmless from, any
and all liabilities, losses, obligations, damages, penalties, claims, costs and
expenses (including, without limitation, attorneys' fees and other charges)
which are paid, suffered or incurred by Sublessor and Landlord as a result of
(a) any act or omission of Sublessee or Sublessee's agents, contractors,
servants, employees, invitees or licensees or (b) any work or thing done, or any
condition created by any of them on or about the Subleased Premises or the
Building, either of which cause, directly or indirectly, any personal injuries
or property damage occurring in, on or about the Subleased Premises or the
Building from and after the Commencement Date.
13. INDEMNIFICATION GENERALLY. With respect to each of the indemnities
provided for in this Sublease, (a) no indemnity shall impair or reduce any
waiver of subrogation provided for in this Sublease and (b) no indemnity shall
be applicable to any claim to the extent resulting from the negligence or
willful misconduct of the party seeking the indemnification or that of its
agents, contractors, servants, employees, invitees or licenses.
14. APPROVALS OR CONSENTS. In all provisions of the Lease requiring the
approval or consent of Landlord, Sublessee shall be required to obtain the
express written approval or consent of Sublessor, which consent shall not be
unreasonably withheld or delayed but shall be subject to the approval or consent
of Landlord, pursuant to the Lease. If Sublessor shall give its consent to any
request made by Sublessee, then Sublessor hereby agrees to promptly furnish to
Landlord copies of such request for consent or approval received from Sublessee.
If Landlord shall refuse to give its consent to approval to any request made by
Sublessee then Sublessor's refusal to give its consent or approval to such
request shall be deemed to be reasonable.
15. TIME LIMITS. The parties agree that unless otherwise expressly
modified herein, the time limits set forth in the Lease for the giving of
notices, making demands, payment of any sum, the performance of any act,
condition or covenant, or the exercise of any right, remedy or option, are
modified for the purpose of this Sublease by shortening or lengthening the same
in each instance by two (2) business days so that notices may be given, demands
made, any act, condition or covenant performed and any right or remedy hereunder
exercised, by Sublessor or Sublessee, as the case may be, within the time limits
relating thereto contained in the Lease. Sublessor and Sublessee shall, promptly
after receipt thereof, furnish to each other a copy of each notice, demand or
other communication received from Landlord with respect to the Subleased
Premises.
16. ASSIGNMENT AND SUBLETTING.
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(a) Except as provided below, Sublessee's right to assign this
Sublease or sublease the Subleased Premises shall be governed by SECTION 14 of
the Lease as incorporated herein pursuant to SECTION 7 hereof. The exceptions to
such governance are as follows:
(i) Sublessor shall not exercise its termination
rights under Section 14C of the Lease (Recapture) as a result of a proposed
Transfer by Sublessee with respect to all or a portion of the Subleased Premises
unless Landlord exercises its termination rights under such Section. In the
event Landlord and/or Sublessor exercise(s) the termination rights under such
Section, Sublessor shall pay to Sublessee one-half of any Landlord's Termination
Payment received by Sublessor with respect to such proposed Transfer.
(ii) The percentage "twenty-five percent (25%)" set
forth in Section 14F of the Lease (Permitted Transfers) is hereby changed to
"fifty-one percent (51.%)."
(iii) Sublessee shall not have the right to assign
this Sublease pursuant to such Section 14F to any purchaser of all or
substantially all of the assets or a controlling interest in Sublessee without
the consent of Sublessor unless Sublessee demonstrates to the reasonable
satisfaction of Sublessor that such purchaser has the financial capability to
make the Fixed Rent and additional rent payments under this Sublease when they
become due and to perform Sublessee's other obligations under this Sublease.
(iv) Any Transfer Profit realized by Sublessee shall
be divided equally by Sublessor and Sublessee after first deducting therefrom
any payments to be made by Sublessor to Landlord pursuant to Section 14D. of the
Lease.
(b) Sublessee hereby acknowledges that any Transfer by
Sublessee also requires the consent of Landlord and is also subject to
Landlord's other rights with respect to any Transfer as set forth in SECTION 14
of the Lease.
17. END OF TERM. Sublessee acknowledges that possession of the
Subleased Premises must be surrendered to Sublessor on the Expiration Date or
earlier termination of this Sublease in the condition set forth in SECTION 5(b)
hereof. Sublessee agrees to indemnify Sublessor against and hold Sublessor
harmless from, any and all liabilities, losses, obligations, damages, penalties,
claims, costs and expenses (including, without limitation, attorneys' fees and
other charges) which are paid, suffered or incurred by Sublessor as a result of
the failure of, or the delay by, Sublessee in so surrendering the Subleased
Premises, including, without limitation, any claims made by Landlord or any
succeeding tenant founded on such failure or delay by Sublessee.
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18. DESTRUCTION FIRE AND OTHER CASUALTY; CONDEMNATION
(a) If the whole or any part of the Subleased Premises shall
be damaged by fire or other casualty and the Lease is not terminated on account
thereof by Landlord or Sublessor pursuant to the Lease, then this Sublease shall
remain in full force and effect and Sublessee's obligation to pay Fixed Rent and
additional rent hereunder shall abate only proportionate to the extent that the
Fixed Rent and additional rent hereunder shall abate only proportionate to the
extend that the Fixed Rent and additional rent for the Subleased Premises shall
abate under the terms of the Lease. The option to terminate the Lease granted to
Sublessor as Tenant in the second paragraph of Section 12 of the Lease as
incorporated herein and granted by Sublessor to Sublessee pursuant to SECTION 7
hereof is hereby modified for the purposes of this Sublease by changing the
definition of (i) the term "Building," as used only in such paragraph, to
"Building or Tower 1 of the Building" and (ii) the "Premises," as used only in
such paragraph, to "Premises or Subleased Premises."
(b) If the whole or substantially all of the Subleased
Premises shall be taken or condemned by any competent authority for any public
or quasi-public use this Sublease shall cease and terminate on the date of
taking of possession in such proceeding. If the Lease is terminated pursuant to
SECTION 13 thereof, this Sublease shall cease and terminate on the date the
Lease terminates upon a partial taking, unless this Sublease is terminated as
above provided, this sublease shall continue in force as to the remainder of the
Subleased Premises, and the Fixed Rent and additional rent shall be equitably
diminished by the same proportion which rental allocable to the Subleased
Premises shall equitably abate under the Lease. In any case Sublessee shall not
be entitled to any part of the award or any payment in lieu thereof but
Sublessee, to the extent Sublessor is permitted to do so as Tenant pursuant to
the Lease, shall have the right to file a claim for relocation expenses and for
alterations or improvements to the Subleased Premises paid for by Sublessee
provided that such award is made separately from the awards to Sublessor and to
the Landlord and that any award made to Sublessee will not reduce the amount of
the award to the Landlord or of any award made to Sublessor. The option to
terminate the Lease granted to Sublessor as Tenant in Section 13 of the Lease as
incorporated herein pursuant to SECTION 7 hereof is hereby granted by Sublessor
to Sublessee but modified for the purposes of this Sublease by changing the
definition of "Premises," as used only in such Section 13, to "Premises or
Subleased Premises."
19. NOTICES. Anything contained in any provision of this Sublease to
the contrary notwithstanding, Sublessee agrees, with respect to the Subleased
Premises, to comply with and remedy any default under this Sublease or the Lease
which is Sublessee's obligation to cure, within the period allowed to Sublessor
as Tenant under the Lease. Sublessor agrees to forward to Sublessee, promptly
upon receipt thereof by Sublessor, a copy of each notice of default received by
Sublessor in its capacity as Tenant under the Lease. Sublessee agrees to forward
to Sublessor, promptly upon receipt thereof,
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copies of any notices received by Sublessee from Landlord or from any
governmental authorities. All notices, demands and requests shall be in writing
and shall be sent either by hand delivery or by a nationally recognized
overnight courier service (E.G., Federal Express), in either case return receipt
requested, to the address of the appropriate party set forth above. Notices,
demands and requests so sent shall be deemed given when the same are received.
Notices to Sublessee shall be sent to the attention of:
Zipcall, LLC.
40 Woodland Street
Hartford, Connecticut 06105 Attention: Eric Zachs
with a copy to:
Brenner, Saltzman & Wallman
271 Whitman Avenue
New Haven, Connecticut 06511
Attention: Mitchell Jaffe, Esq.
Notices to Sublessor shall be sent to:
iGuide
620 Avenue of the Americas
Sixth Floor
New York, New York 10011
Attention: Controller
with a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, LLP
551 Fifth Avenue
New York, New York 10176
Attention: Michael R. Kleinerman, Esq.
20. SUBLEASE CONDITIONAL UPON CERTAIN CONSENTS. Sublessor and Sublessee
each acknowledge and agree that this Sublease is subject to (a) the satisfaction
or waiver of all conditions precedent to the closing under the Asset Purchase
Agreement described in SECTION 2(a) hereof and (b) the execution and delivery by
Landlord, Sublessor and Sublessee of the Tri-Party Agreement substantially in
the form of EXHIBIT D annexed hereto. Promptly after the execution and delivery
of this Sublease, Sublessor shall request Landlord's consent hereto and
execution of such Tri-Party Agreement in accordance with the terms of the Lease.
Sublessor shall be responsible for the payment of any fees or expenses payable
to Landlord in connection with such consent. Notwithstanding anything set forth
in this Sublease to the contrary, except as set forth in the immediately
preceding sentence, Sublessor shall not
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be obligated to perform any other acts, expend any sums or bring any lawsuits or
other legal proceedings, in order to obtain such consent.
21. SECURITY DEPOSIT.
(a) As security for the faithful performance and observance by
Sublessee all of the terms, covenants and conditions governing its tenancy under
this Sublease, Sublessee has paid on or before the date of execution of this
Sublease the sum of $80,737.50 to be held by Sublessor as a security deposit
(the "Security Deposit"). In the event that Sublessee defaults in the
performance or observance of any of the terms, provisions or conditions of this
Sublease, including without limitation the payment of Fixed Rent or additional
rent, after the giving of notice and the expiration of all applicable grace
periods, Sublessor may, in addition to and in no way limiting its rights either
at law or in equity, apply the whole or part of the Security Deposit to the
extent required for the curing of such default or for the reimbursement of costs
incurred or the payment of damages suffered by Sublessor with respect to any
default by Sublessee hereunder, including without limitation any damages or
deficiencies in the re-letting of the Sublet Premises, whether such damages or
deficiencies accrue before or after summary proceedings or other re-entry by
Sublessor. The foregoing shall not be construed as a limitation or a stipulation
of liquidated damages. If, as a result of any application of all or any part of
such Security Deposit the amount of the Security Deposit shall at any time be
less than $80,737.50, Sublessee shall immediately deposit with Sublessor cash in
an amount equal to the deficiency.
(b) In the event that Sublessee shall fully and faithfully
comply with all of the terms, covenants and conditions of this Sublease, the
Security Deposit shall be returned to Sublessee after the expiration of this
Sublease and surrender of the Sublet Premises to Sublessor in accordance with
the terms of this Sublease.
(c) In the event of an assignment by Sublessor of its
leasehold interest in the Subleased Premises, Sublessor shall have the right to
transfer the Security Deposit to such assignee and Sublessor shall thereupon be
released by Sublessee from all liability for the return of the Security Deposit.
Sublessee agrees to look solely to such assignee for the return of the Security
Deposit. It is agreed that the provisions hereof shall apply to every transfer
or assignment made of the Security Deposit to an assignee. Sublessee further
covenants that it will not assign or encumber or attempt to assign or encumber
the Security Deposit and that neither Sublessor nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance.
(d) At any time after the first anniversary of this Sublease
Sublessor agrees to confer with Sublessee at Sublessee's request made no more
than once annually to negotiate a reduction of its Security Deposit. Any such
reduction shall be determined by Sublessor in its sole and absolute discretion.
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(e) After the fourth anniversary of this Sublease, upon
request by Sublessee and on the condition that Sublessee has not been required
by Sublessor after the giving of notice to cure a material default by Sublessee
under this Sublease more than once, Sublessor shall return the Security Deposit
to Sublessee.
22. INTENTIONALLY DELETED.
23. INTENTIONALLY DELETED.
24. CERTIFICATES. Sublessee and Sublessor, each for itself, shall,
within thirty (30) days after demand, furnish to the other a certificate, duly
acknowledged, certifying (a) that this Sublease is in full force and effect, (b)
that it knows of no default hereunder on the part of the other or, if it has
reason to believe that such a default exists, the nature thereof in reasonable
detail, (c) the amount of the Fixed Rent and additional rent being paid, (d)
that this Sublease has not been modified or, if it has been modified, setting
forth the terms and dates of such modifications, (e) as to the form and content
of this Sublease by annexing a copy hereof to such certificate and (f) to such
other matters as may be reasonably requested by the other.
25. SOLE REMEDIES AVAILABLE. Provided Sublessor has acted in good faith
and provided further that Sublessor notifies Sublessee of Sublessor's reason for
withholding or delaying any consent or approval requested by Sublessee,
Sublessee hereby waives any claim against Sublessor that Sublessor has
unreasonably withheld or delayed any such consent or approval, and Sublessee
agrees that its sole remedy shall be an action or proceeding to enforce any
related provision or for specific performance, injunction or declaratory
judgment. If Sublessee contends that Sublessor has not acted in good faith,
Sublessee shall state the reason why in a notice to be made to Sublessor within
ten (10) business days after receiving such prior notice from Sublessor, failing
which Sublessee shall be deemed to have waived any claim against Sublessor based
on bad faith. In the event of a determination that such consent or approval has
been unreasonably withheld or delayed, the requested consent or approval shall
be deemed to have been granted; however, Sublessor shall have no liability to
Sublessee for its refusal or failure to give such consent or approval unless it
is also determined that in doing so Sublessor acted in bad faith. Sublessee's
sole remedy for Sublessor's unreasonably withholding or delaying consent or
approval shall be as provided in this SECTION 25.
26. INSURANCE.
(a) Sublessor and Sublessee agree to use their best efforts to
obtain from their respective insurance companies insuring them against the risks
set forth in clause (a) of Section 10.A. of the Lease and, if appropriate,
clause (c) of Section 10.A. of the Lease, appropriate endorsements on their
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insurance policies pursuant to which the insurance companies waive their rights
of recovery by way of subrogation or agree that such policies shall not be
invalidated should the insured waive in writing, prior to a loss, any or all
right of recovery against any parties for losses covered by such policies, and
so long as such endorsements remain in effect on the respective insurance
policies and do not invalidate such insurance policies, Sublessor and Sublessee
hereby each waive any right of recovery against the other for any loss or damage
to its respective property or the property of others covered by such insurance.
If such waivers of recovery by way of subrogation are not available or only
available at an additional premium, then the party benefiting therefrom may
waive such requirement, or pay any such additional premium.
(b) Sublessee shall provide at the Sublessee's sole cost and
expense, and keep in full force, at all times during the Term, the insurance
required under SECTION 10 of the Lease. As provided, among other things, in
SECTION 7 of this Sublease, Sublessee's obligations in this regard are modified
by substituting the word "Subleased Premises" for the word "Premises" in such
Section 10.
(c) Sublessee further covenants and agrees, at its expense, to
take out and maintain at all times all necessary workmen's compensation
insurance covering all persons employed by the Sublessee in and about the
Subleased Premises. The Sublessee shall deliver to the Sublessor upon the
execution of this Sublease, the policies of insurance required pursuant to this
SECTION 26, together with proof of payment of the annual premium therefor. Each
such policy shall name Sublessor and Landlord as additional insureds and contain
an agreement whereby the insurer agrees that such policy may not be cancelled
without at least thirty (30) days' prior written notice to the Sublessor and the
Landlord. The Sublessee shall deliver to the Sublessor and Landlord certificates
evidencing the renewal of such insurance policies (or new policies) not less
than thirty (30) days prior to the expiration date of each such policy. All such
insurance shall be maintained with an insurer reasonably satisfactory to
Sublessor.
27. MISCELLANEOUS.
(a) This Sublease may not be modified, amended, extended,
renewed, terminated or otherwise modified except by a written instrument signed
by both of the parties hereto.
(b) It is acknowledged and agreed that all understandings and
agreements heretofore had between the parties hereto are merged in this
Sublease, which alone fully and completely expresses their agreement with
respect to the subject matter hereof. This Sublease has been executed and
delivered after full investigation by each of the parties hereto, and neither
party hereto has relied upon any statement, representation or warranty which is
not specifically set forth in this Sublease.
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(c) This Sublease does not constitute an offer to sublease the
Subleased Premises to Sublessee and Sublessee shall have no rights with respect
the leasing of the Subleased Premises unless and until Sublessor, in its sole
and absolute discretion, elects to be bound hereby by executing and
unconditionally delivering to Sublessee an original counterpart hereof.
(d) The provisions of this Sublease shall be governed and
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
28. SUBLESSOR'S REPRESENTATIONS. Sublessor represents that, to the best
of its knowledge, there is no existing default by Sublessor or Landlord under
the Lease and that no event exists which, with notice, lapse of time or both,
would constitute a default thereunder. All improvements to the Subleased
Premises made by Sublessor have been fully paid for.
29. INTENTIONALLY DELETED.
30. NO RECORDING. Sublessee shall not record this Sublease. Sublessor
and Sublessee shall, upon request of the other party, execute and deliver a
notice of this Sublease in such recordable form as may be permitted by
applicable law.
31. CERTAIN LEASE RIGHTS. Provided Sublessee is not in default under
this Sublease after the giving of notice and the expiration of all applicable
grace periods:
(a) Sublessee shall be entitled to, and Sublessor shall
provide, Sublessee's Proportionate Share, based on the ratios set forth in
Section 24 of the Lease, of the parking spaces to be provided to Sublessor as
Tenant under the Lease, inclusive of the parking space afforded to Sublessor for
one van. In addition, Sublessor shall provide (twenty-five) 25 additional
parking spaces to Sublessee. At such time, if any, when Sublessor, acting in
good faith and based on Sublessor's reasonable needs at the time, is required to
provide any of such additional parking spaces to an unrelated third-party
entitled to possession of all or any part of the fifth (5th) or sixth (6th)
floors of Tower 2 of the Building, Sublessee shall abandon such required parking
spaces. At such time Sublessee shall execute such documents as are reasonably
requested by Sublessor evidencing the termination of Sublessee's rights to such
required parking spaces. Furthermore, upon request by Sublessee, Sublessor shall
in turn request Landlord to grant the use of the shuttle bus service and the
Visitor Parking Area from 3:00 p.m. to 7:00 a.m., and the parking spaces within
the Parking Lot for Sublessee's Second Shift employees, all as described in and
limited by Section 24 of the Lease. Sublessor shall not charge Sublessee for the
use of any of the parking spaces described in this SECTION 31(a).
17
<PAGE>
(b) To the extent Sublessee desires access to and use of the
roof of Tower 1 of the Building or Tower 2 of the Building for the purposes set
forth in Section 30 of the Lease, Sublessor shall cooperate with Sublessee in
obtaining such rights of access and use from Landlord so long as Sublessee
performs the obligations imposed on Sublessor in connection with Sublessee's
access to and use of either roof pursuant to such Section 30. Sublessee
acknowledges that Landlord may withhold or grant such rights in its sole and
absolute discretion.
(c) Sublessee shall, subject to Landlord's approval, which it
may grant or withhold in its sole and absolute discretion, be entitled to the
signage described in Section 31 of the Lease which relates to Tower 1 of the
Building, including without limitation, (i) placing Sublessee's name and suite
number on the Building standard directory as well as Sublessee's Proportionate
Share of such additional names as are permitted under Section 31 of the Lease,
(ii) a sign identifying Sublessee at the main entrance to the Building, (iii) a
sign identifying Sublessee in the area of the passenger elevators at the lobby
level in Tower 1 of the Building and (iv) a logo designed by Sublessee which
identifies Sublessee in each elevator which services the Subleased Premises,
each so long as Sublessee performs Sublessor's respective obligations, if any,
with respect thereto. Sublessor hereby relinquishes to Sublessee the right set
forth in Section 31(a) of the Lease to install one (1) sign identifying
Sublessor on the top side (south side) of Tower 1 of the Building, subject to
Landlord's approval which Sublessee acknowledges may appropriately be withheld,
and for so long as Sublessee performs all of the obligations Sublessor would
have had to perform under the Lease with respect thereto. In addition, subject
to Landlord's approval which it may grant or withhold in its sole and absolute
discretion, Sublessee may utilize Sublessor's rights to a kiosk as set forth in
Section 31(f) of the Lease, Sublessor's rights to erect an electronic display as
set forth in Section 31(g) of the Lease, and Sublessor's rights to auditorium
usage for one-half of the number of times allotted to Sublessor in Section 32A.
of the Lease, each so long as Sublessee performs Sublessor's respective
obligations, if any, with respect thereto.
32. ELECTRICAL GENERATOR.
(a) Sublessor has installed a generator outside of the
Building (the "Generator"), the primary use of which is to provide electricity
to the TELCO/LAN Room, inclusive of any and all of the electronic equipment
therein, in the event of an electrical power failure ("SUBLESSOR'S PRIMARY USE")
and the secondary use of which is to provide minimal amounts of electrical power
to the remainder of the Premises in the event of an electrical power failure
("SUBLESSOR'S SECONDARY USE"). Provided (i) Sublessee is not in default under
this Sublease after the giving of notice and the expiration of all applicable
cure periods, (ii) Sublessee has or will elect to terminate the License pursuant
to SECTION 1B(ii) hereof and (iii) will relocate its electronic equipment in the
TELCO/LAN Room to another location in the Subleased Premises for the sole
purpose of housing such and other electronic equipment, Sublessor
18
<PAGE>
shall not unreasonably withhold or delay its consent to the use by Sublessee
during the Term solely in such other location of any capacity of the Generator
that is and remains safely and in accordance with industry standards in excess
of the capacity necessary and desirable from time to time for Sublessor's
Primary Use ("SUBLESSEE'S PRIMARY USE"), subject to the following:
(A) Sublessor makes no warranty or representation as to the
ability of the Generator to perform Sublessor's Primary Use or
any other use, including without limitation Sublessee's
Primary Use;
(B) Sublessee shall prepare at its sole cost and expense all
necessary plans and specifications with respect to the work
necessary to achieve, implement and, when appropriate,
terminate Sublessee's Primary Use.
(C) Sublessee shall pay all of the costs associated with (1)
making such excess capacity and continuing to make such excess
capacity available to Sublessee for Sublessee's Primary Use
and (2) when appropriate, terminating same. Such costs shall
include without limitation those of contractors, engineers,
architects, consultants, Landlord's costs and Sublessor's
costs.
(D) Sublessee shall obtain the approvals of Landlord, all
necessary governmental agencies having jurisdiction and all
others whose approval is necessary or desirable, such as
insurance companies and public utilities, of the work
necessary to achieve and implement, and when appropriate, to
terminate Sublessee's Primary Use.
(E) Any failure of the Generator to operate or perform shall be
without risk or obligation on the part of Sublessor.
(F) The approval, achieving, implementing and terminating of
Sublessee's Primary Use shall at all times be at no cost to
Sublessor and without any liability on the part of Sublessor.
(G) Upon the termination by Sublessor of the License pursuant to
SECTION 1B(ii) hereof, any rights of Sublessee to Sublessee's
Primary Use shall then and thereupon also terminate.
The foregoing conditions to Sublessor's consent are preliminary and not
intended to be all-inclusive. Sublessee acknowledges that Sublessor may impose
additional conditions at any time and from time to time so long as they are
reasonable in the circumstances.
(b) Provided Sublessee is not in default under this Sublease
after the giving of notice and the expiration of all applicable cure periods,
for so long as Sublessor operates and maintains
19
<PAGE>
the Generator for the purpose of Sublessor's Secondary Use in that part of the
Premises other than the Subleased Premises, Sublessor shall not reduce the
amount of minimal electrical power currently available from the Generator to the
Subleased Premises unless due to Sublessee's Primary Use.
Sublessor hereby grants to Sublessee the right to purchase the
Generator. Accordingly, whenever Sublessor determines to remove the Generator
from its existing location or sell the Generator to an unrelated bona fide
third party (a "Third Party"), Sublessor shall first offer to sell the
Generator to Sublessee, and such offer shall be in writing (the "Offer
Notice"). The Offer Notice shall contain the proposed purchase price of the
Generator and any other applicable terms. The Offer Notice shall constitute
an offer by Sublessor to Sublessee to sell the Generator upon the terms set
forth in the Offer Notice. If Sublessee desires to purchase the Generator
upon such terms, then Sublessee shall deliver a notice to Sublessor
("Acceptance Notice") within ten (10) business days following delivery of the
Offer Notice. If Sublessee shall fail to deliver an Acceptance Notice within
such time period, Sublessee shall be deemed to have rejected Sublessor's
offer with respect to terms set forth in the Offer Notice and Sublessor may
sell the Generator for no less than 90% of the price and on substantially the
same other terms set forth in the Offer Notice or remove the Generator from
its existing location. Notwithstanding the foregoing, if Sublessee shall fail
to timely accept an offer contained in an Offer Notice as provided above, and
Sublessor shall fail to so sell the Generator within six (6) months following
the delivery of such Offer Notice or remove the Generator within six (6)
months following the delivery of such Offer Notice, then Sublessor shall be
obligated to comply with the provisions of this subsection (c) if Sublessor
subsequently intends to remove or sell the Generator. If Sublessor shall
properly deliver an Acceptance Notice, then Sublessee shall purchase the
Generator on the terms set forth in the Offer Notice.
20
<PAGE>
IN WITNESS WHEREOF, this Sublease has been duly executed as of the day
and year first above written.
iGUIDE, INC.
By: /s/JEFFREY LEIST
---------------
Jeffrey Leist
Its:Chief Operating Officer
ZIPCALL, LLC.
By: /s/ERIC M. ZACHS
----------------
Eric M. Zachs
Its Manager
21
<PAGE>
EXHIBIT A
LEASE
BETWEEN
CROSS POINT LIMITED PARTNERSHIP,
AS LANDLORD,
AND
DELPHI INTERNET SERVICES CORPORATION,
AS TENANT
DATED AS OF APRIL 28, 1995
<PAGE>
LEASE INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SCHEDULE ......................................................................... 1
Section 1. DEMISE AND TERM .................................................................. 3
Section 2. RENT ............................................................................. 3
Section 3. USE .............................................................................. 10
Section 4. CONDITION OF PREMISES ............................................................ 11
Section 5. UTILITIES AND OTHER SERVICES ..................................................... 11
Section 6. RULES AND REGULATIONS ............................................................ 15
Section 7. CERTAIN RIGHTS RESERVED TO LANDLORD .............................................. 16
Section 8. MAINTENANCE AND REPAIRS .......................................................... 17
Section 9. ALTERATIONS ...................................................................... 18
Section 10. INSURANCE ........................................................................ 21
Section 11. WAIVER AND INDEMNITY ............................................................. 22
Section 12. FIRE AND CASUALTY ................................................................ 24
Section 13. CONDEMNATION ..................................................................... 26
Section 14. ASSIGNMENT AND SUBLETTING ........................................................ 27
Section 15. SURRENDER ........................................................................ 32
Section 16. DEFAULTS AND REMEDIES ............................................................ 33
Section 17. HOLDING OVER ..................................................................... 36
Section 18. ESTOPPEL CERTIFICATES ............................................................ 37
Section 19. NON-DISTURBANCE AND SUBORDINATION ................................................ 37
Section 20. QUIET ENJOYMENT .................................................................. 38
Section 21. BROKER ........................................................................... 38
Section 22. NOTICES .......................................................................... 39
Section 23. MISCELLANEOUS .................................................................... 40
Section 24. PARKING .......................................................................... 41
Section 25. COOPERATIVE INTERRUPTIBLE SERVICE AGREEMENT ...................................... 43
Section 26. OPTIONS TO EXTEND ................................................................ 43
Section 27. RIGHT OF FIRST OFFER TO LEASE .................................................... 47
Section 28. EXPANSION OPTIONS ................................................................ 49
Section 29. RIGHT TO TERMINATE ............................................................... 51
Section 30. ACCESS TO TOWER 1 ROOF ........................................................... 52
Section 31. DIRECTORY; SIGNS ................................................................. 53
Section 32. LANDLORD'S MISCELLANEOUS AGREEMENTS .............................................. 55
Section 33 LIMITED SELF HELP RIGHTS.......................................................... 56
EXHIBIT "A" FLOOR PLANS OF PREMISES .......................................................... 58
EXHIBIT "B" LEGAL DESCRIPTION OF FEE LAND .................................................... 59
EXHIBIT "B-1" LEGAL DESCRIPTION OF EASEMENT LAND ............................................... 60
EXHIBIT "C" UTILITIES AND OTHER SERVICES ..................................................... 65
EXHIBIT "D" RULES AND REGULATIONS ............................................................ 70
EXHIBIT "E" TENANT IMPROVEMENT WORK AGREEMENT ................................................ 73
EXHIBIT "F" LANDLORD'S CONSTRUCTION OBLIGATIONS............................................... 81
EXHIBIT "G" TAX AGREEMENT WITH CITY OF LOWELL................................................. 83
</TABLE>
<PAGE>
LEASE
THIS LEASE (this "Lease") is made as of the 28th day of April, 1995 between
CROSS POINT LIMITED PARTNERSHIP, a Massachusetts limited partnership having an
address at 900 Chelmsford Street, Lowell, Massachusetts 01851 ("Landlord") and
DELPHI INTERNET SERVICES CORPORATION, a Massachusetts corporation having an
address at 1030 Massachusetts Avenue, Cambridge, Massachusetts 02138 ("Tenant"),
for space in the Building (as defined below). The following schedule (the
"Schedule") sets forth certain basic terms of this Lease:
SCHEDULE
1. FEE LAND: The parcel of land known and numbered as 900 Chelmsford
Street, Lowell, Massachusetts, located partly in Lowell and partly in
Chelmsford, County of Middlesex, Commonwealth of Massachusetts, and more
particularly described in Exhibit "B" attached hereto and incorporated herein.
2. EASEMENT LAND: The parcel of land located partly in Lowell and partly in
Chelmsford, County of Middlesex, Commonwealth of Massachusetts, and more
particularly described in Exhibit "B-1" attached hereto and incorporated herein.
3. LAND: Collectively, the Fee Land and the Easement Land.
4. BUILDING: The building containing approximately 1,203,129 rentable
square feet of floor area located at the Fee Land and all of the fixtures,
equipment, systems and improvements therein not otherwise owned by tenants of
the Building and all other improvements now located at the Fee Land.
5. PROPERTY: Collectively, the Building, the Land, any other buildings and
improvements hereafter located at the Fee Land and any parking facilities
located on the Easement Land directly servicing the Building.
6. PREMISES: Collectively, the entire fifth floor of Tower 1 of the
Building consisting of approximately 25,836 rentable square feet of floor area,
the entire sixth floor of Tower 1 of the Building consisting of approximately
25,836 rentable square feet of floor area, the entire fifth floor of Tower 2 of
the Building consisting of approximately 31,545 rentable square feet of floor
area and the entire sixth floor of Tower 2 of the Building consisting of
approximately 31,545 rentable square feet of floor area, all as shown on the
floor plans attached hereto as Exhibit "A" and incorporated herein.
7. COMMENCEMENT DATE: May 15, 1995.
8. EXPIRATION DATE: May 14, 2010.
<PAGE>
9. ANNUAL BASE RENT: For the period from May 15, 1995 through and including
September 30, 1995, at the annual rate of $94,635.00 ($3.00 per rentable square
foot payable on 31,545 rentable square feet of floor area); for the period from
October 1, 1995 through and including December 31, 1995, at the annual rate of
$172,146.00 ($3.00 per rentable square foot payable on 57,382 rentable square
feet of floor area); for the period from January 1, 1996 through and including
February 29, 1996, at the annual rate of $266,781.00 ($3.00 per rentable square
foot payable on 88,927 rentable square feet of floor area); for the period from
March 1, 1996 through May 14, 1996, at the annual rate of $344,286.00 ($3.00 per
rentable square foot payable on 114,762 rentable square feet of floor area); for
the period from May 15, 1996 through and including May 14, 2005, at the annual
rate of $717,262.50 ($6.25 per rentable square foot payable on 114,762 rentable
square feet of floor area); and for the period from May 15, 2005 through and
including May 14, 2010, at the annual rate of $975,477.00 ($8.50 per rentable
square foot payable on 114,762 rentable square feet of floor area).
10. MONTHLY BASE RENT: For the period from May 15, 1995 through and
including September 30, 1995, $7,886.25 per month; for the period from October
1, 1995 through and including December 31, 1995, $14,345.50 per month; for the
period from January 1, 1996 through and including February 29, 1996, $22,231.75
per month; for the period from March 1, 1996 through and including May 14, 1996,
$28,690.50 per month; for the period from May 15, 1996 through and including May
14, 2005, $59,771.86 per month; and for the period from May 15, 2005 through and
including May 14, 2010, $81,289.75 per month.
11. TENANT'S PROPORTIONATE SHARE: 9.54%.
12. BASE EXPENSE YEAR: Calendar Year 1995 (i.e., January 1, 1995 - December
31, 1995).
13. BASE FEE LAND TAX YEAR: Fiscal Year 1996 (i.e., July 1, 1995 - June 30,
1996).
14. BROKERS: Whittier Partners and Edward S. Gordon Company, Inc.
15. ADDRESS OF LANDLORD: Cross Point Limited Partnership
900 Chelmsford
Street Lowell, Massachusetts 01851
16. ADDRESS OF TENANT: Delphi Internet Services Corporation
1030 Massachusetts Avenue
Cambridge, Massachusetts 02138
1. DEMISE AND TERM. Landlord leases to Tenant and Tenant leases from
Landlord the premises (the "Premises") described in Item 6 of the Schedule,
subject to the covenants and conditions set forth in this Lease, for a term (the
"Term") commencing on
<PAGE>
the date (the "Commencement Date") described in Item 7 of the Schedule and
expiring on the date (the "Expiration Date") described in Item 8 of the
Schedule, unless terminated earlier as otherwise provided in this Lease. Tenant
shall have the right to use and enjoy, in common with others entitled thereto,
subject to reasonable rules and regulations from time to time made by Landlord,
the lobbies, common areas and common amenities of the Property, such right to be
co-terminous with the Term.
2. RENT.
A. DEFINITIONS. For purposes of this Lease, the following terms shall
have the following meanings:
(i) "Base Expense Year" shall mean the year set forth in Item
12 of the Schedule.
(ii) "Base Fee Land Tax Year" shall mean the year set forth in
Item 13 of the Schedule.
(iii) "Base Expenses" shall mean the amount of actual Expenses
(as defined below) for the Base Expense Year, with an
appropriate adjustment to such amount to reflect the
Expenses that would have been paid or incurred by
Landlord had the Building been at least ninety-five
percent (95%) occupied by tenants for the entire Base
Expense Year.
(iv) "Base Fee Land Taxes" shall mean the amount of Fee Land
Taxes (as defined below) for the Base Fee Land Tax Year.
(v) "Base Easement Land Taxes" shall mean the amount of
Easement Land Taxes (as defined below) for the first full
twelve (12) months that Easement Land Taxes are fully
paid or payable by Landlord, as provided below (such
twelve (12) months being herein referred to as the "Base
Easement Land Tax Year"). On and after the Transition
Date (as defined below), Base Easement Land Taxes shall
be changed going forward from the Transition Date to
equal forty-three percent (43%) of all taxes,
assessments, betterments and fees levied upon the
Easement Land or the rents collected therefrom, by any
governmental entity for the Base Easement Land Tax Year.
(vi) "Expenses" shall mean all expenses, costs and
disbursements (other than Taxes, as defined below)
properly allocable and actually paid by Landlord in
connection with the management, maintenance, operation,
replacement and repair of the Property. Expenses shall
include by way of example rather than limitation
management fees not to exceed competitive market fees
charged by independent companies for comparable
buildings in the relevant geographic area. Expenses
shall not include any and all expenses of any kind or
nature whatsoever in
<PAGE>
connection with: (a) alterations, additions, changes,
replacements, improvements, repairs and other expenses
made in order to prepare or improve any rentable space
in the Building for occupancy by a tenant thereof; (b)
capital improvements (except for costs of any capital
improvements made or installed for the purpose of
reducing Expenses or made or installed pursuant to
Governmental Requirements (as defined below) promulgated
or enacted after the Commencement Date or insurance
requirements promulgated or enacted after the
Commencement Date, which costs shall be amortized by
Landlord in accordance with generally accepted
accounting principles consistently applied); (c)
Landlord's Construction Obligations as set forth on
Exhibit "F" attached hereto and incorporated herein; (d)
the sale, leasing, financing, refinancing on any other
type of capital or similar transaction relating to all
or any portion of the Property, including without
limitation, payments of principal, interest and rental
obligation in connection therewith; (e) expenses
incurred in connection with leasing of space at the
Property, including without limitation, advertising
expenses and leasing commissions; (f) any cost or
expenditure for which Landlord is reimbursed or is
entitled to be reimbursed, whether by insurance proceeds
or otherwise, except through Adjustment Rent (as defined
below); (g) the cost of any kind of service furnished to
any other tenant in the Building which Landlord does not
make available to Tenant without charge; (h) legal
expenses of enforcing or negotiating leases. (i) the
removal, mitigation, remediation or other treatment of
any Hazardous Materials (as defined below) in, on, under
or about the Property; (j) any fines or penalties; (k)
depreciation; (l) amounts paid to Landlord or affiliates
of Landlord for labor, services or materials in excess
of the costs of comparable labor, services or materials
which would have been charged by unaffiliated third
parties for such labor, services or materials on an
arms-length competitive bid basis; and (m) expenses in
connection with the general ownership and management of
the Property in excess of competitive market rates as
referred to above.
(vii) "Rent" shall mean Base Rent, Adjustment Rent (as defined
below) and any other sums or charges due by Tenant
hereunder.
(viii) "Fee Land Taxes" shall mean all taxes, assessments,
betterments and fees levied upon the Building, the Fee
Land, or the rents collected therefrom, by any
governmental entity based upon the ownership, leasing,
renting or operation of the Building or the Fee Land,
including all costs and expenses of protesting
<PAGE>
any such taxes, assessments or fees. Attached hereto as
Exhibit "G" is the so-called "tax agreement" with the
City of Lowell with respect to Fee Land Taxes. Landlord
represents to Tenant that "FY 1996" referred to in such
tax agreement is the same time period as the Base Fee
Land Tax Year.
(ix) "Easement Land Taxes" shall mean (i) prior to the
Transition Date (as defined below), one hundred percent
(100%) of all taxes, assessments, betterments and fees
levied upon the Easement Land or the rents collected
therefrom, by any governmental entity based upon the
ownership, leasing, renting or operation of the Easement
Land, including all costs and expenses of protesting any
such taxes, assessments or fees, and (ii) after the
Transition Date, forty-three percent (43%) of all taxes,
assessments, betterments and fees levied upon the
Easement Land or the rents collected therefrom, by any
governmental entity based upon the ownership, leasing,
renting or operation of the Easement Land, including all
costs and expenses of protesting any such taxes,
assessments or fees. Easement Land Taxes shall not
include any and all taxes, assessments, betterments and
fees levied upon any buildings or improvements located on
the Easement Land.
(x) "Taxes" shall mean, collectively, Fee Land Taxes and
Easement Land Taxes. Taxes shall not include any net
income, capital stock, succession, transfer, franchise,
gift, estate or inheritance taxes; provided, however, if
at any time during the Term, a tax or excise on income is
levied or assessed by any governmental entity, in lieu of
or as a substitute for, in whole or in part, real estate
taxes or other AD VALOREM taxes, such tax shall
constitute and be included in Taxes. For the purposes of
determining Taxes for any given year, the amount to be
included for such year (a) from special assessments
payable in installments shall be the amount of the
installments (and any interest) due and payable during
such year, and (b) from all other Taxes shall be the
amount due and payable in such year.
(xi) "Transition Date" shall mean the first day as of which
Landlord uses or allows the Easement Land to be used for
a purpose other than for parking for tenants and other
occupants of the Building.
(xii) "Tenant's Proportionate Share" shall mean the percentage
set forth in Item 11 of the Schedule, which has been
determined by dividing the rentable square feet of floor
area in the Premises by the rentable square feet of
floor area in the Building.
<PAGE>
(xiii) "Governmental Requirements" shall mean all present and
future laws, rules, orders, ordinances, regulations,
statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, of all governmental
authorities now existing or hereafter created, and of
any and all of their departments and bureaus, and of
any applicable fire rating bureau, or other body
exercising similar functions, affecting all or any
portion of the Property or the use thereof, or any
street, avenue or sidewalk comprising a part of or in
front thereof or any vault in or under the same, or
requiring removal of any encroachment, or affecting the
maintenance, use or occupation of the Property.
(xiv) "Hazardous Materials" shall mean, collectively, any
pollutant, contaminant, flammable, explosive,
radioactive material, hazardous waste, toxic substance
or related material and any other substance or material
defined and designated as hazardous or toxic by any
Governmental Requirement or the removal of which is
required, or the manufacture, use, maintenance,
storage, ownership or handling of which is restricted,
prohibited, regulated or penalized by any Governmental
Requirement, and shall include, without limitation:
(a) those substances included within the definition of
"hazardous substances," "extremely hazardous," "hazardous
waste," "toxic substances" or "solid waste" in the
Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the
Emergency Planning and Community Right-To-Know Act, 42 U.S.C.
Sections 11001-11050, the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Section 6901 et seq., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., and the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801
et seq., and in the regulations adopted and promulgated
pursuant to said laws;
(b) those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.101 and any amendments
thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 C.F.R. Part 302
and any amendments thereto);
(c) any substance which is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic or
otherwise hazardous or any substance which contains gasoline
diesel fuel or other petroleum hydrocarbons, polychlorinated
biphenyls (PCBs), or radon gas, urea formaldehyde, asbestos or
lead, any asbestos or asbestos containing substance; and
(d) any waste, substance or material that exhibits any of the
characteristics enumerated in 40 C.F.R. Section 261.20-261.24,
inclusive, or any
<PAGE>
"extremely hazardous" substance listed under Section 302 of the
Superfund Amendment and Reauthorization Act of 1986 ("SARA")
that are present in excess of or equal to threshold planning or
reportage quantities defined under SARA.
B. COMPONENTS OF RENT. Tenant agrees to pay the following amounts to
Landlord at the office of the Building or at such other place as Landlord
designates:
(i) Base rent ("Base Rent") to be paid in monthly installments
in the amounts set forth in Item 10 of the Schedule in
advance on or before the first day of each month of the Term
commencing with the Commencement Date, except that Tenant
shall pay the Base Rent due and payable for the first month
of the Term upon execution of this Lease by Tenant.
(ii) Adjustment rent ("Adjustment Rent") in an amount equal to
Tenant's Proportionate Share of (a) the increase in Expenses
for any calendar year over the Base Expenses and (b) the
increase in Fee Land Taxes for any calendar year over the
Base Fee Land Taxes and (c) the increase in Easement Land
Taxes for any calendar year over the Base Easement Land
Taxes. Prior to each calendar year, Landlord shall make a
reasonable estimation of the amount of Adjustment Rent due
for such year, and Tenant shall pay Landlord one-twelfth of
such estimate on the first day of each month during such
year. Such estimate may be revised by Landlord whenever it
obtains information relevant to making such estimate more
accurate; provided, however, Landlord may not revise such
estimate more than two (2) times during any calendar year.
Within ninety (90) days after the end of each calendar year,
Landlord shall deliver to Tenant a report (a "Report")
setting forth the actual Expenses and Taxes for such
calendar year and a statement of the amount of Adjustment
Rent that Tenant has paid and is payable for such year. If
Landlord fails to deliver to Tenant the applicable Report by
May 1 of any calendar year, notwithstanding anything in this
Lease to the contrary, Tenant may defer payment of monthly
installments of Adjustment Rent, as provided above, until
such Report is so delivered; provided, however, within ten
(10) business days of receipt of such Report, Tenant shall
pay to Landlord all Adjustment Rent so deferred by Tenant
such that with such payment Tenant shall become current with
all payments of Adjustment Rent. Within thirty (30) days
after receipt of such Report, Tenant shall pay to Landlord
the amount of Adjustment Rent due for the calendar year
referred to in such Report minus any payments of Adjustment
Rent made by Tenant for such year. Any Report sent to Tenant
shall be
<PAGE>
conclusively binding upon Tenant unless, within forty-five
(45) days after such Report is sent, Tenant shall send a
notice to Landlord objecting to same. If such dispute is not
resolved as between the parties within thirty (30) days
thereafter, then Tenant shall have the right to audit the
books and records relating to the operation of the Property
for the calendar year to which such disputed Report relates
(and for the Base Expense Year for the first audit request
made by Tenant), provided Tenant makes a request to conduct
such audit within sixty (60) days after such Report is sent
to Tenant and provided such audit is performed within ninety
(90) days following such request. Such audit shall be
performed at such time or times during normal business hours
as Landlord shall reasonably designate and shall be
performed by an independent certified public accounting firm
selected by mutual agreement of Tenant and Landlord. The
determination of such accounting firm shall be conclusively
binding upon Landlord and Tenant. Within ten (10) business
days following the resolution of such dispute, Tenant shall
pay to Landlord the amount of Adjustment Rent underpaid, if
any, or Landlord shall refund to Tenant the amount of
Adjustment overpaid, if any, in either case without interest
on such underpayment or overpayment. If Adjustment Rent
shall have been found to have been overstated by more than
the applicable percentage set forth below, then (a) such
refund shall include interest thereon at the Default Rate
(as hereinafter defined) from the date Tenant paid such
excess payments to Landlord until the date such excess
payments are refunded to Tenant and (b) Landlord shall pay
to Tenant the reasonable cost of Tenant's audit within ten
(10) business days after Tenant delivers to Landlord
reasonably detailed evidence of such cost. Notwithstanding
the foregoing, in lieu of any such refunds or repayments
payable to Tenant hereunder, Tenant shall have the right to
apply the amount of such refund (including interest thereon
if applicable as provided above) as a credit against Rent
and other obligations due under this Lease. The applicable
percentage as referred to above shall mean ten (10) percent
but shall be reduced to seven (7) percent if Adjustment Rent
shall have been found to have been overstated by more than
ten (10) percent for more than two (2) calendar years during
the Term.
C. PAYMENT OF RENT. The following provisions shall govern the payment
of Rent: (i) if this Lease commences or ends on a day other than the first day
or last day of a calendar year, respectively, the Rent for the year in which
this Lease so begins or ends shall be prorated and the monthly installments
shall be adjusted accordingly; (ii) except as otherwise expressly provided
<PAGE>
in this Lease, all Rent shall be paid to Landlord without offset or
deduction, and the covenant to pay Rent shall be independent of every other
covenant in this Lease; (iii) if during all or any portion of any calendar
year during the Term the Building is not at least ninety-five percent (95%)
occupied by tenants, Landlord shall make an appropriate adjustment of
Expenses for such calendar year to determine the Expenses that would have
been paid or incurred by Landlord had the Building been at least ninety-five
percent (95%) occupied by tenants for the entire calendar year and the amount
so determined shall be deemed to have been the Expenses for such calendar
year; (iv) any sum due from Tenant to Landlord which is not paid within ten
(10) days of the date when due shall bear interest from the date due until
the date paid at the annual rate of the prime rate then in effect for the
First National Bank of Boston, plus four and one-half percent (4 1/2%), but
in no event higher than the maximum rate permitted by law (the "Default
Rate"); and, in addition, Tenant shall pay Landlord a late charge for any
Rent payment which is paid more than ten (10) days after its due date equal
to five percent (5%) of such payment; (v) if changes are made to this Lease
or the Building changing the number of square feet contained in the Premises
or in the Building, Landlord shall make an appropriate adjustment to Tenant's
Proportionate Share; (vi) in the event of the termination of this Lease prior
to the determination of any Adjustment Rent, Tenant's agreement to pay any
such sums and Landlord's obligation to refund any such sums (provided Tenant
is not in default hereunder) shall survive the termination of this Lease;
(viii) each amount owed to Landlord under this Lease for which the date of
payment is not expressly fixed shall be due on the same date as the Rent
listed on the statement showing such amount is due; and (ix) if Landlord
fails to give Tenant an estimate of Adjustment Rent prior to the beginning of
any calendar year, Tenant shall continue to pay Adjustment Rent at the rate
for the previous calendar year until Landlord delivers such estimate.
3. USE. Tenant agrees that it shall occupy and use the Premises only for
general business offices (including, without limitation, research and
development relating to the application and uses of computer hardware and
software, a so-called "on-line" computer service and marketing of same), uses
incidental or ancillary thereto and for no other purposes. Subject to Landlord's
obligations set forth herein, Tenant shall comply with all Governmental
Requirements relating to Tenant's particular manner of use of the Premises and
all covenants, conditions and restrictions of record applicable to Tenant's use
or occupancy of the Premises provided that the same do not affect rights or
obligations hereunder except to a DE MINIMIS extent. Without limiting the
foregoing, Tenant shall not cause, nor permit, any Hazardous Materials (other
than such materials and in such amounts as are typically used and stored in a
business office) to be brought upon, produced, stored, used, discharged or
disposed of in, on or about the Premises or the Property without the prior
written consent of Landlord and then only in compliance with all applicable
environmental laws. Landlord represents and warrants
<PAGE>
that the uses permitted under this Section 3 are allowed in the Premises under
applicable zoning laws.
Landlord shall comply with all Governmental Requirements related to
environmental conditions (including without limitation conditions relating to
Hazardous Materials) in or about the Property or Premises, including, without
limitation, all reporting requirements and the performance of any cleanups
required by any governmental authorities, except with respect to conditions
caused by the acts or negligence of Tenant, or Tenant's agents, employees,
contractors or invitees.
4. CONDITION OF PREMISES. Except as otherwise expressly provided herein,
Tenant hereby accepts the Premises in their "as is" condition as of the date
hereof and Tenant's taking possession of the Premises shall be conclusive
evidence that the Premises were in good order and satisfactory condition when
Tenant took possession. No agreement of Landlord to alter, remodel, decorate,
clean or improve the Premises or the Building (or to provide Tenant with any
credit or allowance for the same), and no representation regarding the condition
of the Premises or the Building, have been made by or on behalf of Landlord or
relied upon by Tenant, except as set forth in this Lease (including, without
limitation, Exhibit "E" and Exhibit "F" attached hereto and incorporated
herein).
5. UTILITIES AND OTHER SERVICES.
A. UTILITIES AND SERVICES FURNISHED BY LANDLORD. Landlord shall furnish or
cause to be furnished to the Premises on a continuous basis, the utilities and
services described in Exhibit "C" attached hereto and incorporated herein
(hereinafter referred to collectively as "Landlord's Services"), subject to the
conditions and in accordance with the standards set forth in this Section 5 and
in Exhibit "C".
All costs and expenses incurred by Landlord in connection with furnishing
Landlord's Services shall be included as part of Expenses pursuant to Section 2
hereof except for the cost of furnishing electrical energy to the Premises. With
respect to electrical energy, Tenant shall obtain all of its electrical energy
from Landlord and shall pay all of Landlord's actual charges for Tenant's
electrical energy usage during the Term, which charges shall be based on meter
readings. Notwithstanding the foregoing, the electrical energy required to
operate the air handlers serving the portion of the Premises in Tower 1 is
measured by a common meter which serves floors 4, 5 and 6 of Tower 1. Therefore,
the charge to Tenant for its electrical energy usage to operate the air handlers
serving floors 5 and 6 of Tower 1 shall be based, at Landlord's option, either
on a survey of Tenant's electrical energy usage made by Landlord or on Tenant's
pro rata share of such three (3) floors which are commonly metered. If Landlord
bases such charge on a survey of Tenant's electrical energy usage, Tenant shall
have the right to audit such survey, provided Tenant makes a request to conduct
such audit within thirty (30) days after the results of
<PAGE>
Landlord's survey are delivered to Tenant. The results of such survey shall be
binding upon Tenant unless, within thirty (30) days after receipt of the results
of such survey, Tenant shall send a notice to Landlord objecting to same. If
such dispute is not resolved as between the parties within thirty (30) days
thereafter, then Tenant shall have the right to audit Landlord's records
relating to the results of such survey, provided Tenant makes a request to
conduct such audit within sixty (60) days after the results of such survey are
sent to Tenant and provided such audit is performed within ninety (90) days
following such request. Such audit shall be performed at such time or times
during normal business hours as Landlord shall reasonably designate and shall be
performed by an appropriate consulting firm selected by mutual agreement of
Landlord and Tenant. The determination of such consulting firm shall be binding
upon Landlord and Tenant. Landlord and Tenant shall share evenly the cost of
such audit.
B. SPECIAL AND ADDITIONAL USAGE. Landlord may impose a reasonable charge
for any utilities and services, including without limitation, air conditioning,
electricity, and water, provided by Landlord by reason of: (i) any use of the
Premises at any time other than the hours set forth above or in Exhibit "C";
(ii) any use beyond what Landlord agrees herein or in Exhibit "C" to furnish; or
(iii) special electrical, cooling and ventilating needs created by Tenant's
telephone equipment, computers, electronic data processing equipment and other
similar equipment or uses.
Notwithstanding anything herein to the contrary, Landlord shall furnish
heating or air conditioning during times other than Normal Business Hours (as
defined in Exhibit C) provided that notice requesting such service is delivered
to Landlord's managing agent before noon on any business weekday when such
service is required for that evening and by noon of the immediately preceding
business weekday when such service is required for after 1:00 p.m. on a Saturday
or for any time on a Sunday or holiday. Landlord's cost of supplying such
additional heating or air conditioning shall be paid by Tenant within ten (10)
business days of receipt of an invoice therefor. Landlord agrees that the charge
for such non-Normal Business Hours heating or air conditioning shall be $40 per
hour during the first twelve (12) months of the Term, subject to reasonable
increases thereafter, Landlord agrees not to so increase the charge for
non-Normal Business Hours heating or air conditioning more than once per twelve
(12) month period during the Term, except if there is a material change in the
cost to Landlord of utility services, in which event Landlord may reasonably
increase such charge notwithstanding having previously so increased such charge
within the preceding twelve (12) month period.
C. COOPERATION; PAYMENT OF CHARGES; APPROVAL OF SPECIAL EQUIPMENT USAGE.
Tenant agrees to cooperate fully at all times with Landlord and to abide by all
reasonable regulations and requirements which Landlord may prescribe for the use
of the above utilities and services. Tenant agrees to pay any charge
<PAGE>
imposed by Landlord pursuant to Section 5.B above within ten (10) business
days of request therefor and any failure to pay any excess costs as described
above shall constitute a breach of the obligation to pay Rent under this
Lease and shall entitle Landlord to the rights herein granted for such breach
and shall entitle Landlord to immediately discontinue providing such
additional or special service. Tenant's use of electricity shall at no time
exceed the capacity of the service to the Premises or the electrical risers
or wiring installation as specified in Exhibit C attached hereto and
incorporated herein.
D. FAILURE, STOPPAGE OR INTERRUPTION OF SERVICE. Except as otherwise
expressly provided in this Lease, Landlord shall not be liable for, and Tenant
shall not be entitled to any abatement or reduction of Rent by reason of,
Landlord's failure to furnish any of the foregoing services when such failure is
caused by accident, breakage, repairs, riots, strikes, lockouts or other labor
disturbance or labor dispute of any character, governmental regulation,
moratorium or other governmental action, inability by exercise of best efforts
to obtain electricity, water or fuel, or by any other cause beyond Landlord's
immediate control or for stoppages or interruptions of any such services for the
purpose of making necessary repairs or improvements. Such failure, stoppage or
interruption of any such service shall not be construed as an actual or
constructive eviction or as a partial eviction against Tenant, or release Tenant
from the prompt and punctual performance by Tenant of the covenants contained
herein or operate to abate Rent.
Notwithstanding the foregoing provisions of this Section 5.D or anything
else in this Lease to the contrary, in the event of an interruption of Tenant's
use and enjoyment of the Premises, including, without limitation, an essential
Building service, if Tenant provides Landlord notice describing such
interruption and if such interruption is (i) within Landlord's reasonable
control, (ii) not due to any act or omission of Tenant or any agent, contractor,
employee or invitee of Tenant, and (iii) of such a substantial or serious nature
that it materially and adversely affect's Tenant's use of a substantial portion
of the Premises for more than seven (7) consecutive days after Landlord's
receipt of such notice, then the Rent shall be equitably abated after such
seventh consecutive day until such interruption is ended, and, in addition to
such abatement right, if such interruption continues for fifteen (15)
consecutive days after Landlord's receipt of such notice, Tenant shall be
entitled to a credit against the next payments of Rent that thereafter become
due and payable hereunder in the amount of fifty (50%) percent of Rent that
would have been due hereunder (but for the abatement) for the period from such
fifteenth consecutive day until such interruption is ended, and, in addition to
such abatement right and right to rent credit, if such interruption continues
for twenty-one (21) consecutive days after Landlord's receipt of such notice,
Tenant shall be entitled to a credit against the next payments of Rent that
thereafter become due and payable hereunder in the amount of one hundred percent
(100%) of the Rent that would have been due hereunder (but for the abatement)
for the
<PAGE>
period from such twenty-first consecutive day until such interruption is ended.
Notwithstanding the foregoing provisions of this Section 6.D or anything
else in this Lease to the contrary, in the event of an interruption of Tenant's
use and enjoyment of the Premises, including, without limitation, an essential
Building service, if Tenant provides Landlord notice describing such
interruption and if such interruption is (i) not within Landlord's reasonable
control, (ii) not due to any act or omission of Tenant or any agent, contractor,
employee or invitee of Tenant and (iii) of such a substantial or serious nature
that it materially and adversely affects Tenant's use of a substantial portion
of the Premises for more than thirty (30) consecutive days after Landlord's
receipt of such notice, then the Rent shall be equitably abated from and after
such thirtieth consecutive day until such interruption is ended.
Notwithstanding the foregoing provisions of this Section 6.D or anything
else in this Lease to the contrary, in the event of an interruption of Tenant's
use and enjoyment of the Premises, including, without limitation, an essential
Building service, if Tenant provides Landlord notice describing such
interruption and if such interruption is (i) not due to any act or omission of
Tenant or any agent, contractor, employee or invitee of Tenant and (ii) of such
a substantial or serious nature that it materially and adversely affects
Tenant's use of a substantial portion of the Premises for more than one hundred
fifty (150) consecutive days after Landlord's receipt of such notice, then
Tenant shall have the right to terminate the Lease at any time after such one
hundred fifty (150) day period but prior to the date such interruption is ended.
If Tenant terminates this Lease pursuant to the provisions of the immediately
preceding sentence, then this Lease shall terminate without recourse to the
parties hereto.
E. LIMITATION AND UNAVAILABILITY OF SERVICE. Anything hereinabove to the
contrary notwithstanding, Landlord and Tenant agree that Landlord's obligation
to furnish heat, electricity, air conditioning and/or water to the Premises
shall be subject to and limited by all Governmental Requirements affecting the
supply, distribution, availability, conservation or consumption of energy,
including, but not limited to, heat, electricity, gas, oil and/or water.
Landlord shall abide by all such Governmental Requirements and, in so doing,
Landlord shall not be in default in any manner whatsoever under the terms of
this Lease, and Landlord's compliance therewith shall not affect in any manner
whatsoever Tenant's obligation to pay the full Rent set forth in this Lease.
F. LOAD BEARING CAPACITY. Tenant shall not place a load upon any floor of
the Premises which exceeds 80 pounds per square foot of "live load" in Tower I
and 100 pounds per square foot of "live load" in Tower 2. Landlord reserves the
right to prescribe in a reasonable manner the weight and position of all safes
and
<PAGE>
heavy installations which Tenant wishes to place in the Premises so as to
properly distribute the weight thereof.
G. UNREASONABLE NOISE OR VIBRATION. Business machines and mechanical
equipment belonging to Tenant which cause unreasonable noise or vibration that
may be transmitted to the structure of the Building or to any leased space to
such a degree as to be objectionable to Landlord or to any tenants in the
Building shall be placed and maintained by Tenant, at Tenant's expense, on
vibration eliminators or other devices sufficient to eliminate such unreasonable
noise or vibration.
H. TELEPHONE. Subject to applicable codes, Landlord has or will cause to be
installed connected telephone risers (collectively the "risers") from the
outside of the Building to the telephone room (the "telephone room") serving the
Premises. Tenant shall have the right to use the risers by installing telephone
lines (the "telephone lines") from the from the telephone room to other areas of
the Premises, if and to the extent such telephone lines are not now in place.
Landlord makes no representations or warranties with respect to the capacity,
suitability or design of the risers, the telephone room or the telephone lines.
If there is more than one tenant on a floor, Landlord shall allocate hook-ups to
the telephone room based on the proportion of rentable square feet that each
tenant occupies on the floor. The installation and hook-up of telephone lines
by Tenant shall be subject to all of the terms and conditions of this Lease,
including, without limitation, Section 9 of this Lease. Landlord shall not be
liable for, and Tenant waives all claims with respect to, any damages or losses
sustained by Tenant or by any occupant of the Premises, including, without
limitation, any compensatory, property or consequential damages, resulting from
the operation or maintenance of the risers, telephone rooms and telephone lines,
including, without limitation, (i) any damage to Tenant's telephone lines,
telephones or other equipment connected to the telephone lines, or (ii)
interruption or failure of, or interference with, telephone or other service
coming through the telephone lines to the Premises. Landlord agrees that Tenant
shall have the exclusive right to use one (1) of the existing risers serving
Tower 2. Landlord agrees to maintain the risers in good order and condition
throughout the Term.
6. RULES AND REGULATIONS. Tenant shall observe and comply and shall cause
its subtenants, assignees, invitees, employees, contractors and agents to
observe and comply, with the rules and regulations listed on Exhibit "D"
attached hereto and incorporated herein and with such reasonable modifications
and additions thereto as Landlord may make from time to time. Landlord shall not
be liable for failure of any person to obey such rules and regulations. Landlord
shall not be obligated to enforce such rules and regulations against any person,
and the failure of Landlord to enforce any such rules and regulations shall not
constitute a waiver thereof or relieve Tenant from compliance therewith.
Notwithstanding the foregoing, Landlord
<PAGE>
shall not enforce such rules and regulations against Tenant in a
discriminatory manner.
7. CERTAIN RIGHTS RESERVED TO LANDLORD. Landlord reserves the following
rights, each of which Landlord may exercise without notice to Tenant (except as
otherwise provided herein) and without liability to Tenant, and the exercise of
any such rights shall not be deemed to constitute an eviction or disturbance of
Tenant's use or possession of the Premises and shall not give rise to any claim
for set-off or abatement of rent or any other claim: (a) to change the name or
street address of the Building or the suite number of the Premises; (b) to
install, affix and maintain any and all signs on the exterior or interior of the
Building; (c) to make repairs, decorations, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building, and
for such purposes (upon reasonable prior notice to Tenant except in the event of
an emergency) to enter upon the Premises, temporarily close doors, corridors and
other areas in the Building (other than the Premises) and partially interrupt or
temporarily suspend services or use of common areas in a manner which does not
render the Premises unfit for use by Tenant for its permitted uses hereunder,
and Tenant agrees to pay Landlord for overtime and similar expenses incurred if
such work is done other than during ordinary business hours at Tenant's request,
except that if such work is done other than during ordinary business hours at
Tenant's request because the performance of such work will materially and
adversely affect Tenant's use and enjoyment of the Premises or will cause an
under risk to the safety of the occupants of the Premises, in which events
Landlord shall perform such work other than during ordinary business hours at
Landlord's cost and expense and Tenant shall have no obligation to pay Landlord
for such overtime and similar expenses; (d) to retain at all times, and to use
in appropriate instances, keys to all doors within and into the Premises (except
keys to the computer room within the Premises which Landlord shall not, at
Tenant's option, be allowed to retain provided that Tenant makes appropriate
alternative arrangements for Landlord's access to the computer room in the event
of an emergency); (e) to grant to any person or to reserve unto itself the
exclusive right to conduct any business or render any service in the Building;
(f) to show or inspect the Premises at reasonable times and upon reasonable
prior notice to Tenant and, if vacated or abandoned, to prepare the Premises for
reoccupancy; (g) to install, use and maintain in and through the Premises,
pipes, conduits, wires and ducts serving the Building, provided that such pipes,
conduits, wires and ducts shall be located above ceiling surfaces, below floor
surfaces or within perimeter walls of the Premises except in the case of minor
and insubstantial encroachments beyond such areas, in which event such pipes,
conduits, wires and ducts shall be located as close to those areas as
practicable (Landlord agrees to use reasonable efforts to locate such pipes,
conduits, wires and ducts above ceiling surfaces, below floor surfaces or within
perimeter walls of the Premises); and (h) to take any other action which
Landlord deems reasonable in connection with the operation, maintenance or
preservation of the Building, provided that such other action
<PAGE>
does not unreasonably interfere with Tenant's business and operations in the
Premises. Landlord covenants and agrees that in exercising rights reserved to
Landlord in this Section 7, Landlord shall use reasonable efforts to minimize
the inconvenience and interference with Tenant's business and operations in the
Premises and with Tenant's use and enjoyment of the common areas of the
Property. Landlord shall not enter the Premises without being accompanied by a
representative of Tenant. Notwithstanding the preceding sentence, if a
representative of Tenant shall not be available during an emergency when entry
into the Premises shall be necessary or permitted hereunder, or if Tenant shall
not make a representative available after reasonable notice, Landlord may enter
the Premises without being accompanied by a representative of Tenant.
8. MAINTENANCE AND REPAIRS.
A. TENANT'S REPAIR OBLIGATIONS. Except as otherwise provided herein,
Tenant, at its expense, shall, subject to ordinary wear and tear, maintain and
keep the Premises in good order and repair at all times during the Term. In
addition, Tenant shall reimburse Landlord for the cost of any repairs to the
Building necessitated by the acts or omissions of Tenant, its subtenants,
assignees, invitees, employees, contractors and agents, to the extent Landlord
is not reimbursed for such costs under its insurance policies.
B. LANDLORD'S REPAIR OBLIGATIONS. Landlord, at its expense (but subject to
reimbursement as Adjustment Rent in accordance with Section 2 hereof or subject
to reimbursement by Tenant as provided in Section 8.A hereof), throughout the
Term, shall (i) maintain or cause to be maintained the Property in good order
and repair and (ii) comply with all Governmental Requirements relating to the
Property (including, without limitation, Governmental Requirements relating to
Hazardous Materials). Landlord shall use diligent efforts to minimize
interference with Tenant's permitted use and occupancy of the Premises in making
any repairs, alterations, additions or improvements required hereunder.
9. ALTERATIONS.
A. REQUIREMENTS. Except as otherwise provided herein, Tenant shall not make
any replacement, alteration, improvement or addition to or removal from the
Premises (collectively an "alteration") without the prior written consent of
Landlord. In the event Tenant proposes to make any alteration (other than a
Permitted Alteration as defined below), Tenant shall, prior to commencing such
alteration, submit to Landlord for prior written approval: (i) detailed plans
and specifications; (ii) copies of contracts for all contractors; (iii) all
necessary permits evidencing compliance with all Governmental Requirements
necessary to perform such alteration (other than Governmental Requirements
relating to portions of the Property outside the Premises which are not directly
affected by the alteration at issue, which permits shall be obtained by Landlord
at its expense
<PAGE>
in a prompt manner); (iv) certificates of insurance in form and amounts
reasonably required by Landlord, naming Landlord and any other parties
designated by Landlord as additional insureds; and (v) all other documents and
information as Landlord may reasonably request in connection with such
alteration. Tenant shall not be obligated to pay to Landlord any fees or charges
for review of such items and supervision of the alteration except that after
completion of the Improvements (as defined in Exhibit "E" attached hereto and
incorporated herein) Tenant shall reimburse Landlord for any actual and
reasonable out-of-pocket expenses incurred by Landlord in connection therewith.
Neither approval of the plans and specifications nor supervision of the
alteration by Landlord shall constitute a representation or warranty by Landlord
as to the accuracy, adequacy, sufficiency or propriety of such plans and
specifications or the quality of workmanship or the compliance of such
alteration with applicable law. Tenant shall pay the entire cost of each
alteration. Within sixty (60) days after completion of any alteration (including
any Permitted Alteration and any improvements done by Tenant pursuant to Exhibit
"E" attached hereto and incorporated herein), Tenant shall deliver to Landlord a
detailed break-down of all costs of such alteration. Each alteration shall be
performed in a good and workmanlike manner, in substantial accordance with the
plans and specifications approved by Landlord, and shall meet or exceed the
standards for construction and quality of materials established by Landlord for
the Building. In addition, each alteration shall be performed in compliance with
all applicable Governmental Requirements and insurance company requirements.
Each alteration shall be performed by Tenant's contractors in harmony with
Landlord's employees, contractors and other tenants.
Tenant acknowledges that the Premises may constitute a place of public
accommodation or a commercial facility under Title III of the Americans with
Disabilities Act (the "ADA") and that the ADA is applicable to both an owner and
a lessee of a place of public accommodation or commercial facility. Tenant
further acknowledges that under the ADA any structural alteration to the
Premises must comply with accessibility standards set forth in the rules
promulgated by the Department of Justice at 28 C.F.R. 36.101 et. seq. In the
event Tenant makes any structural alteration to the Premises which would require
compliance with Title III of the ADA and the accessibility standards promulgated
by the Department of Justice, Tenant agrees to design and build such structural
alterations so as to comply with the ADA and the accessibility standards.
Notwithstanding any of the foregoing to the contrary, Landlord shall be
responsible for any and all alterations to the Building outside of the Premises
required to comply with the ADA and the accessibility standards. Nothing
contained herein shall be construed to modify the requirement that any
alteration to the Premises must have the prior written approval of Landlord, and
such approval, if given, shall not be construed to be a waiver by Landlord of
Tenant's obligations and agreements as set forth in this Section 9.
<PAGE>
Notwithstanding anything in this Section 9 to the contrary, Landlord's
consent shall not be required with respect to any alterations which are merely
decorative in nature (including without limitation painting and the installation
and removal of wall coverings, floor coverings and furniture, fixtures and
equipment not affixed to the Premises) or which satisfy all of the following
criteria (hereinafter referred to as "Permitted Alterations"):
(i) the value of the work to be performed is less than $50,000.00;
(ii) such work otherwise complies with all other provisions of this
Lease;
(iii) such work does not affect the Building structure or Building
systems; and
(iv) such work does not involve any changes visible from the exterior
of the Premises.
Although Landlord's consent shall not be required for any Permitted
Alteration, all of the other provisions of this Section 9 shall apply to any
such Permitted Alteration except that Tenant shall, at least ten (10) days prior
to commencing any such Permitted Alteration, submit to Landlord a copy of any
plans and specifications that Tenant may have had prepared for such Permitted
Alteration but Tenant shall not be obligated to prepare such plans and
specifications and Landlord approval of such plans and specifications, if
prepared, shall not be required.
Tenant shall be permitted to perform alterations during the hours of 8:00
A.M. to 6:00 P.M. on business days, and during such other hours as Tenant may
elect, provided Tenant shall give Landlord advance notice thereof (which may be
given verbally by telephone together with an additional notice by facsimile to
the Building management office) prior to 1:00 p.m. of the business day on which
the non-business hours alterations are to be performed and prior to 1:00 p.m. of
the last preceding business day if such alterations are to be performed on a day
other than a business day; provided, however, that in all events such work shall
not unreasonably interfere with or interrupt the operations and maintenance of
the Building or unreasonably interfere with or interrupt the use and occupancy
of the Building by other tenants of the Building. In connection with the
performance of all alterations, Landlord shall provide to Tenant such
Building-support services that are customarily provided by prudent landlords in
accordance with good construction practices, the cost of such Building-support
services to be at Landlord's then reasonable and customary rates and payable by
Tenant, as additional Rent, within ten (10) business days after receipt by
Tenant of a bill therefor.
Tenant shall have the right to perform any alteration on a so-called "fast
track" basis, provided that (i) Tenant shall submit to Landlord for approval
such detailed plans and
<PAGE>
specifications for discrete portions of such alteration (ii) Tenant provides
Landlord with basic plans and specifications showing the overall concept of the
alteration and (iii) the detailed plans and specifications for such discrete
portions of the alteration are sufficiently complete and contain sufficient
information to enable Landlord to grant its approval in a reasonably informed
manner.
Landlord agrees not to unreasonably withhold or delay its consent to any
proposed alterations requiring Landlord's consent, provided that such
alterations (i) do not adversely affect the appearance of the Building, (ii) do
not adversely affect any part of the Building (including, but not limited to,
the structure of the Building or the systems services in the Building or the
exterior of the Building) other than the Premises, (iii) do not adversely affect
any service required to be furnished by Landlord to Tenant or to any other
tenant or occupant of the Building and (iv) comply with all Governmental
Requirements. Any objections or corrections which Landlord may have to any plans
and specifications for which Tenant may have requested Landlord's consent shall
be noted with specificity in a written response to Tenant so that Tenant, by
incorporating Landlord's objections or corrections, would be entitled to receive
Landlord's consent. If Landlord shall fail to respond to Tenant's request for
approval of Tenant's plans and specifications for any alterations within ten
(10) days after Landlord's receipt thereof, Landlord shall be deemed to have
approved such plans and specifications.
B. LIENS. Upon completion of any alteration, Tenant shall promptly furnish
Landlord with sworn owner's and contractors statements and full and final
waivers of lien covering all labor and materials included in such alteration.
Tenant shall not permit any mechanic's lien to be filed against the Building, or
any part thereof, arising out of any alteration performed, or alleged to have
been performed, by or on behalf of Tenant. If any such lien is filed, Tenant
shall within ten (10) days thereafter have such lien released of record or
deliver to Landlord a bond in form, amount, and issued by a surety reasonably
satisfactory to Landlord, indemnifying Landlord against all costs and
liabilities resulting from such lien and the foreclosure or attempted
foreclosure thereof. If Tenant fails to have such lien so released or to deliver
such bond to Landlord, Landlord, without investigating the validity of such
lien, may pay or discharge the same; and Tenant shall reimburse Landlord upon
demand for the amount so paid by Landlord, including Landlord's expenses and
attorneys' fees.
10. INSURANCE.
A. TENANT'S INSURANCE. Tenant, at its expense, shall maintain at all times
during the Term the following insurance policies: (a) fire insurance, including
extended coverage, vandalism, malicious mischief, sprinkler leakage and water
damage coverage and demolition and debris removal, insuring the full
<PAGE>
replacement cost of all improvements, alterations or additions to the Premises
made at Tenant's expense and insuring the full replacement cost of all
equipment, furniture and other personal property owned or used by Tenant and
located in the Premises; (b) commercial general liability insurance, contractual
liability insurance and property damage insurance with respect to the Property
and the Premises, with reasonable limits to be set by Landlord from time to time
but in any event not less than $2,000,000.00 combined single limit for personal
injury, sickness or death or for damage to or destruction of property for any
one (1) occurrence and not less than $3,000,000.00 combined single limit for
personal injury, sickness or death or for damage or destruction of property for
total claims in the aggregate during any one (1) policy year; and (c) insurance
against such other risks and in such other amounts as Landlord may from time to
time reasonably require. The insurance required to be maintained by Tenant
hereunder may be maintained in the form of a blanket policy covering the
Premises and other property owned or leased by Tenant or its Related Entities
(as hereinafter defined) so long as the blanket policy does not reduce the
limits nor diminish the coverage required herein. The form of all such policies
and deductibles thereunder shall be subject to Landlord's prior reasonable
approval. All such policies shall be issued by insurers reasonably acceptable to
Landlord and licensed to do business in the State in which the Premises are
located and shall contain a waiver of any rights of subrogation thereunder. In
addition, the policies (except for the policy described in (a) above) shall name
Landlord and any other parties reasonably designated by Landlord as additional
insureds, the policies shall require at least thirty (30) days' prior written
notice to Landlord and such other parties designated by Landlord of termination
or modification and the policies shall be primary and not contributory. Tenant
shall at least fifteen (15) days prior to the Commencement Date, and within
fifteen (15) days prior to the expiration of each such policy, deliver to
Landlord certificates evidencing the foregoing insurance or renewal thereof, as
the case may be.
B. LANDLORD'S INSURANCE. Landlord shall take out and maintain in force
throughout the Term, in a company or companies authorized to do business in
Massachusetts, (i) casualty insurance on the Building in an amount equal to the
full replacement value of the Building (exclusive of foundations), covering all
risks of direct physical loss or damage and so-called "extended coverage" risks
and (ii) commercial general liability insurance with respect to the Building in
such amounts as Landlord may from time to time reasonably deem necessary or
desirable. This insurance may be maintained in the form of a blanket policy
covering the Building as well as other properties owned by Landlord so long as
the blanket policy does not reduce the limits nor diminish the coverage required
herein. Landlord's casualty insurance on the Building shall also cover the full
replacement cost of the Improvements and any other alterations to the Premises
made by Tenant provided that Landlord is furnished with an accurate,
reproducible "as-built" plan of the Improvements and any other alterations as
constructed. Landlord shall have no obligation to maintain such insurance
coverage with respect to the Improvements or any other alterations unless and
<PAGE>
until Landlord is furnished with such "as-built" plan. All such insurance shall
be issued by insurance companies with financial ratings equal to or better than
the financial ratings of insurance carriers customarily used by prudent owners
of office buildings of similar size in the general location of the Property and
shall contain a waiver of any rights of subrogation therewith. Landlord shall,
at least fifteen (15) days prior to the Commencement Date, and within fifteen
(15) days prior to the expiration of any such policy, deliver to Tenant
certificates evidencing the foregoing insurance or renewal thereof, as the case
may be.
11. WAIVER AND INDEMNITY.
A. WAIVER. Tenant releases Landlord, its property manager and their
respective agents and employees from, and waives all claims for, damage or
injury to person or property and loss of business sustained by Tenant and
resulting from any accident in or about the Building. This paragraph shall apply
particularly, but not exclusively, to flooding, damage caused by Building
equipment and apparatus, water, snow, frost, steam, excessive heat or cold,
broken glass, sewage, gas, odors, excessive noise or vibration or the bursting
or leaking of pipes, plumbing fixtures or sprinkler devices.
In any case in which Tenant shall be obligated under any provision of this
Lease to pay to Landlord any loss, cost, damage, liability or expense suffered
or incurred by Landlord, Landlord shall allow Tenant as an offset against the
amount thereof (i) the net proceeds of any insurance received by Landlord or to
be received by Landlord for or on account of such loss, cost, damage, liability
or expense, provided that the allowance of such offset does not invalidate or
prejudice the policy or polices under which such proceeds were payable, and (ii)
if such loss, cost, damage, liability or expense shall have been caused by a
peril against which Landlord has agreed to procure insurance coverage under the
terms of this Lease, the amount of such insurance coverage, whether actually
procured by Landlord.
In any case in which Landlord shall be obligated under any provision of
this Lease to pay to Tenant any loss, cost, damage, liability or expense
suffered or incurred by Tenant, Tenant shall allow Landlord as an offset against
the amount thereof (i) the net proceeds of any insurance received or to be
received by Tenant for or on account of such loss, cost, damage, liability or
expense, provided that the allowance of such offset does not invalidate the
policy or policies under which such proceeds were payable, and (ii) if such
loss, cost, damage, liability or expense shall have been caused by a peril
against which Tenant has agreed to procure insurance coverage under the terms of
this Lease, the amount of such insurance coverage, whether actually procured by
Tenant.
B. INDEMNITY. Tenant agrees to indemnify, defend and hold harmless
Landlord, its property manager and their respective
<PAGE>
agents and employees, from and against any and all claims, demands, actions,
liabilities, damages, costs and expenses (including attorneys' fees), for
injuries to any persons and damage to or theft or misappropriation or loss of
property occurring in or about the Building and arising from the use and
occupancy of the Premises or from any activity, work, or thing done, permitted
or suffered by Tenant in or about the Premises (including, without limitation,
any alteration by Tenant) or from any breach or default on the part of Tenant in
the performance of any covenant or agreement on the part of Tenant to be
performed under this Lease or due to any other act or omission of Tenant, its
subtenants, assignees, invitees, employees, contractors and agents. Without
limiting the foregoing, Tenant shall indemnify, defend and hold Landlord
harmless from any claims, liabilities, damages, costs and expenses arising out
of the use or storage of Hazardous Materials by Tenant in the Building or on the
Property. Notwithstanding anything in this Section 11.B to the contrary, no
Tenant indemnification of Landlord, its property manager or their respective
agents and employees contained in this Section 11.B shall apply to any claim,
demand, action, liability, damage, cost or expense (including attorneys' fees)
to the extent such arises from or is caused by the willful misconduct or
negligence of Landlord or its agents, contractors or employees. If any such
proceeding is filed against Landlord or any such indemnified party, Tenant
agrees to defend Landlord or such party in such proceeding at Tenant's sole cost
by legal counsel reasonably satisfactory to Landlord, if requested by Landlord
(Landlord agreeing that legal counsel selected by Tenant's insurer shall be
satisfactory to Landlord). Notwithstanding anything in this Lease to the
contrary, in no event shall Tenant be liable for punitive or consequential
damages except as otherwise provided in Section 17 hereof.
Landlord agrees to indemnify, hold harmless and defend Tenant from and
against all claims, damages, expenses (including, without limitation, reasonable
attorneys' fees and reasonable investigative and discovery costs), liabilities
and judgments, on account of injury to persons, loss of life, or damage to
property occurring in or about the Property, caused by the tortious misconduct
or negligence of Landlord or its agents, contractors, servants or employees;
provided, however, Landlord does not indemnify Tenant against any injury, loss
of life or damage to property to the extent such arises from or is caused by the
misconduct or negligence of Tenant or its agents, contractors, servants or
employees. If any such proceeding is filed against Tenant, Landlord agrees to
defend Tenant in such proceeding at Landlord's sole cost by legal counsel
reasonably satisfactory to Tenant, if requested by Tenant (Tenant agreeing that
legal counsel selected by Landlord's insurer shall be satisfactory to Tenant).
Notwithstanding anything herein to the contrary, in no event shall Landlord be
liable for punitive or consequential damages.
12. FIRE AND CASUALTY. If by reason of fire or other casualty all or a
substantial part of the Premises or the Building reasonably cannot be used for
its permitted uses
<PAGE>
hereunder, Landlord may, at its option, either restore the Premises and the
Building, or terminate this Lease effective as of the date of such fire or other
casualty. Landlord agrees to give Tenant written notice within sixty (60) days
after the occurrence of any such fire or other casualty designating whether
Landlord elects to so restore or terminate this Lease. If Landlord elects to
terminate this Lease, Rent shall be paid through and apportioned as of the date
of such fire or other casualty. If Landlord elects to restore, Landlord's
obligation to restore the Premises shall be limited to restoring those
improvements in the Premises existing as of the date of such fire or other
casualty which were made at Landlord's expense and shall exclude any furniture,
equipment, fixtures, additions, alterations or improvements in or to the
Premises which were made at Tenant's expense. If Landlord elects to restore,
Rent shall abate for that part of the Premises which is untenantable on a per
diem basis from the date of such fire or other casualty until the date which is
ten (10) business days after the date that Landlord shall have substantially
completed its repair and restoration work, provided that during said period
Tenant does not occupy such part of the Premises for the operation of Tenant's
business.
In the event (i) the Building or the Premises shall be totally damaged or
destroyed by fire or other casualty, or (ii) fifty percent (50%) or more of the
Building shall be so damaged or destroyed by fire or other casualty
(irrespective of whether or not the Premises are damaged thereby), or (iii)
fifty percent (50%) or more of the Premises shall be so damaged or destroyed by
fire or other casualty, or (iv) twenty-five percent (25%) or more of the
Premises shall be so damaged or destroyed by fire or other casualty and as a
result thereof the remainder of the Premises or a substantial part thereof
cannot reasonably be used for its permitted uses hereunder, then, and in any of
said events, Tenant shall have the option, exercisable by notice given to
Landlord within thirty (30) days after the date of the casualty, to cancel and
terminate this Lease as of a date specified in Tenant's termination notice which
date shall be not more than sixty (60) days after the giving of Tenant's
termination notice, in which event the Term of this Lease shall expire on the
date specified in Tenant's notice with the same force and effect as if such date
were originally provided herein as the Expiration Date of the Term without any
obligation on the part of Tenant to make any Termination Payment as provided for
in Section 29 hereof.
In the event of any damage or destruction mentioned in this Section 12
which might give rise to a partial or full abatement, and if Landlord has not
substantially completed the making of the repairs and restoration required to be
made by Landlord pursuant to the provisions of this Section 12 within a period
of twelve (12) months from the date of such damage or destruction, then Tenant
may terminate this Lease by notice given to Landlord at any time after the
expiration of such twelve (12) month period but prior to such substantial
completion. In the event of any damage or destruction mentioned in this Section
12 which might
<PAGE>
give rise to a partial or full abatement and if Landlord has not substantially
completed the making of the repairs and restoration required to be made by
Landlord pursuant to the provisions of this Section 12 within fifteen (15)
months prior to the Expiration Date (as the same may be extended pursuant to
Section 27 hereof), then Tenant may terminate this Lease by notice given to
Landlord at any time during such fifteen (15) month period but prior to such
substantial completion. Any termination by Tenant hereunder shall be effective
as of the date specified in such notice, which shall be not more than sixty (60)
days after the giving thereof, and the Term of this Lease shall expire on such
date with the same force and effect as if such date were originally provided
herein as the Expiration Date of the Term hereof without any obligation on the
part of Tenant to make any Termination Payment as provided in Section 29 hereof.
In the event of the termination of this Lease pursuant to any of the
provisions of this Section 12, this Lease and the Term and estate hereby granted
shall expire as of the date of such termination with the same effect as if such
date were the date originally set forth herein as the Expiration Date of the
Term, and the Rent payable hereunder shall be apportioned as of such date
subject, however, to any applicable abatement to which Tenant may be entitled
pursuant to the provisions hereof, and provided that in no event shall Tenant be
obligated to make any Termination Payment as provided for in Section 29 hereof
in connection with any termination pursuant to this Section 12.
13. CONDEMNATION. If more than twenty-five percent (25%) of the Premises or
if all or a material portion of the Property is rendered unfit for its intended
purposes by reason of a condemnation (or by a deed given in lieu thereof), then
either party may terminate this Lease by giving written notice of termination to
the other party within thirty (30) days after such condemnation, in which event
this Lease shall terminate effective as of the date of such condemnation. If
this Lease so terminates, Rent shall be paid through and apportioned as of the
date of such condemnation. If such condemnation does not render the Premises or
the Property unfit for its intended purposes, this Lease shall continue in
effect and Landlord shall promptly restore the portion not condemned (including,
without limitation, all means of ingress and egress) to the extent reasonably
possible to the condition existing prior to the condemnation. In such event,
however, Landlord shall not be required to expend an amount in excess of the
proceeds received by Landlord from the condemning authority. Landlord reserves
all rights to compensation (except for any awards payable directly to Tenant for
relocation expenses and except for any award allocable to the value to the
alterations to the Premises paid for by Tenant) for any condemnation. Tenant
hereby assigns to Landlord any right Tenant may have to such compensation
(except as provided in the immediately preceding sentence), and Tenant shall
make no claim against Landlord or the condemning authority for compensation
(except as provided in the immediately preceding sentence) for termination of
Tenant's leasehold interest under this Lease or interference with Tenant's
business.
<PAGE>
14. ASSIGNMENT AND SUBLETTING.
A. LANDLORD'S CONSENT. Except as otherwise expressly provided herein,
Tenant shall not, without the prior written consent of Landlord: (i) assign,
convey, mortgage or otherwise transfer this Lease or any interest hereunder, or
sublease the Premises, or any part thereof, whether voluntarily or by operation
of law; or (ii) permit the use of the Premises by any person other than Tenant
and its employees. Any such transfer, sublease or use described in the preceding
sentence (a "Transfer") occurring without the prior written consent of Landlord
shall be void and of no effect. Landlord's consent to any Transfer shall not
constitute a waiver of Landlord's right to withhold its consent to any future
Transfer. Landlord's consent to any Transfer or acceptance of rent from any
party other than Tenant shall not release Tenant from any covenant or obligation
under this Lease. Landlord may require as a condition to its consent to any
assignment of this Lease that the assignee execute an instrument in which such
assignee assumes the obligations of Tenant hereunder from and after the date of
Transfer. Tenant shall pay to Landlord any actual and reasonable attorneys' fees
and expenses incurred by Landlord in connection with any proposed Transfer,
whether or not Landlord consents to such Transfer.
B. STANDARDS FOR CONSENT. If Tenant desires the consent of Landlord to a
Transfer, Tenant shall submit to Landlord, at least thirty (30) days prior to
the proposed effective date of the Transfer, a written notice which includes
such information as Landlord may reasonably require about the proposed Transfer
and the transferee. Landlord shall grant or deny its consent to any proposed
Transfer within fifteen (15) days after the date on which Tenant has furnished
to Landlord all of the items required under the preceding sentence. Landlord
shall not unreasonably withhold its consent to any proposed Transfer. Landlord
shall not be deemed to have unreasonably withheld its consent if, in the
judgment of Landlord: (i) the transferee is of a character or engaged in a
business which is not in keeping with the standards or criteria used by Landlord
in leasing the Building; (ii) the purpose for which the transferee intends to
use the Premises or portion thereof is in violation of the terms of this Lease
or the lease of any other tenant in the Building; (iii) the transferee is a
tenant or prospective tenant (which shall mean a party with which Landlord shall
have had active negotiations for leasing of space in the Building within four
(4) months prior to Landlord's receipt of the written notice referred to in the
first sentence of this Section 14.B; Landlord agreeing, upon request by Tenant
from time to time, but only if Tenant is then actively pursuing a Transfer, to
provide a list of prospective tenants as of the date of receipt by Landlord of
such request) of the Building (except if there is no other space reasonably
comparable to the Premises (with regard to area, location, conditions,
improvements and timing) from the perspective of the transferee available for
lease by Landlord in the Building at the time that Landlord receives the
above-referenced notice from Tenant, in which event the transferee may be a
tenant of the Building); or
<PAGE>
(iv) any other bases which Landlord reasonably deems appropriate. If Landlord
wrongfully withholds its consent to any Transfer, Tenant's sole and exclusive
remedy therefor shall be to seek specific performance of Landlord's obligation
to consent to such Transfer.
C. RECAPTURE. If at any time during the Term Tenant desires to effect a
Transfer (with respect to all or any portion of the Premises), before Tenant may
actively market the Premises (or any portion thereof) for such Transfer, Tenant
shall notify Landlord of Tenant's desire to effect such Transfer (the "Proposed
Transfer Notice"). The Proposed Transfer Notice shall contain a description of
the portion of the Premises that Tenant desires to Transfer (such portion being
hereinafter referred to as the "Transfer Premises") and shall contain a detailed
break-down of all costs incurred to date (including the dates such costs were
incurred) by Tenant for any and all alterations to the Premises (including
Permitted Alterations and any alterations and improvements done pursuant to
Section 9 and Exhibit "E"). The total of such costs (less any amounts which
Landlord shall have previously reimbursed Tenant therefor and not including the
cost of any of Lessee's personal property) are hereinafter referred to as
"Tenant's Total Construction Costs". Landlord shall have the right to terminate
this Lease as to the Transfer Premises by giving notice of such termination to
Tenant at any time within thirty (30) days after the date on which Tenant has
received the Proposed Transfer Notice and by payment to Tenant of Landlord's
Termination Payment (as defined below) no later than the effective date of such
termination. Landlord's Termination Payment shall be an amount equal to the
unamortized portion (as of the effective date of such termination) of Tenant's
Total Construction Costs multiplied by a fraction the numerator of which is the
total rentable square feet of floor area in the Transfer Premises and the
denominator of which is the total rentable square feet of floor area in the
Premises. In determining Landlord's Termination Payment, Tenant's Total
Construction Costs shall be amortized on a straight-line basis, with interest at
the annual rate of the prime rate of The First National Bank of Boston, plus two
percent (2%), over the initial Term of this Lease. If Landlord exercises such
right to terminate, Landlord shall be entitled to recover possession of, and
Tenant shall surrender, the Transfer Premises (with appropriate demising
partitions erected at the expense of Landlord and with appropriate submetering
of utilities to be done at the expense of Landlord), on the date which is ninety
(90) days after the date of Landlord's notice of termination. If Landlord does
not exercise such right to terminate with respect to such Transfer Premises,
then Landlord shall have no right to terminate the Lease with respect to the
Transfer Premises as provided herein for six (6) months after the earlier of (i)
receipt by Tenant from Landlord of a notice whereby Landlord waives its right to
terminate the Lease with respect to the Transfer Premises as provided herein or
(ii) the expiration of the above-referenced thirty (30) day period if during
such thirty (30) day period Landlord fails to respond to the Proposed Transfer
Notice. During such six (6) month period Tenant may
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Transfer the entire Transfer Premises (but no other portion of the Premises)
free of Landlord's right to terminate as provided above but subject to
Landlord's consent as provided in Sections 14.A and 14.B. If Tenant fails to
effect a Transfer of the Transfer Premises (meaning that Tenant and a proposed
transferee have both executed a binding assignment, sublease or similar type of
leasing agreement) by the end of such six (6) month period, then Landlord's
right to terminate as provided herein shall once again apply to the Transfer
Premises and Tenant shall be obligated to comply with the provisions of this
Section 14.C if Tenant still desires or subsequently desires to effect a
Transfer of the Transfer Premises. If Landlord exercises its right to terminate
as provided herein (either following receipt of an initial Proposed Transfer
Notice or a subsequent Proposed Transfer Notice delivered after the end of the
applicable six (6) month period), (y) Landlord shall have the right to enter
into a lease with any party with which Tenant may have had any dealings with
regard to a possible Transfer to such party without incurring any liability to
Tenant on account thereof and (z) Tenant shall have no further liability
hereunder with respect to the Transfer Premises on and after the effective date
of such termination except for liability for amounts owed and obligations
undischarged for periods prior to such effective date of termination.
D. TRANSFER PROFITS. In connection with any Transfer of the Premises for
which Landlord's consent is obtained, Tenant shall pay to Landlord fifty percent
(50%) of any Transfer Profit (as defined below) derived therefrom. All sums
payable hereunder by Tenant shall be calculated on an annualized basis, but
shall be paid to Landlord, as additional rent hereunder, within ten (10)
business days after actual receipt thereof by Tenant. For purposes of this
Section 14.D:
(i) "Rent Per Square Foot" shall mean the sum of the then Rent
(attributable to the portion of the Premises subject to the Transfer) divided by
the number of rentable square feet constituting the portion of the Premises
subject to the Transfer;
(ii) "Transfer Profit" shall mean the product of (x) the Transfer Rent
Per Square Foot less the Rent Per Square Foot, and (y) the number of rentable
square feet constituting the portion of the Premises subject to the Transfer;
(iii) "Transfer Rent" shall mean any rent or other consideration paid
to Tenant, directly or indirectly, by any transferee, or any other amount
received by Tenant from or in connection with any Transfer (excluding
consideration for any of Tenant's furniture, furnishings, fixtures, equipment
and other items of personal property, the full consideration, for which Tenant
shall be entitled to retain) after deducting therefrom the following transfer
expenses (the "Transfer Expenses"): (a) consideration specifically allocable to
Tenant's property (including Tenant's furniture, furnishings, fixtures,
equipment and other items of personal property, the full consideration for which
Tenant shall be entitled to retain), (b) the reasonable and
<PAGE>
actual out-of-pocket costs and expenses of Tenant in making such Transfer such
as tenant improvements, brokers' fees, attorneys' fees and advertising fees each
as paid to unrelated third parties, (c) any sums paid to Landlord pursuant to
the last sentence of Section 14.A, and (d) if no specific allocation is made to
Tenant's property, the unamortized cost of any Tenant's property (including
Improvements, other alterations and Tenant's furniture, furnishings, fixtures,
equipment and other items of personal property) assigned or leased to and used
by such transferee specifically allocated to the Transferred portion of the
Premises (or if specific allocation is not practicable, then allocated on a
square foot basis based on the proportion that the Transferred portion of the
Premises bears to the entire Premises). In determining Transfer Rent, the costs
set forth in CLAUSES (b) and (c) above shall be amortized on a straight-line
basis, with interest at the annual rate of the prime rate of The First National
Bank of Boston, plus two percent (2%), over the term of such Transfer and the
costs set forth in CLAUSE (d) above shall be amortized on a straight-line basis,
with interest at the annual rate of the prime rate of The First National Bank of
Boston, plus two percent (2%), over the initial Term of this Lease;
(iv) "Transfer Rent Per Square Foot" shall mean the Transfer Rent
divided by the rentable square feet of the space subject to the Transfer.
(v) Transfer Profit shall be recalculated from time to time to reflect
any corrections in the prior calculation thereof due to (a) subsequent payments
received or made by Tenant, (b) the final adjustment of payments to be made by
or to Tenant or (c) mistake. Promptly upon the making or receipt of any such
payment or adjustment or the discovery of any such mistake, Tenant shall submit
to Landlord a recalculation of the Transfer Profit, as the case may be, and an
adjustment shall be made between Landlord and Tenant, if applicable with respect
thereof on account of prior payments made or credits received pursuant to this
Section 14.D.
(vi) As used in this Section 14.D, "Tenant shall also include any
Related Entity; and
(vii) In determining the rentable area of any sublease space
hereunder, the same standard shall be applied thereto as is used in determining
Tenant's Proportionate Share.
E. NO RELEASE. In no event shall any Transfer (including any transaction
described in Section 14.F below) release or relieve Tenant from its obligations
to fully observe or perform all of the terms, covenants and conditions of this
Lease on its part to be observed or performed (including liability arising
during any renewal term of this Lease or with respect to any expansion space
included in the Premises). It is agreed that the liabilities and obligations of
Tenant hereunder are enforceable either before, simultaneously with or after
proceeding against any assignee, sublessee or other transferee of Tenant or any
<PAGE>
guarantor of this Lease; provided, however, the liabilities and obligations of
any assignee, sublessee or transferee shall only accrue during the period on and
after the effective date of the Transfer involving such assignee, sublessee or
transferee.
F. PERMITTED TRANSFERS.
(i) As long as the tenant named herein (I.E., Delphi Internet Services
Corporation) or a "Related Entity" (as defined below) is the Tenant hereunder,
Tenant shall have the right, subject to the terms and conditions hereinafter set
forth, without the consent of Landlord, to assign Tenant's interest in the Lease
(i) to any corporation which is a successor to Tenant either by merger or
consolidation or other operation of law, or (ii) to a corporation or other
entity which shall (1) control, (2) to be under the control of, or (3) be under
common control with the initial Tenant hereunder (I.E., Delphi Internet Services
Corporation) (the term "control" and "controlling" as used herein shall be
deemed to mean ownership or control of more than twenty-five percent (25%) of
the outstanding voting stock of a corporation, or an equivalent percentage
ownership or controlling interest in an entity if Tenant is not a corporation)
(any such entity in clauses (i) and (ii) above being a "Related Entity") or
(iii) to any purchaser of all or substantially all of the assets or a
controlling interest in Tenant. Tenant may also sublease all or any portion of
the Premises to a Related Entity without the consent of Landlord. Any assignment
or subletting described above may only be made upon the condition that (a) any
such assignee or subtenant shall continue to use the Premises as permitted by
this Lease and (b) the principal purpose of such assignment or sublease is not
the acquisition of Tenant's interest in this Lease (except if such assignment or
sublease is made to a Related Entity and is made for a valid intra-corporate
business purpose). Tenant shall, within ten (10) business days after execution
thereof, deliver to Landlord (a) in the case of an assignment, a duplicate
original instrument of assignment and assumption duly executed by Tenant and
such assignee, in which such assignee shall assume observance and performance
of, and agree to be personally bound by, all of the terms, covenants and
conditions of this Lease on Tenant's part to be observed and performed from and
after the effective date of the assignment or (b) in the case of a sublease, a
duplicate original sublease duly executed by Tenant and the subtenant.
(ii) The transfer (including the issuance of treasury stock or the
creation and issuance of a new stock) of a controlling interest in the share of
Tenant (if Tenant is a corporation or trust) or a transfer of a majority of the
total interest in Tenant (if Tenant is a partnership or other entity) at any one
time or over a period of time, directly or indirectly (including, without
limitation, and by way of example only, the transfer of a majority of the
outstanding capital stock of a company which company owns 100% of a second tier
company, which in turn owns 25% of the capital stock of the corporate Tenant
hereunder), shall not be deemed an assignment of this Lease and shall not be
subject to all of the provisions of this Section 14,
<PAGE>
including, without limitation, the requirement that Tenant obtain Landlord's
prior consent thereto unless the transfer of such stock is not made for a valid
business purpose and is made to circumvent the provisions of Section 14.A. The
transfer of shares of Tenant (if Tenant is a corporation or trust) for purposes
of this Section 14 shall not include the sale of shares effected through the
"over-the-counter" or through any recognized stock exchange (including, without
limitation, in connection with a public offering).
15. SURRENDER. At the expiration or earlier termination of the Term, Tenant
shall promptly yield up, clean and neat, and in the same condition, order and
repair in which they are required to be kept throughout the Term, the Premises
and all improvements, alterations and additions thereto, and all fixtures and
equipment servicing the Building, ordinary wear and tear and damage by taking or
by fire or casualty not caused by the negligence or willful misconduct of Tenant
or its agents, employees or contractors excepted. At the expiration or earlier
termination of the Term, if requested by Landlord (which request must be made
within sixty (60) days after the expiration or earlier termination of the Term),
Tenant shall remove all of its telephone lines or leave its telephone lines in
place. All of the riser cables and telephone rooms in the Building are and shall
be the property of Landlord. Notwithstanding any of the foregoing to the
contrary, (i) Tenant shall have the right to remove any alterations (as defined
in Section 9.A hereof), including, without limitation, the Improvements (as
defined in Paragraph 3 of Exhibit "E") and the Additional Improvements (as
defined in Paragraph 4 of Exhibit "E") and at Tenant's sole cost and expense,
(ii) unless otherwise requested by Landlord, Tenant shall remove from the
Premises any such alterations which will require unusual expense to remove in
connection with any future use of the Premises for office purposes or which are
not appropriate or readily adaptable for normal office use at the end of the
Term and shall restore the Premises to its condition prior to the installation
of such alterations, and (iii) Tenant shall, if requested by Landlord (which
request must be made within sixty (60) days after the expiration or earlier
termination of the Term), remove from the Premises any raised floor installed in
the Premises and any cables or wires installed beneath such raised floor and
shall restore the Premises to its condition prior to such installation. Any
removal and restoration required or permitted by Tenant hereunder shall be done
in a good and workmanlike manner and Tenant must repair any damage caused by
such removal and restoration. If Tenant does not remove and restore as required
hereunder, Landlord may remove and restore to the extent not done by Tenant, and
Tenant shall pay the cost of such removal and restoration to Landlord upon
demand. Tenant shall also remove its furniture, equipment, trade fixtures and
all other items of personal property from the Premises prior to the expiration
or earlier termination of the Term. If Tenant does not remove such items, Tenant
shall be conclusively presumed to have conveyed the same to Landlord without
further payment or credit by Landlord to Tenant; or at Landlord's sole option
such items shall be deemed abandoned, in which event Landlord may
<PAGE>
cause such items to be removed and disposed of at Tenant's expense, without
notice to Tenant and without obligation to compensate Tenant. Notwithstanding
anything herein to the contrary, during the last three (3) months of the Term,
Tenant may request that Landlord inform Tenant as to whether certain specific
items will be required to be removed from the Premises pursuant to the
provisions of this Section 15, and Landlord shall have sixty (60) days from
receipt of such notice to inform Tenant whether Landlord will so require removal
of those items referred to in Tenant's notice.
16. DEFAULTS AND REMEDIES.
A. DEFAULT. The occurrence of any of the following shall constitute a
default (a "Default") by Tenant under this Lease:
(i) Tenant fails to pay any Rent when due and such failure is not
cured within five (5) business days after notice from Landlord;
(ii) Tenant fails to perform any other provision of this Lease and
such failure is not cured within thirty (30) days after receipt
by Tenant of written notice from Landlord, except that such
thirty (30) day period shall be extended for a reasonable period
of time, provided that Tenant shall as soon as may be reasonable
duly institute and thereafter diligently and in good faith
prosecute to completion all steps necessary to cure such failure
to perform;
(iii) the leasehold interest of Tenant is levied upon or attached
under process of law;
(iv) Tenant or any guarantor of this Lease dissolves;
(v) any voluntary or involuntary proceedings are filed by or against
Tenant or any guarantor of this Lease under any bankruptcy,
insolvency or similar laws and, in the case of any involuntary
proceedings, are not dismissed within ninety (90) days after
filing.
B. RIGHT OF RE-ENTRY. Upon the occurrence of a Default, Landlord may elect
to terminate this Lease, or, without terminating this Lease, terminate Tenant's
right to possession of the Premises. Upon any such termination, Tenant shall
immediately surrender and vacate the Premises and deliver possession thereof to
Landlord. Tenant grants to Landlord the right by legal means to enter and
repossess the Premises and to expel Tenant and any others who may be occupying
the Premises and to remove any and all property therefrom, without being deemed
in any manner guilty of trespass and without relinquishing Landlord's rights to
Rent or any other right given to Landlord hereunder or by operation of law.
C. RELETTING. If Landlord terminates Tenant's right to possession of the
Premises without terminating this Lease,
<PAGE>
Landlord may relet the Premises or any part thereof. In such case, Landlord
shall use reasonable efforts to relet the Premises on such terms as Landlord
shall reasonably deem appropriate; provided, however, Landlord may first lease
Landlord's other available space and shall not be required to accept any tenant
offered by Tenant or to observe any instructions given by Tenant about such
reletting. In such case, Tenant shall be liable for and shall pay to Landlord,
as damages, any deficiency (referred to as "Deficiency") between the Rent for
the period (the "Unexpired Period") which otherwise would have constituted the
unexpired portion of the Term (assuming that if the Lease is terminated prior to
the date that Tenant would have the right to exercise Tenant's First Termination
Option or Second Termination Option, as applicable in accordance with Section
29, in determining the unexpired portion of the Term, Tenant shall be deemed to
have exercised the Tenant's First Termination Option or Second Termination
Option, as applicable, and in calculating the Deficiency, the First Termination
Payment or Second Termination Payment, as applicable, shall be included in the
calculating thereof and Tenant shall not otherwise have liability with respect
to the portion of the Term following the First Termination Date or Second
Termination Date, as applicable), and the net amount, if any, of rents collected
under any reletting effected pursuant to the provisions of this Section 16 for
any part of such period (first deducting from the rents collected under any such
reletting all of Landlord expenses in connection with exercising Landlord's
rights hereunder, Landlord's re-entry upon on the Premises and such reletting,
including, but not limited to, all actual repossession costs, brokerage
commissions, legal expenses, attorneys' fees and disbursements, alteration costs
and other expenses of preparing the Premises for such reletting, provided that,
if the reletting extends beyond the Unexpired Period, such reletting expense
shall be pro-rated between the Unexpired Period and the period occurring after
the Unexpired Period based on the number of days in each period, and only such
expenses so attributable to the Unexpired Period shall be deducted as
aforesaid). In addition, if the Premises, or any part thereof, shall be relet
together with other space in the Building, other rents collected or reserved
under any such reletting and the expenses of any such reletting shall be
equitable apportioned for purposes of this Section 16.C. Solely for the purposes
of this Section 16, the Adjustment Rent component of Rent shall mean the
Adjustment Rent in effect immediately piror to the date of termination or the
date of re-entry upon the Premises by Landlord, as the case may be. Any such
Deficiency shall be paid in monthly installments by Tenant on the days specified
in this Lease for payment of installments of Monthly Base Rent, Landlord shall
be entitled to recover form Tenant each monthly Deficiency as the same shall
arise (with the First Termination Payment or Second Termination Payment, as
applicable, being paid as provided for in Section 29, provided that once the
First Termination Payment or Second Termination Payment, as applicable, is made,
Tenant shall have no further liability or obligation to Landlord under this
Lease), and no suit to collect the amount of the Deficiency for any month shall
prejudice Landlord's right to collect the Deficiency for any
<PAGE>
subsequent month by a similar proceedings. If the consideration received by
Landlord in connection with such reletting is greater than the amount necessary
to pay the full amount of the Rent, the full amount of such excess shall be
retained by Landlord and shall in no event be payable to Tenant.
D. TERMINATION OF LEASE. If Landlord terminates this Lease, Landlord shall
be entitled to recover from Tenant, and Tenant shall pay to Landlord, on demand,
in lieu of any Deficiency as and for liquidated and agreed to final damages an
accelerated lump sum equal to the amount by which the Rent (including, if
applicable, the First Termination Payment or Second Termination Payment, as
applicable), for the period which otherwise would have constituted the unexpired
portion of the Term (taking into account, if applicable, the exercise or the
deemed exercise of the First Termination Option or the Second Termination
Option, as applicable) plus Landlord's reasonable estimate (calculated with
appropriate pro rations and equitable apportionments as provided for in Section
16.C above) of the aggregate expenses of reletting the Premises exceeds the fair
and reasonable rental value of the Premises for the same period (including
within the determination of such fair and reasonable rental value the time
needed to relet the Premises and the amount of concessions that would normally
be given to a new tenant), both discounted to present worth at the rate of five
percent (5%) per annum, less the aggregate amount of Deficiencies theretofore
collected by Landlord pursuant to the provisions of Section 16.C for the same
period.
E. OTHER REMEDIES. Landlord may, but shall not be obligated to, perform any
obligation of Tenant under this Lease with respect to which a Default has
occurred and is continuing.In addition, if Tenant has failed to perform any of
its obligations hereunder and such failure to perform involves a hazardous
condition, then Landlord may, but shall not be obligated to, perform such
obligation immediately and without notice to Tenant. If Landlord elects to
perform any obligation of Tenant under this Lease pursuant to either of the two
(2) preceding sentences, all actual and reasonable costs and expenses paid by
Landlord in performing such obligation, together with interest at the Default
Rate, shall be reimbursed by Tenant to Landlord within ten (10) business days
after demand. Any and all remedies set forth in this Lease: (i) shall be in
addition to any and all other remedies Landlord may have at law or in equity,
(ii) shall be cumulative, and (iii) may be pursued successively or concurrently
as Landlord may elect. The exercise of any remedy by Landlord shall not be
deemed an election of remedies or preclude Landlord from exercising any other
remedies in the future. Notwithstanding the foregoing, in no event shall Tenant
be liable for punitive or consequential damages except as otherwise provided in
Section 17.
F. BANKRUPTCY. If Tenant becomes bankrupt, the bankruptcy trustee shall not
have the right to assume or assign this Lease unless the trustee complies with
all requirements of the United
<PAGE>
States Bankruptcy Code; and Landlord expressly reserves all of its rights,
claims, and remedies thereunder.
G. WAIVER OF TRIAL BY JURY. Landlord and Tenant waive trial by jury in the
event of any action, proceeding or counterclaim brought by either Landlord or
Tenant against the other in connection with this Lease.
17. HOLDING OVER. If Tenant retains possession of the Premises after the
expiration or earlier termination of the Term or Tenant's right to possession of
the Premises, Tenant shall pay Rent during such holding over at the greater of
(i) one hundred fifty percent (150%) of the fair market rental value of the
Premises or (ii) double the rate in effect immediately preceding such holding
over computed on a monthly basis for each month or partial month that Tenant
remains in possession. In the event Tenant shall holdover for more than sixty
(60) days, Tenant shall also pay, indemnify and defend Landlord from and against
all claims and damages, consequential as well as direct, sustained by reason of
Tenant's holding over. The provisions of this Section do not waive Landlord's
right of re-entry or right to regain possession by actions at law or in equity
or any other rights hereunder, and any receipt of payment by Landlord shall not
be deemed a consent by Landlord to Tenant's remaining in possession or be
construed as creating or renewing any lease or right of tenancy between Landlord
and Tenant.
18. ESTOPPEL CERTIFICATES. Tenant agrees that, from time to time upon not
less than ten (10) business days' prior request by Landlord, Tenant shall
execute and deliver to Landlord a written certificate certifying: (i) that this
Lease is unmodified and in full force and effect (or if there have been
modifications, a description of such modifications and that this Lease as
modified is in full force and effect); (ii) the dates to which Rent has been
paid; (iii) that Tenant is in possession of the Premises, if that is the case;
(iv) that Landlord is not in default under this Lease, or, if Tenant believes
Landlord is in default, the nature thereof in detail; (v) that Tenant has no
off-sets or defenses to the performance of its obligations under this Lease (or
if Tenant believes there are any off-sets or defenses, a full and complete
explanation thereof); and (vi) such additional matters as may be reasonably
requested by Landlord, it being agreed that such certificate may be relied upon
by any prospective purchaser, mortgagee or other person having or acquiring an
interest in the Building. Landlord agrees that, from time to time upon not less
than ten (10) days' prior request by Tenant, Landlord shall execute and deliver
to Tenant a written certificate certifying with respect to any matters relating
to this Lease as Tenant may reasonably request.
19. NON-DISTURBANCE AND SUBORDINATION. This Lease is and shall be expressly
subject and subordinate at all times to (a) any present or future ground,
underlying or operating lease of the Building, and all amendments, renewals and
modifications to any such lease, and (b) the lien of any present or future
mortgage or deed of trust encumbering fee title to the Building
<PAGE>
and/or the leasehold estate under any such lease, provided and on condition that
Landlord obtains and delivers to Tenant a so-called nondisturbance agreement
from the lessor or holder under any such lease, mortgage or deed of trust, by
which such lessor or holder agrees in substance not to disturb Tenant's
possession under this Lease so long as Tenant is not in Default hereunder and
agrees in substance to be bound to Tenant under all of the terms, covenants and
conditions of this Lease (including, without limitation, all of Tenant's rights
and remedies under this Lease) so long as Tenant is not in Default hereunder. If
any such mortgage or deed of trust be foreclosed, or if any such lease be
terminated, upon request of the mortgagee, beneficiary or lessor, as the case
may be, Tenant will attorn to the purchaser at the foreclosure sale or to the
lessor under such lease, as the case may be. The foregoing provisions are
declared to be self-operative and no further instruments shall be required to
effect such subordination and/or attornment; provided, however, that Tenant
agrees upon request by any such mortgagee, beneficiary, lessor or purchaser at
foreclosure, as the case may be, to execute such subordination and attornment
instruments as may be required by such person to confirm such non-disturbance,
subordination and attornment on a form reasonably satisfactory to such party and
Tenant, which form reflects, in substance, the provisions of this Section 19.
Notwithstanding the foregoing to the contrary, any such mortgagee, beneficiary
or lessor may elect to give the rights and interests of Tenant under this Lease
(excluding rights in and to insurance proceeds and condemnation awards) priority
over the lien of its mortgage or deed of trust or the estate of its lease, as
the case may be. In the event of such election and upon the mortgagee,
beneficiary or lessor notifying Tenant of such election, the rights and
interests of Tenant shall be deemed superior to and to have priority over the
lien of said mortgage or deed of trust or the estate of such lease, as the case
may be, whether this Lease is dated prior to or subsequent to the date of such
mortgage, deed of trust or lease. In such event, Tenant shall execute and
deliver whatever instruments may be required by such mortgagee, beneficiary or
lessor to confirm such superiority on the form customarily used by such party.
20. QUIET ENJOYMENT. As long as no Default exists, Tenant shall peacefully
and quietly have and enjoy the Premises for the Term, free from interference by
Landlord, subject, however, to the provisions of this Lease.
21. BROKER. Tenant represents to Landlord that Tenant has dealt only with
the brokers set forth in Item 8 of the Schedule (the "Brokers") in connection
with this Lease and that, insofar as Tenant knows, no other broker negotiated
this Lease or is entitled to any commission in connection herewith. Landlord
represents to Tenant that Landlord has dealt only with the Brokers in connection
with this Lease and that, insofar as Landlord knows, no other broker negotiated
this Lease or is entitled to any commission in connection therewith. Tenant
agrees to indemnify, defend and hold Landlord, its property manager and their
respective employees harmless from and against
<PAGE>
any claims for a fee or commission made by any broker, other than the Brokers,
claiming to have acted by or on behalf of Tenant in connection with this Lease.
Landlord agrees to indemnify, defend and hold Tenant harmless from and against
any claims for a fee or commission made by any broker, other than the Brokers,
claiming to have acted by or on behalf of Landlord in connection with this
Lease. Landlord agrees to pay Whittier Partners a commission in accordance with
a separate agreement between Landlord and Whittier Partners.
22. NOTICES. All notices and demands to be given by one (1) party to the
other party under this Lease shall be given in writing, mailed or delivered to
Landlord or Tenant, as the case may be, at the address of each party set forth
below or at such other address as either party may hereafter designate. Notices
shall be delivered by hand or by United States certified or registered mail,
postage prepaid, return receipt requested, or by a nationally recognized
overnight air courier service. Notices shall be considered to have been given
upon the earlier to occur of actual receipt or two (2) business days after
posting in the United States mail.
If intended for Landlord addressed to:
Cross Point Limited Partnership
900 Chelmsford Street
Lowell, Massachusetts 01851
with a copy in like manner to:
Geometry Group, Inc.
666 Fifth Avenue, 24th Floor
New York, New York 10103
Attention: Jonathan N. Maslin, Vice President
If intended for Tenant address to:
Delphi Internet Services Corporation
900 Chelmsford Street
Lowell, Massachusetts 01851
with a copy in like manner to:
News America Publishing Incorporated
1211 Avenue of the Americas
New York, New York 10036
Attention: Arthur M. Siskin
and
Squadron, Ellenoff, Pleasant, Sheinfield & Sorkin
551 Fifth Avenue
New York, New York 10017
Attention: Mitchell R. Lubart, Esq.
23. MISCELLANEOUS.
<PAGE>
A. SUCCESSORS AND ASSIGNS. Subject to Section 14 of this Lease, each
provision of this Lease shall extend to, bind and inure to the benefit of
Landlord and Tenant and their respective legal representatives, successors and
assigns; and all references herein to Landlord and Tenant shall be deemed to
include all such parties.
B. ENTIRE AGREEMENT. This Lease, and the riders and exhibits, if any,
attached hereto which are hereby made a part of this Lease, represent the
complete agreement between Landlord and Tenant; and Landlord has made no
representations or warranties except as expressly set forth in this Lease. No
modification or amendment of or waiver under this Lease shall be binding upon
Landlord or Tenant unless in writing signed by Landlord and Tenant.
C. TIME OF ESSENCE. Time is of the essence of this Lease and each and all
of its provisions.
D. EXECUTION AND DELIVERY. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of space or an option for
lease, and it is not effective until execution and delivery by both Landlord and
Tenant.
E. SEVERABILITY. The invalidity or unenforceability of any provision of
this Lease shall not affect or impair any other provisions of this Lease.
F. GOVERNING LAW. This Lease shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
G. ATTORNEYS' FEES. In the event either party commences a legal proceeding
to enforce any of the terms of this Lease, the prevailing party in such action
shall have the right to recover reasonable attorneys' fees and costs from the
other party, to be fixed by the court in the same action. The term "legal
proceedings" shall include appeals from a lower court judgment as well as
proceedings in the Federal Bankruptcy Court, whether or not they are adversary
proceedings or contested matters. The "prevailing party" shall mean the party
that prevails in obtaining a remedy or relief which more nearly reflects the
remedy or relief which the party sought.
H. JOINT AND SEVERAL LIABILITY. If Tenant is comprised of more than one (1)
party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.
I. FORCE MAJEURE. Landlord shall not be in default hereunder and Tenant
shall not be excused from performing any of its obligations hereunder if
Landlord is prevented from performing any of its obligations hereunder due to
any accident, breakage, strike, shortage of materials caused by war or other
<PAGE>
national emergency or due to, acts of God, or other causes beyond Landlord's
reasonable control.
J. CAPTIONS. The headings and titles in this Lease are for convenience only
and shall have no effect upon the construction or interpretation of this Lease.
K. NO WAIVER. No receipt of money by Landlord from Tenant after termination
of this Lease or after the service of any notice or after the commencing of any
suit or after final judgment for possession of the Premises shall renew,
reinstate, continue or extend the Term or affect any such notice or suit. No
waiver of any default of Landlord or Tenant shall be implied from any omission
by the other party to take any action on account of such default if such default
persists or be repeated, and no express waiver shall affect any default other
than the default specified in the express waiver and then only for the time and
to the extent therein stated.
L. NO RECORDING. Tenant shall not record this Lease. Landlord and Tenant
shall, upon request of the other party, execute and deliver a notice of this
Lease in such recordable form as may be permitted by applicable law.
M. DEFINITION OF LANDLORD; LANDLORD'S LIABILITY. The word "Landlord" is
used herein to include the Landlord named above as well as its successors and
assigns, each of whom shall have the same rights, remedies, powers, authorities
and privileges as it would have had it originally signed this Lease as Landlord.
Any such person, whether or not named herein, shall have no liability hereunder
after it ceases to hold title to the Premises except for obligations which may
have theretofore accrued. Neither Landlord nor any principal, employee or
partner of Landlord nor any owner of the Property, whether disclosed or
undisclosed, shall have any personal liability with respect to any of the
provisions of this Lease or the Premises, and neither Landlord nor any
principal, employee or partner of Landlord shall have any personal liability to
Tenant for any liability of or claim against Landlord under this Lease beyond
the equity of the Landlord in the Property.
24. PARKING. Tenant shall have the right throughout the Term to use at no
cost to Tenant its allocable share of vehicular parking spaces in the parking
lot located on the Land (collectively, the "Parking Lot") during the Lease Term,
subject to such reasonable terms, conditions and regulations as are from time to
time applicable to patrons of the Parking Lot. Tenant's allocable share of such
parking spaces shall be 4.2 parking spaces per 1,000 square feet of rentable
floor area in the initial Premises (as described in Item 6 of the Schedule), 4.2
parking spaces per 1,000 square feet of rentable floor area in any "contiguous
floors" added to the Premises pursuant to Section 28 below and 3.5 parking
spaces per 1,000 square feet of rentable floor area in any Available Space added
to the Premises pursuant to Section 27 below. Such parking spaces (herein
referred to collectively as the "Parking Spaces") shall be
<PAGE>
available for Tenant's use on an unassigned, non-reserved basis. Landlord may,
pursuant to Section 6 hereof, establish reasonable rules and regulations
regarding Tenant's use of the Parking Spaces. At Tenant's request, Landlord
shall implement a shuttle bus service for the transport of employees of Tenant
from the Parking Lot to the Building during the period from dusk to dawn on
Mondays through and including Fridays, holidays excepted (the "Second Shift").
At least one (1) Building security guard shall be on such shuttle bus during the
Second Shift, but such guard may also be the operator of the shuttle bus. Tenant
agrees that such shuttle bus may also be used by employees of other Building
tenants provided that such use does not materially interfere with the use of the
shuttle bus by Tenant's employees. In addition to the foregoing, during the
hours from 3:00 p.m. to 7:00 a.m. only, Tenant's employees shall be permitted to
use the parking spaces in that portion of the Parking Lot which is designated by
Landlord as the "Visitor Parking Area" (the spaces within the Visitor Parking
Area being herein referred to as "Visitor Parking Spaces"). Landlord reserves
the right to relocate the Visitor Parking Area from time to time provided that
it is relocated to a portion of the Parking Lot reasonably comparable to the
existing location of the Visitor Parking Area in terms of distance from the
Building, size of the area and available lighting for the area. Landlord shall
maintain not less than 150 Visitor Parking Spaces throughout the Term. Use of
the Visitor Parking Spaces by Tenant's employees shall be on an unassigned,
non-reserved basis. At Tenant's election, Landlord shall designate within the
Parking Lot an area wherein parking shall be restricted to use during the Second
Shift only by Tenant's Second Shift employees and by Second Shift employees of
other Building tenants. Such area shall have not less than 150 parking spaces
therein. The location of such area and the terms and conditions governing its
use shall be determined by mutual agreement by Landlord and Tenant. Landlord and
Tenant agree to act reasonably and in good faith in reaching such mutual
agreement. Upon mutual agreement as to the location of such restricted parking
area and such area being first made available to Tenant as required herein,
unless requested otherwise by Tenant at that time, Landlord shall no longer be
obligated to provide the above-described shuttle bus service commencing with the
first day as of which such restricted parking area during Second Shift Hours is
made available to Tenant. Landlord agrees that Tenant may park one (1) van in a
designated parking space within the Parking Lot in close proximity to the
Building.
25. COOPERATIVE INTERRUPTIBLE SERVICE AGREEMENT. Landlord has entered into
that certain Cooperative Interruptible Service Agreement dated March 21, 1994
with Massachusetts Electric Company. If Landlord shall be required to pay a
penalty or extra fee under such Agreement because of Landlord's election not to
allow interruption of electrical service to the Building after request thereof
by Massachusetts Electric Company, Tenant shall reimburse Landlord for Tenant's
Proportionate Share of the amount of such penalty or extra fee. Such
reimbursement shall be made by Tenant to Landlord within thirty (30) days of
receipt by Tenant of a statement setting forth the total amount of
<PAGE>
the penalty or extra fee and Tenant's Proportionate Share thereof. Landlord
agrees not to elect to allow interruption of electrical service to the Building
after a request thereof by Massachusetts Electric Company pursuant to the
Cooperative Interruptible Service Agreement without the prior consent of Tenant.
26. OPTIONS TO EXTEND.
A. TENANT'S FIRST EXTENSION OPTION. On the condition that Tenant is not in
Default of its covenants and obligations under this Lease t the time of option
exercise, Tenant shall have the right ("Tenant's First Extension Option") to
extend the Term for an additional term of five (5) years (herein referred to as
the "First Additional Term"), said First Additional Term to commence immediately
after the expiration of the initial Term. If Tenant desires to extend the Term
as aforesaid, it shall give notice thereof (the "First Extension Notice") to
Landlord no later than nine (9) months prior to the end of the initial Term. If
Tenant fails to give notice of exercise of Tenant's First Extension Option by
such date, Landlord shall give notice to Tenant that Tenant has failed to give
such notice, and Tenant's time to give notice of such exercise shall continue
for thirty (30) days following Tenant's receipt of such notice from Landlord;
but if Tenant does not thereafter timely exercise Tenant's First Extension
Option, then, notwithstanding anything herein to the contrary, the initial Term
shall expire on the later of (i) the Expiration Date as defined in Item 8 of the
Schedule or (ii) the date which is the earlier of (y) six (6) months after the
end of such thirty (30) day reminder period or (z) six (6) months after Tenant
shall have delivered to Landlord a notice waiving Tenant's right to extend the
Term for the First Additional Term. If Tenant fails timely to give notice of its
exercise of Tenant's First Extension Option, then Tenant shall have no right to
so extend the Term (time being of the essence with respect to exercise of
Tenant's First Extension Option). Upon Tenant's timely giving of notice of its
exercise of Tenant's First Extension Option, the Lease Term shall be deemed
extended upon all of the same terms and conditions of this Lease, except that
the Rent during said First Additional Term shall be at the rate of 100% of the
then current fair market annual rent for five (5) year leases of comparable
premises (in shell condition) in comparable buildings in the general vicinity of
the Building (with respect to age, quality and location and such calculation of
fair market annual rent shall take into consideration the fact that Landlord
shall have no obligations with respect to tenant improvements and that there
shall be no free rent periods and that there will be no "down time" after the
end of the Term to relet the Premises and that Landlord will have reduced
obligations with respect to brokerage commissions) as determined in accordance
with the following paragraph (the "First Additional Term Annual Base Rent") and
except that the Base Expense Year shall be changed to calendar year 2010 and the
Base Fee Land Tax Year and the Base Easement Land Tax Year shall be changed to
Fiscal Year 2010. The First Additional Term Annual Base Rent shall be payable in
equal monthly installments in advance on or before the first day of each
calendar month during
<PAGE>
the First Additional Term. Notwithstanding the fact that Tenant's exercise of
the herein option to extend the Term shall be self-executing, as aforesaid, upon
the request of either party, the other party shall promptly execute a lease
amendment reflecting said First Additional Term and the First Additional Term
Annual Base Rent thereof after Tenant exercises the herein option. Upon the
commencement of the First Additional Term, the word "Term" wherever it appears
in this Lease shall include the First Additional Term.
Landlord shall notify Tenant of its good faith determination of the First
Additional Term Annual Base Rent within thirty (30) days of receipt of the First
Extension Notice (the "First Additional Term Rental Notice"). Tenant may rescind
its exercise of Tenant's First Extension Option by written notice to Landlord no
later than ten (10) days after receipt of the First Additional Term Rental
Notice. If Tenant so rescinds its exercise of Tenant's First Extension option
then the Term shall expire at the end of the initial Term with no further right
to extend the Term of this Lease. If Tenant does not so rescind its exercise of
Tenant's First Extension Option but does not accept Landlord's determination of
First Additional Term Annual Base Rent and if Landlord and Tenant cannot agree
on the First Additional Term Annual Base Rent within thirty (30) days after
Tenant's receipt of the First Additional Term Rental Notice, then Landlord and
Tenant shall, not later than sixty (60) days after Landlord receives Tenant's
First Extension Notice, each retain a real estate professional with at least ten
(10) years' continuous experience in the business of appraising or marketing
commercial real estate in the Route 495 North/Route 3 market area who shall,
within thirty (30) days of his or her selection, prepare a written report
summarizing his or her conclusion as to the First Additional Term Annual Base
Rent. Landlord and Tenant shall simultaneously exchange such reports; PROVIDED,
HOWEVER, that if one (1) party has not obtained such a report within ninety (90)
days after Landlord receives Tenant's First Extension Notice, then the
determination set forth in the other party's report shall be final and binding
upon the parties. If both parties receive reports within such time and the
lesser of the two (2) determinations is within ten (10%) percent of the higher
determination, then the average of these determinations shall be deemed to be
the First Additional Term Annual Base Rent. If these determinations differ by
more than ten (10%) percent, then Landlord and Tenant shall mutually select a
person with the qualifications stated above (the "Final Professional") to
resolve the dispute as to the First Additional Term Annual Base Rent. If
Landlord and Tenant cannot agree upon the designation of the Final Professional
within thirty (30) days of the exchange of the first valuation reports, either
party may apply to the American Arbitration Association, the Greater Boston Real
Estate Board, or any successor thereto for the designation of a Final
Professional. Within ten (10) days of the selection of the Final Professional,
Landlord and Tenant shall each submit to the Final Professional a copy of their
respective real estate professional's determination of the First Additional Term
Annual Base Rent. The Final Professional shall not perform his or her
<PAGE>
own valuation but rather shall, within thirty (30) days after such submissions,
select the submission which is closest to the determination of the First
Additional Term Annual Base Rent which the Final Professional would have made
acting alone. The Final Professional shall give notice of his or her selection
to Landlord and Tenant and such decision shall be final and binding upon
Landlord and Tenant. Each party shall pay the fees and expenses of its real
estate professional and counsel, if any, in connection with any proceeding under
this paragraph, and the losing party shall pay the fees and expenses of the
Final Professional.
B. TENANT'S SECOND EXTENSION OPTION. On the condition that Tenant is not in
Default of its covenants and obligations under this Lease at the time of option
exercise, and provided that Tenant has exercised Tenant's First Extension
Option, Tenant shall have the option ("Tenant's Second Extension Option") to
extend the term of the Lease for an additional term of five (5) years (herein
referred to as the "Second Additional Term"), said Second Additional Term to
commence immediately after the expiration of the First Additional Term. If
Tenant desires to extend the Term as aforesaid, it shall give notice thereof
(the "Second Extension Notice") to Landlord no later than nine (9) months prior
to the expiration of the First Additional Term. If Tenant fails to give notice
of exercise of Tenant's Second Extension Option by such date, Landlord shall
give notice to Tenant that Tenant has failed to give such notice, and Tenant's
time to give notice of such exercise shall continue for thirty (30) days
following Tenant's receipt of such notice from Landlord; but if Tenant does not
hereafter exercise Tenant's Second Extension Option, then, notwithstanding
anything herein to the contrary, the First Additional Term shall expire on the
later of (i) the last day of the First Additional Term as provided above or (ii)
the date which is the earlier of (y) six (6) months after the end of such thirty
(30) day reminder period or (z) six months after Tenant shall have delivered to
Landlord a notice waiving Tenant's right to extend the Term for the Second
Additional Term. If Tenant fails timely to give of its exercise of Tenant's
Second Extension Option notice, then Tenant shall have no further right to
extend the Lease Term (time being of the essence with respect to exercise of
Tenant's Second Extension Option). Upon Tenant's timely giving of notice of its
exercise of Tenant's Second Extension Option, the Lease Term shall be deemed
extended upon all of the same terms and conditions of this Lease, except that
the Rent during said Second Additional Term shall be at the rate of 100% of the
then current fair market annual rent for five (5) year leases of comparable
premises (in shell condition) in comparable buildings in the general vicinity of
the Building (with respect to age, quality and location and such calculation of
fair market annual rent shall take into consideration the fact that Landlord
shall have no obligations with respect to tenant improvements and there shall be
no free rent period and that there will be no "down time" after the end of the
Term to relet the Premises and that Landlord will have reduced obligations with
respect to brokerage commission) as determined in accordance with the following
paragraph (the
<PAGE>
"Second Additional Term Annual Base Rent") and accept that the Base Expense Year
shall be changed to calendar year 2015 and the Base Fee Land Tax Year and Base
Easement Land Tax Year shall be changed to Fiscal Year 2016. Notwithstanding the
fact that Tenant's exercise of the herein option to extend the Term shall be
self-executing, as aforesaid, upon the request of either party, the other party
shall promptly execute a lease amendment reflecting said Second Additional Term
and the Second Additional Term Annual Base Rent thereof after Tenant exercises
the herein option. Upon the commencement of the Second Additional Term, the word
"Term" wherever it appears in this Lease shall include the Second Additional
Term.
Landlord shall notify Tenant of its good faith determination of the Second
Additional Term Annual Base Rent within thirty (30) days of receipt of the
Second Extension Notice (the "Second Additional Term Rental Notice"). Tenant may
rescind its exercise of Tenant's Second Extension Option by written notice to
Landlord no later than ten (10) days after receipt of the Second Additional Term
Rental Notice. If Tenant so rescinds its exercise of Tenant's Second Extension
Option, then the Term shall expire at the end of the Second Additional Term with
no further right to extend the Term of this Lease. If Tenant does not so rescind
its exercise of Tenant's Second Extension Option but does not accept Landlord's
determination of Second Additional Term Annual Base Rent and if Landlord and
Tenant cannot agree on the Second Additional Term Annual Base Rent within thirty
(30) days after Tenant's receipt of the Second Additional Term Rental Notice,
then Landlord and Tenant shall, not later than sixty (60) days after Landlord
receives Tenant's Second Extension Notice, each retain a real estate
professional with at least ten (10) years' continuous experience in the business
of appraising or marketing commercial real estate in the Route 495 North/Route 3
market area who shall, within thirty (30) days of his or her selection, prepare
a written report summarizing his or her conclusion as to the Second Additional
Term Annual Base Rent. Landlord and Tenant shall simultaneously exchange such
reports; PROVIDED, HOWEVER, that if one (1) party has not obtained such a report
within ninety (90) days after Landlord receives Tenant's Second Extension
Notice, then the determination set forth in the other party's report shall be
final and binding upon the parties. If both parties receive reports within such
time and the lesser of the two (2) determinations is within ten (10%) percent of
the higher determination, then the average of these determinations shall be
deemed to be the Second Additional Term Annual Base Rent. If these
determinations differ by more than ten (10%) percent, then Landlord and Tenant
shall mutually select a person with the qualifications stated above (the "Final
Professional") to resolve the dispute as to the Second Additional Term Annual
Base Rent. If Landlord and Tenant cannot agree upon the designation of the Final
Professional within thirty (30) days of the exchange of the first valuation
reports, either party may apply to the American Arbitration Association, the
Greater Boston Real Estate Board, or any successor thereto for the designation
of a Final Professional. Within ten (10) days of the selection of the Final
Professional, Landlord and Tenant shall each submit to the
<PAGE>
Final Professional a copy of their respective real estate professional's
determination of the Second Additional Term Annual Base Rent. The Final
Professional shall not perform his or her own valuation but rather shall, within
thirty (30) days after such submissions, select the submission which is closest
to the determination of the Second Additional Term Annual Base Rent which the
Final Professional would have made acting alone. The Final Professional shall
give notice of his or her selection to Landlord and Tenant and such decision
shall be final and binding upon Landlord and Tenant. Each party shall pay the
fees and expenses of its real estate professional and counsel, if any, in
connection with any proceeding under this paragraph, and the losing party shall
pay the fees and expenses of the Final Professional.
27. RIGHT OF FIRST OFFER TO LEASE. Tenant shall have the right to add to
the Premises, upon the terms and conditions set forth in this Section 27, any
part of the space on the fourth floor of Tower 1 of the Building, any part of
the space on the seventh through and including the twelfth floor of Tower 1 of
the Building or any part of the space on the seventh through and including the
twelfth floor of Tower 2 of the Building (collectively, the "Additional Space").
Notwithstanding anything herein to the contrary, Tenant's right hereunder to add
to the Premises the ninth, tenth, eleventh and twelfth floors of Tower 2 and the
eighth, ninth, tenth, eleventh and twelfth floors of Tower 1 shall only apply
after such spaces become vacant after the initial leasing of such spaces by
Landlord to other tenants and the following provisions governing Tenant's right
of first offer with respect to such spaces shall be construed to reflect such
initial leasing limitation. Whenever during the Term Landlord determines to
lease all or any part of the Additional Space and receives substantial interest
therefor from a prospective tenant or tenants (the phrase "Available Space"
shall mean that portion of the Additional Space which is the subject of such
substantial interest), Landlord shall first offer to lease to Tenant the
Available Space; and SUCH OFFER SHALL be in writing (the "Offer Notice"). The
Offer Notice shall contain (i) a description of the Available Space that is
subject to such Offer Notice and the deemed rentable square footage of such
Available Space, (ii) the Annual Base Rent for such Available Space and any
increases thereto, (iii) the Base Expense Year and the Base Tax Year for such
Available Space, (iv) the term of the leasing of the Available Space, (v) the
anticipated commencement date of the leasing of such Available Space, (vi) the
amount of any contribution by Landlord (vii) the length of any free rent period
and (viii) such other terms upon which Landlord intends to offer such Available
Space for lease as Landlord may elect to set forth in the Offer Notice. The
Offer Notice shall constitute an offer by Landlord to Tenant to lease all of the
Available Space that is subject of the Offer Notice upon the terms set forth in
the Offer Notice and otherwise on the terms and conditions set forth in this
Lease; provided, that if the proposed terms of the leasing of such Available
space shall be greater than the then remaining term of this Lease, the amount of
any contribution by Landlord and the amount of any free rent period shall each
be
<PAGE>
appropriately reduced based on the proportion that the then remaining Term of
the Lease bears to the proposed term of the leasing of such Available Space. If
Tenant desires to lease such Available Space upon such terms, then Tenant shall
deliver a notice to Landlord (each an "Acceptance Notice") within ten (10)
business days following delivery of the Offer Notice together with a
confirmation, reasonably satisfactory to Landlord, executed by the guarantor of
this Lease which shall confirm that the guaranty shall extend to the leasing of
such Available Space. If Tenant shall fail to deliver an Acceptance Notice
within such time period, Tenant shall be deemed to have rejected Landlord's
offer, and except as otherwise provided for herein, Landlord shall have no
further obligations, and Tenant shall have no further right, with respect to the
Available Space that is the subject to the applicable Offer Notice.
Notwithstanding the foregoing, if Tenant shall fail to timely accept an offer
contained in an Offer Notice as provided above, and Landlord shall fail to enter
into a lease for the Available Space that was the subject of such Offer Notice
(x) at a net effective rent of at least 90% of the net effective rent set forth
in such Offer Notice and (y) otherwise on terms not materially more favorable to
the tenant than those contained in such Offer Notice within six (6) months
following the delivery of such Offer Notice (it being understood that Landlord
shall not have the right to enter into a lease for such Available Space that
does not satisfy the conditions in clauses (x) and (y) above unless Landlord
shall again comply with the provisions of Section 27), then Landlord shall be
obligated to comply with the provisions of this Section 27 if Landlord
subsequently intends to lease such Available Space. If Tenant shall properly
deliver an Acceptance Notice, then: (i) Tenant shall lease the applicable
Available Space on the terms set forth in the Offer Notice, except that the term
of the leasing of such Available Space shall be coterminous with the Term, and
(ii) from and after the commencement date of the leasing of the Available Space
as set forth in the Offer Notice, the applicable Available Space shall be deemed
to be part of the Premises and subject to all of the terms and conditions of
this Lease (except that the terms of the Acceptance Notice shall supersede any
conflicting or inconsistent terms of this Lease except as provided in the first
paragraph of this Section 27. If Landlord shall not deliver to Tenant vacant
possession of any Available Space as to which Tenant delivered an Acceptance
Notice on or before the date that is three (3) months following the anticipated
commencement date of the leasing of such Available Space, then Tenant shall have
the right to render null and void such Acceptance Notice by delivery of notice
thereof to Landlord. If Tenant delivers such notice, then unless vacant
possession of such Available Space has been delivered to Tenant prior to the
giving of such notice, such Acceptance Notice shall be null and void and of no
further force or effect and neither party shall have any further rights of
claims against the other by reason hereof; provided, however, if subsequent to
Tenant's Acceptance Notice being rendered null and void Landlord intends to
lease such Available Space, Landlord shall be obligated to comply with the
provisions of this Section 27. Notwithstanding any of the foregoing to the
contrary, Landlord shall have no obligation to
<PAGE>
first offer to lease to Tenant the Available Space in accordance with this
Section 27 if at the time Landlord would have sent to Tenant the Offer Notice,
Tenant is then in Default of any of its conditions or obligations under this
Lease. If Tenant is so then in Default, Landlord may proceed to lease the
Available Space to any third party without Tenant having any prior rights to
lease the Available Space.
28. EXPANSION OPTIONS.
On the condition that Tenant is not in Default at the time it sends any
notice to Landlord as provided for herein, Tenant may lease not more than two
(2) "contiguous floors" of the Building in accordance with the provisions of
this Section 28. The phrase "contiguous floors" as used herein shall mean the
entire fouRth and seventh floors in Tower 1, the entire seventh and eighth
floors in Tower 2 (provided that the eighth floor of Tower (2) shall not be
considered a contiguous floor unless it is leased together with or subsequent to
the entire seventh floor of Tower 1) and the fifth and sixth floors of Tower 3.
The determination as to which contiguous floors Tenant may lease pursuant to
this Section 28 shall be made by Landlord by written notice to Tenant not later
than thirty (30) days after receipt by Landlord of notice from Tenant exercising
its right to lease not more than two (2) contiguous floors as provided herein.
If Tenant desires to only lease one (1) contiguous floor at any one time,as
provided herein, Tenant shall retain the right, subject to the provisions
hereof, to lease one (1) more contiguous floor pursuant to the provisions of
this Section 28.
Tenant may exercise its right to lease one (1) or two (2) contiguous floors
as provided above by delivery to Landlord, no later than November 1, 1996,
written notice(s) of Tenant's election to include such one (1) or two (2)
contiguous floors in the Premises. Such notice from Tenant shall not be
effective unless and until there is delivered to Landlord a confirmation,
reasonably satisfactory to Landlord, executed by the guarantor of this Lease
which shall confirm that the guaranty shall extend to the leasing of such
contiguous floor(s). If Tenant timely exercise its option to lease such
contiguous floor(s), then (i) possession of such contiguous floor(s) shall be
delivered to Tenant in an "as is" condition (but Landlord agrees to deliver such
contiguous floor(s) in broom clean condition free of all occupants and personal
property and with all restrooms within such contiguous floor(s) in compliance
with the ADA and the accessibility standards (as defined in Section 9.A hereof)
no later than six (6) months after Landlord receives Tenant's notice of election
to include such contiguous floor(s) and (ii) Landlord and Tenant shall execute
an amendment to this Lease including such contiguous floor(s) in the Premises on
the same terms as in this Lease, except as follows:
(y) the number of rentable square feet in the Premises shall increase by
the number of rentable square feet in such contiguous floor(s) (Landlord and
Tenant agreeing that there are 25,836 rentable square feet in each of the fourth
and seventh
<PAGE>
floors of Tower 1, 31,545 rentable square feet in each of the seventh and eighth
floors of Tower 2 and 33,838 rentable square feet in each of the fifth and sixth
floors of Tower 3) and Tenant's Proportionate Share shall be adjusted
accordingly; and
(z) the Annual Base Rent payable with respect to such contiguous floor(s)
shall be at the rate set forth in Item 9 of the Schedule with respect to the
remainder of the Premises, and the Monthly Base Rent shall be adjusted
accordingly.
Tenant's rights under this Section 28 shall terminate if Tenant fails to
timely exercise its option under this Section 28, time being of the essence with
respect to Tenant's exercise thereof.
29. RIGHTS TO TERMINATE.
A. TENANT'S FIRST TERMINATION OPTION. Tenant shall have the right
("Tenant's Termination Option") to terminate this Lease as of the last day of
the sixtieth month of the Term (the "First Early Termination Date") pursuant to
the provisions of this Section 29.A, Tenant's First Termination Option shall be
exercised by Tenant by written notice (the "First Termination Notice") to
Landlord at least twelve (12) months prior to the First Early Termination Date
and by payment to Landlord of an amount equal to the sum of (i) the Rent that
would have been due and payable hereunder for the six (6) month period following
the First Early Termination Date had the Lease not been terminated pursuant to
the provisions hereof plus (ii) the unamortized portion (as of the First Early
Termination Date) of all of Landlord's costs in connection with this Lease,
including, without limitation, all brokerage commissions paid by Landlord in
connection with this Lease, all costs incurred by Landlord in connection with
the performance of its obligations set forth in Paragraph 2 of Exhibit "E" of
this Lease and Paragraphs 1 and 2 of Exhibit "F" of this Lease, and all legal
fees incurred by Landlord in connection with this Lease plus (iii) any past due
Rent and other charges payable by Tenant to Landlord hereunder as of the date of
delivery of the First Termination Notice (collectively, the "First Termination
Payment"). In determining the amount for subparagraph (ii) above, all of
Landlord's costs in connection with this Lease shall be deemed to be $433,500.00
and such amount shall be amortized on a straight-line basis, with interest, at
the annual rate of the prime rate of The First National Bank of Boston, plus two
percent (2%), over the initial Term of this Lease. The First Termination Payment
shall be paid to Landlord simultaneously with the giving of the First
Termination Notice. If Tenant fails timely to give such First Termination
Notice, then Tenant shall have no further right to terminate this Lease except
as set forth in Section 29.B below, time being of the essence with respect to
exercise of Tenant's First Termination Option. Furthermore, if Tenant fails to
pay Landlord the First Termination Payment simultaneously with the giving of the
First Termination Notice, the First Termination Notice shall not be effective
and this Lease shall continue in full force and effect. If Tenant properly
exercises Tenant's
<PAGE>
First Termination Option by giving Landlord timely notice and paying Landlord
the First Termination Payment simultaneously with the giving of the First
Termination Notice, then this Lease shall terminate on the First Early
Termination Date.
B. TENANT'S SECOND TERMINATION OPTION. Tenant shall have the right
(Tenant's Second Termination Option") to terminate this Lease as of the last day
of the one hundred twentieth month of the Term (the "Second Early Termination
Date") pursuant to the provisions of this Section 29.B. Tenant's Second
Termination Option shall be exercised by Tenant by written notice (the "Second
Termination Notice") to Landlord at least twelve (12) months prior to the Second
Early Termination Date, and by payment to Landlord of an amount equal to the sum
of (i) the Rent that would have been due and payable hereunder for the twelve
(12) month period following the Second Early Termination Date had the Lease not
been terminated pursuant to the provisions hereof plus (ii) the unamortized
portion (as of the Second Early Termination Date) of all of Landlord's costs in
connection with this Lease, including, without limitation, all brokerage
commissions paid by Landlord in connection with this Lease, all costs incurred
by Landlord in connection with the performance of its obligations set forth in
Paragraph 2 of Exhibit "E" of this Lease and Paragraphs 1 and 2 of Exhibit "F"
of this Lease, and all legal fees incurred by Landlord in connection with this
Lease plus (ii) any past due Rent and other charges payable by Tenant to
Landlord hereunder as of the date of delivery of this Second Termination Notice
(collectively the "Second Termination Payment"). In determining the amount for
subparagraph (ii) above, all of Landlord's costs in connection with this Lease
shall be deemed to be $433,500.00 and such amount shall be amortized on a
straight-line basis, with interest, at the annual rate of the prime rate of The
First National Bank of Boston, plus two percent (2%), over the initial Term of
this Lease. The Second Termination Payment shall be paid to Landlord no later
than the Second Early Termination Date. If Tenant fails timely to give such
Second Termination Notice, then Tenant shall have no further right to terminate
this Lease (time being of the essence with respect to the exercise of Tenant's
Second Termination Option). Furthermore, if Tenant fails to pay to Landlord the
Second Termination Payment no later than the Second Early Termination Date, the
Second Termination Notice shall not be effective and this Lease shall continue
in full force and effect. If Tenant properly exercises Tenant's Second
Termination Option by giving Landlord timely notice and by paying Landlord the
Second Termination Payment no later than the Second Early Termination Date, then
this Lease shall terminate on the Second Early Termination Date.
30. ACCESS TO TOWER 1 ROOF. Throughout the Term, Tenant shall have the
right to install, use, replace, repair and maintain, at its sole cost and
expense, one (1) or more transmitters, receivers and antennas or similar types
of equipment and associated electronic equipment and cables (hereinafter
collectively referred to as "Equipment") on the roof of Tower 1 of the Building.
In addition, Tenant shall have the
<PAGE>
right to install conduits, wires, cables and other necessary connections between
the Equipment and the Premises (collectively, the "Connections"). Any such
Equipment shall be installed in a location to be determined by Landlord. In that
regard, Landlord shall use reasonable good faith efforts to provide an
appropriate and satisfactory location on the roof of Tower 1 for the
installation of the Equipment. If Landlord is unable to provide such an
appropriate and satisfactory location on the roof of Tower 1 then Landlord shall
use reasonable good faith efforts to find such a location on the roof of Tower
2. Tenant shall be required to obtain any and all governmental permits and
approvals required for the installation and use of the Equipment and the
Connections. Landlord agrees to use reasonable efforts to cooperate with Tenant
in connection with Tenant obtaining such permits and approvals. Tenant's right
to install Equipment on the roof of Tower 1 of the Building is subject to any
rights previously given by Landlord to other parties and otherwise subject to
such reasonable rules and regulations as Landlord may promulgate from time to
time for the purpose of safety and frequency management. Landlord may require
Tenant to relocate the Equipment from time to time during the Term. Landlord
shall reimburse Tenant for its actual and reasonable costs in connection with
any such relocation. If Landlord fails to reimburse Tenant for all or any
portion of such actual and reasonable costs within thirty (30) days of
Landlord's receipt of a detailed itemization of such costs (including paid
invoices), then Tenant may offset such amount not paid by Landlord against
future payments of Rent until the amount of such offset equals such amount not
paid by Landlord. Tenant shall, at its sole cost and expense, maintain the
Equipment and the Connections in a safe condition and good repair throughout the
Term. Tenant shall, at its sole cost and expense, on or prior to the expiration
or earlier termination of the Term, remove from the Building all of the
Equipment and the Connections and restore any part of the Building damaged or
altered by Tenant's use thereof.
31. DIRECTORY; SIGNS. Landlord shall place Tenant's name and suite number
on the Building standard directory. In addition, Tenant shall be entitled to
such additional names on such directory as Tenant may request provided that the
total area of such directory dedicated to Tenant's names and suite number does
not exceed ten percent (10%) thereof. Except as provided in the following
paragraph and except for signs which are located wholly within the interior of
the Premises and which are not visible from the exterior of the Premises, no
signs shall be placed, erected, maintained or painted by Tenant at any place
upon the Premises or the Property, except with Landlord's prior written
approval, which approval shall not be unreasonably withheld or delayed.
Notwithstanding anything herein to the contrary, Landlord and Tenant hereby
agree with respect to signage as follows:
(a) Provided Tenant continues to actually occupy not less than 75,000
rentable square feet of floor area in the Building, Tenant may, at its sole cost
and expense, install one (1) sign
<PAGE>
identifying Tenant on the top side (South side) of Tower 1 of the Building. The
specific location, size and design of such sign shall be subject to mutual
agreement between Landlord and Tenant. Tenant shall be responsible for obtaining
all necessary governmental approvals and permits for the installation of such
sign and may not commence such installation unless and until Tenant has provided
to Landlord a copy of all such approvals or permits. Landlord shall use
reasonable efforts to assist Tenant in obtaining such approvals or permits.
Throughout the Term, Tenant shall be solely responsible for the maintenance and
repair of such sign. Prior to expiration or earlier termination of this Lease,
Tenant shall remove such sign from the Building and shall repair any damage to
the Building caused thereby.
(b) After Wang Laboratories, Inc. completely vacates the Building, Landlord
shall promptly remove from the Building any signs identifying Wang Laboratories,
Inc.
(c) On or prior to October 1, 1996, Landlord shall install a sign
identifying Tenant at the main entrance to the Building.
(d) On or prior to October 1, 1996, Landlord shall install a sign
identifying Tenant in the area of the passenger elevators at the lobby level in
Towers 1 and 2 of the Building.
(e) On or prior to October 1, 1996, Landlord shall install a logo designed
by Tenant which identifies Tenant in each elevator which serves the Premises,
which logo shall be installed in such elevators next to the numbers of the
floors of the Building of which the Premises are comprised.
(f) Tenant, at its sole cost and expense, may erect and maintain a kiosk or
similar type of product demonstration area in or near the main lobby of either
Tower 1 or Tower 2 of the Building. The specific design and location of such
kiosk shall be mutually agreed to by Landlord and Tenant. Tenant shall be solely
responsible for the maintenance and repair of such kiosk (Tenant agreeing to
maintain same in good order and condition throughout the Term). Landlord may
require Tenant to relocate such kiosk to a reasonably comparable location from
time to time during the Term, provided that Landlord reimburses Tenant for its
actual and reasonable costs in connection with any such relocation. Prior to the
expiration or earlier termination of this Lease, Tenant shall remove such kiosk
from the Building and shall repair any damage to the Building caused thereby.
Tenant acknowledges that Landlord will be renovating the main lobbies of Towers
1 and 2 during the first eighteen (18) months of the Term. Tenant agrees, in
performing any work authorized under this Section 31(f), to use reasonable
efforts to minimize any interference with Landlord's work in renovating such
lobbies. Landlord agrees, in performing any work in the main lobby of either
Tower 1 or Tower 2, to use reasonable efforts to minimize interference with such
kiosk and Tenant's use thereof.
(g) Tenant may, at its sole cost and expense, erect an electric display in
the Building providing information with
<PAGE>
regard to an internet/information super highway update. The specific location,
design and layout of such display shall be mutually agreed upon by Landlord and
Tenant. Tenant shall be solely responsible for the maintenance and repair of
such display (Tenant agreeing to maintain same in good order and condition
throughout the Term). Landlord may require Tenant to relocate such display to a
reasonably comparable location from time to time during the Term, provided that
Landlord reimburses Tenant for its actual and reasonable costs in connection
with any such relocation. Prior to the expiration or earlier termination of the
Term of this Lease, Tenant shall remove such display from the Building and shall
repair any damage to the Building caused thereby.
32. LANDLORD'S MISCELLANEOUS AGREEMENTS.
A. AUDITORIUM ROOMS. Throughout the Term, Tenant shall have the right to
use for a one-half day at a time either of the large auditorium rooms in the
Building (one of which has a 500 seat capacity and is located on the ground
floor of the Building and the other has a 200 seat capacity and is located ON
the second floor of the Building) a total of not more than eight (8) times per
calendar year at no charge to Tenant. If Tenant desires to use such auditorium
rooms more than eight (8) times in any calendar year, Landlord may charge Tenant
its standard reasonable fee for such use. Use of such auditorium rooms shall be
subject to such reasonable rules and regulations established by Landlord from
time to time.
B. HOUSE CONTRACTS. Landlord agrees to use reasonable efforts to make
available to Tenant the benefits that may be derived from certain economically
advantageous arrangements negotiated by Landlord with the providers of certain
goods and services to the Building. For example, if Landlord has negotiated an
advantageous price for the purchase of office furniture from a supplier,
Landlord shall use reasonable efforts to allow Tenant to purchase certain office
furniture in such manner so as to take advantage of the advantageous price
already negotiated for by Tenant.
C. ECONOMIC INCENTIVES. Landlord shall use reasonable efforts to facilitate
and make available to Tenant any economic incentives or benefits being provided
by any governmental agency for businesses locating or relocating to the
Building.
D. FIBER OPTIC ACCESS PROVIDERS. Landlord shall allow fiber optic access
providers other than NYNEX to provide their services to the Premises at a cost
not in excess of that charged NYNEX for the right to provide similar services.
33. LIMITED SELF HELP RIGHTS. If Landlord fails to repair or maintain the
Premises or the Building as required hereunder and such failure materially and
adversely affects Tenant's ability to operate its business at the Premises, then
Tenant may (but shall not be obligated to), upon ten (10) business days prior
notice of such failure to Landlord, make any repairs within
<PAGE>
the Premises not affecting the Building structure or Building systems, which
repairs are reasonably necessary to cure such failure, provided, however, Tenant
shall have no right to make such repairs so long as Landlord commences to cure
such failure within such ten (10) business day period and is exercising best
efforts thereafter to prosecute such cure to completion.
If Landlord fails to provide any of Landlord's Services during the hours
and in the amounts specified in Exhibit C attached hereto, then Tenant may (but
shall not be obligated to), upon ten (10) business days prior notice of such
failure to Landlord, take such reasonable actions to cause such services or
appropriate substitutes thereto to be so provided however, that no such actions
may affect the Building structure or Building systems or the exterior of the
Premises. Notwithstanding the foregoing, Tenant shall have no right to take such
reasonable actions so long as Landlord commences to cure such failure within
such ten (10) business day period and is exercising best efforts thereafter to
prosecute such cure to completion.
All sums (plus interest at the Default Rate calculated from the date Tenant
incurred such expense) expended by Tenant in connection with the exercise of its
remedies set forth in this Section 33 shall be paid by Landlord to Tenant within
ten (10) business days of demand therefor. In the event Landlord fails to make
such payments within such ten (10) business day period, Tenant shall have the
right to offset all sums expended by Tenant hereunder (plus interest at the
Default Rate calculated from the date Tenant incurred such expense) against Rent
then and thereafter owing to Landlord under this Lease. Tenant's right of setoff
contained in this Section 33 shall be in addition to, and not in limitation of,
all other rights and remedies available to Tenant in connection with such
failures to perform on the part of Landlord.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
WITNESS: LANDLORD:
CROSS POINT LIMITED PARTNERSHIP
By: ONE INDUSTRIAL AVENUE
CORP., its Operating
General Partner
___________________________ By:____________________________
Name: Luis A. Alvarado
Executive Vice President
<PAGE>
WITNESS: TENANT:
DELPHI INTERNET SERVICES
CORPORATION,
a Massachusetts corporation
___________________________ By:____________________________
Name: Name:
Title:
___________________________ By:____________________________
Name: Name:
Title:
<PAGE>
EXHIBIT "A"
FLOOR PLANS OF PREMISES
[See attached floor plans entitled "The Towers Tenant
Measurement Plan Tower 1 Floor 5", "The Towers Tenant
Measurement Plan Tower 1 Floor 6", "The Towers Tenant
Measurement Plan Tower 2 Floor 5", and "The Towers Tenant
Measurement Plan Tower 2 Floor 6", each dated May 23, 1994,
each prepared by ADD Inc.]
<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION OF FEE LAND
A certain parcel of land situate partly in Lowell and partly in Chelmsford
in the County of Middlesex, Commonwealth of Massachusetts, bounded and described
as follows:
Northwesterly by Chelmsford Street seven hundred sixty-one and 07/100 (761.07)
feet;
Northerly by the southerly line forming the junction of said Chelmsford Street
and Industrial Avenue, one hundred one and 41/100 (101.41) feet;
Northeasterly by the southwesterly line of said Industrial Avenue, eight hundred
ninety and 19/100 (890.19) feet;
Southeasterly by land now or formerly of Trustees of the New York, New Haven and
Hartford Railroad Company Debtor, twelve hundred ninety-three and 24/100
(1293.24) feet; and
Westerly eleven and 12/100 (11.12) feet;
Northwesterly three hundred twenty-four and 83/100 (324.83) feet;
Northerly eleven and 06/100 (11.06) feet;
Northwesterly one hundred eighty-six and 60/100 (186.60) feet; and
Southwesterly two hundred sixteen (216) feet, by land now or formerly of
Massachusetts Electric Company.
All of said boundaries are determined by the Land Court to be located as shown
on plan 33375-A, drawn by Dana F. Perkins & Sons Inc., Surveyors, dated July 6,
1964 and October 1965, as modified and approved by the Court, filed in the Land
Registration Office, a copy of a portion of which is filed with Certificate of
Title No. 14864.
Together with the benefit of all appurtenant rights, easements, covenants,
restrictions and reservations of record, if any, insofar as the same are now in
force and applicable.
For reference to title see Certificate of Title No. 31319 filed with Middlesex
North Registry District of the Land Court.
<PAGE>
EXHIBIT "B-1"
LEGAL DESCRIPTION OF EASEMENT LAND
(Parkwood Parcel)
Those two parcels of land with the buildings thereon situated in Lowell in
the County of Middlesex and Commonwealth of Massachusetts, bounded and described
as follows:
PARCEL "A":
Northwesterly by the Southeasterly line of Reiss Ave., three hundred
seventy-six and 20/100 (376.20) feet:
Northeasterly Twenty-five (25) feet;
Southeasterly three hundred (300) feet; and
Southeasterly again nine hundred six and 40/100 (906.40) feet by Lot
4;
Southwesterly three hundred thirteen and 51/100 (313.51) feet;
Northwesterly one hundred seventy-three and 2/100 (173.02) feet; and
Southwesterly four hundred twelve and 77/100 (412.77) feet, by land
now or formerly of New England Power Co.; and
Northeasterly by land now or formerly of Joada Realty Corp., six
hundred sixty-four and 62/100 (664.62) feet;
Easterly by the Westerly line of Reiss Ave., forty-two and 12/100
(42.12) feet; and
Northerly by the end of Reiss Ave., fifty-three and 13/100 (53.13)
feet.
All of said boundaries are determined by the Land Court to be located
as shown on subdivisions plan 10641B, which is filed with Certificate
of Title No. 17355, the same being compiled from a plan drawn by Dana
F. Perkins & Sons, Inc., Surveyors, dated April 30, 1970, and
additional data on file in the Land Registration Office, all as
approved by the Court, and said land is shown as Lot three (3) on said
plan.
Together with the benefit of all appurtenant rights, easements,
covenants, restrictions and reservations of record, if any, insofar as
the same are now in force and applicable.
<PAGE>
For reference to title see Certificate of Title No. 22535, filed with
the Middlesex North Registry District of the Land Court.
PARCEL "B":
BEGINNING at a point marking the intersection of the southeasterly
line of land of the Penn Central Company and the southwesterly line of
land taken by the Commonwealth of Massachusetts in connection with the
State Highway known as Route 495 and the Lowell Connector, as
established by 1958 and 1960 taxings; and thence running by the land
last named
South 59DEG. 05' 36" East 188.58 feet,
South 44DEG. 05' 16" East 105.37 feet,
Southerly by a curve to the right (with a radius of 91 feet) an arc
distance of 27.31 feet,
South 00DEG. 24' 41" West 338.13 feet,
Southwesterly by a curve to the right (with a radius of 91 feet) an
arc distance of 72.27 feet and
South 44DEG. 05' 16" East 50.00 feet to land designated as Lot 4 on
Land Court Registration Plan No. 30641B; thence running by the land
last named
South 45DEG. 54' 44" West 100.00 feet to land designated as Lot 3 on
said Plan No. 30641B; thence running by the land last named
South 45DEG. 54' 44" West 172.00 feet,
Southwesterly by a curve to the left (with a radius of 300 feet) an
arc distance of 204.20 feet,
North 86DEG. 05' 00" West 53.13 feet,
Northerly by a curve to the right (with a radius of 350 feet) an arc
distance of 42.12 feet and
North 89DEG. 44' 30" West 664.61 feet to the boundary line between the
City of Lowell and the Town of Chelmsford; thence running by the line
last named
North 17DEG. 55' 20" West 181.71 feet to said southeasterly line of
said land of the Penn Central Company; and thence running by the land
last named
North 56DEG. 03' 05" East 488.54 feet and
<PAGE>
Northeasterly by a curve to the left (with a radius of 2897.93 feet)
an arc distance of 460.49 feet to the point and place of beginning.
Together with the benefit of all appurtenant rights, easements,
covenants, restrictions and reservations of record, if any, insofar as
the same are now in force and applicable.
For reference to title see deeds recorded with Middlesex North
District Registry of Deeds in Book 2293, Page 293 and Book 2293, Page
296.
(Railroad Parcel)
A certain parcel of land with the buildings thereon situated partly in
Lowell and partly in Chelmsford, Middlesex County, Massachusetts, and bounded
and described as follows:
Beginning at a point located 165.08 feet on a curve to the right
having a radius of 4,750.00 feet from sta. 1285-02.50 located on
centerline of location, Lowell Secondary Branch, Boston and Main
Corporation, thence running on a curve to the left a distance of
198.85 feet to a point; thence turning and running
North 57DEG. 09'30" East 1,417.96 feet to a point; thence turning and
running
on a curve to the left having a radius of 2,831.93 feet a distance of
466.97 feet to a point; thence turning and running
South 57DEG. 53'11" East 44.54 feet to a point; thence turning and
running
South 46DEG. 56'05" West 39.74 feet to a point; thence turning and
running
South 57DEG. 53'11" East 23.45 feet to a point; thence turning and
running
on a curve to the right having a radius of 2,897.33 feet a distance of
460.49 feet to a point; thence turning and running
South 57DEG. 09'30" West 982.63 feet to a point; thence turning and
running
South 49DEG. 27'00" East 8.65 feet to a point; thence turning and
running
South 43DEG. 17'30" West 600.00 feet to the point of beginning,
<PAGE>
be all of said measurements more or less, however, otherwise bounded
and described, said parcel containing an area of 2.125 acres in the
Town of Chelmsford, and 1.452 acres in the City of Lowell, or a total
of 3.577 acres, more or less, and being shown upon plan marked:
"Plan of Land
in
LOWELL & CHELMSFORD
MASSACHUSETTS
Robert W. Meserve, et al.
Trustees of the Property of the
Boston and Maine Corporation to
Wang Laboratories, Inc.
Scale: 1" = 60' August 19, 1980
Dana F. Perkins and Assoc., Inc.
Civil Engineers and Surveyors
Reading - Lowell, Mass."
recorded with Middlesex North Registry of Deeds in Plan Book 134, Page
70.
Together with the benefit of all appurtenant rights, easements,
covenants, restrictions and reservations of record, if any, insofar as
the same are now in force and applicable.
For reference to title see deed recorded with Middlesex North Registry
of Deeds in Book 2490, Page 24.
(Reiss Avenue parcel)
A certain parcel of land with the buildings thereon situated in Lowell
in the County of Middlesex, Commonwealth of Massachusetts, bounded and
described as follows:
Northwesterly by the Southeasterly line of Reiss Ave., fifty (50)
feet;
Northeasterly eighty-seven and 75/100 (87.65) feet;
Southeasterly two hundred seven and 90/100 (207.90) feet and;
Northwesterly two hundred seventy-five and 50/100 (275.50) feet by Lot
5;
Southeasterly by curved line by several lines measuring together one
thousand one hundred eighty-nine and 93/100 (1189.93) feet;
Southeasterly again by a curved line three hundred ten and 29/100
(310.29) feet and;
<PAGE>
Southwesterly by two lines measuring together five hundred ninety and
38/100 (590.38) feet by State Highway (Route 495), no access;
Southwesterly again by land now or formerly of New England Power
Company, four hundred forty-four and 73/100 (444.73) feet and;
Northwesterly nine hundred six and 40/100 (906.40) feet;
Northwesterly again three hundred (300) feet and;
Southwesterly twenty-five (25) feet by Lot 3.
All of said boundaries are determined by the Land Court to be located
as shown on subdivision plan 30641-C, which is filed with Certificate
of Title No. 20536, the same being compiled from a plan drawn by Dana
F. Perkins & Sons, Inc., Arthur E. Fosse, Surveyor, dated November 11,
1974 and additional data on file in the Land Registration Office, all
as approved by the Court, and said land is shown as Lot six (6) on
said plan.
Together with the benefit of all appurtenant rights, easements,
covenants, restrictions and reservations of record, if any, insofar as
the same are now in force and applicable.
For reference to title see Certificate of Title No. 25059 filed with
Middlesex North Registry District of the Land Court.
<PAGE>
EXHIBIT "C"
UTILITIES AND OTHER SERVICES
I. CLEANING
A. Office Area
Daily: (Monday through Friday, inclusive, holidays excepted).
1. Empty and clean all waste receptacles and ash trays and remove waste
material from the Premises and wash receptacles as necessary.
2. Sweep and dust mop all uncarpeted areas using a dust-treated mop.
3. Vacuum all rugs and carpeted areas. At Tenant's request, vacuum cleaners
provided by Tenant shall be used for this purpose.
4. Hand dust and wipe clean with treated cloths all horizontal surfaces
including furniture, office equipment, window sills, door ledges, chair rails,
and convector tops, within reach, but excluding active work areas.
5. Wash clean all water fountains.
6. Remove and dust under all desk equipment and telephones and replace
same.
7. Hand dust all grill work within normal reach.
8. Upon completion of cleaning, all lights will be turned off and doors
locked, leaving the Premises in an orderly condition.
Weekly:
1. Dust exposed coat racks and the like.
2. Remove all finger marks from private entrance doors, light switches and
doorways.
Quarterly:
Render high dusting not reached in daily cleaning to include:
1. Dusting all pictures, frames, charts, graphs and similar wall hangings.
<PAGE>
2. Dusting all vertical surfaces, such as walls, partitions, doors and
ducts.
3. Dusting of all pipes, ducts, and high moldings.
4. Dusting of all horizontal blinds.
B. Lavatories
Daily: (Monday through Friday, inclusive, holidays excepted.)
1. Sweep and damp mop floors.
2. Clean all mirrors, powder shelves, dispensers and receptacles, bright
work, flushometers, piping and toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel dispensers, vending
sanitary dispensers; materials to be furnished by Landlord.
9. A sanitizing solution will be used in all lavatory cleaning.
Monthly:
1. Machine scrub lavatory floors.
2. Wash all partitions and tile walls in lavatories.
C. Main Lobby, Elevators, Building Exterior and Corridors
Daily: (Monday through Friday, inclusive, holidays excepted.)
1. Sweep and wash all floors.
2. Wash all rubber mats.
<PAGE>
3. Clean elevators, wash or vacuum floors, wipe down walls and doors.
4. Spot clean any metal work inside lobby.
5. Spot clean any metal work surrounding Building Entrance doors.
Monthly: All resilient tile floors in public areas to be treated equivalent
to spray buffing.
D. Window Cleaning
Windows of exterior walls will be washed three (3) times annually.
E. Common Areas
Landlord shall keep repaired and maintain all common areas of the Property
and any sidewalks, parking areas, curbs and access ways adjoining the Property
in a clean and orderly condition. Snow and ice will be removed from exterior
sidewalks, parking areas and curbs and access ways adjoining the Property, as
reasonably necessary.
II. HEATING, VENTILATING, AIR-CONDITIONING
Landlord shall furnish space heating and cooling as normal seasonal changes
may require to provide reasonably comfortable space temperature and ventilation
for occupants of the Premises under normal business operation, Monday through
Friday, inclusive, from 8:00 a.m. to 6:00 p.m. and Saturday from 8:00 a.m. to
1:00 p.m., holidays excepted (hereinafter referred to as "Normal Business
Hours").
The HVAC system will be operated during such hours so as to maintain inside
conditions as follows:
A. During the summer, not more than 76 degrees Fahrenheit (plus or minus 2
degrees) and 50% relative humidity when the outside temperature does not exceed
88 degrees Fahrenheit dry bulb and 74 degrees Fahrenheit wet bulb; and
B. During the winter, not less than 72 degrees Fahrenheit (plus or minus 2
degrees) (no humidity control) when the outside temperature is not less than 9
degrees Fahrenheit dry bulb (no wet bulb).
The air-conditioning system is based upon an occupancy of not more than one
person per 150 square feet or usable floor area, and upon a combined lighting
and standard electrical load not to exceed 7 watts per square foot of usable
floor area. If Tenant exceeds this condition or introduces into the Premises
equipment which overloads the system, and/or in any other way causes the system
not adequately to perform their proper functions, and the system is damaged
thereby, Landlord shall give
<PAGE>
notice thereof to Tenant and Tenant shall pay the reasonable cost of repairing
such damage (within ten (10) business days of receipt of invoice therefor) and
Tenant shall immediately cease the act or omission causing such damage;
provided, however, that if Landlord agrees that the system may be supplemented
to prevent the recurrence of the problem, Landlord shall give notice thereof to
Tenant, and Tenant may elect to have such supplemental work performed, at
Tenant's sole cost and expense, by notice to Landlord within 30 days of receipt
of Landlord's notice.
III. WATER
Cold water at temperatures supplied by the City of Lowell water mains for
lavatory, toilet and other approved purposes (incuding any kitchenettes shown on
Tenant's Plans, as defined in Exhibit "E", and any other kitchenettes approved
by Landlord) and hot water for lavatory purposes only from regular Building
supply at prevailing temperatures; provided, however, if Tenant requires, uses
or consumes water for any purpose (E.G., kitchen purposes, shower facilities,
etc.) other than lavatory and toilet purposes, Landlord may, at Tenant's sole
cost and expense, install a meter or meters to measure the water so supplied, in
which case Tenant shall, upon Landlord's request, reimburse Landlord for the
cost of the water (including heating and cooling thereof) consumed in such areas
and the sewer use charges resulting therefrom to the extent that such cost and
charges exceed the cost of water consumed and sewer use charges for normal
office usage.
IV. ELEVATORS
Landlord shall provide freight and passenger elevator service; provided,
however, that (i) Landlord shall, from time to time, have the right to remove
elevators from service as may be required for servicing or maintaining the
elevators or the Building or removing freight (but Landlord agrees that there
shall be at least one (1) passenger elevator and at least one (1) freight
elevator servicing each of Tower 1 and Tower 2 at all times), (ii) the freight
elevators shall be available on a first come, first serve basis, and (iii)
Landlord may charge an additional charge for use of the freight elevators during
non-Normal Business Hours if Landlord is required by Governmental Requirement or
union obligations to have an operator operate such elevators during such hours.
V. ELECTRICAL SERVICE
Landlord shall furnish electric energy in accordance with base Building
electrical capacity limits and load limits of 10 watts per square foot,
exclusive of HVAC.
VI. BUILDING SECURITY
Landlord shall provide a security system for all portions of the Building
excluding the Premises. Landlord shall provide at least two (2) security guards
in the Building during Normal
<PAGE>
Business Hours and at least one (1) roving security guard during all other
hours. Tenant shall have access to the Premises only through an entrance or
entrances designated by Landlord from time to time on a 24 hours per day, 7 days
per week basis. Access to the Premises during the hours from 6:00 p.m. to 8:00
a.m. on Mondays through and including Fridays, and during all hours on legal
holidays and on Saturdays and Sundays shall be through the use of an electronic
card pass key system (or such similar type of system that Landlord may implement
from time to time). Landlord shall provide to Tenant, at no cost to Tenant, 450
access security cards. At Tenant's request, Landlord shall provide to Tenant any
amount of access security cards in excess of 450 cards, provided that Tenant
shall pay to Landlord $5.00 per card for each card in excess of 450 cards
provided to Tenant. Tenant shall be solely responsible for all security within
the Premises.
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. Tenant shall not make any room-to-room canvas to solicit business from
other tenants in the Building and shall not exhibit, sell or offer to sell, use,
rent or exchange any item or services in or from the Premises unless ordinarily
included within Tenant's use of the Premises as specified in the Lease.
2. Tenant shall not make any use of the Premises which may be dangerous to
person or property or which shall increase the cost of insurance or require
additional insurance coverage.
3. Tenant shall not paint, display, inscribe or affix any sign, picture,
advertisement, notice, lettering or direction or install any lights on any part
of the outside or inside of the Building, other than the Premises, and then not
on any part of the inside of the Premises which can be seen from outside the
Premises, except as approved by Landlord in writing.
4. Tenant shall not use the name of the Building in advertising or other
publicity, except as the address of its business, and shall not use pictures of
the Building in advertising or publicity.
5. Tenant shall not obstruct or place objects on or in sidewalks,
entrances, passages, courts, corridors, vestibules, halls, elevators and
stairways in and about the Building. Tenant shall not place objects against
glass partitions or doors or windows or adjacent to any open common space which
would be unsightly from the Building corridors or from the exterior of the
Building.
6. Bicycles shall not be permitted in the Building other than in a location
designated by Landlord.
7. Tenant shall not allow any animals, other than seeing eye dogs, in the
Premises or the Building.
8. Tenant shall not disturb other tenants or make excessive noises, cause
disturbances, create excessive vibrations, odors or noxious fumes or use or
operate any electrical or electronic devices or other devices that emit
excessive sound waves or are dangerous to other tenants of the Building or that
would interfere with the operation of any devise or equipment or radio or
television broadcasting or reception from or within the Building or elsewhere,
and shall not place or install any projections, antennae, aerials or similar
devices outside of the Building or the Premises.
9. Tenant shall not waste electricity or water and shall cooperate fully
with Landlord to assure the most effective operation of the Building's heating
and air conditioning systems,
<PAGE>
and shall refrain from attempting to adjust any controls except for the
thermostats within the Premises. Tenant shall keep all doors to the Premises
closed.
10. Unless Tenant installs new doors to the Premises, Landlord shall
furnish two (2) sets of keys for all doors to the Premises at the commencement
of the Term. Tenant shall furnish Landlord with duplicate keys for any new or
additional locks on doors installed by Tenant. When the Lease is terminated,
Tenant shall deliver all keys to Landlord and will provide to Landlord the means
of opening any safes, cabinets or vaults left in the Premises.
11. Tenant shall not install any signal, communication, alarm or other
utility or service system or equipment without the prior written consent of
Landlord.
12. Tenant shall not use any draperies or other window coverings instead of
or in addition to the Building standard window coverings designated and approved
by Landlord for exclusive use throughout the Building.
13. Landlord may require that all persons who enter or leave the Building
identify themselves to watchmen, by registration or otherwise. Landlord,
however, shall have no responsibility or liability for any theft, robbery or
other crime in the Building. Tenant shall assume full responsibility for
protecting the Premises, including keeping all doors to the Premises locked
after the close of business.
14. Tenant shall not overload floors; and Tenant shall obtain Landlord's
prior written approval as to size, maximum weight, routing and location of
business machines, safes, and heavy objects. Tenant shall not install or operate
machinery or any mechanical devices of a nature not directly related to Tenant's
ordinary use of the Premises.
15. In no event shall Tenant bring into the Building inflammables such as
gasoline, kerosene, naphtha and benzene, or explosives or firearms or any other
articles of an intrinsically dangerous nature.
16. Furniture, equipment and other large articles may be brought unto the
Building only at the time and in the manner designated by Landlord. Tenant shall
furnish Landlord with a list of furniture, equipment and other large articles
which are to be removed from the Building, and Landlord may require permits
before allowing anything to be moved in or out of the Building. Movements of
Tenant's property into or out of the Building and within the Building are
entirely at the risk and responsibility of Tenant.
17. No person or contractor, unless approved in advance by Landlord, shall
be employed to do janitorial work, interior window washing, cleaning, decorating
or similar services in the Premises.
<PAGE>
18. Tenant shall not use the Premises for lodging, cooking (except for
microwave reheating and coffee makers) or manufacturing or selling any alcoholic
beverages or for any illegal purposes.
19. Tenant shall cooperate and participate in all reasonable security
programs affecting the Building.
20. Tenant shall not loiter, eat, drink, sit or lie in the lobby or other
public areas in the Building. Tenant shall not go onto the roof of the Building
or any other non-public areas of the Building (except the Premises), and
Landlord reserves all rights to control the public and non-public areas of the
Building. In no event shall Tenant have access to any electrical, telephone,
plumbing or other mechanical closets without Landlord's prior written consent.
21. Tenant shall not use the freight or passenger elevators, loading docks
or receiving areas of the Building except in accordance with regulations for
their use established by Landlord.
22. Tenant shall not dispose of any foreign substances in the toilets,
urinals, sinks or other washroom facilities, nor shall Tenant permit such items
to be used other than for their intended purposes; and Tenant shall be liable
for all damage as a result of a violation of this rule.
23. If Tenant designates non-smoking areas in the Premises, Tenant shall
also designate sufficient smoking areas in the Premises for its employees, and
in no event shall Tenant allow its employees to use the public areas of the
Building as smoking areas.
<PAGE>
EXHIBIT "E"
TENANT IMPROVEMENT WORK AGREEMENT
This Agreement is made and entered into as of the 28th day of April, 1995
by and between CROSS POINT LIMITED PARTNERSHIP, a Massachusetts limited
partnership (hereinafter called "Landlord"), and DELPHI INTERNET SERVICES
CORPORATION, a Massachusetts corporation (hereinafter called "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant have entered into a Lease, dated as of the
date hereof (hereinafter called the "Lease"), for the entire fifth and sixth
floors of Tower 1 and the entire fifth and sixth floors of Tower 2 of the
building (the "Building") located at 900 Chelmsford Street, Lowell,
Massachusetts containing approximately 114,762 rentable square feet of floor
area as shown on Exhibit "A" of the Lease (hereinafter called the "Premises");
and,
WHEREAS, certain tenant improvement work is to be completed upon the
Premises; and,
WHEREAS, the purpose of this Agreement is to set forth the relative rights
and obligations of Landlord and Tenant with respect to final working drawings
and the construction and installation of certain tenant improvements upon the
Premises.
NOW, THEREFORE, for and in consideration of the agreement to lease the
Premises, pay rent, and the mutual covenants contained herein and in the Lease,
the parties agree as follows:
1. INCORPORATION OF LEASE: The Lease is hereby incorporated by
reference into this Agreement, as if set forth in full herein.
2. TENANT'S PLANS: Tenant shall provide to Landlord for its
approval final drawings, prepared by an architect that has
been approved by Landlord (which approval shall not be
unreasonably withheld), of all initial improvements that
Tenant proposes to have installed in the Premises; such
drawings shall include the partition layout, ceiling plan,
electrical outlets and switches, telephone outlets, drawings
for any modifications to the mechanical and plumbing systems
of the Building, and detailed plans and specifications for the
construction of the improvements called for in this Agreement,
in accordance with all applicable governmental laws, codes,
rules and regulations. Landlord shall approve or disapprove
such drawings within ten (10) days of their receipt by
Landlord. If Landlord disapproves such drawings, Landlord
shall specify the reasons for such disapproval in reasonable
particularity, and Tenant shall make conforming revisions
<PAGE>
thereto and resubmit such drawings to Landlord for re-review in
accordance with the same procedure set forth above, except that
Landlord must complete its review and notify Tenant of its
approval or disapproval of such revised drawings within five (5)
days of their receipt by Landlord. Landlord and Tenant shall
initial the drawings after the same have been finally approved by
Landlord. If Landlord fails to give Tenant notice as aforesaid
either approving or disapproving Tenant's initial drawings or
resubmitted drawings within the time periods specified above,
Landlord shall be deemed to have approved such initial drawings
or resubmitted drawings, as applicable. Landlord's approval of
Tenant's drawings shall not be unreasonably withheld, provided
that (a) they comply with all applicable Governmental
Requirements, (b) such drawings are sufficiently detailed to
allow construction of the improvements in a good and workmanlike
manner, and (c) the improvements depicted thereon conform to the
rules and regulations promulgated by Landlord for the
construction of tenant improvements in the Building. As used
herein, "Tenant's Plans" shall mean the final drawings approved
by Landlord, as amended from time to time by any approved changes
thereto, and "Improvements" shall mean all improvements to be
constructed in accordance with and as indicated on Tenant's
Plans. Approval by Landlord of Tenant's Plans shall not be a
representation or warranty of Landlord that Tenant's Plans are
adequate for any use, purpose, or condition, or that Tenant's
Plans comply with any applicable law or code, but shall merely be
the consent of Landlord to Tenant's Plans. All changes (except
for minor modifications) in Tenant's Plans must receive the prior
written approval of Landlord in accordance with the provisions
above with respect to the initial approval of Tenant's Plans.
Tenant shall pay the entire cost of preparation of Tenant's Plans
including any changes thereto. Landlord shall provide to Tenant
an allowance ("the Plans Allowance") for the preparation of
Tenant's Plans in the amount of $17,214.30. Landlord shall
reimburse Tenant for its cost of preparation of Tenant's Plans in
an amount not to exceed the Plans Allowance. Landlord shall so
reimburse Tenant within thirty (30) days of receipt by Landlord
of a detailed itemization of Tenant's cost of preparation of
Tenant's Plans.
3. CONSTRUCTION OF THE IMPROVEMENTS: (a) Tenant (and its agents,
contractors and employees) shall have the right to enter the
Premises prior to the Commencement Date to undertake the
construction of the Improvements. The Improvements shall be
constructed only by contractors and subcontractors approved in
writing by Landlord, which approval shall not be unreasonably
withheld or delayed. Landlord hereby approves John Moriarity as a
<PAGE>
general contractor for the construction of the Improvements. All
contractors and subcontractors shall be required to procure and
maintain insurance against such risks, in such amounts, and with
such companies as Landlord may reasonably require. Certificates
of such insurance reasonably satisfactory to Landlord must be
received by Landlord before the work is commenced. The
Improvements shall be constructed in a good and workmanlike
manner that is free of defects and is in substantial conformance
with Tenant's Plans, and shall be performed in such a manner and
at such times as to maintain harmonious labor relations and not
to interfere with or delay Landlord's other contractors, the
operation of the Building, and the occupancy thereof by other
tenants of the Building. All contractors and subcontractors of
Tenant shall contact Landlord and schedule time periods during
which they may use Building facilities in connection with their
work (E.G., elevators, excess electricity, etc.). Landlord
may inspect the Improvements at any time during the construction
thereof, provided that Landlord conduct such inspections so as to
minimize interference with such construction work. Landlord
agrees to cooperate with Tenant in its construction of the
Improvements in such manner as Tenant may reasonably request
(including, without limitation, making available the loading
docks and service elevators at such times as Tenant may
reasonably request). Landlord agrees that Tenant shall not be
charged a fee for Landlord's supervision of Tenant's construction
of the Improvements or for Tenant's use of the Building elevators
in connection therewith, but Landlord may impose a reasonable
charge for any excessive or special usage by Tenant of any
Building services or systems. Except as otherwise provided
herein, the work performed by or on behalf of Tenant pursuant to
this Agreement shall be subject to the requirements and
conditions set forth in Section 9 of the Lease.
(b) Except as otherwise provided in this Agreement or in Exhibit "F"
of the Lease, Tenant shall bear the entire cost of performing the
above-described work, including, without limitation, costs of
construction labor and materials, costs of electrical and other
utilities usage during such construction, and costs of additional
janitorial services in connection with the construction of such
work.
(c) Before Tenant shall have the right to occupy the Premises to
conduct its business therein, Tenant shall, at its sole cost and
expense, obtain and deliver to Landlord a valid certificate of
occupancy from the City of Lowell with respect to Tenant's
construction of the Improvements and Tenant's permitted use of
the Premises. Landlord shall use best efforts to assist Tenant in
obtaining such certificate of occupancy. If
<PAGE>
Tenant is unable to obtain such certificate of occupancy due
to a condition or conditions existing in the Building outside
of the Premises and, therefore, outside the control of Tenant,
Landlord shall use best efforts to rectify such condition or
conditions at no cost to Tenant.
4. OTHER TENANT IMPROVEMENTS TO PREMISES: Notwithstanding anything
in this Agreement or the Lease to the contrary, Tenant shall have
the right to, at its sole cost and expense, make make any or all
of the following alterations, improvements or additions
(collectively, the "Additional Improvements") either before or
after the Commencement Date, subject to the conditions set forth
in this Paragraph 4:
(a) Tenant shall have the right to alter the fifth and sixth floors
of Tower 1 of the Building so as to construct one (1) or more
internal staircases between such floors and within the Premises.
Such alterations shall be subject to all of the requirements and
conditions of Section 9 of the Lease. The location of such
staircases shall be mutually agreed upon by Landlord and Tenant.
Notwithstanding any other provision of the Lease or this
Agreement to the contrary, prior to the expiration or earlier
termination of the Lease, Tenant shall remove such staircases and
restore those portions of the fifth and sixth floors of Tower 1
of the Building that were altered by Tenant's construction of
such staircases to the same condition they were in prior to the
construction of such staircases. At Landlord's option, Landlord
may perform such removal and restoration work, and Tenant shall
promptly reimburse Landlord for its actual and reasonable costs
in connection with such work. Notwithstanding the foregoing
provisions of this paragraph or anything else in this Agreement
or the Lease to the contrary, if the Lease terminates on or prior
to the tenth anniversary of the Commencement Date for any reason
other than because of a Default by Tenant under the Lease or as a
result of Tenant exercising its rights to terminate the Lease
pursuant to Section 29 thereof or if the Lease expires or
terminates after the tenth anniversary of the Commencement Date
for any reason, then Tenant shall have no obligation to so remove
one (1) of such staircases and shall have no obligation to so
restore those portions of the fifth and sixth floors of Tower 1
of the Building that were altered by Tenant's construction of
such one (1) staircase, but such one (1)staircase shall be left
in place at the expiration or earlier termination of the Lease.
(b) Tenant shall have the right to remove a portion of the floor
separating the fifth and sixth floors of Tower 2 of the Building,
provided that the size of the portion
<PAGE>
of the floor so removed and the location of the portion of the
floor so removed shall be subject to Landlord's prior approval,
which approval shall not be unreasonably withheld or delayed.
Such removal work shall be subject to all of the requirements and
conditions of Section 9 of the Lease. In addition, Tenant shall
have the right to alter the fifth and sixth floors of Tower 2 of
the Building so as to construct ONE (1) internal staircase
between such floors and within the Premises. Such alterations
shall be subject to all of the requirements and conditions of
Section 9 of this Lease, The location of such staircase shall be
mutually agreed upon by Landlord and Tenant. Notwithstanding any
other provision of the Lease or this Agreement to the contrary,
prior to the expiration or earlier termination of the Lease,
Tenant shall restore those portions of the fifth and sixth floors
of Tower 2 of the Building that were altered by Tenant's removal
of such floor and by Tenant's construction of such staircase to
the same condition they were in prior to the removal of such
floor. At Landlord's option, Landlord may perform such
restoration work and Tenant shall promptly reimburse Landlord for
its actual and reasonable costs in connection with such work.
(c) If Tenant adds to the Premises additional floors in the Building
pursuant to either Section 27 or 28 hereof, Tenant shall have the
right to perform such alterations within the Premises so as to
construct one (1) internal staircase between such additional
floor(s) and any existing floor in the Premises or any other of
such additional floor(s), as appropriate. Such alterations shall
be subject to all of the requirements of Section 9 of the Lease.
The location of such staircase(s) shall be mutually agreed upon
by Landlord and Tenant. Notwithstanding any other provision of
the Lease or this Agreement to the contrary, prior to the
expiration or earlier termination of the Lease, Tenant shall
remove such staircase(s) and restore those portions of the
Premises that were altered by Tenant's construction of such
staircase(s) to the same condition they were in prior to the
construction of such staircase(s). At Landlord's option, Landlord
may perform such removal and restoration work, and Tenant shall
promptly reimburse Landlord for its actual and reasonable costs
in connection with such work.
(d) Tenant shall have the right to install a raised floor within any
portion of the Premises and/or may install within reasonable
proximity of the computer room located on the sixth floor of
Tower 2 of the Building an uninterruptible power supply and
batteries associated therewith ("UPS"). Such installation work
shall be subject to all of the requirements and conditions of
Section 9 of the Lease. Tenant shall
<PAGE>
promptly reimburse Tenant for any costs incurred by Landlord in
connection with reinforcing the floor in such computer room if
required as a result of the installation of such raised floor or
such UPS. Tenant shall have the right to connect the UPS to the
electrical system servicing the Premises and maintain such
connection throughout the Term.
(e) Tenant shall have the right to replace the existing sprinkler
system within the computer room located on the sixth floor of
Tower 2 of the Building. Such replacement work shall be subject
to all of the requirements and conditions set forth in Section 9
of the Lease.
(f) Tenant shall have the right to install two (2) electric
generators having a capacity of not more than 600 kilowatts each
in a location to be mutually agreed to by Landlord and Tenant and
may install two (2) above-ground diesel fuel storage tanks having
a capacity of not more than 500 gallons each in a location to be
mutually agreed to by Landlord and Tenant. Such installations
shall be subject to all of the requirements and conditions set
forth in Section 9 of the Lease. Tenant shall be responsible
throughout the Term for the maintenance of such electric
generator and such diesel fuel storage tank and agrees that
Landlord shall have no obligations in connection with the
installation, maintenance, repair and/or replacement of such
electric generator and/or diesel fuel storage tank.
Notwithstanding any other provision of this Agreement or the
Lease to the contrary, prior to the expiration or earlier
termination of the Lease, Tenant shall remove such electric
generator and diesel fuel storage tank from the Property and
shall repair any damage caused by such removal, or at Landlord's
option, shall leave such electric generator and/or diesel fuel
storage tank in place. Tenant shall have the right to connect the
generators to the electrical system servicing the Premises.
(g) Tenant shall have the right to install risers and conduits from
the appropriate Building utility connections to the telephone
rooms within the Premises subject to such reasonable restrictions
imposed by Landlord with respect to the location, size, etc. of
such risErs and conduits. Such Installations shall be subject to
all of the requirements and conditions set forth in Section 9 of
the Lease.
5. MISCELLANEOUS:
a. DEFINITIONS. The definitions set forth in the Lease shall
apply throughout this Agreement.
<PAGE>
b. HEADINGS. The headings contained in this Agreement are
for convenience only.
c. ELECTION OF LAW. This Agreement shall be governed by the
laws of The Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed
instrument as of the day and year first above written.
WITNESS: LANDLORD:
CROSS POINT LIMITED PARTNERSHIP
By: ONE INDUSTRIAL AVENUE CORP.,
_______________________________ its Operating General Partner
Name:
By: ____________________________
Luis A. Alvarado
Executive Vice President
TENANT:
DELPHI INTERNET SERVICES
CORPORATION,
a Massachusetts corporation
______________________________ By: ____________________________
Name: Name:
Title:
______________________________ By: ____________________________
Name: Name:
Title:
<PAGE>
EXHIBIT "F"
LANDLORD'S CONSTRUCTION OBLIGATIONS
1. On or prior to the Commencement Date, Landlord shall provide to Tenant,
at no cost to Tenant except as provided below, for use in the Premises adequate
demountable partitioning in order to construct the following: two (2) 300 usable
square foot conference rooms; two (2) 200 usable square foot conference rooms;
one (1) 600 usable square foot conference room; one (1) 800 usable square foot
conference room; and three (3) 450 usable square foot training rooms. Tenant
acknowledges that such partitioning is being provided by Landlord to Tenant on a
temporary basis only and shall be returned to Landlord in its same condition as
when provided (reasonable wear and tear only excepted) no later than November
30, 1995. If Tenant does not return all such partitioning to Landlord by such
date, Tenant shall purchase from Landlord the portion of such partitioning not
returned to Landlord by such date at price of $10.00 per linear foot of
partitioning. Any amounts owed by Tenant to Landlord pursuant to the provisions
of this paragraph shall be considered "Rent" as defined in Section 2.A(vi) of
the Lease.
2. On or prior to the Commencement Date, Landlord shall provide to Tenant,
at no cost to Tenant except as provided below, not more than one hundred (100)
"workstations." Notwithstanding any of foregoing to the contrary, Landlord shall
have no obligation to provide to Tenant any workstations unless and until Tenant
notifies Landlord how many workstations not to exceed one hundred (100) that
Tenant desires. Tenant shall pay to Landlord an amount per workstation to be
mutually agreed upon by Landlord and Tenant for each workstation in excess of
fifty (50) that Landlord provides to Tenant. Tenant shall return the
workstations to Landlord not later than November 30, 1995. The workstations
shall be returned to Landlord in their same condition as when provided to
Tenant, reasonable wear and tear only excepted. Tenant shall pay all costs of
installation and subsequent removal of the work stations; provided, however,
that Landlord shall reimburse Tenant in an amount not to exceed $10,000.00 for
costs incurred by Tenant in connection with wiring the workstations. Such
reimbursement shall be paid by Landlord within thirty (30) days of receipt of a
detailed itemization of such costs. The portion of the Premises where Tenant
shall locate the workstations is herein referred to as the "Temporary Area".
Landlord shall provide to Tenant, upon request thereof by Tenant and at no cost
to Tenant except as set forth below, demountable partitioning adequate to
separate the Temporary Area from the remainder of the Premises. Tenant
acknowledges that such partitioning is being provided by Landlord to Tenant on a
temporary basis only and shall be returned to Landlord in its same condition as
when provided (reasonable wear and tear only excepted) not later than November
30, 1995. If Tenant does not return all such partitioning to Landlord by such
date, Tenant shall purchase such partitioning not returned to Landlord by such
<PAGE>
date at the price of $10.00 per linear foot of partitioning. Any amounts owed by
Tenant to Landlord pursuant to the provisions of this paragraph shall be
considered "Rent" as defined in Section 2.A(vi) of the Lease.
3. Notwithstanding anything in Section 9 of the Lease to the contrary,
Landlord shall be responsible for any and alterations to the existing restrooms
within the Premises required to bring the same into compliance with the ADA and
the accessibility standards (as defined in Section 9.A of the Lease).
4. Landlord agrees to use best efforts to substantially complete the
following described work on or prior to the dates indicated below:
(a) Construction of a day care center to be located in the Building by
July 31, 1995;
(b) Construction of a fitness center to be located in the Building by
October 31, 1995;
(c) Renovation of the main lobbies in Towers 1 and 2 of the Building
by May 14, 1996;
(d) Demolition of the "Parkwood Building" by September 30, 1995; and
(e) Renovation of the Parking Lot (as defined in Section 24 of the
Lease) by May 31, 1996.
Notwithstanding anything to the contrary contained in the Lease, if
Landlord does not substantially complete each of the five (5) items of work
described in this paragraph 4 within eighteen (18) months of the Commencement
Date then Annual Base Rent shall be reduced to the rate of $3.00 per rentable
square foot for the period from the end of such eighteen (18) month period to
the date on which all such work is substantially completed. Each of the five (5)
items of work described in this paragraph 4 shall be deemed substantially
complete on the first day as of which either (i) Landlord has received a
certificate of occupancy from the City of Lowell with respect to completion of
such item of work or (ii) such item of work has been completed except for
so-called "punch list" items. Notwithstanding the foregoing provisions of this
paragraph, Annual Base Rent shall not be reduced as provided in the first
sentence of this paragraph if Landlord otherwise substantially completes items
(c), (d) and (e) above but is effectively prohibited from completing item (a) or
item (b) above because of any Government Requirement or because of any
restrictions imposed by any governmental authority.
<PAGE>
EXHIBIT "G"
TAX AGREEMENT WITH CITY OF LOWELL
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease (this "First Amendment") is hereby entered
into as of the 17th day of May, 1995 by and between Cross Point Limited
Partnership, a Massachusetts limited partnership having an address at 900
Chelmsford Street, Lowell, Massachusetts 01851 ("Landlord"), and Delphi Internet
Services Corporation, a Massachusetts corporation having an address at 1030
Massachusetts Avenue, Cambridge, Massachusetts 02138 ("Tenant").
WHEREAS, Landlord and Tenant entered into that certain Lease (the "Lease")
dated as of April 28, 1995, by which Landlord leased to Tenant the entire fifth
and sixth floors of Tower 1 and the entire fifth and sixth floors of Tower 2 of
the building (the "Building") known and numbered as 900 Chelmsford Street,
Lowell, Massachusetts (collectively, the "Premises").
WHEREAS, Tenant has requested and Landlord has agreed to provide certain
temporary space in the Building to be used by tenant for the purposes permitted
under the Lease.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and in the Lease, Landlord and Tenant hereby agree as follows:
1. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the entire fourth floor of Tower 3 of the Building containing approximately
33,838 rentable square feet of floor area, as shown on the floor plan attached
hereto as Exhibit A and incorporated herein (the "Additional Premises"), upon
all of the same terms and conditions set forth in the Lease except as otherwise
provided in this First Amendment, for a term commencing on June 1, 1995 (the
"Additional Premises Commencement Date") and expiring on November 30, 1995,
unless earlier terminated as provided in the Lease or this First Amendment (the
"Additional Premises Term").
2. Tenant shall pay rent for the Additional Premises at the monthly rate of
$16,919.00 (the "Additional Premises Rent"). Tenant shall have no obligation to
pay any Adjustment Rent (as defined in Section 2.B of the Lease) with respect to
the Additional Premises, but Tenant shall be obligated to pay all of Landlord's
actual charges for Tenant's electrical energy usage within the Additional
Premises during the Additional Term as provided in the second paragraph of
Section 5.A of the Lease and all of Landlord's reasonable charges for cleaning
the Additional Premises (in accordance with Paragraphs I.A and I.B of Exhibit
"C" of the Lease).
3. Tenant hereby accepts the Additional Premises in their "as-is"
condition, and Landlord shall have no obligation to perform any work therein and
shall not be obligated to reimburse Tenant or provide an allowance for any costs
related to the demolition or construction of improvements therein. Tenant
acknowledges that there is certain office furniture presently in the Additional
Premises. Tenant shall have the right
<PAGE>
to use such office furniture during the Additional Premises Term and such office
furniture shall be left in the Additional Premises at the end of the Additional
Premises Term in the same condition such office furniture is in on the
Additional Premises Commencement Date, reasonable wear and tear only excepted.
4. On and after the Additional Premises Commencement Date and throughout
the Additional Premises Term, the term "Premises" wherever it appears in the
Lease shall include the Additional Premises.
5. Notwithstanding anything herein to the contrary, Tenant may, by written
notice to Landlord, at any time during the Additional Premises Term, terminate
the Additional Premises Term and, therefore, the rights granted hereunder to
Tenant with respect to the Additional Premises, in which event this First
Amendment and the Additional Premises Term shall terminate thirty (30) days
after Landlord's receipt of such termination notice.
6. At the expiration or earlier termination of the Additional Premises
Term, Tenant shall yield up the additional Premises in accordance with Section
15 of the Lease. If Tenant retains possession of the Additional Premises after
the expiration or earlier termination of the Additional Premises term, then the
provisions of Section 17 of the Lease shall apply to such holding over.
7. In all other respects, Landlord and Tenant hereby reaffirm all, of the
covenants, agreements, terms, conditions and other provisions of the Lease
except as modified hereby, and the Lease is hereby incorporated in full herein
by reference.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment
to Lease as a sealed instrument as of the date first above written.
LANDLORD:
WITNESS: CROSS POINT LIMITED PARTNERSHIP
By: ONE INDUSTRIAL AVENUE CORP.,
its Operating General Partner
_____________________________ By:_________________________________
Name: Luis A. Alvarado,
Executive Vice President
2
<PAGE>
TENANT:
DELPHI INTERNET SERVICES
CORPORATION
________________________ By:________________________________
Name: Name:
Title:
3
<PAGE>
EXHIBIT A
FLOOR PLAN OF ADDITIONAL PREMISES
4
<PAGE>
EXHIBIT B
FLOOR PLANS OF SUBLEASED PREMISES
(See attached floor plans entitled "The Towers Tenant
Measurement Plan Tower 1 Floor 5" and "The Towers Tenant
Measurement Plan Tower 1 Floor 6", each dated May 23, 1994,
each prepared by ADD Inc.)
5
<PAGE>
EXHIBIT C
The only means of access to and egress from the TELCO/LAN Room shall
be by usage of the lobby door of the Premises located on the sixth
floor of Tower 2 of the Building, the hallway adjacent to the
stairwell on such sixth floor and the interconnecting hallway from the
point of such interconnection to and through the secure door to the
TELCO/LAN Room.
6
<PAGE>
EXHIBIT D
TRI-PARTY AGREEMENT
This Tri-Party Agreement is made and entered into as of the ____ day of
July, 1996 by and between CROSS POINT LIMITED PARTNERSHIP, a Massachusetts
limited partnership having an address of 900 Chelmsford Street, Lowell,
Massachusetts 01851 (the "Landlord"), iGUIDE, INC., a Massachusetts corporation
("Sublessor") having an address of 620 Avenue of the Americas, New York, New
York 10011 and ZIPCALL, LLC, a Connecticut limited liability company having an
address of 40 Woodland Street, Hartford, Connecticut 06105 ("Sublessee").
W I T N E S S E T H :
WHEREAS, the Landlord, as landlord, and Sublessor, under its former name of
DELPHI INTERNET SERVICES CORPORATION, as tenant, entered into a Lease dated as
of April 28, 1995, and First Amendment to Lease dated as of May 17, 1995
(collectively, the "Lease"), whereby Landlord, INTER ALIA, leased to Sublessor
the entire fifth (5th) and sixth (6th) floors of Tower 1 and the entire fifth
(5th) and sixth (6th) floors of Tower 2 (collectively, the "Premises") of the
building located at 900 Chelmsford Street, Lowell, Massachusetts (the
"Building") together with other rights and benefits as more particularly
described in the Lease, upon the terms and conditions contained. All capitalized
terms used herein shall have the same meaning ascribed to them in the Lease
unless otherwise defined herein;
WHEREAS, Sublessor and Sublessee have simultaneously herewith entered into
an Agreement of Sublease and License Agreement (the `Sublease") to which a copy
of this Tri-Party Agreement is attached as Exhibit D and made a part hereof
relating, INTER ALIA, to the sublease by the Sublessee of that portion of the
Premises consisting of the entire fifth (5th) and sixth (6th) floors of Tower 1
of the Building (collectively, the "Subleased Space") together with the use by
Sublessee of certain parking spaces at the Property as set forth in Section
31(a) of the Sublease ; and the grant of the right by Sublessor to the Sublessee
to share the use of certain equipment, facilities, and apparatus located in a
portion of the 6th floor of Tower 2 of the Building (the "Tower 2 Space");
WHEREAS, Sublessor and Sublessee wish to modify and/or supplement certain
terms of the Sublease; and
WHEREAS, the Landlord and Sublessor wish to modify and/or supplement
certain terms of the Lease.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto mutually covenant and agree as
follows:
1. LANDLORD CONSENT: Landlord hereby consents to (i) the sublease of the
Subleased Space by the Sublessor to the Sublessee in accordance with the terms
and provisions of the Sublease; (ii) the grant of the use of parking spaces at
the Property by the Sublessor to the Sublessee as set forth in Section 31(a) of
the Sublease, together with the Sublessee's use of the shuttle bus service for
the transport of Sublessee's employees from the Parking Lot to the
<PAGE>
Building as set forth in Section 31(a) of the Sublease, the use by Sublessee's
employees of the Visitor Parking Spaces as described under Section 24 of the
Lease, and the Sublessee's use of one (1) van provided by Landlord, at
Landlord's cost and expense, and located within the parking lot in close
proximity to the Building; (iii) the grant of a license by the Sublessor to the
Sublessee with respect to the use of the Tower 2 Space in accordance with the
terms and provisions of the Sublease; (iv) the grant by the Sublessor to the
Sublessee of Sublessor's rights to auditorium usage for one-half of the number
of times allotted to Sublessor in Section 32A of the Lease; and (v) the use by
the Sublessee of an electrical generator installed by the Sublessor outside the
Building as described in Section 32 of the Sublease. In addition, Landlord
consents to the Sublessee's purchase of said electrical generator from the
Sublessor provided that the Sublessee has the financial capability to maintain
the electrical generator at the time of said acquisition. Landlord hereby waives
any and all rights to (i) terminate the Lease as a result of the Sublessor and
Sublessee entering into the Sublease; and (ii) recapture the Subleased Space and
the Tower 2 Space as a result of the Sublessor and Sublessee entering into the
Sublease. The parties hereto, however, agree that:
(a) Except as otherwise provided in this Tri-Party Agreement, (i) the
Lease, Sublease and the Tri-Party Agreement shall not be deemed to
grant to Sublessee any other rights whatsoever against Landlord, and
(ii) Sublessee hereby acknowledges and agrees that its sole remedy for
any alleged or actual breach of its rights solely granted to Sublessee
by only the Sublessor under the Sublease shall be solely against
Sublessor.
(b) Sublessor shall be and remain liable and responsible for the due
keeping, performance and observance of all the covenants, agreements,
terms, provisions and conditions set forth in the Lease on the part of
Sublessor to be kept, performed and observed and for the payment of
Rent and all other sums now and/or hereafter becoming payable
thereunder.
(c) Nothing in this Tri-Party Agreement shall be construed as a consent by
Landlord to or as permitting, any other or further assignment of the
Lease or subleasing of the Premises by either Sublessor or Sublessee.
(d) Sublessor and Sublessee represent that both parties have not dealt
with any real estate agent or broker in connection with the Sublease
or this Tri-Party Agreement, and each party agrees to indemnify and
hold Landlord harmless from and against any claims, liabilities,
losses or expenses, including reasonable attorneys' fees, incurred by
Landlord in connection with any claims for a commission by any broker
or agent that may arise in connection with the Sublease or this
Tri-Party Agreement by virtue or a breach of their foregoing
representation.
(e) Sublessorand Sublessee agree that (i) a copy of this Tri-Party
Agreement is attached as Exhibit D to a fully executed copy of the
Sublease ; and (ii) Landlord is not a party to the Sublease and is not
bound by the provisions thereof except as otherwise expressly
consented and/or agreed to by the Landlord in this Tri-Party
Agreement.
(f) Sublessor and Sublessee agree that the Sublease shall not be amended
or modified in any material respect regarding the Subleased Space
without the prior written consent
2
<PAGE>
of the Landlord. Landlord agrees that Landlord shall not unreasonably
withhold or delay its consent to such amendment or modification.
(g) Except as otherwise expressly provided in this Tri-Party Agreement,
this Tri-Party Agreement shall not be construed as a consent to, or
approval or satisfaction by Landlord of any of the provisions of the
Sublease.
2. LANDLORD AND SUBLESSOR REPRESENTATIONS:
(a) The Landlord hereby represents and certifies to the Sublessee and the
Sublessor as follows:
(i) As of the date hereof, except as expressly modified and/or
supplemented by this Tri-Party Agreement, the Lease has not been
amended, modified, or assigned by or with the consent of the
Landlord and the Lease is now in full force and effect in
accordance with the terms and conditions contained in the Lease.
As of the date hereof, the Lease, as expressly modified and/or
supplemented by this Tri-Party Agreement, constitutes the entire
agreement by and between the Landlord and the Sublessor with
respect to the Property;
(ii) To the best of the Landlord's knowledge, no default or breach of
the Tenant's obligations exist under the Lease and the Tenant has
performed all of its obligations, agreements and covenants to be
performed by Sublessor under the Lease as of the date hereof. As
of the date hereof, the Landlord holds no claims against the
Sublessor nor has Landlord expended any sums on behalf of
Sublessor which are to be reimbursed by the Sublessor;
(iii) All work that has been completed and performed by Sublessor with
respect to the Subleased Space has been completed to the
satisfaction of Landlord; and
(iv) No improvements, additions, alterations and renovations to the
Subleased Space are hereafter required to be performed by the
Sublessor under the Lease with respect to the Subleased Space
except in connection with Sublessor's obligations under Section
3, Section 8, Section 9 and Section 15 of the Lease and Section
4(a) of Exhibit E of the Lease.
(b) Sublessor hereby represents and certifies to Landlord and Sublessee as
follows:
(i) As of the date hereof, except as expressly modified and/or
supplemented by this Tri-Party Agreement, the Lease has not been
amended or modified and is now in full force and effect in
accordance with the terms and conditions contained in the Lease.
The Lease, as expressly modified and/or supplemented by this
Tri-Party Agreement, constitutes the entire agreement by and
between Landlord and Sublessor with respect to the Property.
(ii) To the best of Sublessor's knowledge, no default or breach of
Landlord's obligations exists under the Lease and Landlord has
performed all of its obligations, agreements and covenants to be
performed by Landlord under the Lease.
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(iii) Sublessor holds no claims against Landlord nor has Sublessor
expended any sums on behalf of Landlord which are to be
reimbursed by Landlord.
(iv) No compensation or consideration of any kind other than as set
forth in the Sublease has been, or will be, paid by Sublessee to
Sublessor in connection with the Sublease or this Tri-Party
Agreement.
(v) Pursuant to Paragraph 4 of Exhibit "F" of the Lease, the Landlord
has agreed to use best efforts to substantially complete the work
described in subparagraphs (a), (b), (c), (d) and (e) of such
Paragraph 4 of Exhibit "F" of the Lease, on or prior to the dates
set forth in such subparagraphs. The Sublessor hereby
acknowledges and agrees that the Landlord has "substantially
completed" (as such phrase is defined in the second paragraph of
Paragraph 4 of Exhibit "F" of the Lease) the work described in
subparagraphs (a), (b), (c) and (d) of Paragraph 4 of Exhibit "F"
of the Lease.
3. EXTENSION PERIODS: During the term of the Sublease and any period
thereafter during which Sublessee has the right to possession and occupancy of
the Subleased Space (or any portion thereof) pursuant to Paragraph 6 below,
Landlord hereby grants the Sublessee the option to lease the Subleased Space (or
any portion thereof) directly from the Landlord together with all other rights
and benefits from the Landlord, including, but not limited to, the parking
spaces at the Property as set forth in Section 31(a) of the Sublease, upon all
the terms and conditions set forth in the Sublease (except with respect to the
Sublessee's use of the Tower 2 Space, which shall be deemed to be terminated as
of the end of the term of the Sublease) for each of the two (2) separate
extension periods of five (5) years each as described in Section 26 of the Lease
at a rental rate with respect to the Subleased Space that is reflective of the
then current fair market annual rent for the Subleased Space. The then current
fair market annual rent for the Subleased Space for each of the two (2) five (5)
year periods shall be determined by using the same considerations and process
set forth in Section 26 of the Lease for determining the current fair market
annual rent of the Premises during each of the two extension periods described
therein; provided, however, that the Sublessee shall have the financial
capability at the time of the first extension period to perform its obligations
under the new lease with the Landlord as and when such obligations become due
and payable thereunder. Sublessee agrees to send to the Landlord at the
Landlord's address stated herein a copy of notice specified below to be sent by
the Sublessee to the Sublessor with respect to the Sublessee's exercise of its
option to enter into a direct lease with the Landlord for the first extension
period of five (5) years with an option to lease the Subleased Space for the
second extension period of five (5) years.
Provided Sublessee (i) is not in default under the Sublease beyond
applicable notice and curing periods; (ii) is in physical possession of at least
one floor of the Subleased Space; and (iii) notifies Sublessor and Landlord no
later than May 14, 2009 that Sublessee intends, in good faith, to enter into a
new lease with the Landlord for the Subleased Space as such space may have been
reduced from time to time by virtue of Landlord's exercise from time to time of
Landlord's recapture rights pursuant to Section 14A of the Lease, then Sublessor
shall be deemed with respect to the Subleased Space only, to have assigned to
Sublessee the "Tenant's First Extension Option" with respect to the Subleased
Space and the "Tenant's Second Extension Option" with respect to the Subleased
Space as such terms are defined in Section 26A and Section 26B of the
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Lease and Sublessor shall have therefore waived, relinquished and released
Sublessor's rights to exercise "Tenant's First Extension Option" with respect to
the Subleased Space under the Lease and "Tenant's Second Extension Option" with
respect to the Subleased Space under the Lease. Landlord hereby consents to (x)
such waiver, relinquishment, release and assignment by Sublessor of Sublessor's
rights to exercise "Tenant's First Extension Option" and "Tenant's Second
Extension Option" with respect to the Subleased Space; and (y) the retention by
Sublessor of Sublessor's rights to exercise "Tenant's First Extension Option"
and "Tenant's Second Extension Option" solely with respect to the remainder of
the Premises but excluding the Subleased Space.
4. RIGHT OF FIRST OFFER: During the term of the Sublease and any period
thereafter during which Sublessee has the right to possession and occupancy of
the Subleased Space (or any portion thereof) pursuant to Paragraph 6 below, the
Landlord hereby grants to the Sublessee the right of first offer to lease any
and all space located on the fourth (4th) floor of Tower 1 and any and all space
located on the seventh (7th) floor of Tower 1 upon the same terms and conditions
relating to the right of first offer granted by Landlord to the Sublessor set
forth in Section 27 of the Lease; provided, however, the Sublessee shall provide
a security deposit in the form of cash, check or a letter of credit equivalent
in the amount of (i) six (6) months of the applicable fixed monthly rental for
such applicable space if such rights are exercised by the Sublessee during the
initial term of the Sublease; or (ii) three (3) months of the applicable fixed
monthly rental for such applicable space if such rights are exercised by the
Sublessee during any extension period of the Sublease.
The Sublessor hereby (i) assigns to the Sublessee any and all of
Sublessor's rights relating to the right of first offer to lease any and all
space located on the fourth (4th) floor of Tower 1 and any and all space located
on the seventh (7th) floor of Tower 1 pursuant to Section 27 of the Lease; and
(ii) waives, releases and relinquishes any other rights of first offer to lease
any other space in the Building as set forth in Section 27 of the Lease.
5. EXPANSION OPTION: During the term of the Sublease and any period
thereafter during which Sublessee has the right to possession and occupancy of
the Subleased Space (or any portion thereof) pursuant to Paragraph 6 below, the
Landlord hereby grants to the Sublessee the option to lease any and all space
located on the fourth (4th) floor of Tower 1 on the same terms and conditions
relating to the expansion options granted by the Landlord to the Sublessor set
forth in Section 28 of the Lease; provided, however, that:
(a) the fixed minimum rental for any such space shall be (i) $8.50 per
rentable square foot through May 14, 2005; and (ii) $10.75 per
rentable square foot from May 15, 2005 through and including May 14,
2010; and
(b) Sublessee provide a security deposit in the form of cash, check or
letter of credit equivalent to the Landlord in the amount of six (6)
months of the applicable fixed monthly rental for such applicable
space. Such security deposit shall be reduced to three (3) months of
the applicable fixed monthly rental for any such space during any
extension period.
The Sublessor hereby (i) assigns to the Sublessee any and all of
Sublessor's rights relating to its option to lease the fourth (4th) floor of
Tower 1 pursuant to Section 28 of the Lease; and
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(ii) waives, releases and relinquishes any other options to lease any other
space in the Building set forth in Section 28 of the Lease.
6. NONDISTURBANCE AND ATTORNMENT: Subject to the following provisions of
this Paragraph 6, upon the expiration or sooner termination of the Lease, the
Sublease (including the term and estate thereby granted) shall, at the option of
the Landlord, terminate as of the effective date of such expiration or earlier
termination of the Lease and Sublessee shall vacate the Subleased Space on or
before such date and this Tri-Party Agreement and all of the rights granted
hereunder to Sublessor and Sublessee shall expire on said date of such
expiration or earlier termination of the Lease. Notwithstanding anything to the
contrary contained in the Lease or this Tri-Party Agreement (including, but not
limited to, the foregoing sentence), Landlord hereby agrees that so long as the
Sublessee is not in default under the Sublease beyond applicable notice and
curing periods, then:
(a) the Sublessee's possession and occupancy of the Subleased Space and
the Sublessee's rights and privileges under the Sublease (except with
respect to the Sublessee's use of the Tower 2 Space, which shall be
deemed to be terminated as of the expiration or sooner termination of
the Lease) and the Sublessee's rights and privileges under this
Tri-Party Agreement, shall not be disturbed by the Landlord, except in
the event that the Lease is terminated as a result of (i) Sublessor's
exercise of the Sublessor's First Termination Option or Sublessor's
Second Termination Option in accordance with the terms and conditions
specified in Section 29 of the Lease so long as Landlord promptly
sends written notice of any such exercise of the Sublessor's
termination option under the Lease to the Sublessee; (ii) the election
by the Landlord or the Sublessor to terminate the Lease in accordance
with the terms and conditions of Section 12 (entitled "Fire and
Casualty") of the Lease so long as a copy of any such notice of the
election to terminate the Lease is promptly sent to the Sublessee by
the Landlord; (iii) the election by the Landlord or Sublessor to
terminate the Lease in accordance with the terms and conditions of
Section 13 (entitled "Condemnation") of the Lease so long as a copy of
any such notice of the election to terminate the Lease is promptly
sent to the Sublessee by the Landlord; or (iv) by the occurrence of a
Transfer or proposed Transfer of the entire Subleased Space by the
Sublessee and the proper election by the Landlord to terminate the
Lease with respect to the entire Subleased Space in accordance with
terms and conditions of Section 14C of the Lease; and
(b) the Landlord will not join the Sublessee as a party defendant in any
action or proceeding brought as a result of a default under the Lease
for the purposes of terminating the Sublessee's interest and estate
under the Sublease and Sublessee's rights and interest under this
Tri-Party Agreement.
If the Lease has been terminated other than as a result of the events,
causes or circumstances described in subparagraphs 6(a)(i), 6(a)(ii), 6(a)(iii)
or 6(a)(iv) above and the Sublessee has not elected to terminate the Sublease in
accordance with the terms of the Sublease, the Sublessee shall be directly bound
to the Landlord under the Sublease and shall perform its undischarged
obligations under the Sublease in accordance with the terms thereof, with the
same force and
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effect as if the Landlord were the Sublessor under the Sublease except that the
Landlord shall not be:
(a) Subject to any offsets or defenses which the Sublessee might have
against the Sublessor or be liable for any prior act or omission of
Sublessor under the Sublease;
(b) Bound by any rent or additional rent which the Sublessee might have
paid for more than the current month to any Sublessor;
(c) Bound by any amendment or modification of the Sublease made without
the Landlord's written consent and Landlord shall have no obligation
under Section 1B and Section 32 of the Sublease; and
(d) Liable to refund to the Sublessee, or credit the Sublessee with the
amount of any security or other payment or deposit (other than rent
paid to the Landlord for not more than the current month), unless such
amount shall have been paid over by the Sublessor to the Landlord.
7. MORTGAGEE NONDISTURBANCE: The Landlord hereby grants permission to the
Sublessee to obtain a nondisturbance agreements in favor of the Sublessee with
respect to the Sublessee's use and occupancy privileges and rights under the
Sublease, this Tri-Party Agreement, and any lease hereinafter entered into by
and between the Landlord and the Sublessee from any and all mortgagees of the
Property. The Landlord agrees to cooperate in good faith in connection with
Sublessee's obtaining of said nondisturbance agreements but the Landlord shall
have no liability to the Sublessee in the event that any such agreements are not
obtained by the Sublessee. Sublessee agrees to pay the reasonable attorneys'
fees of Landlord's attorneys and the mortgagee's attorneys that are actually
incurred and payable by the Landlord in connection with Sublessee's obtaining
said mortgagee nondisturbance agreement.
8. SIGNAGE. During the term of the Sublease and any period thereafter that
the Sublessee has the right to possession and occupancy of the Subleased Space
(or any portion thereof) pursuant to Paragraph 6 above, Landlord agrees to
provide the Sublessee with such minimum rights and benefits to signage within
the Building as Landlord provides to other tenants leasing at least 50,000
rentable square feet of floor area at the Property, including, but not limited
to, appropriate space on the Building directory dedicated to Sublessee's usage.
The Sublessor waives, releases and relinquishes its rights to the above
mentioned signage rights to the extent set forth in Section 31(a) of the Lease.
9. ACCESS TO TOWER 1 ROOF. During the term of the Sublease and any period
thereafter that the Sublessee has the right to possession and occupancy of the
Subleased Space (or any portion thereof) pursuant to Paragraph 6 above, Landlord
hereby agrees to grant and provide the Sublessee during the term of the Sublease
and the two (2) extension periods described above with the same rights and
benefits for access to and use of the roof of Tower 1 and Tower 2 as is afforded
to the Sublessor pursuant to Section 30 of the Lease subject, however, to the
same terms and conditions set forth in Section 30 of the Lease except that the
Sublessee shall pay a current fair market rental in connection therewith
determined upon the Sublessee's request for access to and use of the roof of
Tower 1 as reasonably determined by Landlord.
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10. SUBLEASE PAYMENTS. Landlord shall, as an accommodation, send separate
bills for Adjustment Rent applicable to the Subleased Space to Sublessor and the
Sublessee. Such bills shall reflect the amount thereof owed by Sublessee to
Sublessor pursuant to Section 4(a) of the Sublease. Sublessee shall pay directly
to Landlord (i) additional rent payable by Sublessee as and when required under
Section 4(b) of the Sublease to the extent that Sublessee has received a
separate bill from the Landlord for the additional rent payable with respect to
the Subleased Space; and (ii) Fixed Rent payable by Sublessee as and when
required under Section 3(a) of the Sublease. Sublessee shall also simultaneously
provide Sublessor with copies of all checks for such payments. Any failure by
Sublessee to so pay the applicable Fixed Rent and additional rent to the
Landlord after Sublessee's receipt of a separate bill from the Landlord and
provide copies of checks of said payments to the Sublessor within the time
limits set forth in Section 15 of the Sublease shall be a default by Sublessee
under the Sublease.
Notwithstanding anything herein to the contrary, the failure of Landlord to
send separate bills with respect to Adjustment Rent payable under the Lease with
respect to the Subleased Space and the remainder of the Premises shall not
affect the Sublessor's obligation to pay Adjustment Rent under the Lease. In
addition, nothing in this Paragraph 10 shall modify the obligation of the
Sublessor to timely pay to Landlord the full amount of Rent due and owing from
Sublessor to Landlord under the Lease. Any amounts, however, received by
Landlord from the Sublessee under this Paragraph 10 shall be applied against
amounts due and owing from Sublessor to Landlord under the Lease.
11. REDEFINITION OF "TRANSFER". Sublessor and Landlord hereby agree, and
Sublessee hereby acknowledges, that the first and second sentences of Section
14A of the Lease are hereby amended to read as follows:
"Except as otherwise expressly provided herein, Tenant shall not, without
the prior written consent of Landlord: (i) assign, convey, mortgage or
otherwise transfer this Lease or any interest hereunder, whether
voluntarily or by operation of law; (ii) permit any assignment,
reassignment, conveyance, mortgaging or other transfer of any sublease
of all or any part of the Premises; (iii) sublease the Premises or any
part thereof, whether voluntarily or by operation of law; (iv) permit
any further subletting of all or any part of the Premises then being
subleased, whether voluntarily or by operation of law; or (v) permit the
use of the Premises by any person other than Tenant and its employees.
Any such assignment, transfer, sublease or circumstance described in the
preceding sentence (herein referred to as a "Transfer", which term shall
include any reassignment of the Lease after any initial assignment of
the Lease by the Tenant named herein, i.e. Delphi Internet Services
Corporation, or any subsequent reassignment and any assignment of any
sublease with respect to all or any portion of the Premises and any
sub-subleasing of any portion of the Premises previously subleased)
occurring without the prior written consent of the Landlord shall be
void and of no effect."
12. GENERATOR RIGHTS. Pursuant to Paragraph 4(f) of Exhibit E to the Lease,
Sublessor has the right to install two electric generators, one of which has
already been properly installed. Sublessor hereby relinquishes its right to
install a second electric generator and relinquishes its right to use of the
conduit installed by Sublessor to house electrical connections from such second
generator to the sixth floor of Tower 2 of the Building. Sublessor agrees to
cooperate
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with Landlord should Landlord want to extend such conduit to the seventh floor
of Tower 2 of the Building, so long as such cooperation is without cost to
Sublessor and Landlord does not unreasonably interfere with the conduct by
Sublessor of its business in the Premises.
13. FUTURE PERFORMANCE. Sublessor agrees to (i) pay the Landlord any unpaid
amounts due for electricity furnished to the Premises for the period from
January 1, 1996 through May 2, 1996 upon billing by the Landlord in accordance
with the terms of the Lease; (ii) pay the Landlord any unpaid amounts due for
Adjustment Rent for the period from January 1, 1996 though June 30, 1996 upon
billing by the Landlord in accordance with the terms of the Lease; (iii) pay any
unpaid amounts due for rent with respect to certain furniture located in the
Tower 2 Space and return such furniture to the Landlord as agreed by and between
the Landlord and the Sublessor; (iv) pay all reasonable attorneys' fees incurred
and payable by the Landlord arising out of the transaction evidenced by this
Tri-Party Agreement with such amounts to be paid within thirty (30) days of
invoice. Such legal fees shall be deemed to be additional rent, payable by the
Sublessor under the Lease; and (iv) provide certain landscaping around the
existing electrical generator installed by the Sublessor on the east side of
Tower 1. The Sublessee agrees to reimburse the Sublessor for one-half of the sum
paid by Sublessor in connection with the payment by Sublessor of the reasonable
attorneys' fees incurred by the Landlord arising out of the transaction
evidenced by this Tri-Party Agreement
14. NO RECORDING. Sublessee shall not record this Tri-Party Agreement. The
parties hereto, however, upon the request of the Sublessee, shall execute and
deliver a notice of this Tri-Party Agreement in such recordable form as required
under applicable law in order for recording upon the applicable land records or
registry.
15. MISCELLANEOUS. This Tri-Party Agreement may not be modified other than
by an agreement in writing signed by all the parties hereto or by their
respective successors in interest. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their successors and assigns. This
Agreement shall be governed in accordance with the laws of The Commonwealth of
Massachusetts.
16. COUNTERPARTS AND EFFECTIVENESS: This Tri-Party Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original and all of which taken together shall constitute one instrument.
Facsimile signatures shall be deemed to be original signatures. This Agreement
shall not be effective unless and until it has been executed by all of the
parties hereto.
17. Except as expressly modified and supplemented by the terms of this
Tri-Party Agreement, the Lease and Sublease shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Tri-Party Agreement as a
sealed instrument as of the day and year first above written.
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LANDLORD:
CROSS POINT LIMITED PARTNERSHIP
By: ONE INDUSTRIAL AVENUE CORP.,
Its Operating General Partner
- -----------------------------
By
- ----------------------------- -------------------------------
Its
SUBLESSOR:
iGUIDE, INC.
- -----------------------------
By
- ----------------------------- -------------------------------
Its
SUBLESSEE:
ZIPCALL, LLC
By
-------------------------------
- ------------------------------ Eric M. Zachs
Its Manager
- ------------------------------
COMMONWEALTH OF MASSACHUSETTS )
) ss _______, 1996
COUNTY OF )
Personally appeared, ___________________________of ONE INDUSTRIAL AVENUE
CORP., the Operating General Partner of Cross Point Limited Partnership, signer
and sealer of the foregoing instrument and acknowledged the same to be his free
act and deed as such ___________ and the free act and deed of said corporation
and therefore said partnership, before me.
---------------------------------
Notary Public
My commission expires:
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STATE OF )
) ss _______, 1996
COUNTY OF )
Personally appeared, ____________________ , ____________________________ of
iGUIDE, INC., signer and sealer of the foregoing instrument and acknowledged the
same to be his free act and deed as such _________ and the free act and deed of
said corporation, before me.
---------------------------------
Notary Public
My commission expires:
STATE OF CONNECTICUT )
) ss _______, 1996
COUNTY OF )
Personally appeared, Eric M. Zachs, Manager of ZipCall, LLC, signer and
sealer of the foregoing instrument and acknowledged the same to be his free act
and deed as such manager and the free act and deed of said limited liability
company, before me.
----------------------------------
Commissioner of the Superior Court
Notary Public
My commission expires:
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Exhibit 10.12
EMPLOYMENT AGREEMENT
This agreement made and entered into as of this 9th day of March l999, by
and between:
ZipLink, Inc., a Delaware corporation with offices at 900
Chelmsford Street, Tower One, Fifth Floor, Lowell
Massachusetts 01851 (the "Company"); and
Christopher W. Jenkins, residing at 72 Boxboro Road, Stowe,
Massachusetts 01775 (the "Employee").
WITNESSETH:
WHEREAS, the Company wishes to employ the Employee, and the Employee wishes
to accept such employment; and
WHEREAS, the Company and the Employee wish to set forth the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration receipt of which is acknowledged and the mutual promises
herein made, the parties hereto hereby agree as follows:
1. EMPLOYMENT
(A) EMPLOYMENT. The Company hereby agrees to employ Employee, and Employee
hereby accepts and agrees to said employment, in accordance with the terms of
this Agreement.
(B) PRIOR AGREEMENTS. Effective upon an initial public offering (an "IPO")
of the Company's common stock, this Agreement will supersede all previous
agreements between the Company and Employee concerning terms and conditions of
the employment of Employee by the Company (including those agreements originally
entered into by and between ZipLink, LLC (formerly known as ZipCall, LLC), a
Connecticut limited liability company), and all such previous agreements are
hereby canceled by mutual consent. No such cancellation shall effect any stock
option agreements or grants which options and agreements shall remain in full
force and effect.
2. POSITION AND DUTIES
(A) POSITION. During his employment hereunder, Employee shall have such
title and executive and managerial level duties as the Company may from time to
time designate. Employee shall initially serve as the President of the Company,
and, in such capacity, Employee shall as, when, and to the extent delegated to
him by the Board of Directors of the Company, have responsibility for the
operations of the Company.
(B) DUTY TO PERFORM SERVICES. Employee shall devote himself on a
"full-time" and exclusive basis to the business and affairs of the Company. He
shall use his best efforts in the rendition of his services to and on behalf of
the Company hereunder. Employee
<PAGE>
will comply with all policies, standards, and regulations established by the
Company from time to time.
3. EMPLOYMENT TERM
The term of Employee's employment under this Agreement shall begin on the
date first above written and shall continue until December 31, 2001 unless
Employee's employment is terminated earlier as provided in Section 9 of this
Agreement (the "Employment Term").
4. TRANSITIONAL EMPLOYMENT
In the event that the Company sells all or a portion of its assets or stock
in a transaction in which the purchaser requires that the Employee become an
employee of the purchaser, Employee will accept such employment for a period of
up to six months so long as the terms and conditions of such employment are
reasonable in terms of location, job description, and compensation.
5. COMPENSATION
(A) BASE COMPENSATION. As "Base Compensation" for services rendered by
Employee to the Company while employed hereunder, the Company will pay Employee
$150,000 per annum. Base Compensation shall be paid by regular periodic payments
as shall be in accordance with the Company's salary payment procedures as from
time to time in effect. Base Salary shall be subject to withholding and
deductions for all applicable taxes. Accrual and payment of Base Salary shall
not be commenced until completion of the IPO.
(B) BONUSES. In addition to Base Compensation, the Company may from time to
time award bonuses to Employee as additional compensation for services rendered.
The awarding, amount and terms of payment of any such bonuses shall remain
within the sole and exclusive discretion of the Company.
(C) WITHHOLDING. If and to the extent required by the Internal Revenue
Code, Base Salary and bonuses shall be subject to withholding and deductions for
all applicable taxes.
(D) BENEFITS. Employee shall be entitled to participate in and under any
and all incentive compensation, retirement, pension, profit sharing, insurance,
disability, medical expense, hospitalization or other plans now existing or
hereafter adopted through which the Company may provide benefits to or for its
employees generally. The foregoing shall not be deemed to guarantee awards to
Employee in any of the aforesaid plans where the granting of awards is
discretionary, but rather shall be deemed to provide only that Employee shall be
eligible for consideration as a recipient of such awards.
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(E) MINIMUM BENEFITS. To the extent not provided through benefit programs
described in Subsection (c) above, the Company shall provide to Employee at the
Company's expense:
(1) Health insurance covering Employee and his immediate family; and
(2) Life insurance with a death benefit of at least to two times Base
Compensation covering Employee and payable to Employee's designated
beneficiary.
6. VACATIONS; SICK OR PERSONAL DAYS; HOLIDAYS.
(A) VACATION. Employee shall be entitled to 4 weeks of vacation during each
calendar year of the Employment Term (prorated for any partial calendar years).
(B) SICK OR PERSONAL DAYS. Employee shall be entitled to a reasonable
number of sick or personal days, without loss of pay, on an "as needed" basis.
(C) HOLIDAYS. Employee shall be entitled to such holidays as are
established by the Company for all Employees.
7. DISABILITY
(A) SALARY CONTINUATION. If Employee becomes disabled at any time during
the Employment Term, he shall continue thereafter to receive his full Base
Salary in accordance with the benefit policies of the Company at such time. Any
disability benefits paid to Employee under insurance paid for by the Company
(either as owner or on Employee's behalf) shall be deemed to have come from the
Company in satisfaction of its obligations under this Subsection. Benefits
payable to Employee under individual disability policies owned and paid for by
Employee shall in no way limit or be deemed to be in lieu of the disability
compensation or insurance coverage hereinabove described.
(B) DEFINITION OF DISABILITY. For all purposes of this Agreement, the term
"disability" shall mean temporary or permanent incapacity, physical or mental,
which results in Employee's being unable to perform the requirements of his
position hereunder on a full-time basis. Disability shall be established by
medical proof satisfactory to a physician appointed by the Company, and his
decision as to the competence of such medical proof shall be binding upon
Employee, the Company and all other interested parties. In any event, if
Employee has qualified to receive disability benefits for total and permanent
disability under the Social Security Act, he shall be deemed to be disabled for
all purposes of this Agreement. All disabilities commencing during any 180 day
consecutive period shall be considered a single disability hereunder.
8. EXPENSES
The Company shall pay directly, or shall reimburse Employee for, the
following expenses:
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<PAGE>
(1) The cost of maintenance, operation, and insurance for one
automobile used by Employee in the performance of his duties under this
Agreement (subject to such limits as may be established from time to time
by the Company, provided, that such limits shall not be less than $500.00
per month); and
(2) Any and all other necessary and ordinary expenses incurred by
Employee in the performance of Employee's duties hereunder, provided that
Employee has received the Company's prior written authorization for the
incurrence of such other expenses.
Any reimbursement shall be made in accordance with the expense documentation and
payment policies adopted from time to time by the Company for executive level
employees.
9. TERMINATION
(A) TERMINATION BY COMPANY. The Company may terminate the employment of
Employee hereunder, effective immediately upon written notice of termination to
Employee specifying the cause for such termination upon the occurrence of:
(1) A dereliction or breach by Employee of any of his duties,
covenants, agreements, or obligations contained herein, which dereliction
or breach continues unremedied for 14 days following notice to Employee of
such breach,
(2) Employee's engaging in any action: (i) involving dishonest,
fraudulent, or criminal conduct, (ii) in violation of Company policies,
standards, and/or regulations, or (iii) which could allow any other
employee of the Company to institute any action against the Company based
on a claim or claims of discrimination, harassment, or violation of civil
or human rights;
(3) The affirmative disregard by Employee of specific and material
(i.e., not involving merely day-to-day operations of the Company)
management directives which had been the subject of discussion and review
by the Board of Directors of the Company;
(4) Employee's engaging in any conduct or action, whether or not also
described in another Paragraph of this Subsection, which has caused or
which, if not checked, could have potentially caused financial harm to the
Company except for actions or conduct which employee believed in good faith
were in the best interests of the Company ;
(5) The failure by the Employee to comply with any rehabilitation
program after the Company determines that his capacity to perform his
duties hereunder has been impaired as a result of drug or alcohol abuse; or
(6) The determination by the Company, in its sole discretion, that the
Employee has engaged in any other conduct which is detrimental to the best
interests of the Company or that the Employee's performance is not
otherwise
4
<PAGE>
satisfactory to the Company or that the Company is no longer in need of the
Employee's services.
(B) TERMINATION BY REASON OF DEATH OR DISABILITY. Employee's employment
hereunder shall terminate immediately upon the death of Employee or upon the
passage of 180 days of disability with respect to Employee during any period of
360 consecutive days.
(C) EFFECT OF TERMINATION. Upon the termination of Employee's employment
hereunder, the Employee shall be entitled to receive any accrued and unpaid Base
Salary with respect to the period up to the effective date of such termination.
Upon a termination of the employment of the Employee by the Company pursuant to
Section 9(a)(6), and which is not described in any of the other Paragraphs of
Section 9(a), Employer's obligation to pay Base Compensation to Employee shall
continue during the one year period following termination of Employment;
provided, however, that Employer's obligation to so pay Base Compensation to
Employee shall immediately cease in the event that Employee breaches any of his
duties, covenants, agreements, or obligations contained in Section 10 but such
termination of payment of Base Salary shall not release Employee of his
obligations under Section 10 (b), (c), (d) or (e).
10. RESTRICTIONS ON CERTAIN BUSINESS ACTIVITIES
(A) EXCLUSIVITY. Employee shall not, at any time while employed by the
Company (other than as an employee of the Company and within the scope of his
duties to the Company and in furtherance of the business and affairs of the
Company), directly or indirectly, for his own account or for the account of
others, as an owner, officer, director, shareholder, partner, employee, agent,
advisor, consultant, manager, licensor, or in any other capacity, engage in or
be concerned with any commercial duties or pursuits whatsoever; provided
however, that: (i) Employee shall not be prevented from investing in stocks,
bonds, securities, real estate, commodities, or other forms of investment for
his own account so long as such investment will not require the rendition of
services on his part and (ii) Employee may serve on the Board of Directors
and/or as an officer of and/or provide services on a voluntary basis to any
not-for-profit organization which is not competitive with the Company and
provided such service does not materially interfere with his duties to the
Company.
(B) NON-COMPETITION. Employee shall not, at any time while employed by the
Company (other than as an employee of the Company and within the scope of his
duties to the Company and in furtherance of the business and affairs of the
Company), and for a period of one year following the date upon which Employee
ceases to be employed by the Company for any reason (the "Termination Date"),
directly or indirectly, for his own account or for the account of others, as an
owner, officer, director, shareholder, partner, member, employee, agent,
advisor, consultant, manager, licensor, or in any other capacity, engage, or be
associated with, in any Restricted Field within the Restricted Area. For
purposes of this Agreement:
5
<PAGE>
(1) Restricted Field shall mean the production, processing, sale,
distribution, or providing of any Restricted Service.
(2) Restricted Service shall mean any services or goods produced,
sold, processed, distributed, or provided by the Company during the one
year period ending on the Termination Date and which accounted for more
than 10% of the Company's revenues for such year or specifically identified
and planned by the Company during the one year period ending on the
Termination Date and which was expected to account for more than 10% of the
Company's revenues for such one year period (or, if there has not been a
Termination Date, during the one year period immediately preceding the date
with respect to which Employee's compliance with this Section is then being
determined). As of the date hereof, the Restricted Services shall mean the
provision of Internet access services, connectivity and other related
services including, without limitation, wholesale Internet access services
for Internet appliances to and other Internet service providers; and
(3) Restricted Area shall mean all geographic areas where the Company
has a point of presence, the United States of America and any other
territory in which the Company is hereafter doing business.
Employee shall not be deemed to have breached his covenant hereunder by
accepting employment after the Termination Date with an entity engaged in a
Restricted Field in a Restricted Area if: (i) Employee is employed only by a
division, subsidiary, or affiliate of such entity, which division, subsidiary,
or affiliate is not itself, directly or indirectly, engaged in any Restricted
Field in any Restricted Area, (ii) Employee does not provide any services,
either directly or indirectly, to any division, subsidiary, or affiliate of such
entity which is, directly or indirectly, engaged in any Restricted Field in any
Restricted Area, and (iii) such entity acknowledges in writing that it is aware
of this Agreement and that it will not cause or permit Employee to breach any of
the terms of this Agreement. Furthermore, Employee shall not be deemed to have
breached his covenant hereunder solely by reason of owning an equity interest of
less than 5% of a publicly held corporation, partnership, or other entity.
(C) NON-SOLICITATION OF CUSTOMERS. Employee shall not, at any time while
employed by the Company (other than as an employee of the Company and within the
scope of his duties to the Company and in furtherance of the business and
affairs of the Company), and for a period of one year following the Termination
Date, directly or indirectly, for his own account or for the account of others,
as an owner, officer, director, shareholder, partner, employee, agent, advisor,
consultant, manager, licensor, or in any other capacity, attempt to or actually
solicit or otherwise transact business in any manner with any Restricted Party
with a view towards providing or selling Restricted Services to or for the
benefit of any such Restricted Party. For the foregoing purposes, "Restricted
Party" shall mean any person or entity to or for the benefit of whom the Company
shall have provided or sold Restricted Services, or shall have made a
presentation or other specific contact with a view towards any such provision or
sale, in either case at any time within one year prior to the Termination Date.
6
<PAGE>
(D) NON-SOLICITATION OF EMPLOYEES. Employee shall not, at any time while
employed by the Company, and for a period of one year following the Termination
Date: (i) hire or solicit, or cause or authorize, directly or indirectly, to be
hired or solicited for employment, as an employee, independent contractor,
consultant, or in any other capacity, any person who is, or was within one year
prior to or after the Termination Date, an employee, independent contractor, or
consultant of the Company or (ii) interfere in any way with the employment or
other relationship between the Company and any employee, independent contractor,
consultant, or other person.
(E) CONFIDENTIALITY AND NON-DISCLOSURE.
(1) CONFIDENTIALITY. Employee shall not, at any time while employed by
the Company (other than as an employee of the Company and within the scope
of his duties to the Company and in furtherance of the business and affairs
of the Company) and at all times subsequent to the Termination Date (under
any and all circumstances, without exception), disclose to any person or
entity other than the Company, or use for his own or any other purpose: (i)
any Confidential Information possessed by or pertaining to the Company or
(ii) any similar information belonging to a party other than the Company,
but to which Employee has had access by reason of his relationship with the
Company (including, without limitation, any information which is delivered
to the Company by persons or entities for whom the Company is providing
services or providing products).
(2) RECORDS. Employee shall not remove from the premises of the
Company any document, materials, or record (including, without limitation,
computerized records) containing any Confidential Information. Upon
termination of employment, Employee shall promptly deliver to the Company
all documents, materials, and records (including, without limitation,
computerized records) containing any Confidential Information which are in
Employee's possession, custody, or control.
(3) CONFIDENTIAL INFORMATION. For purposes of this Agreement,
Confidential Information shall mean trade secrets, confidential commercial
information, and any other information, knowledge, or data not generally
known to the public, possessed by or pertaining to the Company, including,
without limitation: (i) information about the Company's employees, (ii)
financial information concerning the Company, (iii) information about the
Company's products, including product designs or formulations, (iv)
information concerning the services provided by the Company, (v)
information concerning the Company's sources of supply, (vi) marketing
information, including advertising or promotional programs, sales
strategies or prospects, pricing or pricing strategies, and (vii)
information concerning the customers of the Company, including customer
lists, mailing lists, and customer requirements. Confidential Information
shall not include any information which becomes generally known to the
public other than as a result of any act or omission of Employee.
7
<PAGE>
(F) DISPARAGING STATEMENTS BY EMPLOYEE. Employee acknowledges that the
Company is in an intensely competitive business and that disparaging or
otherwise derogatory comments, writings or other communications made by an
employee or former employee would place the Company at a disadvantage, would do
damage, financial and otherwise, to the Company's business and would do the
Company irreparable harm. Therefore, Employee agrees that from and after the
date of this Agreement, except as may be required by law or the rules and
regulations of any governmental authority, Employee will not make, or cause to
be made, any statement, observation, opinion, or communication (whether oral or
written) that disparages the Company or any of its past or present officers,
directors, shareholders, or employees, whether concerning his separation from
employment, the Company's business, prospects, or finances, or otherwise.
Nothing in the foregoing shall limit the Employee's statements in any pleading,
deposition or hearing in any arbitration proceeding.
(G) ENFORCEMENT. Employee's undertakings and agreements contained in this
Section 10 are of a unique and valuable nature and would, if breached, result in
irreparable damage to the Company that would not be readily susceptible to
monetary valuation; and, accordingly, in the event of the actual or potential
breach of any such undertakings or agreements, the Company shall be fully
entitled to seek and obtain injunctive or other equitable relief in furtherance
of the enforcement thereof, in addition to damages and any other available legal
remedy.
(H) INDEMNITY. Employee hereby indemnifies the Company and agrees to hold
the Company harmless from and against any and all claims, losses, liabilities,
damages, obligations, costs and expenses (including attorneys' fees) which the
Company may incur in connection with, by reason of or related to the breach by
Employee of any of Employee's undertakings or agreements contained in this
Section 10.
(I) CONSENT TO JURISDICTION. Employee hereby irrevocably submits to the IN
PERSONAM jurisdiction of any Connecticut State Court or Federal Court sitting in
Connecticut and any appellate court thereof in any action or proceeding arising
out of or relating to this Section 10, and Employee hereby irrevocably agrees
that all claims in respect of such action or proceeding may be heard and
determined in such Connecticut State Court or in such Federal Court. Employee
hereby irrevocably waives the defense of an inconvenient forum to the
maintenance of any such action or proceeding. Employee hereby irrevocably
consents to service of process by certified mail at his address set forth on the
first page hereof. Employee agrees that a non-appealable final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(J) SEVERABILITY. Employee agrees that the restrictions and limitations
established in this Section 10 shall apply and be enforceable to the fullest
extent allowed by law and shall under no circumstances be terminated in full in
the event that any portion of such limitations or restrictions exceed applicable
law. In the event any court of competent jurisdiction determines that any of the
provisions hereof exceed any applicable geographical, temporal, or other legal
or equitable limitations or restrictions, then such court is hereby authorized
and requested to "blue pencil" or otherwise reform the
8
<PAGE>
applicable limitations and restrictions, and this Agreement shall thereupon be
deemed to be reformed, only to the minimum extent necessary to meet such legal
or equitable limitations and restrictions. The illegality, invalidity or
unenforceability of any term or provision of this Agreement shall have no effect
on any other term or provision of this Agreement.
11. MISCELLANEOUS
(A) NOTICES. Any notice, request, acknowledgment, consent, or other
communication which any party hereto is required or permitted to give to another
party shall be in writing and shall be delivered personally, sent by registered
or certified mail, return receipt requested, or sent by a recognized overnight
delivery service, in any such case to the recipient at his or its address first
stated above or at such other address of which he or it shall have given the
other party or parties due notice hereunder. Any such notice shall be deemed to
have been delivered, given, and received for all purposes as of the date so
delivered.
(B) WAIVER. The failure of either party hereto to insist in any one or more
instances upon the performance of any of the terms and conditions of this
Agreement shall not be construed as a waiver or relinquishment of any right
granted hereunder, or of the future performance of any such term or condition.
(C) AMENDMENT. This Agreement may not be amended, modified or altered in
any manner, except pursuant to the terms of a written instrument signed by each
of the parties hereto.
(D) ASSIGNMENT. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective permitted assigns and
successors by operation of law. Neither this Agreement nor any benefits
hereunder may be assigned by Employee without the express prior written consent
of the Company. This Agreement may be assigned, transferred or conveyed by the
Company to a person or entity that acquires all or substantially all of the
business of the Company (whether such acquisition is by way of acquisition or
assets, acquisition of stock, merger, consolidation or otherwise).
(E) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Connecticut without giving any
effect to any choice or conflict of law provision or rule (whether of the State
of Connecticut or of any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Connecticut.
(F) ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes any
prior understandings or agreements among the parties, whether written or oral,
to the extent related to the subject matter hereof.
(G) HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
9
<PAGE>
(H) USAGE. In construing this Agreement, feminine or neuter pronouns shall
be substituted for those of the masculine form, and the plural for the singular,
and vice versa, in any case in which the context may require. The capitalized
terms used in this Agreement shall have the meaning first applied to their first
usage in this Agreement unless otherwise indicated.
(I) ARBITRATION. Other than seeking a temporary restraining order or
permanent injunction to enforce your obligations under Section 10 hereof, any
and all disputes in connection with this contract or related to or arising out
of your employment with the Company shall be submitted to binding arbitration in
Hartford, Connecticut before a single arbitrator under the rules of the American
Arbitration Association. Any award or judgment by the Arbitrator shall be final
and binding upon the parties and may be entered in any court of competition
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
and as of the date first above written:
ZIPLINK, INC.
By:
------------------------------
Its:
---------------------------------
Christopher W. Jenkins
10
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and all references to our Firm) included in or made a part of this Registration
Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 10, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 512,055
<SECURITIES> 0
<RECEIVABLES> 678,683
<ALLOWANCES> 68,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,261,702
<PP&E> 13,900,958
<DEPRECIATION> 4,097,553
<TOTAL-ASSETS> 11,173,879
<CURRENT-LIABILITIES> 4,323,966
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (18,088,667)
<TOTAL-LIABILITY-AND-EQUITY> 11,173,879
<SALES> 7,088,200
<TOTAL-REVENUES> 7,088,200
<CGS> 6,271,169
<TOTAL-COSTS> 14,082,287
<OTHER-EXPENSES> 144,514
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,344,285
<INCOME-PRETAX> (8,445,857)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,445,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,445,857)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
SKYTEL COMMUNICATIONS, INC.
200 SOUTH LAMAR
JACKSON, MS 39201
March 9, 1999
To: ZipLink, Inc.
I hereby consent to being named as a director nominee in the Registration
Statement filed by ZipLink, Inc,. a Delaware corporation (the "Registrant"), and
agree to serve as a director of the Registrant commencing immediately following
the closing of the offering.
Very truly yours,
/s/ Jai P. Bhagat
Jai P. Bhagat
JPB/dd
<PAGE>
EXHIBIT 99.2
AXIOM VENTURE PARTNERS, L.P.
CITYPLACE II, 17TH FLOOR
185 ASYLUM STREET
HARTFORD, CT 06103
March 9, 1999
To: ZipLink, Inc.
I hereby consent to being named as a director nominee in the
Registration Statement filed by ZipLink, Inc,. a Delaware corporation (the
"Registrant"), and agree to serve as a director of the Registrant commencing
immediately following the closing of the offering.
Very truly yours,
/s/ Alan M. Mendelson
Alan M. Mendelson
AMM/dd
<PAGE>
EXHIBIT 99.3
[LETTERHEAD]
March 9, 1999
To: ZipLink, Inc.
I hereby consent to being named as a director nominee in the
Registration Statement filed by ZipLink, Inc,. a Delaware corporation (the
"Registrant"), and agree to serve as a director of the Registrant commencing
immediately following the closing of the offering.
Very truly yours,
/s/ Wayne A. Martino
Wayne A. Martino
WAM/dd
