<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999
REGISTRATION NO. 333-74273
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
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. / /
------------------------
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.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 7, 1999
PROSPECTUS
3,500,000 SHARES
[LOGO]
ZIPLINK, INC.
COMMON STOCK
------------------
This is the initial public offering of ZipLink, Inc. and we are offering
3,500,000 shares of our common stock. We anticipate that the initial public
offering price will be between $12.00 and $14.00 per share.
We have applied 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 9.
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 525,000 shares of common stock at the initial public offering price
less the underwriting discount to cover any over-allotments.
Jefferies & Company, Inc. FAC/EQUITIES
The date of this prospectus is , 1999
<PAGE>
<TABLE>
<S> <C>
[LOGO] WHOLESALE INTERNET ACCESS SOLUTIONS FOR
INTERNET APPLIANCES AND LOCAL, REGIONAL AND NATIONAL
INTERNET SERVICE PROVIDERS
</TABLE>
[ZIPLINK NETWORK MAP APPEARS HERE]
THE ZIPLINK NETWORK
<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 THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. 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
TO A CORPORATION AND THE CONVERSION OF OUR MEMBERSHIP UNITS INTO COMMON STOCK,
WHICH REORGANIZATION WILL OCCUR PRIOR TO THE CLOSING OF THIS OFFERING, (III)
GIVES EFFECT TO THE CONVERSION OF $7.5 MILLION OF INDEBTEDNESS INTO 834,615
SHARES OF COMMON STOCK, BASED UPON AN ASSUMED INITIAL PUBLIC OFFERING PRICE OF
$13.00 PER SHARE, WHICH CONVERSION WILL OCCUR CONCURRENTLY WITH THE CLOSING OF
THIS OFFERING, AND (IV) INCLUDES 233,654 SHARES OF COMMON STOCK, BASED UPON AN
ASSUMED INITIAL PUBLIC OFFERING PRICE OF $13.00 PER SHARE, WHICH SHARES WILL BE
ISSUED TO WILLIAMS COMMUNICATIONS, INC. CONCURRENTLY WITH THE CLOSING OF THIS
OFFERING.
ZIPLINK
OUR BUSINESS
ZipLink is a national provider of wholesale Internet access services to
developers and vendors of Internet appliances and local, regional and national
Internet service providers. Internet access services represent the means by
which users connect to the Internet allowing them to access the World Wide Web,
e-mail and other resources. Internet appliances are electronic devices, other
than personal computers, which connect users to the Internet. Internet service
providers offer Internet access to their subscribers either by developing a
proprietary network infrastructure or by purchasing Internet access services
from wholesale providers such as ZipLink, or through a combination of both.
ZipLink offers a range of Internet access solutions for Internet appliances,
such as TV set-top boxes, which are devices that enable a user to access the
Internet using an ordinary television. Our Internet access solutions include:
- Providing a connection between an Internet appliance and the Internet, or
Internet connectivity;
- Ensuring that users of Internet appliances attempting to access the
Internet (or a customer's network) are authorized subscribers, a function
known in our industry as "subscriber authentication;" and
- Selective, or filtered, forwarding of e-mail to mobile Internet appliances
such as some specially-designed pagers.
We also provide wholesale national Internet access services under the name
ZipDial to Internet service providers which, in turn, offer Internet access to
their subscribers using our network infrastructure. Our ZipDial service features
an array of access options including modem, or dial-up, access and enhanced
services, such as high-speed access using digital subscriber line technology
(which is known in our industry as "DSL"). This technology makes possible data
transmission at speeds historically associated with private or "dedicated" lines
at comparatively low cost using ordinary telephone lines.
We have been a provider of Internet connectivity to subscribers of
Microsoft's-Registered Trademark- WebTV Network-TM- service since its product
introduction in late 1996. WebTV subscribers receive this service through a TV
set-top box. We provide a dial-up connection over our network between WebTV
subscribers and the Internet access facilities of WebTV Networks, Inc. Our
revenues from WebTV are dependent on the number of WebTV subscribers who make
use of our network for connectivity to WebTV. We receive a fixed amount per
month with respect to some WebTV subscribers serviced by our network and an
hourly rate with respect to others. Although the ratio of fixed to hourly
pricing is within the discretion of WebTV, historically, substantially all of
our revenues from WebTV have been from fixed rate
3
<PAGE>
pricing. 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.
Our WebTV relationship has helped us to more efficiently develop our
Internet access network, allowing us to add "points-of-presence" where we
believed our investment would be substantially supported by traffic from WebTV's
subscriber base. A "point of presence" is a facility that allows users to access
our network with a local telephone call.
We provide wholesale Internet access services using our high-speed national
network. Our network features 20 broad-coverage points of presence of a type
known in our industry as "super points of presence" or "SuperPOPs." We have
super point of presence coverage in 16 of the 20 largest metropolitan areas in
the United States and offer dial-up access at connection speeds of up to 56
kilobits per second (the speed of the fastest dial-up modems).
We facilitated our network buildout and upgrade through a relationship with
one of our key suppliers, Bay Networks, Inc., a subsidiary of Northern Telecom
Limited ("Nortel Networks"). As a part of this supplier relationship, 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 $5.56 per share and $5.0 million of this debt will convert into common
stock at the initial public offering price. We have purchased approximately $7.2
million of network equipment and services from Nortel Networks to upgrade our
dial-up network to its current connection speed. In addition, we have served as
a testing facility, or "beta site," for new Nortel Networks product offerings,
and have performed field testing for, and have received pre-released versions
of, their equipment and software.
In addition, we have recently entered into a relationship with Williams
Communications, Inc., a provider of telecommunications services. As a part of
our relationship with Williams, we have contractually committed to purchase
network services from Williams and will pay for these services, in part, by
using our common stock. Concurrently with the closing of this offering, we will
issue 233,654 shares of common stock to Williams to be applied as payment for
network services we use in the future. For purposes of purchasing such services,
the shares of common stock issued to Williams will be valued at 89% of the
initial public offering price. We expect to begin using Williams network
services in July, 1999.
OUR MARKET OPPORTUNITY
We believe the Internet appliance market is poised to grow rapidly. As this
market grows, we anticipate that there will be an increasing demand for
cost-effective, high-quality access services connecting these devices to the
Internet.
- Industry analyst International Data Corporation, or IDC, estimates that
there will be 12.8 million Internet appliances in use in 1999 in the U.S.,
increasing to 72.9 million in 2000.
- IDC estimates that U.S. shipments of Internet appliances will increase
from 3.0 million in 1998 to 27.8 million in 2002, representing a compound
annual growth rate of 74%.
The Internet service provider market is highly fragmented with approximately
5,000 Internet service providers in the United States. As demand for Internet
access grows and the market for access matures, we believe that Internet service
providers 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 for wholesale
providers of Internet access services.
- Forrester Research predicts that the Internet access market will reach $50
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.
4
<PAGE>
ZIPLINK'S SOLUTION
Our wholesale Internet access solutions are designed to meet the needs of
the emerging Internet appliance market and to provide a network outsourcing
opportunity for Internet service providers. Our network and Internet access
services offer our customers the following advantages:
- OUTSOURCED SOLUTION. Our services allow our customers to focus on their
core competency of marketing their products and services;
- REDUCED TIME TO MARKET. Our services allow customers to quickly offer
Internet access to their subscribers, significantly reducing their time to
market;
- NATIONAL ACCESS. Our network covers 16 of the 20 largest metropolitan
areas in the United States, thereby lowering the barriers to entry into
new geographic markets for our customers;
- CAPITAL EXPENDITURE SAVINGS. Our service provides our customers with a
cost-effective alternative to a self-funded network upgrade or buildout;
and
- EXPANDED SERVICE OPTIONS. Our services allow our customers to offer a
broad range of services to their subscribers, including digital subscriber
line access and streaming audio and video (the simultaneous transmission
and playback of continuous streams of audio and visual content over the
Internet).
OUR HISTORY
ZipLink is presently organized as a Delaware limited liability company known
as "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 ZipLink, Inc. and its predecessors.
ZipLink was founded by our Co-Chairman, Eric Zachs, in November, 1995. After
consummation of the offering, our Co-Chairmen, Eric Zachs and Henry Zachs, will
beneficially own, in the aggregate, 54.1% of our common stock and will be able
to control most matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions.
We began revenue generating operations from the provision of direct Internet
access to retail users in June, 1996 and from WebTV in December, 1996. We had
revenue of $7.1 million in 1998, 68% of which was from one Internet appliance
customer, WebTV, and 32% of which was from direct Internet access. We commenced
our ZipDial service in November, 1998 and revenues from this service for the
three months ended March 31, 1999 were $77,000. We have a history of operating
losses and, as of March 31, 1999, had incurred a cumulative net loss from
operations of $25.7 million. Our industry is new and characterized by
significant capital investment, intense competition and low barriers to entry.
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.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us................... 3,500,000 shares
Common stock outstanding after the 12,733,654 shares
offering...................................
Use of proceeds.............................. To repay approximately $20.0 million of
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
Closing...................................... New York, New York, , 1999
</TABLE>
The outstanding share information is based on our shares outstanding as of
March 31, 1999 and includes (i) 834,615 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 $13.00 per share, and
(ii) 233,654 shares of common stock to be issued to Williams concurrently with
the closing of this offering, based upon an assumed initial public offering
price of $13.00 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 364,470 shares,
exerciseable at a weighted average price of $2.66 per share, have been
granted and options to purchase 355,150 shares, exerciseable at a weighted
average price of $12.78 per share, assuming an initial offering price of
$13.00 per share, will be granted concurrently with the closing of this
offering; and
- 58,521 shares reserved for issuance upon the exercise of an outstanding
warrant, at a price of $1.71 per share.
6
<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 ZipLink, LLC membership units 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,"
"Selected Financial Data" and our financial statements and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21, THREE MONTHS ENDED
1995 (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------- --------------------
1995 1996 1997 1998 1998 1999
------------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................ $ -- $ 756 $ 5,236 $ 7,088 $ 1,678 $ 2,745
Cost of revenues.................... -- 1,782 3,187 6,271 1,286 1,758
Selling, general and
administrative.................... 25 7,373 6,507 5,174 1,247 1,385
Depreciation and amortization....... 1 384 1,084 2,637 488 950
Loss from operations................ (26) (8,783) (5,543) (6,994) (1,342) (1,348)
Net loss............................ (26) (8,802) (6,709) (8,446) (1,609) (1,737)
PRO FORMA DATA:
Pro forma net loss.................. $ (26) $ (8,802) $ (6,709) $ (8,446) $ (1,609) $ (1,737)
Pro forma net loss per common
share-- basic and diluted......... (0.00) (1.16) (0.91) (1.03) (0.20) (0.21)
Weighted average common shares
outstanding--basic and diluted.... 7,568 7,568 7,394 8,165 8,165 8,165
OTHER FINANCIAL DATA:
Capital expenditures................ $ 79 $ 4,219 $ 8,516 $ 1,313 $ 791 $ 199
EBITDA(1)........................... (25) (8,399) (4,527) (4,502) (854) (436)
</TABLE>
- ------------------------
(1) EBITDA consists of net loss excluding net interest, taxes, and depreciation
and amortization expenses. 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.
7
<PAGE>
The following table summarizes our balance sheet as of March 31, 1999. The
pro forma as adjusted balance sheet data as of March 31, 1999 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 $13.00 per share, (iii) the issuance of
233,654 shares of common stock to Williams concurrently with the closing of this
offering at an effective price of $11.56 per share, based upon an assumed
initial public offering price of $13.00 per share, (iv) the sale of 3,500,000
shares of common stock in this offering at an assumed initial public offering
price of $13.00 per share, after deducting the underwriting discount and
estimated offering expenses, and (v) the application of the estimated net
proceeds of the offering, including the repayment of indebtedness to Fleet Bank
N.A. in the amount of $19.0 million. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
ACTUAL -----------
---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 303 $ 22,303
Working capital (deficit).............................................. (2,927) 22,648
Total assets........................................................... 10,781 35,481
Long-term debt, net of current portion................................. 19,214 214
Convertible debt, net of current portion............................... 6,625 --
Members'/Stockholders' equity (deficit)................................ (19,643) 31,557
</TABLE>
8
<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 THE MATERIAL RISKS
PRESENTLY KNOWN TO US. 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.
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, $4.8 million, or 68%, of our revenues for the year ended December 31,
1998 and $2.2 million, or 80%, of our revenues for the three months ended March
31, 1999. 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. The amount
of revenue we have received per month from WebTV commencing in August,
1998 has exceeded the minimum monthly amount WebTV is required to pay to
us under our agreement by an average of 40% per month. If WebTV were to
reduce the amount of monthly revenue we receive to the minimum amount
specified in our agreement, we would be unable to execute our business
plan and our business, financial condition and results of operations would
be materially adversely affected.
- 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, during
the course of a network upgrade, WebTV subscribers experienced difficulty
in establishing a connection to our network. As a result, WebTV reduced
the amount of subscriber traffic on our network. If we experience service
quality problems of this or any nature 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, these devices may, in the
future, be configured to use a cable modem as an alternative to dial-up
9
<PAGE>
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 such as cable modems."
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 commenced revenue generating operations from the provision of direct
Internet access to retail users in June, 1996 and from WebTV in December, 1996.
Our ZipDial service has only been offered since November, 1998 and our revenues
for the three months ended March 31, 1999 were $77,000. As a result, we have a
limited operating history upon which to base an evaluation of the future success
of our business, particularly our ZipDial program. In addition, because our
agreements with ZipDial customers are generally for one year and none of these
agreements has reached the end of its initial term, we cannot predict the rates
at which our ZipDial subscribers will renew their agreements with ZipLink. Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in new and rapidly evolving markets. 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 March
31, 1999 was $25.7 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 through expansion of our ZipDial program and
an increase in sales of access services for Internet appliances and to achieve
operating efficiencies. We plan to make significant capital expenditures to
expand our network and to increase our operating expenses relating principally
to telecommunications costs related to our network infrastructure, 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 by, and loans from or guaranteed
by, significant stockholders. We do not anticipate that these sources of
financing will be available to us after the consummation of the offering.
We anticipate that our available cash from operations, combined with the net
proceeds from this offering (after repayment of $20.0 million of indebtedness)
will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least the next 12 months. We are presently
seeking one or more debt financings aggregating approximately $15.0 million to
be used for capital expenditures, working capital and other general corporate
purposes. Even if we obtain such financing,
10
<PAGE>
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.
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.
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. A large percentage of our expenses
are for equipment and telecommunications services and are generally incurred in
advance of revenues from use of these network components. The timing and amount
of purchases of network equipment and telecommunications services is influenced
by, among other things, the availability of such network components at
attractive prices. Our quarterly operating results could fluctuate due to a
number of factors, including the timing and amount of network equipment
purchases or purchases of telecommunications services and the relative timing
and amount of revenues from customers using these or other network components.
As a result of these or other 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 THE GROWTH AND ACCEPTANCE OF INTERNET APPLIANCES.
We provide wholesale Internet access services to the Internet appliance
market. This market is in the early stages of development and is rapidly
evolving. It is difficult to predict the rate at which the Internet appliance
market will develop and grow and whether demand for our services in this market
can be sustained.
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; and
- we could fail to correctly identify and successfully form relationships
with developers and vendors of Internet appliances whose products enjoy
commercial success and acceptance.
The growth of the Internet appliance market and the acceptance of Internet
appliances could fail to occur, even as the Internet access market grows because
Internet users may not adopt Internet appliances as a means of connecting to the
Internet, electing instead to rely on access via a personal computer. In the
event that the Internet appliance market fails to develop as quickly as we have
anticipated, our business, financial condition and results of operations would
be materially adversely affected.
11
<PAGE>
WE DEPEND ON THE GROWTH OF THE INTERNET.
Demand for all our services will depend, in large part, on growth in the use
of the Internet. The growth of the Internet is highly uncertain and the Internet
may fail to grow due to a variety of factors, including:
- actual or perceived lack of security of information, such as credit card
numbers;
- traffic congestion or other usage delays on the Internet;
- high cost or lack of access availability; and
- governmental regulation
In addition, broad adoption of the Internet for most business applications
will require the acceptance of a new medium of conducting business and
exchanging information. If the Internet fails to grow, or fails to grow as
quickly as we have anticipated, our business, financial condition and results of
operations would be materially adversely affected.
WE ARE DEPENDENT ON OUR ZIPDIAL CUSTOMERS.
We earn revenue from our ZipDial Internet service provider customers largely
on the basis of the number of their subscribers who use our network. Our
agreements with these Internet service provider customers do not require them to
outsource any or all of their Internet access needs to us. The extent to which
an Internet service provider chooses to outsource these services to us for some
or all of its subscribers is wholly within the discretion of the Internet
service provider. Traffic allocation decisions may be made by Internet service
providers on a subscriber-by-subscriber or on an aggregate basis at any time, or
from time to time.
Our business, financial condition and results of operations could be
materially adversely affected if, for any reason:
- 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.
Because we initiated the ZipDial program in November, 1998, it is difficult
to predict whether, or under what terms, large numbers of Internet service
providers will join our ZipDial 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. Nor can we 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, or the extent to which these customers will
outsource Internet access services to us.
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 grow our network
capacity and to modify its capabilities to match increases in the number of
users and the amount and type of information users wish to transfer. 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
12
<PAGE>
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 could 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; or
- adapt our network infrastructure to changing customer requirements or
evolving industry trends.
We cannot assure you that we will be able to expand our network
infrastructure or adapt our infrastructure sufficiently, or at all.
OUR GROWTH AND EXPANSION MAY STRAIN OUR RESOURCES.
Our business has grown rapidly since our inception and is expected to
continue to grow. This growth and expansion have required, and are expected to
require a great deal of management time and significant financial resources. To
manage our growth, we must, among other things, 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 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.
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.
13
<PAGE>
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 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 contacted
approximately 40% of our suppliers to ascertain their Year 2000 status. During
the next 60 days we plan to contact the remainder of our suppliers, as well as
our significant customers, including WebTV, 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 you that equipment received from suppliers will comply or that any of
our suppliers, such as Nortel Networks or MCI WorldCom, or our customers 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 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 believe that the worst case scenario related to our services and systems
due to Year 2000 complications would be the failure of our entire network. This
would result in users being unable to connect to the Internet using our network
until such failure was remedied. As a result of such failure our revenues would
be materially adversely affected and our customers may terminate agreements to
use our Internet access services or otherwise not utilize such services.
We do not have 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 LIMITED SOURCES OF SUPPLY FOR KEY PRODUCTS
AND SERVICES.
We rely on other companies to supply us with telecommunications facilities,
computer hardware and software, networking equipment and related services which
are critical to the maintenance and operation of our network. We primarily buy
these products and services from MCI WorldCom, local exchange carriers,
competitive local exchange carriers, Nortel Networks and Cisco Systems, Inc.
These products and services are available in the quantity and of the quality
required by us only from limited sources. We do not carry significant
inventories of many of these products and have no guaranteed supply arrangements
for any such limited source products. We cannot assure you that we
14
<PAGE>
will be able to obtain the products and services that we need on a timely basis,
in sufficient quantities or at an affordable cost. We have experienced
interruptions in some telecommunications services and delays in purchasing
products and other services from time to time in the past and may experience
similar interruptions and delays in the future. We do not currently have, and do
not expect in the future to have, a means of replacing these products or
services on a timely and cost-effective basis. Further, all of our suppliers
sell products and services to our competitors and, in the case of
telecommunications services in particular, some of our suppliers are or may
become competitors themselves. Our suppliers may enter into exclusive
relationships with our competitors or stop selling products and services to us
at commercially reasonable prices. If we are unable to obtain critical services
or products in the quantities required by us and on a timely basis, our
business, financial condition and results of operations may be materially
adversely affected.
We also depend on our suppliers' ability to provide necessary products that
comply with various Internet and telecommunications standards. These products
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.
OUR SUCCESS DEPENDS ON MAINTAINING RELATIONSHIPS WITH OTHER INTERNET ACCESS
PROVIDERS.
The Internet includes a number of Internet access providers (including
Internet service providers) that operate their own networks and connect with
each other at various locations around the United States under informal
arrangements known as "peering" (where providers connect without charge) and
under written arrangements known as "transit" agreements (where there are
charges imposed). It is more costly and less efficient to operate a network
without peering or transit arrangements. Consequently, we must maintain our
peering and transit relationships to maintain high performance levels at a
reasonable cost. These arrangements are not subject to regulation and the terms,
conditions and costs can be changed by the provider at any time. Currently, we
have peering relationships with 48 Internet access providers and transit
agreements with two Internet access providers. If we fail to maintain these
relationships on a cost-effective basis, the costs of operating our network
could increase and our business, financial condition and results of operations
could be materially adversely affected.
WE DEPEND UPON OUR NETWORK INFRASTRUCTURE FUNCTIONING WITHOUT INTERRUPTION.
Our success depends upon the reliability and security of our network
infrastructure. While we have taken precautions against system failure,
interruptions could result from natural disasters, as well as power loss,
telecommunications failure and similar events and interruptions have occurred in
the past. 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. super point of presence and a temporary suspension of our
ability to provide service to that geographic area.
A significant portion of our computer equipment is located in Lowell,
Massachusetts, as well as at individual super points of presence. 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.
15
<PAGE>
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. In particular, because our agreements with our ZipDial
customers are not exclusive and these Internet service providers are free to
outsource any or all of their Internet access services to other providers, our
ZipDial program is vulnerable to competitive pressures. We believe that our
ability to compete successfully in the market for Internet access service
generally depends upon a number of factors, including:
- our ability to create and market wholesale Internet access solutions that
are attractive to Internet service providers in terms of price, quality
and breadth of service offerings;
- the capacity, reliability and security of our network infrastructure;
- market presence and, with respect to Internet appliances, our success at
developing relationships with innovators and early marketers of such
devices;
- 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 establish and maintain successful strategic relationships
with key customers and suppliers and to gain early access to new markets
and new technologies; and
- our ability to support industry standards.
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
Internet service providers. 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 Internet service
providers such as GTE Internetworking, Concentric, PSINet, UUNet, IDT Corp.,
Splitrock Services, Inc. and Epoch Internet, Inc., as well as competitive local
exchange carriers 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 Williams, AT&T Corporation, Qwest Communications
International, Inc. and Level 3 Communications, Inc., and other Internet service
providers. 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 access 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 such as cable modems."
16
<PAGE>
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.
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 services 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
Internet service provider market could result in a reduced number of actual and
potential customers for our ZipDial service as local and regional Internet
service providers are absorbed by larger, national providers or as Internet
service providers combine into entities with greater resources and purchasing
power. A reduction 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 and evolving industry standards. 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.
Our success 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 a group of network standards, or protocols, known in our
industry as "TCP/IP." Alternative 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/
17
<PAGE>
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.
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 new Nortel Networks equipment. The reduced
service quality resulted in a temporary reduction in WebTV subscriber
traffic and a corresponding reduction in revenue from WebTV.
- We have recently upgraded our network to the most current modem standard,
known as "V.90 56 kilobits per second." We initially had to delay our
implementation of this upgrade due to compatibility issues between WebTV's
devices and our Nortel Networks software.
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, then our business, financial condition and
results of operations would be materially adversely affected.
WE FACE RISKS FROM NEW ACCESS TECHNOLOGIES SUCH AS CABLE MODEMS.
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 modems, wireless cable modems, satellite modems and
other access devices that do not use telephone lines. According to Forrester
Research, Internet access other than over telephone lines will constitute 23% of
the Internet access market by 2002. Forrester Research predicts that cable modem
connections, in particular, will gain market share from dial-up connections
because cable modems offer the ability to operate at substantially higher data
transmission speeds at attractive pricing, pervasive connectivity and ease of
installation. In addition, some Internet appliances 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. For example, if
WebTV set-top boxes were configured to use cable modems and if Internet access
using the cable network becomes widely available to WebTV subscribers, the
number of WebTV subscribers using our network through a dial-up connection could
fall significantly. In such event, we will be required to identify and develop
alternative markets that can use the 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 user 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
18
<PAGE>
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 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 HIRE AND RETAIN SUFFICIENT
NUMBERS OF QUALIFIED PERSONNEL.
Our success depends to a significant degree upon the continued contributions
of Henry Zachs, our Co-Chairman and Chief Executive Officer, Christopher
Jenkins, our President, and James Cocks, our Director of Networking. Mr. Zachs
will devote approximately 50% of his time to our business following the
consummation of the offering. 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 Messrs. Zachs or Cocks or 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 voice messages based on Internet protocol over
telecommunication facilities as telecommunications services. We provide
value-added Internet protocol-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"
19
<PAGE>
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 circumstances, such
as where they are provided by incumbent local exchange carriers 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 incumbent local exchange
carriers, 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 competitive local exchange carriers
which provide key enabling components of our super points of presence.
Competitive local exchange carriers are subject to extensive regulation by the
FCC. This includes rules governing so-called "reciprocal compensation," the
compensation of competitive local exchange carriers by incumbent local exchange
carriers for telephone calls from incumbent local exchange carrier customers
which are terminated on the competitive local exchange carrier's system. This
regulation applies to dial-up calls to ZipLink's network which originate on an
incumbent local exchange carrier's telephone line and pass through competitive
local exchange carrier facilities used in our super points of presence. 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 competitive local exchange carriers. We cannot predict any future changes
in reciprocal compensation or other rules governing competitive local exchange
carriers or the impact any such regulatory changes may have on their businesses.
If competitive local exchange carriers 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 super point of
presence 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. We cannot assure you that such
measures have been, or will be, adequate to prevent misappropriation of our
proprietary technology or
20
<PAGE>
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
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 ARE AT RISK FROM 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,
21
<PAGE>
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 access 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.
Our network operations, like those of all Internet service providers 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 Internet service
providers. As a result, many Internet service providers 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, N.A. and to obtain the release of Henry Zachs'
personal guarantee of such indebtedness, resulting in a material benefit to
Henry Zachs. Further, 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 "Certain Relationships and Related 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 WILL, IN THE AGGREGATE,
BENEFICALLY OWN 54.1% OF OUR COMMON STOCK AND, AS A RESULT, CAN EXERCISE
SIGNIFICANT INFLUENCE OVER OUR COMPANY.
Henry Zachs, our Co-Chairman and Chief Executive Officer, and Eric Zachs,
our Co-Chairman, will, in the aggregate, beneficially own approximately 54.1% of
our common stock following the completion of this offering (52.0% if the
underwriters' over-allotment option is exercised in full), based
22
<PAGE>
upon an assumed initial public offering price of $13.00 per share. These
stockholders will be able to control most 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 FACE RISKS FROM POTENTIAL VOLATILITY IN OUR STOCK PRICE.
Currently, there is 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
market price for our common stock could be subject to fluctuations and it may
decline below the initial public offering price. The stock market has recently
experienced significant price and volume fluctuations that have affected the
market prices for the common stocks of Internet-related companies. In the past,
these broad market fluctuations have been unrelated or disproportionate to the
operating performance of these companies. If there are similar industry-wide
fluctuations in the future, the price of our common stock could drop suddenly
and significantly, even if there has been no adverse change in our business,
financial condition or results of operations.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY AFFECT OUR
STOCK PRICE.
The market price for our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering, or the perception that such sales may occur. 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. In
addition, commencing 180 days after the date of this offering, some of our
executive officers, existing stockholders and Williams, have the right to demand
registration or to require us to include approximately 9,077,885 of their shares
in some registration statements relating to our securities. The existence of
these rights may increase the likelihood, or the perceived likelihood that these
stockholders will sell a large number of shares of common stock in the market
after the offering. See "Shares Eligible for Future Sale."
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 $10.52 per share, based upon an assumed initial public
offering price of $13.00 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
23
<PAGE>
interested stockholder, unless some conditions are met. In addition, provisions
in our Amended and Restated 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 stockholder approval. Our Amended and Restated
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 Amended and Restated Certificate
of Incorporation and By-Laws further require a supermajority vote of the
stockholders to amend certain provisions of our Amended and Restated Certificate
of Incorporation or the By-Laws. See "Description of Capital Stock--Delaware
Anti-takeover Law and Certain Charter and By-Law Provisions."
FORWARD LOOKING STATEMENTS
This prospectus 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 anticipated in these forward-looking statements, as a result of certain
factors, as more fully described in "Risk Factors" and elsewhere in this
prospectus. We caution you that no forward-looking statement is a guarantee of
future performance and you should not place undue reliance on these
forward-looking statements which reflect our management's view only as of the
date of this prospectus.
24
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 3,500,000 shares of
common stock we are offering will be approximately $41,000,000 ($47,347,250 if
the underwriters' over-allotment is exercised in full), based upon an assumed
initial public offering price of $13.00 per share, and after deducting the
underwriting discount and other estimated offering expenses.
The following table sets forth our estimated use of the net proceeds of the
offering:
<TABLE>
<S> <C>
Repayment of outstanding indebtedness under line of credit(1)............................. $20,000,000
Expansion of network infrastructure....................................................... 10,000,000
Sales and marketing....................................................................... 2,300,000
Working capital and general corporate purposes............................................ 8,700,000
-----------
Total............................................................................. $41,000,000
-----------
-----------
</TABLE>
- ------------------------
(1) 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. The interest rate applicable to the Fleet Bank line of
credit was 5.26% as of March 31, 1999.
We are presently seeking one or more debt financings aggregating
approximately $15.0 million to be used for capital expenditures, working capital
and other general corporate purposes as a replacement for the Fleet Bank line of
credit. We cannot assure you that we will be able to obtain any 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.
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of ZipLink, as of March
31, 1999, (A) on an actual basis, (B) on a pro forma basis to give effect to (i)
the Reorganization, (ii) the conversion of all outstanding convertible debt into
834,615 shares of common stock concurrently with this offering, based upon an
assumed initial public offering price of $13.00 per share, and (C) on a pro
forma as adjusted basis to give effect to (i) the sale of 3,500,000 shares of
common stock in this offering, at an assumed initial public offering price of
$13.00 per share, after deducting the underwriting discount and the estimated
offering expenses, (ii) the issuance of 233,654 shares of common stock to
Williams concurrently with the closing of this offering, based upon an assumed
initial public offering price of $13.00 per share, 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>
(A) (B) (C)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................................................... $ 303 $ 303 $ 22,303
---------- ----------- -----------
---------- ----------- -----------
Long-term obligations:
Capital lease obligations................................................. $ 692 $ 692 $ 692
Note payable.............................................................. 19,000 19,000 --
Convertible debentures.................................................... 7,500 -- --
---------- ----------- -----------
Total long-term obligations (including current portion)................. 27,192 19,692 692
Members'/Stockholders' equity (deficit):
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, 9,000,000 and
12,733,654 issued and outstanding (pro forma and pro forma as adjusted,
respectively)........................................................... -- 9 13
Additional paid-in capital................................................ -- 13,568 57,264
Accumulated deficit....................................................... -- (25,720) (25,720)
---------- ----------- -----------
Total members'/stockholders' equity (deficit)........................... (19,643) (12,143) 31,557
---------- ----------- -----------
Total capitalization.................................................. $ 7,549 $ 7,549 $ 32,249
---------- ----------- -----------
---------- ----------- -----------
</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 364,470 shares,
exerciseable at a weighted average price of $2.66 per share, have been
granted and options to purchase 355,150 shares, exerciseable at a weighted
average price of $12.78 per share, based upon an assumed initial public
offering price of $13.00 per share, will be granted concurrently with the
closing of this offering; and
- 58,521 shares reserved for issuance upon the exercise of an outstanding
warrant at a price of $1.71 per share.
26
<PAGE>
DILUTION
After giving effect to (i) the conversion of the $7.5 million of outstanding
convertible debt held by Nortel Networks into an aggregate of 834,615 shares of
common stock concurrently with the closing of this offering, based upon an
assumed initial public offering price of $13.00 per share, and (ii) 233,654
shares of common stock issuable to Williams concurrently with the closing of
this offering, based upon an assumed initial public offering price of $13.00 per
share, the pro forma net tangible book value of ZipLink as of March 31, 1999
would have been $(9.4 million), or $(1.02) 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 $13.00 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 March 31, 1999 would
have been $2.48 per share. This represents an immediate accretion in the net
tangible book value of $3.50 per share to existing stockholders and an immediate
dilution in net tangible book value of $10.52 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............... $ 13.00
---------
Pro forma net tangible book value per share as at March 31,
1999...................................................... $ (1.02)
Increase per share attributable to new investors............ $ 3.50
---------
Pro forma net tangible book value per share after the
offering.................................................... 2.48
---------
Dilution per share to new investors (1)....................... $ 10.52
---------
---------
</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 $2.86, resulting
in an immediate dilution of $10.14 per share to investors purchasing shares
in this offering.
27
<PAGE>
The following table summarizes, on a pro forma basis, as of March 31, 1999,
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, (iii) Williams, and (iv) investors
purchasing shares from us in this offering at an assumed initial public offering
price of $13.00 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, our predecessor in
interest.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Nortel Networks(1)..................................... 1,659,478 13.0% $ 10,000,000 17.2% $ 6.03
Other existing stockholders............................ 7,340,522 57.7 9,500 -- --
Williams............................................... 233,654 1.8 2,700,000 4.6 11.56
New investors.......................................... 3,500,000 27.5 45,500,000 78.2 13.00
------------- --- ------------- ---
Total.............................................. 12,733,654 100% $ 58,209,500 100%
------------- --- ------------- ---
------------- --- ------------- ---
</TABLE>
- ------------------------
(1) Includes 824,863 shares purchased from us for $3.03 per share on December
23, 1997, 450,000 shares of common stock issued upon conversion of a $2.5
million convertible debenture at a conversion price of $5.56 per share, and
384,615 shares of common stock issued upon conversion of a $5.0 million
convertible debenture at a conversion price of $13.00 per share, based upon
an assumed initial public offering price of $13.00 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 March 31, 1999 have been exercised. There were, as of March 31, 1999,
outstanding options to purchase 364,470 shares of common stock, exerciseable at
a weighted average price of $2.66 per share, and an outstanding warrant to
purchase 58,521 shares of common stock, with an exercise price of $1.71 per
share. To the extent outstanding options and warrants are exercised, there will
be additional dilution to investors purchasing shares in this offering.
28
<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 November 21, 1995 (date of
inception) to December 31, 1995 and the balance sheet data as of December 31,
1995 have been derived from unaudited financial statements 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 selected statement of operations data for the three months
ended March 31, 1998 and 1999 and the balance sheet data as of March 31, 1999
have been derived from our unaudited financial statements which are included
elsewhere in this prospectus and which include, in our opinion, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of our financial position and the results of our operations for
those periods. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. 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 Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 21, THREE MONTHS ENDED
1995 (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------------- --------------------
1995 1996 1997 1998 1998 1999
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ -- $ 756 $ 5,236 $ 7,088 $ 1,678 $ 2,745
Cost of revenues............................. -- 1,782 3,187 6,271 1,286 1,758
Selling, general and administrative.......... 25 7,373 6,507 5,174 1,247 1,385
Depreciation and amortization................ 1 384 1,084 2,637 488 950
------------- --------- --------- --------- --------- ---------
Total costs and expenses................... 26 9,539 10,779 14,082 3,020 4,093
------------- --------- --------- --------- --------- ---------
Loss from operations......................... (26) (8,783) (5,543) (6,994) (1,342) (1,348)
Interest and other expenses, net........... -- 19 1,167 1,452 267 389
------------- --------- --------- --------- --------- ---------
Net loss..................................... $ (26) $ (8,802) $ (6,709) $ (8,446) $ (1,609) $ (1,737)
------------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- ---------
PRO FORMA DATA:
Pro forma net loss........................... $ (26) $ (8,802) $ (6,709) $ (8,446) $ (1,609) $ (1,737)
Pro forma net loss per common share-- basic
and diluted................................ (0.00) (1.16) (0.91) (1.03) (0.20) (0.21)
Weighted average common shares
outstanding--basic and diluted............. 7,568 7,568 7,394 8,165 8,165 8,165
OTHER FINANCIAL DATA:
Capital expenditures......................... $ 79 $ 4,219 $ 8,516 $ 1,313 $ 791 $ 199
EBITDA(1).................................... (25) (8,399) (4,527) (4,502) (854) (436)
</TABLE>
29
<PAGE>
- ------------------------
(1) EBITDA consists of net loss excluding net interest, taxes, and depreciation
and amortization expenses. 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.
The following pro forma as adjusted balance sheet data as of March 31, 1999
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 $13.00 per
share, (iii) the issuance of 233,654 shares of common stock to Williams
concurrently with the closing of this offering, at an effective price of $11.56
per share, based upon an assumed initial public offering price of $13.00 per
share, (iv) the sale of 3,500,000 shares of common stock in this offering at an
assumed initial public offering price of $13.00 per share, after deducting the
underwriting discount and estimated offering expenses, and (v) the application
of the estimated net proceeds from the offering, including the repayment of the
note payable to Fleet Bank in the amount of $19.0 million.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
AS OF DECEMBER 31, -----------------------
--------------------------------------------- PRO FORMA
1995 1996 1997 1998 ACTUAL AS ADJUSTED
----------- --------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 2,074 $ 301 $ 1,082 $ 512 $ 303 $ 22,303
Working capital (deficit)................. (78) (6,841) (5,317) (3,062) (2,927) 22,648
Total assets.............................. 2,185 4,569 12,984 11,174 10,781 35,481
Long-term debt, net of current portion.... -- -- 15,803 17,939 19,214 214
Convertible debentures, net of current
portion................................. -- -- -- 7,000 6,625 --
Members'/Stockholders' equity (deficit)... 1 (3,024) (9,748) (18,089) (19,643) 31,557
</TABLE>
30
<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 provider of wholesale Internet access services to
developers and vendors of Internet appliances and local, regional and national
Internet service providers. ZipLink was founded in November, 1995. We began
testing our Internet network in the Northeastern U.S. in April, 1996. In June,
1996, we commenced revenue generating operations from the provision of direct
Internet access to retail users. In July, 1996, we acquired the network assets
and call center of the former Delphi Internet Corporation/News America Holdings,
Incorporated joint venture ("Delphi") from iGuide, Inc, began use of our present
network architecture and commenced initial deployment of super points of
presence. We commenced revenue generating operations from WebTV in December,
1996. During 1998, we began an upgrade of substantially all of our points of
presence 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, 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 receive a fixed amount per month with respect to
some WebTV subscribers serviced by our network and an hourly rate with respect
to others.
We also provide wholesale national dial-up Internet access and enhanced
services, including digital subscriber line service where available, under the
name ZipDial, to 85 Internet service providers (as of April 30, 1999). Our
services enable Internet service providers 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 are derived 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 March 31,
1999 was $25.7 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 through expansion of our ZipDial program and
an increase in sales of access services for Internet appliances and to achieve
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.
31
<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>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- -----------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
-------- ------- ------- ------- -------
Revenues.............................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................................................... 235.9 60.9 88.5 76.6 64.0
Selling, general and administrative................................... 975.6 124.3 73.0 74.3 50.4
Depreciation and amortization......................................... 50.8 20.7 37.2 29.1 34.6
-------- ------- ------- ------- -------
Loss from operations.................................................. (1,162.3) (105.9) (98.7) (80.0) (49.0)
Interest and other expenses, net...................................... (2.5) (22.2) (20.5) (15.9) (14.2)
-------- ------- ------- ------- -------
Net loss.............................................................. (1,164.8)% (128.1)% (119.2)% (95.9)% (63.2)%
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Revenues increased 58.8% from $1.7 million for the three months
ended March 31, 1998 to $2.7 million for the three months ended March 31, 1999.
This increase was due to WebTV revenues, which increased from $1.1 million for
the three months ended March 31, 1998 to $2.2 million for the three months ended
March 31, 1999. During this period, revenue from direct retail users decreased
from $561,000 for the three months ended March 31, 1998 to $465,000 for the
three months ended March 31, 1999. Revenues from ZipDial services for the three
months ended March 31, 1999 were $77,000.
COST OF REVENUES. Cost of revenues consist primarily of telecommunications
costs and collocation costs for super points of presence. Cost of revenues
increased 38.5% from $1.3 million for the three months ended March 31, 1998 to
$1.8 million for the three months ended March 31, 1999. This increase was
primarily due to an increase in telecommunication costs and, to a lesser extent
an increase in collocation costs.
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. Selling, general and administrative
expenses increased 16.7% from $1.2 million for the three months ended March 31,
1998 to $1.4 million for the three months ended March 31, 1999. This increase
was primarily due to salaries, marketing and administrative expenses associated
with the growth in our ZipDial program and business strategies, partially offset
by a reduction in professional services.
DEPRECIATION AND AMORTIZATION. Depreciation expense increased from $488,000
for the three months ended March 31, 1998 to $950,000 for the three months ended
March 31, 1999. Substantially all of this increase resulted from the effect of
additional capital assets purchased and placed in service during 1998.
INTEREST EXPENSE. Interest expense increased from $277,000 for the three
months ended March 31, 1998 to $356,000 for the three months ended March 31,
1999. This increase was due to interest on an additional $7.0 million of
convertible debt from Nortel Networks and increased borrowings on our line of
credit.
32
<PAGE>
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 Internet service providers. 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 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 super points of presence increased in 1998 as the number of
super points of presence increased from ten at December 31, 1997 to 18 at
December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
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 was 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 Internet access market.
DEPRECIATION AND AMORTIZATION. 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 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
33
<PAGE>
the termination of the customer support agreement with Delphi Internet Services,
Inc. and our shift in focus from the direct retail market to the wholesale
Internet access 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 March 31, 1999, 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 and March 31, 1999, we had $301,000, $1.1 million, $512,000 and $303,000,
respectively, in cash and cash equivalents.
Net cash used in operating activities was $6.0 million, $3.4 million, $8.9
million and $1.3 million for the years ended December 31, 1996, 1997 and 1998,
and for the three months ended March 31, 1999, 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 operating activities for the
three months ended March 31, 1999 is primarily attributable to our net loss,
increases in accounts receivable and prepaid expenses and decreases in amounts
due to affiliates partially offset by depreciation and amortization and the
increases in accounts payable and deferred revenue.
Net cash used in investing activities was $4.3 million, $7.0 million, $1.3
million and $199,000 for the years ended December 31, 1996, 1997 and 1998, and
for the three months ended March 31, 1999, respectively. Principal investments
were for capital expenditures which amounted to $4.2 million, $7.0 million, $1.3
million and $199,000 for the years ended December 31, 1996, 1997 and 1998, and
the three months ended March 31, 1999, 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,
34
<PAGE>
and, for the year ended December 31, 1997, $1.5 million of network 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,
$9.7 million and $1.3 million for the years ended December 31, 1996, 1997 and
1998, and the three months ended March 31, 1999, respectively. Net cash provided
by financing activities includes approximately $5.8 million of net contributions
from Henry and Eric Zachs and their affiliates in 1996 and approximately $2.5
million of net distributions to Henry and Eric Zachs and their affiliates in
1997, as well as loans from commercial banks, such loans being 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 to $25.0 million in April, 1999 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 ($19.0 million as of March 31, 1999). We intend to terminate
this facility after the closing of this offering. We are also seeking to obtain
one or more debt financings aggregating approximately $15.0 million 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 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, e-mail 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 contacted
35
<PAGE>
approximately 40% of our suppliers to ascertain their Year 2000 status. During
the next 60 days we plan to contact the remainder of our suppliers, as well as
our significant customers, including WebTV, 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
additional 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 believe that the worst case scenario related to our services and systems
due to Year 2000 complications would be the failure of our entire network. This
would result in users being unable to connect to the Internet using our network
until such failure was remedied. As a result of such failure our revenues would
be materially adversely affected and our customers may terminate agreements to
use our Internet access services or otherwise not utilize such services.
We do not have 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 provider of wholesale Internet access services to
developers and vendors of Internet appliances and local, regional and national
Internet service providers. We offer a range of Internet access solutions for
Internet appliances, including Internet connectivity, subscriber authentication
and e-mail filtering and forwarding (user managed, selective e-mail forwarding).
We also provide wholesale national Internet access services under the name
ZipDial to Internet service providers which, in turn, offer Internet access to
their subscribers using our network infrastructure. Our ZipDial service features
wholesale dial-up Internet access and enhanced services, such as digital
subscriber line access.
INDUSTRY BACKGROUND
EMERGENCE AND GROWTH OF THE INTERNET
The emergence of the Internet and the widespread adoption of Internet
protocol 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. According to IDC, the number of Internet users
worldwide reached 38 million in 1996 and should grow to over 173 million by the
Year 2000.
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 personal computers, 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. There are a number of examples of
Internet appliances currently in use, including devices known as TV set-top
boxes, which enable Internet browsing and e-mail from a television, and wireless
devices which receive 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 vending machines in
use today 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.
One such Internet access device is the WebTV set-top box from WebTV Networks
which allows users to access the Internet through a television. WebTV's
subscribers pay a monthly fee of $19.95 to receive the WebTV service. WebTV
launched its service in late 1996 and was acquired in 1997 by Microsoft for
approximately $425.0 million. WebTV reports its current subscribers as 700,000.
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 12.8 million Internet appliances
in use in 1999 in the U.S., increasing to 72.9 million in 2002. IDC also
estimates that U.S. shipments of Internet appliances will increase from 3.0
million in 1998 to 27.8 million in 2002, representing a compound annual growth
rate of 74%.
37
<PAGE>
THE INTERNET ACCESS INDUSTRY
The rapid development and growth of the Internet has resulted in a highly
fragmented industry of over 5,000 local, regional and national Internet service
providers in the United States. These companies provide Internet access to their
subscribers either by developing a proprietary network infrastructure or by
purchasing Internet access from a wholesale provider such as ZipLink or through
a combination of both. Internet service provider revenues have grown and are
expected to continue to grow at a high rate. IDC estimates that Internet service
provider 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 $50
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 Internet service providers, including
regional Bell operating companies 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.
Internet service providers in general are under increasing price pressure as the
Internet access industry matures.
In addition, local and regional Internet service providers, 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 Internet service providers 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 an Internet service provider's overhead expenses,
irrespective of the size of the provider, 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 Internet service providers. We presently provide Internet
connectivity, subscriber authentication, e-mail filtering and forwarding and
other specially developed services for several Internet appliances, such as the
WebTV set-top box, and have the ability to provide similar services to other
Internet appliances. We have been a provider of Internet access services to
WebTV, a widely-used Internet appliance, since its introduction in 1996. We
believe our experience with WebTV will enable us to attract other developers and
vendors of Internet appliances and assist us in quickly implementing Internet
access services for their devices. The ready availability of our existing
service offerings and our ability to quickly implement new access services will
enable developers and vendors 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.
The network attributes and experience we have developed through our
relationship with WebTV and other Internet appliance customers also enable us to
provide high-quality wholesale Internet access services to Internet service
providers. Our network has been engineered and operated to optimize dial-up
performance in order to provide reliable, high-quality national dial-up
connectivity to WebTV. Our ZipDial service for Internet service providers
feature dial-up connectivity using this same network capability as its core
feature. By outsourcing network connectivity to ZipLink, these Internet service
providers 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 Internet service providers to
concentrate on acquiring and retaining subscribers and marketing Internet
38
<PAGE>
access and other complementary products rather than network management and
buildout. ZipLink's services are transparent to the Internet service provider's
subscriber, preserving the Internet service provider's own brand identity as the
service provider. For example, by using ZipLink's services an Internet service
provider can quickly, easily and inexpensively expand its geographic coverage to
cover new local dialing areas and provide its subscribers with digital
subscriber line access and streaming audio and video applications, thereby
enabling the Internet service provider to better satisfy customer demand without
sacrificing price-competitiveness.
OUR BUSINESS STRATEGY
Our objective is to become the leading wholesale provider of Internet access
services for developers and vendors of Internet appliances and Internet service
providers 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 to increase our market visibility.
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 Internet
service providers. ZipDial is designed to allow Internet service providers
to respond to increasing price competition and service demands by quickly
expanding their capacity, coverage and product offerings without costly
infrastructure investments.
EXPAND AND ENHANCE OUR NETWORK. We intend to continue to expand, enhance
and maintain a reliable network infrastructure with high-quality
performance.
ESTABLISH CLOSE RELATIONSHIPS WITH KEY CUSTOMERS AND SUPPLIERS. We seek to
establish and sustain close relationships with key customers and suppliers
to create and exploit early access to new markets and new technologies.
CAPITALIZE ON OUR WEBTV RELATIONSHIP. We intend to capitalize on our
relationship with WebTV by continuing to expand our network where it is
likely to be supported by WebTV traffic and by using this relationship to
boost our marketing efforts with developers and vendors of other Internet
appliances.
KEY SUPPLIER RELATIONSHIPS
As an important component of our strategy to become a leading provider of
Internet access services to developers and vendors of Internet appliances and
Internet service providers, we intend to identify, establish and maintain close
relationships with important customers and suppliers to create and exploit early
access to new markets and new technologies. Consistent with this strategy, in
1997, ZipLink entered into a series of agreements with Bay Networks, Inc., now a
subsidiary of Northern Telecom Limited, or Nortel Networks, a major manufacturer
of telecommunications equipment. As a part of these agreements, 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 our common stock. Following this offering, Nortel
Networks will own approximately 13.0% of our outstanding common stock, based
upon an assumed initial public offering price of $13.00 per share. We agreed to
purchase network services from Nortel Networks and, to date, have purchased
approximately $7.2 million of telecommunications equipment and related services
from Nortel Networks to facilitate our network buildout and upgrade. In
connection with our use of Nortel Networks equipment, we have served as a
testing facility or "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 featuring co-
39
<PAGE>
branded print advertising and direct mail solicitations. We believe that our
relationship with Nortel Networks helps to raise our visibility in the
marketplace for wholesale Internet access and provides this important supplier
with a vested interest in supporting our success. See "Certain Relationships and
Related Transactions--Purchases from Nortel Networks" and "--Nortel Networks
Funding."
We have also recently entered into a relationship with Williams, a major
telecommunications carrier. As a part of this supplier relationship, we have
committed to purchase approximately $5.4 million of network services from
Williams over the next three years and will pay for these services, in part, by
using our common stock. These network services will substitute for those
services we presently purchase from MCIWorldCom, including the provision of a
system of high-speed network connections between our super points of presence,
our network operations center and the Internet (known in our industry as a
"backbone"). Concurrently with the closing of this offering, we will issue
233,654 shares of common stock, based upon an assumed initial public offering
price of $13.00 per share, to Williams to be applied as partial payment for
these network services we use in the future. For purposes of purchasing such
services, the shares of common stock to be issued to Williams will be valued at
$2.7 million, or the equivalent of $11.56 per share, which is equal to 89% of
the initial public offering price at an assumed initial public offering price of
$13.00 per share. We expect to begin using Williams network services in July,
1999 and to gradually migrate our network backbone from MCIWorldCom to Williams.
We believe that our relationship with Williams will, among other things, help
assure us of access to backbone capacity in the future, an important
consideration for Internet access providers.
SERVICES
ZipLink provides wholesale Internet access services to developers and
vendors of Internet appliances and to local, regional and national Internet
service providers using our national network. We also provide Internet service
to a limited number of direct subscribers, although we intend to devote minimal
resources to 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 developed the network, systems configuration and
know-how to provide Internet connectivity, subscriber authentication, 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 (TV set-top boxes and personal
computers) 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 developers and vendors of Internet appliances an
opportunity to reduce their time to market and to avoid the necessity of
developing the required network 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
personal computer. Prices of such devices generally range from $99.95 to
$199.95. 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 TV set-top box installed by the
year 2002. ZipLink's customer relationships in this device category are
described below.
40
<PAGE>
- WEBTV. We are a national provider of Internet connectivity to WebTV. 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. Since
WebTV launched its service in December, 1996, its subscriber traffic has
grown to more than 700,000. We receive a fixed amount per month with
respect to some WebTV subscribers serviced by our network and an hourly
rate with respect to others. Although the ratio of fixed to hourly pricing
is within the discretion of WebTV, 90.0% of our revenues from WebTV since
August, 1998 have been from fixed price billing. See "Risk Factors--We are
dependent on WebTV."
- WEBSURFER. We will serve as the "preferred" Internet access provider for
a TV set-top box developed and marketed by WebSurfer, Inc., a subsidiary
of The Batra Group, Inc. ("WebSurfer"). Like WebTV, the WebSurfer TV
set-top box allows for Internet access and it offers added features such
as a built-in handset for making local and long distance telephone calls
over the Internet. 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 June, 1999. As a "preferred" provider,
ZipLink will serve as the exclusive provider of Internet access in areas
of the United States where we have network coverage, although WebSurfer
can use other providers in such areas to the extent we are unable or
unwilling to match competing prices or services. As in the WebTV
relationship, we will provide dial-up connectivity between WebSurfer
subscribers and WebSurfer's own Internet access facility. In addition to
providing this connectivity, we will also perform user authentication and
registration of first-time users 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 provides for a fixed monthly charge per WebSurfer customer that
uses our network.
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 customer relationships
in this device category, each of which is discussed below, and plan to pursue
relationships with other developers.
- BEEPWEAR. We are the exclusive Internet service provider for the Beepwear
wristwatch pager, a device jointly developed by Motorola, Inc. and Timex
Corporation and 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 enhances 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. The Beepwear watch was introduced in January, 1998. 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 within the Internet appliance industry as a provider
of Internet access services to this market. Our agreement with Beepwear
expires in December, 2002 but may be earlier terminated if
contractually-established targets are not met. To date, the Beepwear watch
has been sold in limited quantities.
41
<PAGE>
- 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 AutoPC 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. The AutoPC has been marketed only on a
limited basis and is expected to be released later this year.
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 in the future with developers and vendors
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. Forrester
Research estimates that the use of the Internet for local and long
distance phone calls will become an approximately $900 million market in
2002. 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. Initiatives in this market have been announced by Sega
Enterprises, Ltd. and Nintendo Corporation, two leading U.S. makers of in-
home gaming platforms. 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 (which
simultaneously transmit data in a single stream to multiple users) 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, an industry analyst, 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 SERVICES FOR INTERNET SERVICE PROVIDERS
We provide an array of wholesale Internet access services under the name
ZipDial to Internet service providers which, in turn, offer Internet access to
their subscribers using ZipLink's network. The use of this service is wholly
transparent to the subscriber, preserving the Internet service provider's own
brand identity as the service provider. The ZipDial program is specifically
designed to afford Internet service providers 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
other Internet access options including a range of connection types and features
such as streaming audio and video and multicasting in certain areas. By
contracting with ZipLink for Internet access services, Internet service
providers can offer their subscribers a broader range of products than would
otherwise be possible, enabling local and regional Internet
42
<PAGE>
service providers, in particular, to compete favorably with large national
Internet service providers possessing greater resources.
One Internet access service option which we believe will be significant to
our ZipDial customers is digital subscriber line service. Digital subscriber
line technology allows users to achieve data transmission speeds over ordinary
telephone lines up to 7.1 megabits per second (or 125 times the fastest dial-up
modem currently available) at a reasonable cost. In order to support digital
subscriber line technology within a given local dialing area, however, an
Internet service provider must generally incur significant up-front costs to
acquire the necessary equipment and infrastructure. By outsourcing their
Internet access services to ZipLink, Internet service providers will be able to
offer digital subscriber line access to their subscribers without incurring
these substantial up-front investments.
ZipLink's ability to offer digital subscriber line access as a part of its
ZipDial program is the result of supplier relationships with two significant
providers of digital subscriber line services: Covad Communications, Inc. and
Northpoint Communications, Inc. Ziplink is a master reseller of Covad's digital
subscriber line services, allowing us to market digital subscriber line access
to our ZipDial customers in areas covered by Covad's network. We are also a
reseller of Northpoint's digital subscriber line service in areas covered by its
network. During the third quarter of 1999, we expect that ZipLink will offer
digital subscriber line access in 30% of its markets. ZipLink plans to use a
portion of the net proceeds of this offering to build the network infrastructure
to support digital subscriber line access.
ZipLink's wholesale service offerings are priced in a manner designed to
encourage Internet service providers to enroll in the ZipDial program by
minimizing barriers to entry. Internet service providers pay a nominal
enrollment fee of $100.00 and are charged monthly for local dial-up access on
the basis of the number of 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 period, although customers who accrue less than $500.00
per month of charges, after an introductory period, are charged an additional
$100.00 as a maintenance fee for such month plus actual accrued usage. This
allows Internet service providers 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 Internet service providers. ZipDial
customers have a choice of two pricing plans. Under one plan, our customers pay
$8.00 per subscriber per month for unlimited access during off peak hours and up
to 30 hours per subscriber per month during peak hours. Under this plan, hours
can be aggregated among all subscribers covered by such plan. For example, if a
customer has 1,000 subscribers under the plan, the customer's subscribers may
use, in the aggregate, up to 30,000 hours of peak usage in such month before the
customer incurs additional charges. Under an alternate plan, our customers pay
$8.00 per subscriber per month for up to 150 hours of use by such subscriber
(whether during peak or off-peak hours). This latter plan does not allow for
aggregation of hours among subscribers covered by this plan. In the event a
customer's subscribers exceed the usage limitations under either plan, a charge
of $.65 per hour is imposed. Furthermore, enrollment is processed very quickly,
typically within 72 hours after receipt of an enrollment form and any required
fees.
Our ZipDial program was launched in November, 1998. As of December 31, 1998,
we had enrolled 17 Internet service providers and, as of April 30, 1999, had
enrolled 85 Internet service providers into our ZipDial program. One such
customer is DirectWeb, Inc. DirectWeb operates a subscription-based online
service and markets its service by offering subscribers a free personal computer
as part of its Internet access subscription fee. ZipLink expects to begin
providing ZipDial wholesale Internet access service to connect these subscribers
to the DirectWeb Internet access facility during the second quarter of 1999. The
DirectWeb service was launched on March 31, 1999.
43
<PAGE>
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 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 marketing to 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, under an agreement with
WebSurfer and its affiliate The Batra Group, Inc. Batra and ZipLink have agreed
to jointly offer retail Internet access under the name "WebInfinity." The
WebInfinity Internet access service will be available to U.S. purchasers of a
low-cost personal computer made by Batra under the name "Innovator." Purchasers
of these Innovator personal computers will activate the WebInfinity service by
clicking on an icon installed on the start-up screen of the new personal
computer. In addition to providing Internet access to WebInfinity subscribers,
ZipLink will perform all registration and authentication of Web Infinity
subscribers, customer support services for subscribers and billing of
subscribers for Batra. Batra's Innovator personal computers are scheduled for
release in the United States in the third quarter of 1999.
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, or Beepwear devices 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 Internet service providers.
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 developers 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 key suppliers 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
suppliers. ZipLink and Nortel Networks have announced a
44
<PAGE>
co-marketing campaign for our ZipDial service which will feature co-branded
print advertising and direct mail solicitations, to approximately 5,000 Internet
service providers nationwide. In addition, we are planning joint marketing
efforts focusing on our digital subscriber line service offering with Covad and
Northpoint. Each of these suppliers has agreed to make funding available to
ZipLink for approved co-marketing programs. In addition, both Covad and
Northpoint have committed to market our ZipDial service to Internet service
providers in conjunction with their direct offerings of digital subscriber line
services and may refer smaller Internet service providers seeking such service
to ZipLink for integration into our ZipDial program. We will also market ZipDial
through our internal sales force, which was comprised of eight sales
representatives as of April 30, 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 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.
THE ZIPLINK NETWORK
The ZipLink network is comprised of 20 "super points of presence" or
"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 network
backbone which is currently provided to ZipLink by MCI WorldCom. Our network
backbone operates at a speed of 45 megabits per second using Asynchronous
Transfer Mode, an information transfer standard that, among other things, allows
for a transmission of data, voice, and video. Users connect to the network at a
variety of speeds using a range of access methods. We anticipate gradually
migrating our network backbone from MCI WorldCom to Williams commencing in July,
1999.
Our network is engineered to provide superior quality of service, including
high connection success rates, low latency (response time), fast download times
and reliability.
NETWORK ARCHITECTURE
ZipLink's network architecture features 20 super points of presence. A super
point of presence is created by using products provided by competitive local
exchange carriers which aggregate local telephone calls from a broad geographic
area and deliver them to a single network access point. This allows equipment
installed at this single network point of presence to cover a larger calling
area than would be possible with conventional point of presence configurations,
significantly reducing the number of points of presence required to cover a
given geographical area and the corresponding investment required to expand the
network. The super point of presence architecture also enhances economies of
scale from larger equipment 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.
SCALEABLE INFRASTRUCTURE
We believe that our existing network can accommodate more users without any
resulting loss of functionality, a quality known in our industry as
scaleability. Some expansion in network capacity can 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,
our strategy for network expansion has been to add points of presence 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 competitive local
exchange carrier in order to implement a super point of presence architecture.
45
<PAGE>
NETWORK INTEGRITY
The integrity of our network is 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, wherever located, can be
configured remotely from our network operations center and our super point of
presence equipment is accessible remotely via a modem connection. 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 of our super points of presence is connected to our network backbone by
two independent circuits. This use of back-up, or "redundant" circuits allows
for automatic and rapid re-routing of traffic in the event of a problem in
either path and provides us with flexibility in routing traffic through the
network to optimize efficiency and reduce congestion. Our network operations
center is also supported by redundant connections to the network. To date,
network 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:
- our ability to create and market wholesale Internet access solutions that
are attractive to Internet service providers in terms of price, quality
and breadth of service offerings;
- the capacity, reliability and security of our network infrastructure;
- market presence and, with respect to Internet appliances, our success at
developing relationships with innovators and early marketers of such
devices;
- 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 establish and maintain successful relationships with key
customers and suppliers and to gain early access to new markets and new
technologies; and
- our ability to support industry standards.
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
Internet service providers. 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 Internet service
providers such as GTE Internetworking, Concentric, PSINet, UUNet, IDT Corp.,
Splitrock Services, Inc. and Epoch Internet, Inc., as well as competitive local
exchange carriers 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
46
<PAGE>
telecommunications companies, such as Williams, AT&T Corporation, Qwest
Communications International, Inc. and Level 3 Communications, Inc., and other
Internet service providers. 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 access 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 such as cable modems."
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
47
<PAGE>
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.
EMPLOYEES
As of March 31, 1999, 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
Relationships and Related 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 super points
of presence.
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 74,845 shares of common stock
of ZipLink) 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 74,845 shares which would be
received in exchange therefor upon consummation of the Reorganization. The
arbitration has been stayed pending a hearing. 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.
48
<PAGE>
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................. 40 President, and director
Gary P. Strickland..................... 35 Chief Financial Officer
Ronald C. Lipof........................ 36 Chief Marketing and Strategic Officer
James G. Cocks......................... 60 Director of Networking
Kathleen A. Stillson................... 33 Director of Operations
Russel S. Bernard...................... 41 Nominee for director
Jai P. Bhagat.......................... 52 Nominee for director
Wayne A. Martino....................... 40 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.
Previously, Mr. Zachs was Executive Vice President of MCUSA from 1989 to 1993.
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
Internet service provider listed on the Johannesburg Stock Exchange. 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,
49
<PAGE>
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.
GARY P. STRICKLAND has been our Chief Financial Officer since April, 1999.
Prior to joining ZipLink, Mr. Strickland was Vice President, Finance &
Administration and Chief Financial Officer of GammaGraphX, Inc., a technology
company in the digital printing industry, from 1993 to 1999. From 1991 to 1993,
Mr. Strickland was Controller of Autographix, Inc. Previously, Mr. Strickland
was Director of Financial Reporting of M/A-Com, Inc. and Audit Manager at Ernst
& Young, LLP. Mr. Strickland received a B.B.A. from the University of Notre Dame
and was licensed as a C.P.A. in 1988.
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
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.
RUSSEL S. BERNARD will become a director of ZipLink upon consummation of
this offering. Mr. Bernard has been a Principal of Oaktree Capital Management,
LLC and Portfolio Manager of its Real Estate Funds since 1995. Oaktree is an
independent investment management firm. Prior to joining Oaktree, Mr. Bernard
was a Managing Director of Trust Company of the West (TCW), a privately held
investment management firm. Previously, Mr. Bernard was a partner in Win
Properties, Inc., a national real estate investment company. Mr. Bernard is a
Director of Metropolis REIT and Jamboree Office REIT. Mr. Bernard received a
B.S. from Cornell University.
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
50
<PAGE>
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 upon consummation of 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
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").
51
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM 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) 52,606 $1,685(4)
President and Director
Ronald Lipof....................... $ 98,461 $ 13,500 $ -- 81,585 $ --
Chief Marketing and
Strategic Officer
</TABLE>
- ------------------------
(1) All option grants were initially grants of options to purchase membership
interests in ZipLink, LLC. Information with regard to securities underlying
options 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 a 401(k) plan.
52
<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......... 52,606 14% 3.06 November 20, 2008 8,049 16,097
Ronald Lipof................ 81,585 22 2.21 February 15, 2008 9,015 18,030
</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.................................... -- 52,606 $ -- $ 522,904
Ronald Lipof........................................... -- 81,585 $ -- $ 880,302
</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 $13.00 per share, the assumed initial public offering price,
since the common stock was not traded in an established market prior to this
offering.
53
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We intend to establish a Compensation Committee promptly upon consummation
of 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, 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 approximately .82
shares of common stock for each membership interest. The options outstanding to
purchase membership interests in ZipLink, LLC, a Delaware limited liability
company, on March 31, 1999 will be converted into options to purchase 364,470
shares of common stock, at a weighted average exercise price of $2.66 per share
(assuming the Reorganization occurred as of such date). Upon the completion of
this offering, under most option agreements 50% of the then-unvested options
will become vested.
STOCK OPTION PLAN
In April 1999, we adopted a stock option plan designated the ZipLink, Inc.
1999 Stock Option Plan (the "Stock Option Plan"). The total number of shares of
common stock reserved for issuance under our Stock Option Plan is 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 provides 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 Stock Option Plan provides that no
person may be granted options to purchase more than 500,000 shares of common
stock during any one calendar year.
54
<PAGE>
Our Board has 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 ten
years. Options will generally vest in equal installments over a five-year
period, but in no event will an option be exerciseable more than ten 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 provides 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
provides 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 ten 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 promulgated under the Exchange Act
or if and to the extent the Board determines that such approval
55
<PAGE>
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 355,150 shares of common stock under the Stock Option Plan
to certain of its directors and employees at a weighted average exercise price
of $12.78 per share, based upon an assumed initial public offering price of
$13.00 per share.
401(K) PLAN. Prior to the closing of the offering, we intend to adopt a
defined contribution plan intended to qualify under Section 401 of the Code to
be designated the ZipLink, Inc. Employees' 401(k) Profit Sharing Plan. We intend
that such plan will be the successor to a 401(k) Plan adopted by ZipLink, LLC.
All personnel who have completed 90 days of service with ZipLink will be
eligible to participate and enter the plan as of the earlier of the first day of
January, April, July or October 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, and may make discretionary contributions in
proportion to such participant's earnings. Each participant will be fully vested
in his or her contributions and the investment earnings thereon. After five
years of service, participants will become fully vested in the matching
contributions and discretionary contributions, if any, made by ZipLink.
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.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION TRANSACTIONS. ZipLink was originally organized as a Connecticut
limited liability company (the "Connecticut LLC") in November, 1995 by our
founder Eric Zachs. 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 and a
director, received a 5% membership interest as an incentive to join the company.
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. We intend to convert our company's business form
from a limited liability company to a corporation in order to have a business
organization that is more typical of other publicly-traded entities in our
market. In March, 1999, in order to facilitate our ultimate conversion to a
Delaware corporation, 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.
Prior to the closing of this offering, all of the membership units in the
Delaware LLC will be transferred to a newly-formed Delaware corporation known as
ZipLink, Inc. Following such transfer, the Delaware LLC will merge with and into
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
transfer of membership units and merger, each membership unit in the Delaware
LLC (other than membership units held by Nortel Networks and the Zachs
Partnership) will be exchanged into approximately .82 shares of common stock of
ZipLink, Inc., each option and warrant to acquire a membership unit in the
Delaware LLC will be exchanged for an option or warrant, as the case may be, to
purchase approximately .82 shares of our common stock, each membership unit in
the Delaware LLC held by Nortel Networks will be exchanged into approximately
.82 shares of common stock, each membership unit in the Delaware LLC held by the
Zachs Partnership will be exchanged into approximately .81 shares of common
stock, and the additional capital contributions provided by the Zachs Founders
will be exchanged into 104,977 shares of common stock. After such exchange,
Henry Zachs, Eric Zachs, and the Zachs Partnership, will own, 75,989, 75,989,
and 6,814,305 shares of our common stock, respectively. Christopher Jenkins will
own 374,239 shares of our common stock and Nortel Networks will own 1,659,478
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 450,000 shares of common stock at a
conversion price of $5.56 per share, and $5.0 million of the convertible debt
will be converted into 384,615 shares of common stock at the initial public
offering price, based upon an assumed initial public offering price of $13.00
per share.
57
<PAGE>
PURCHASES FROM NORTEL NETWORKS. We purchased equipment and services from
Nortel Networks, in the aggregate amounts of $6.1 million in 1997, $1.0 million
in 1998 and $102,000 during the three months ended March 31, 1999. Commencing
100 days after the installation of our fifteenth super point of presence 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.
ZACHS FOUNDERS ADVANCES. During the period from 1996 through December 1997,
ZipLink acted as a collection and dispersal agent for other companies controlled
by the Zachs Founders which did not then have full-time accounting and cash
management personnel. Some of the 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 and to $25.0 million in April, 1999. 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% (which was equal to 5.26% per annum as of March 31, 1999). 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 March 31, 1999, the outstanding balance under the Fleet Bank line
of credit was $19.0 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 and to terminate that facility after the closing of
this offering. 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."
HENRY ZACHS' CONVERSION OPTION. In connection with the issuance of the
convertible debt to Nortel Networks, Henry Zachs received an option to convert
any loans to ZipLink which were guaranteed by Mr. Zachs into additional equity
of ZipLink if Nortel Networks elected, or was required to, convert the $5.0
million convertible debenture into equity of ZipLink. Mr. Zachs is further
obligated to convert up to $7.5 million of such indebtedness into additional
equity of ZipLink if ZipLink requires Nortel to convert any of the $5.0 million
debenture into equity of ZipLink. Mr. Zachs' obligation to convert indebtedness
and acquire additional equity will not be triggered by the conversion of the
convertible
58
<PAGE>
debt in connection with this offering. Conditioned upon 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.
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 administrative and
accounting services to other companies controlled by the Zachs Founders,
including ZipCall Long Distance, Inc., 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
and purchased long distance telephone service under a reseller agreement dated
February 15, 1996 with ZipCall Long Distance. The total amounts paid to ZipCall
Long Distance in 1996, 1997, 1998 and for the three months ended March 31, 1999
were $88,000, $233,000, $83,000 and $10,000, 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. ZipLink terminated its purchase of long distance telephone service from
ZipCall Long Distance in April, 1999.
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 100,000 and 10,000 options to purchase shares of common stock to
Christopher Jenkins and Ronald Lipof, respectively.
REGISTRATION RIGHTS.
FOUNDERS' REGISTRATION RIGHTS. Henry Zachs, Eric M. Zachs, the Zachs
Partnership, and Christopher Jenkins (the "Founding Stockholders"), are
entitled to registration rights with respect to shares of common stock held
by them under the terms of a registration rights agreement dated as of
December 23, 1997. 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,
subject to conditions and limitations, among them being the right of an
underwriter of an offering to limit the number of shares of common stock
they may include in the registration. The Founding Stockholders also have
the right on two occasions to require us to register their shares of common
stock. This right may be exercised at any time after the date which is six
months from the closing of this offering by
59
<PAGE>
the holders of not less than 20% of the aggregate shares of common stock
held by the Founding Stockholders (or a lesser percentage if the anticipated
aggregate net offering price of the common stock to be registered would
exceed $5.0 million, net of standard underwriting discounts). The
registration rights granted to the Founding Stockholders will terminate as
to any of them who can sell an unlimited number of shares under Rule 144.
ZipLink is required to bear the expenses of the registration of its common
stock for the Founding Stockholders, except any underwriting discounts and
commissions.
NORTEL NETWORKS REGISTRATION RIGHTS. Pursuant to an agreement dated as
of December 23, 1997, Nortel Networks is entitled to registration rights
with respect to shares of common stock owned by Nortel Networks. 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, subject to conditions
and limitations, among them being the right of an underwriter of an offering
to limit the number of shares of common stock they may include in the
registration. Nortel Networks also has the right on two occasions to require
us to register their shares of common stock. This right may be exercised at
any time after the date which is six months from the closing of this
offering by the holders of not less than 20% of the aggregate shares of
common stock covered by Nortel Networks' registration rights (or a lesser
percentage if the anticipated aggregate net offering price of the common
stock to be registered would exceed $5.0 million, net of standard
underwriting discounts). Nortel Networks' registration rights 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 is required to bear the expenses of the registration of its common
stock for Nortel Networks, except any underwriting discounts and
commissions.
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 4,080
shares of common stock at an exercise price of $3.06 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.
60
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 1999 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 March 31, 1999 and includes (i) 834,615 shares issuable upon
the conversion of convertible debt, based upon an assumed initial public
offering price of $13.00 per share, which conversion will occur concurrently
with the closing of this offering, and (ii) 233,654 shares issued to Williams
concurrently with the closing of this offering, based upon an assumed initial
public offering price of $13.00 per share. There were, as of March 31, 1999,
outstanding options to purchase 364,470 shares of common stock, exerciseable at
a weighted average price of 2.66 per share, and an outstanding warrant to
purchase 58,521 shares of common stock, with an exercise price of $1.71 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)........................ 6,814,305 73.8% 53.5%
Henry M. Zachs(1)(2).................................................. 6,890,294 74.6 54.1
Eric M. Zachs(1)(2)................................................... 6,890,294 74.6 54.1
Northern Telecom Limited(3)........................................... 1,659,478 18.0 13.0
Christopher W. Jenkins(4)............................................. 400,542 4.1 3.1
Ronald C. Lipof....................................................... -- -- *
Gary P. Strickland.................................................... -- -- --
Russell S. Bernard.................................................... -- -- --
Jai P. Baghat......................................................... -- -- --
Wayne A. Martino(5)................................................... 4,080 * *
Alan M. Mendelson..................................................... -- -- --
----------- ------- -------------
All executive officers, directors and director nominees as a group (11
persons)............................................................ 7,344,602 79.5% 58.0
</TABLE>
- ------------------------
* less than 1 percent
(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 6,814,305 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 824,863 shares owned by Bay Networks, Inc., a subsidiary of
Northern Telecom Limited, and 834,615 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 26,303 shares issuable upon exercise of options exerciseable upon
the closing of this offering.
(5) Represents 4,080 shares issuable upon exercise of options exercisable upon
the closing of this offering.
61
<PAGE>
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, the conversion of all convertible debt into shares of
common stock and the issuance of 233,654 shares to Williams, there will be
outstanding 12,733,654 shares of common stock, and no shares of preferred stock.
The following description of our capital stock and selected provisions of
our Amended and Restated Certificate of Incorporation and By-Laws is a summary
and is qualified in its entirety by reference to our Amended and Restated
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 Amended and Restated 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 58,521 shares of common stock at an exercise price of $1.71. 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
62
<PAGE>
options to purchase 719,620 shares of common stock at a weighted average
exercise price of $7.66 per share, based upon an assumed initial public offering
price of $13.00 per share.
REGISTRATION RIGHTS
Henry Zachs, Eric Zachs, the Zachs Family Limited Partnership Number One,
Christopher Jenkins and Nortel Networks have been granted registration rights
with respect to shares of common stock held by them. See "Certain Relationships
and Related Transactions--Registration Rights."
Williams is also entitled to registration rights with respect to the 233,654
shares of common stock to be issued to it concurrently with this offering. 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 Williams, subject to conditions
and limitations, among them being the right of an underwriter of an offering to
limit the number of shares of common stock Williams may include in the
registration. The registration rights granted to Williams will terminate at such
time as Williams is entitled to sell, during any three month period, all of its
common stock subject to registration rights. ZipLink is required to bear the
expenses of the registration of its common stock for Williams, except any
underwriting discounts and commissions.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Delaware law and provisions of 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 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 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 Amended and Restated 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 Amended and Restated 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 Amended and Restated
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
63
<PAGE>
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 Amended and Restated 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 Amended and Restated 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 Amended and Restated 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. Prior to the consummation of this offering, 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 American Stock
Transfer and Trust Company.
64
<PAGE>
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
12,733,654 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. 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 9,233,654 shares of common stock held by
existing stockholders, Nortel Networks and Williams, 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.
WILLIAMS TRANSFER RESTRICTION
In connection with the issuance of 233,654 shares of common stock to
Williams, Williams has agreed that the maximum number of such shares which it
may sell during each one-year period following the offering shall be the greater
of (a) the number of shares having a value (based on 89% of the initial public
offering price per share) equal to one half of the charges for telecommunication
services used by ZipLink as of the date of any proposed sale, or (b) one third
of the total number of shares issued to Williams. This contractual restriction
terminates on the third anniversary of the delivery of the shares to Williams.
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 127,337 shares immediately after this offering; 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.
65
<PAGE>
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.
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, holders of shares of our common stock, or
their transferees, will be entitled to certain rights with respect to the
registration of 9,077,885 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
We intend to file a registration statement on Form S-8 under the Securities
Act no earlier than 180 days after this offering covering 1,500,000 shares of
common stock reserved for issuance under our Stock Option Plan. As of March 31,
1999, options to purchase 364,470 shares of common stock were issued and
outstanding. Upon the expiration of the lock-up agreements described above, at
least 196,174 shares of common stock will be subject to vested options (based on
options outstanding as of March 31, 1999). Shares of our common stock registered
under the S-8 registration statement will, subject to vesting provisions and
Rule 144 volume limitations applicable to our affiliates, be available for sale
immediately in the open market.
66
<PAGE>
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 FAC/Equities (a division of 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............................................................................
FAC/Equities........................................................................................
------------
Total........................................................................................... 3,500,000
------------
------------
</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 525,000 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
$1,315,000.
67
<PAGE>
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.
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 underwriters, at our request, have reserved for sale at the initial
public offering price up to six percent (6%) of the shares of common stock to be
sold in this offering for sale to our employees and other persons designated by
us. The number of shares available for sale to the general public will be
reduced to the extent that any reserved shares are purchased. Any reserved
shares not so purchased will be offered by the underwriters on the same basis as
the other shares offered hereby.
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 11,500 shares of our common
stock. 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.
68
<PAGE>
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.
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.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ZIPLINK, LLC
<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>
ZIPLINK, INC.
<TABLE>
<S> <C>
Report of Independent Public Accountants........................................................................... F-18
Balance Sheet...................................................................................................... F-19
Statement of Cash Flows............................................................................................ F-20
Notes to Financial Statements...................................................................................... F-21
</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.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 10, 1999
(except with respect to the matter
discussed in Note 7 for which the
date is April 16, 1999)
F-2
<PAGE>
ZIPLINK, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
----------------------- ------------------------
PRO FORMA
1997 1998 ACTUAL (NOTE 3)
---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $1,081,505 $ 512,055 $ 303,060 $ 303,060
Accounts receivable, less allowance for doubtful accounts
of approximately $153,000, $68,000 and $40,000 at
December 31, 1997, 1998, and at March 31, 1999,
respectively............................................ 474,780 678,683 895,908 895,908
Prepaid expenses and other current assets................. 56,224 70,964 459,399 459,399
---------- ----------- ----------- -----------
Total current assets.................................. 1,612,509 1,261,702 1,658,367 1,658,367
---------- ----------- ----------- -----------
Property and Equipment, at cost:
Network equipment......................................... 11,719,967 12,659,088 12,700,674 12,700,674
Computer equipment and software........................... 289,973 356,789 369,485 369,485
Leasehold improvements.................................... 595,706 756,901 756,901 756,901
Furniture, fixtures and equipment......................... 105,948 107,764 107,764 107,764
Vehicles.................................................. 20,416 20,416 20,416 20,416
---------- ----------- ----------- -----------
12,732,010 13,900,958 13,955,240 13,955,240
Less--Accumulated depreciation and amortization........... 1,460,805 4,097,553 4,941,173 4,941,173
---------- ----------- ----------- -----------
11,271,205 9,803,405 9,014,067 9,014,067
Other Assets................................................ 100,772 108,772 108,772 108,772
---------- ----------- ----------- -----------
Total assets.......................................... $12,984,486 $11,173,879 $10,781,206 $10,781,206
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
LIABILITIES AND MEMBERS'/STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of convertible debentures................. $ -- $ 500,000 $ 875,000 $ --
Current portion of capital lease obligation............... 410,029 464,531 477,169 477,169
Accounts payable.......................................... 4,840,141 881,199 1,007,983 1,007,983
Accrued expenses.......................................... 971,051 1,882,424 1,932,087 1,932,087
Deferred revenue.......................................... 228,921 119,672 292,864 292,864
Amounts due to affiliates, net............................ 479,561 476,140 -- --
---------- ----------- ----------- -----------
Total current liabilities............................. 6,929,703 4,323,966 4,585,103 3,710,103
Note Payable To a Bank...................................... 15,000,000 17,600,000 19,000,000 19,000,000
Capital Lease Obligation, less current portion.............. 803,112 338,580 214,443 214,443
Convertible Debentures...................................... -- 7,000,000 6,625,000 --
---------- ----------- ----------- -----------
Total liabilities..................................... 22,732,815 29,262,546 30,424,546 22,924,546
---------- ----------- ----------- -----------
Commitments and Contingencies (Notes 13, 15 and 17)
Members'/Stockholders' Deficit:
Common Stock, $.001 par value, 50,000,000 shares authorized,
9,000,000 shares issued and outstanding at March 31, 1999
on a pro forma basis...................................... -- -- -- 9,000
Additional paid in capital.................................. -- -- -- 13,568,395
Accumulated deficit......................................... -- -- -- (25,720,735)
---------- ----------- ----------- -----------
Total members'/stockholders' deficit........................ (9,748,329) (18,088,667) (19,643,340) (12,143,340)
---------- ----------- ----------- -----------
Total liabilities and members'/stockholders'
deficit............................................. $12,984,486 $11,173,879 $10,781,206 $10,781,206
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
ZIPLINK, LLC
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.......................... $ 755,655 $5,235,830 $7,088,200 $1,678,262 $2,745,324
---------- ---------- ---------- ---------- ----------
Costs and Expenses:
Cost of revenues................ 1,782,430 3,186,777 6,271,169 1,285,809 1,758,390
Selling, general and
administrative................ 7,372,740 6,507,490 5,174,370 1,246,769 1,384,828
Depreciation and amortization... 383,965 1,084,393 2,636,748 488,044 950,037
---------- ---------- ---------- ---------- ----------
Total costs and expenses.... 9,539,135 10,778,660 14,082,287 3,020,622 4,093,255
---------- ---------- ---------- ---------- ----------
Loss from operations........ (8,783,480) (5,542,830) (6,994,087) (1,342,360) (1,347,931)
---------- ---------- ---------- ---------- ----------
Other Expenses:
Interest expense................ (30,492) (1,098,119) (1,344,285) (276,675) (355,816)
Interest income................. 11,217 426 37,029 9,886 4,845
Other income (expense).......... 630 (68,902) (144,514) -- (37,969)
---------- ---------- ---------- ---------- ----------
(18,645) (1,166,595) (1,451,770) (266,789) (388,940)
---------- ---------- ---------- ---------- ----------
Net loss.................... $(8,802,125) $(6,709,425) $(8,445,857) $(1,609,149) $(1,736,871)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net Loss per Unit (Note 2(n)):
Net loss per unit--
basic and diluted............. $ (0.96) $ (0.75) $ (0.85) $ (0.16) $ (0.18)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Weighted average units--
basic and diluted............. 9,174,312 8,963,982 9,899,083 9,899,083 9,899,083
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro Forma Net Loss per Share
(Note 2(n)):
Pro forma net loss per share--
basic and diluted............. $ (1.16) $ (0.91) $ (1.03) $ (0.20) $ (0.21)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Pro forma weighted average
shares--basic and diluted..... 7,567,548 7,394,055 8,165,385 8,165,385 8,165,385
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
ZIPLINK, LLC
STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
<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)
-------------- ------------ --------------
Members' 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)
Net loss......................................................... (1,563,184) (173,687) (1,736,871)
Members' contributions........................................... 180,000 -- 180,000
Compensation associated with the issuance of unit options........ 1,978 220 2,198
-------------- ------------ --------------
Members' Equity (Deficit), March 31, 1999 (unaudited).............. $ (21,121,133) $ 1,477,793 $ (19,643,340)
-------------- ------------ --------------
-------------- ------------ --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
ZIPLINK, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss........................................ $(8,802,125) $(6,709,425) $(8,445,857) $(1,609,149) $(1,736,871)
Adjustments to reconcile net loss to net cash
used in operating activities--
Depreciation and amortization................. 383,965 1,084,393 2,636,748 488,044 950,037
Loss on disposal of property and equipment.... -- 53,053 143,844 -- 37,969
Compensation expense associated with the
issuance of unit options and warrants....... -- -- 105,519 96,730 2,198
Changes in operating assets and liabilities--
Accounts receivable, net.................... (159,940) (314,840) (203,903) (342,617) (217,225)
Prepaid expenses and other current assets... (81,603) 57,221 (14,740) (21,381) (388,435)
Accounts payable............................ 1,292,629 3,476,809 (3,958,942) 199,275 126,784
Accrued expenses............................ 1,444,417 (473,366) 911,373 704,511 229,663
Deferred revenue............................ 177,136 51,785 (109,250) (18,095) 173,192
Due to affiliates........................... (206,101) (578,276) (3,421) (2,588) (476,140)
---------- ---------- ---------- ---------- ----------
Net cash used in operating activities..... (5,951,622) (3,352,646) (8,938,629) (505,270) (1,298,828)
---------- ---------- ---------- ---------- ----------
Cash Flows from Investing Activities:
Purchases of property and equipment............. (4,218,716) (6,969,558) (1,312,792) (790,703) (198,668)
Proceeds from sale of property and equipment.... -- 20,765 -- -- --
Increase in other assets........................ (80,772) (20,000) (8,000) (18,000) --
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities..... (4,299,488) (6,968,793) (1,320,792) (808,703) (198,668)
---------- ---------- ---------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from convertible debentures............ -- -- 7,500,000 500,000 --
Proceeds from borrowings under notes payable.... 2,700,970 11,450,000 2,600,000 -- 1,400,000
Payments of principal made on capital lease
obligations................................... -- (333,388) (410,029) (92,936) (111,499)
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 9,689,971 407,064 1,288,501
---------- ---------- ---------- ---------- ----------
Net (Decrease) Increase in Cash and Cash
Equivalents..................................... (1,773,146) 780,411 (569,450) (906,909) (208,995)
Cash and Cash Equivalents, beginning of period.... 2,074,240 301,094 1,081,505 1,081,505 512,055
---------- ---------- ---------- ---------- ----------
Cash and Cash Equivalents, end of period.......... $ 301,094 $1,081,505 $ 512,055 $ 174,596 $ 303,060
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest.......................... $ 30,402 $1,034,506 $1,242,138 $ 207,182 $ 382,759
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Supplemental Disclosure of Non-Cash Financing and
Investing Activities:
Acquisition of equipment pursuant to capital
lease obligation.............................. $ -- $1,546,529 $ -- $ -- $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Forgiveness of accrued compensation by Capital
Member........................................ $ -- $ -- $ -- $ -- $ 180,000
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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). See Note
17.
The Company has operations in Lowell, Massachusetts and Hartford,
Connecticut and is a national provider offering wholesale Internet access
services in the United States to two distinct target markets: Internet
appliances and local, regional and national 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 a cumulative net loss from operations of $25.7
million since inception and has funded these losses principally through the
issuance of debt and equity securities. The Company has a members' deficit of
$19.6 million as of March 31, 1999 and is dependent on raising additional
capital in the short term to satisfy ongoing capital needs. As discussed in Note
7, a 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) INTERIM FINANCIAL STATEMENTS
The accompanying balance sheet as of March 31, 1999 and the statements
of operations and cash flows for the three months ended March 31, 1998 and
1999, and the statement of members' equity (deficit) for the three months
ended March 31, 1999 are unaudited, but in the opinion of the management,
include all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of results for these interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted, although the Company believes that the
disclosures included are adequate to make the information presented not
misleading. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results to be expected for the
entire fiscal year.
(B) 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.
F-7
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(C) 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.
(D) 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, $119,672 and $292,864 at December 31, 1997 and 1998 and March 31,
1999, respectively.
(E) 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....................... 3-5 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.
(F) 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. In March, 1999, the Company repaid all
outstanding amounts due to affiliates.
(G) OTHER ASSETS
Other assets consist primarily of security deposits on the Company's
leased facilities.
(H) 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.
F-8
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(I) 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%, 85% and 87% of accounts receivable at December 31, 1997 and 1998 and
March 31, 1999, respectively.
(J) 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 their fair value.
(K) STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION
in 1996. 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.
(L) 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.
(M) POSTRETIREMENT BENEFITS
The Company has no obligations for postretirement benefits.
(N) NET LOSS PER UNIT AND PRO FORMA NET LOSS PER SHARE
The Company has adopted SFAS No. 128, EARNINGS PER SHARE. Basic net loss
per common share/unit is computed using the weighted average number of
shares of common stock/units outstanding during the period. Diluted net loss
per common share/unit is the same as basic net loss per common share/unit
since the effects of the Company's potential common stock/unit equivalents
are antidilutive. In accordance with Staff Accounting Bulletin No. 98, the
Company has determined that there were no nominal issuances of common
stock/units or potential common stock/units in the period prior to the
Company's planned IPO. Pro forma net loss per common share assumes
F-9
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
the Company's conversion into a Delaware corporation (see Note 17) and the
conversion of the members' equity into capital stock. Antidilutive
securities, which consist of unit options and convertible debentures that
are not included in diluted net loss per unit were 55,044, 9,170, 574,459,
15,052 and 570,299 for the year ended December 31, 1996, 1997 and 1998 and
for the three months ended March 31, 1998 and 1999, respectively.
Antidilutive securities, which consist of stock options and convertible
debentures that are not included in pro forma diluted net loss per common
share were 44,907, 7,481, 1,202,449, 97,481 and 1,199,055 for the years
December 31, 1996, 1997 and 1998, and for the three months ended March 31,
1998 and 1999, respectively.
(O) NEW ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF
COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires
computer software costs associated with internal use software to be charged
to operations as incurred until certain capitalization criteria are met. SOP
98-1 is effective beginning January 1, 1999. The adoption of this statement
did not have a material impact on the Company's financial position or
results of operations.
(3) PRO FORMA PRESENTATION (UNAUDITED)
The pro forma balance sheet as of March 31, 1999 gives effect to the
Company's merger with ZipLink, Inc. (see Note 17) and the conversion of the
convertible debentures into common stock upon the closing of the IPO at an
assumed offering price of $13.00 per share.
(4) SIGNIFICANT CUSTOMER
In October 1996, the Company entered into a wholesale network services
agreement with WebTV Networks, Inc. (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 and for
the three months ended March 31, 1999, WebTV represented approximately 4%, 48%,
68% and 80%, respectively, of the Company's revenues.
(5) 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.
(6) 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, 1998 and
for the three months ended March 31, 1998 and 1999. Upon the consummation of the
reorganization discussed in Note 17, the Company will be subject to 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.
F-10
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) 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 0.3%. On April 16, 1999 the Financing Agreement was modified to
provide for borrowings up to $25 million.
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 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.
(8) CONVERTIBLE DEBENTURES
In December 1997, the Company 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 initial
public offering. 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-11
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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>
(9) 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 Member received his interest for no consideration. The estimated fair
market value of the Service Member's interest 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 8).
(10) 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-12
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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 $ 0.22
---------- -----
Outstanding at December 31, 1996................................... 55,044 0.22
Granted.......................................................... 82,566 1.46
Canceled......................................................... (128,440) 0.93
---------- -----
Outstanding at December 31, 1997................................... 9,170 1.46
Granted.......................................................... 452,369 2.18
Canceled......................................................... (10,675) 1.61
---------- -----
Outstanding at December 31, 1998................................... 450,864 $ 2.20
---------- -----
---------- -----
</TABLE>
There were no options granted during the three month period ended March 31,
1999 and 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 pricing
model 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 and for the three months ended March 31, 1999, the Company recognized
$8,789 and $2,198, respectively, of compensation expense associated with these
options.
The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted using the Black-Scholes pricing model prescribed by SFAS
No. 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-13
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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)
Net loss per unit--basic and diluted--as
reported....................................... $(0.96) $(0.75) $(0.85)
Net loss per unit--basic and diluted--pro
forma.......................................... $(0.96) $(0.75) $(0.86)
</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.
(11) 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's 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, $17,000, $3,000 and $5,000 for
the years ended December 31, 1996, 1997 and 1998 and for the three months ended
March 31, 1998 and 1999, respectively.
(12) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 and March 31, 1999 consisted
of the following:
<TABLE>
<CAPTION>
1997 1998 MARCH 31, 1999
---------- ------------ --------------
<S> <C> <C> <C>
(UNAUDITED)
Accrued payroll and related........................ $ 608,512 $ 407,994 $ 134,793
Accrued installation costs......................... -- 566,000 566,000
Accrued telecommunications expenses................ 62,581 215,003 291,960
Accrued professional fees.......................... 177,210 228,546 448,936
Accrued other...................................... 122,748 464,881 490,398
---------- ------------ --------------
$ 971,051 $ 1,882,424 $ 1,932,087
---------- ------------ --------------
---------- ------------ --------------
</TABLE>
(13) 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
F-14
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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
and during the three months ended March 31, 1999, the Company purchased
approximately $1 million and $102,000, respectively, of equipment and services
from Nortel Networks. In addition, Nortel has agreed to provide certain services
to the Company, as defined (see Note 15(c)).
The Company rents office space from a related party. Rent expense related to
this office space was approximately $64,000, $45,000, $39,000, $10,000 and
$10,000 for the years ended December 31, 1996, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999, 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, $83,000, $21,000 and $10,000 of expense paid to ZipCall Long Distance
for the years ended December 31, 1996, 1997 and 1998 and for the three months
ended March 31, 1998 and 1999, 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, a Capital Member agreed to forgive $180,000 of the
accrued compensation and therefore, this amount has been recorded as a capital
contribution during the three months ended March 31, 1999.
(14) ACQUISITION
In July 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.
(15) COMMITMENTS AND CONTINGENCIES
(A) OPERATING LEASES
The Company has various leasing arrangements for real estate and
equipment. In addition, the Company subleases office space to a third party.
As of December 31, 1998, future minimum
F-15
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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, $198,000, $53,000 and $53,000 for the years ending
December 31, 1996, 1997 and 1998 and for the three months ended March 31,
1998 and 1999, respectively.
(B) CAPITAL LEASE OBLIGATION
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 $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 $866,000. The fees are payable at various times
during 1998 and 1999 depending on the respective service. During 1998 and
the three months ended March 31, 1999, the Company purchased approximately
$807,000 and $33,000, respectively, 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.
F-16
<PAGE>
ZIPLINK, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(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.
(16) ADVISORY AGREEMENT
In May 1997, as amended in January 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 March 23, 1998, for
further consideration of advisory services performed on behalf of the Company,
the Company issued a warrant 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 pricing model and has
recorded an expense of approximately $97,000. This warrant terminates on
September 2, 2002.
(17) REORGANIZATION
The Company has formed a wholly-owned subsidiary, ZipLink, Inc., a Delaware
corporation that has no operations. In March 1999, ZipLink, Inc., plans to file
for an initial public offering of its common stock. Prior to the closing of the
IPO, all of the membership units in the Delaware LLC will be transferred to
ZipLink, Inc. Following such transfer of membership units the Company will merge
with and into ZipLink, Inc. as a result of which all of the assets and
liabilities of the Company will be transferred to ZipLink, Inc. In connection
with such transfer of membership units and merger, each membership unit in the
Company (other than membership units held by Nortel Networks and the Zachs
Family Limited Partnership Number One) will be exchanged into approximately 0.8
shares of common stock of ZipLink, Inc., each option and warrant to acquire a
membership unit in the Company will be exchanged for an option or warrant, as
the case may be, to purchase approximately 0.8 common shares of ZipLink, Inc.,
each membership unit in the Company held by Nortel Networks will be exchanged
into approximately 0.8 shares of common stock of ZipLink, Inc., each membership
unit in the Delaware LLC held by The Zachs Family Limited Partnership Number One
will be exchanged into approximately 0.8 shares of common stock. As these
entities are under common control, the merger transaction will be accounted for
as a reorganization of entities under common control similar to a pooling of
interest.
ZipLink, Inc. 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.
In April, 1999, ZipLink, Inc. adopted 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 ten 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-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ZipLink, Inc.
We have audited the accompanying balance sheet of ZipLink, Inc. as of April
14, 1999 and the related statement of cash flows for the period from inception
(March 9, 1999) to April 14, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ZipLink, Inc. as of April
14, 1999, and its cash flows for the period from inception (March 9, 1999) to
April 14, 1999, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen, LLP
Boston, Massachusetts
April 14, 1999
F-18
<PAGE>
ZIPLINK, INC.
BALANCE SHEET
AS OF APRIL 14, 1999
<TABLE>
<S> <C>
Current Assets:
Cash.............................................................................. $ 1,000
---------
Total assets.................................................................. $ 1,000
---------
---------
Stockholder's Equity:
Common stock, $.001 par value,
Authorized 50,000,000 shares
Issued and outstanding--1,000 shares............................................ $ 1
Additional paid-in capital........................................................ 999
---------
Total stockholder's equity.................................................... $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
ZIPLINK, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (MARCH 9, 1999) TO APRIL 14, 1999
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income........................................................................ $ --
Cash Flows from Financing Activities:
Issuance of common stock.......................................................... 1,000
---------
Net cash provided by financing activities....................................... 1,000
---------
Net Increase in Cash ............................................................... 1,000
Cash, Beginning of Period........................................................... --
---------
Cash, End of Period................................................................. $ 1,000
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
ZIPLINK, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 14, 1999
1. OPERATIONS AND REORGANIZATION
ZipLink, Inc. (the Company), a Delaware corporation, was formed as a
wholly-owned subsidiary of ZipLink, LLC on March 9, 1999. The Company currently
has no operations. The Company has the authorization to issue 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. On April 14, 1999, the Company
issued 1,000 shares, par value $.001 per share, for $1,000.
On March 11, 1999, the Company filed for an initial public offering of its
common stock. Prior to the closing of such initial public offering, all of the
membership units in ZipLink, LLC will be transferred to the Company. Following
such transfer of membership units ZipLink, LLC will be merged with, and into,
the Company (the Reorganization). As a result of the Reorganization, all of the
assets and liabilities of ZipLink, LLC will be transferred to the Company. In
connection with the Reorganization, each membership unit in ZipLink, LLC (other
than membership units held by Nortel Networks and the Zachs Family Limited
Partnership Number One) will be exchanged into approximately 0.8 shares of
common stock of the Company, each option and warrant to acquire a membership
unit in ZipLink, LLC will be exchanged for an option or warrant, as the case may
be, to purchase approximately 0.8 common shares of the Company, each membership
unit in ZipLink, LLC held by Nortel Networks will be exchanged into
approximately 0.8 shares of common stock of the Company, each membership unit in
ZipLink, LLC held by Zachs Family Limited Partnership Number One will be
exchanged into approximately 0.8 shares of common of the Company. As these
entities are under common control, the merger transaction will be accounted for
as a reorganization of entities under common control similar to a pooling of
interest.
The Company has adopted 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 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
ten years from the date of grant, and the plan terminates ten years from the
date of adoption. The options issued under ZipLink, LLC'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. As of April 14, 1999, there were no options
granted by the Company.
F-21
<PAGE>
WHOLESALE INTERNET ACCESS SERVICES
[ILLUSTRATION OF ZIPLINK SERVICES FOR INTERNET APPLIANCES]
ZIPDIAL PROGRAM
[ILLUSTRATION OF ZIPDIAL NETWORK FOR INTERNET SERVICE PROVIDERS]
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.................................... 9
Forward Looking Statements...................... 24
Use of Proceeds................................. 25
Dividend Policy................................. 25
Capitalization.................................. 26
Dilution........................................ 27
Selected Financial Data......................... 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 31
Business........................................ 37
Management...................................... 49
Certain Relationships and Related
Transactions.................................. 57
Principal Stockholders.......................... 61
Description of Capital Stock.................... 62
Shares Eligible for Future Sale................. 65
Underwriting.................................... 67
Legal Matters................................... 68
Experts......................................... 69
Where You Can Find Additional Information....... 69
Index to Financial Statements................... F-1
</TABLE>
------------------------
UNTIL , 1999 (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.
3,500,000 SHARES
[LOGO]
ZIPLINK, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
Jefferies & 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.................................................. $ 15,665
NASD filing fee....................................................... 6,135
Nasdaq National Market listing fee.................................... 87,000
Accounting fees and expenses.......................................... 150,000
Legal fees and expenses............................................... 425,000
Printing and mailing expenses......................................... 160,000
Blue Sky fees and expenses............................................ 5,000
Transfer Agent and Registrar fees..................................... 10,000
Miscellaneous......................................................... 456,200
------------
Total............................................................. $ 1,315,000
------------
------------
</TABLE>
----------------------------
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 Amended and Restated 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 Amended and Restated 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, whether or not
II-1
<PAGE>
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 April, 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 $5.0 million convertible debenture and a $2.5 million convertible
debenture, both convertible into membership units of the Connecticut LLC at
defined conversion prices, as described below, in consideration for $7.5 million
in cash. Upon an initial public offering of the securities of the Connecticut
LLC, the $5.0 million debenture is automatically convertible into membership
units of the Connecticut LLC at a price per unit of membership interest of equal
to the effective per unit price in the initial public offering and the $2.5
million debenture is automatically convertible into membership units of the
Connecticut LLC at a price per unit of membership interest of $37.87.
From April, 1996 through April, 1999, the Connecticut LLC granted options to
purchase, an aggregate of 589,979 units 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 March 23, 1998, 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, all of the membership units in the
Delaware LLC will be transferred to a newly-formed Delaware corporation known as
ZipLink, Inc. Following such transfer of membership units, the Delaware LLC will
merge with and into 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 transfer of membership units and merger, each membership
unit in the Delaware LLC (other than membership units held by Nortel and the
Zachs Family Limited Partnership Number One) will be exchanged into
approximately .82 shares of common stock of ZipLink, Inc., each option and
warrant to acquire a membership unit in the Delaware LLC will be exchanged for
an option or warrant, as the case may be, to purchase approximately .82 shares
of common stock of ZipLink, Inc., each membership unit in the Delaware LLC held
by Nortel will be exchanged into approximately .82 shares of common stock of
ZipLink, Inc., each membership unit in the Delaware LLC held by Zachs Family
Limited
II-2
<PAGE>
Partnership Number One will be exchanged into approximately .81 shares of common
stock of ZipLink, Inc., and additional capital contributions provided by Zachs
Family Limited Partnership Number One, Henry Zachs and Eric Zachs will be
exchanged into a number of shares of common stock equal to the amount of such
additional contributions divided by the initial public offering price.
Concurrently with the closing of this offering, the $5.0 million convertible
debenture held by Nortel will be converted into 384,615 shares of common stock
of ZipLink, Inc. at the initial public offering price and the $2.5 million
convertible debenture will convert into 450,000 shares of common stock of
ZipLink, Inc. at a price per share of $5.56.
The Registrant has agreed to purchase approximately $5.4 million of network
services from Williams Communications, Inc. ("Williams") over the next three
years and will pay for approximately $2.7 million of these services by using
shares of its common stock. Concurrently with the closing of this offering, the
Registrant will issue to Williams 233,654 shares of common stock to be applied
as payment for services used by the Registrant in the future. For purposes of
purchasing such services, the shares of common stock issued to Williams will be
valued at 89% of the initial public offering price per share.
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 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** Amended and Restated Certificate of Incorporation of the Registrant
3.2** Amended and Restated 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
4.3 Registration Rights Agreement dated as of May 6, 1999 between ZipLink, LLC and Williams Communications,
Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
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., as amended by Amendment No. 1 to Agreement for
Purchase and License of Bay Networks Products and Services dated as of June 25, 1998.
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
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 and a Second Modification to Loan Agreement
dated April 16, 1999.
10.12** Employment Agreement dated as of March 4, 1999 between the Registrant and Christopher Jenkins
10.13** License Agreement dated as of March 11, 1999 between the Registrant and Henry M. Zachs
10.14** Letter of Henry M. Zachs dated March 10, 1999 to the Registrant respecting Guarantee
10.15 Securities Purchase Agreement dated as of May 6, 1999 between ZipLink, LLC and Williams Communications,
Inc.
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
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
99.3** Consent of Wayne A. Martino to use his name as a director nominee
99.4** Consent of Russell S. Bernard to use his name as a director nominee
</TABLE>
- ------------------------
** Previously filed.
+ Confidential treatment has been requested for certain portions of this
Exhibit pursuant to Rule 406 promulgated under the Securities Act.
(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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Hartford, State of Connecticut on the 7th day of May, 1999.
ZIPLINK, INC.
By: /s/ HENRY M. ZACHS
-----------------------------------------
Henry M. Zachs
CO-CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to 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 M. ZACHS Co-Chairman of the Board
- ------------------------------ (Principal Executive May 7, 1999
Henry M. Zachs Officer)
/s/ ERIC M. ZACHS Co-Chairman of the Board
- ------------------------------ May 7, 1999
Eric M. Zachs
/s/ GARY P. STRICKLAND Chief Financial Officer
- ------------------------------ (Principal Financial and May 7, 1999
Gary P. Strickland Accounting Officer)
II-6
<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 10, 1999 (except with respect to the matter
described in Note 7 as to which the date is April 16, 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.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 10, 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
March 31, 1999 (unaudited)..................................... $ 67,737 $ 12,434 $ 40,104 $ 40,067
</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** Amended and Restated 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
4.3 Registration Rights Agreement dated as of May 6, 1999 between ZipLink, LLC and Williams Communications,
Inc.
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., as amended by Amendment No. 1 to Agreement for
Purchase and License of Bay Networks Products and Services dated as of June 25, 1998.
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,
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 and a Second Modification to Loan Agreement
dated April 16, 1999.
10.12** Employment Agreement dated as of March 4, 1999 between the Registrant and Christopher Jenkins
10.13** License Agreement dated as of March 11, 1999 between the Registrant and Henry M. Zachs
10.14** Letter from Henry M. Zachs dated March 10, 1999 to the Registrant respecting Guarantee
10.15 Securities Purchase Agreement dated as of May 6, 1999 between ZipLink, LLC and Williams Communications,
Inc.
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
99.4** Consent of Russell S. Bernard to use his name as director nominee
</TABLE>
** Previously filed.
+ Confidential treatment has been requested for certain portions of this
Exhibit pursuant to Rule 406 promulgated under the Securities Act.
<PAGE>
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER
OF
ZIPLINK, LLC
(a Delaware limited liability company)
AND
ZIPLINK, INC.
(a Delaware corporation)
AGREEMENT AND PLAN OF MERGER (the "Agreement") approved on _________,
1999 pursuant to Section 18-209 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 ________,
1999 pursuant to Section 264 of the General Corporation Law of the State of
Delaware by ZipLink, Inc., a business corporation of the State of Delaware, and
by resolution adopted by its Board of Directors on said date.
WHEREAS, ZipLink, Inc. is a business corporation of the State of
Delaware with its registered office therein located at 1013 Centre Road, City of
Wilmington, County of Dover; and
WHEREAS, the total number of shares of stock which ZipLink, Inc. has
authority to issue is 51,000,000, of which 50,000,000 are designated Common
Stock, par value $.001 and 1,000,000 are designated Preferred Stock, par value
$.001; and
WHEREAS, ZipLink, LLC and ZipLink, Inc. and the appropriate managers of
ZipLink, LLC and the Board of Directors of ZipLink, Inc. declare it advisable
and to the advantage, welfare and best interests of said limited liability
company and said corporation and their respective members and stockholders to
merge ZipLink, LLC with and into ZipLink, Inc. pursuant to the provisions of the
Delaware Limited Liability Company Act and pursuant to the provisions of the
General Corporation Law of the State of Delaware 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 and duly approved by a resolution adopted
by the Board of Directors of ZipLink, Inc., 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. Each of the members shall, prior to the consummation of the merger
described in Paragraph 2 below, transfer such member's interest in ZipLink, LLC
to ZipLink, Inc. The transfers describe in this Paragraph are intended to effect
an incorporation of ZipLink, LLC as described in Situation 3 of Revenue Ruling
84-111. In
<PAGE>
exchange for the foregoing transfers, ZipLink, Inc. shall issue shares of Common
Stock as further described in EXHIBIT A attached hereto.
2. Following the transfers provided for in Paragraph 1 above, ZipLink,
LLC and ZipLink, Inc. shall, pursuant to the provisions of the Delaware Limited
Liability Company Act and pursuant to the provisions of the General Corporation
Law of the State of Delaware, be merged with and into a single corporation, to
wit, ZipLink, Inc., 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 Corporation", and which shall continue to exist as said Surviving
Corporation under its present name pursuant to the provisions of the General
Corporation Law of the State of Delaware.
The separate existence of ZipLink, LLC, which is hereinafter sometimes referred
to as the `Terminating Company", shall cease at the said effective time in
accordance with the provisions of the Delaware Limited Liability Company Act.
3. The Certificate of Incorporation of Surviving Corporation, as now in
force and effect, shall continue to be the Certificate of Incorporation of said
Surviving Corporation and said Certificate of Incorporation shall continue in
full force and effect until amended and changed in the manner prescribed by the
provisions of the General Corporation Law of the State of Delaware.
4. The present By-laws of Surviving Corporation will be the By-laws of
Surviving Corporation and will continue in full force and effect until changed,
altered, or amended as therein provided and in the manner prescribed by the
provisions of the General Corporation Law of the State of Delaware.
5. The directors and officers in office of Surviving Corporation at the
effective time of the merger shall be the members of the first Board of
Directors and the first officers of Surviving Corporation, all of whom shall
hold their directorships and offices until the election and qualification of
their respective successors or until their tenure is otherwise terminated in
accordance with the By-laws of Surviving Corporation.
6. All membership interests shall be deemed exchanged for shares of
Common Stock of Surviving Corporation, as more particularly described on EXHIBIT
A attached hereto. Debenture #1 and Debenture #2 (as defined in the Securities
Purchase Agreement entered into during December 1997 between Bay Networks USA,
Inc. and ZipLink, LLC) shall, from and after the effective time of the merger,
be converted into shares of Common Stock of Surviving Corporation, as more
particularly described on EXHIBIT A attached hereto. All options and warrants to
acquire membership interests, including, without limitation, any options and/or
warrants issued pursuant to the ZipLink, LLC Unit Option Plan, shall, from and
after the effective time of the merger, be
<PAGE>
converted into options and warrants to acquire shares of Common Stock of
Surviving Corporation, as more particularly described on EXHIBIT A attached
hereto.
7. 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 Delaware Limited Liability Company Act and upon behalf of Surviving
Corporation in accordance with the provisions of the General Corporation Law of
the State of Delaware, Surviving Corporation and Terminating Company 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 that they will cause to be
performed all necessary acts within the State of Delaware and elsewhere to
effectuate the merger herein provided for.
8. The managers and members of Terminating Company and the Board of
Directors and the proper officers of Surviving Corporation 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: _______, 1999 ZipLink, LLC
By:
-------------------------------
Henry M. Zachs
Manager
Dated: _______, 1999 ZipLink, Inc.
By:
-------------------------------
Henry M. Zachs
Chairman of the Board
<PAGE>
EXHIBIT A
Shares of Common Stock of Surviving Corporation issued with respect to
membership interests in ZipLink, LLC are issued by Surviving Corporation in
exchange for those membership interests. Shares of Common Stock of Surviving
Corporation issued with respect to Debenture #1 and Debenture #2, and options
and warrants to acquire shares of Common Stock of Surviving Corporation issued
with respect options and warrants to acquire membership interests in ZipLink,
LLC, are issued by Surviving Corporation in conversion thereof.
(1) Any shares of Common Stock of Surviving Corporation owned by
ZipLink, LLC shall be canceled.
(2) The total number of shares of Common Stock of Surviving Corporation
to be issued with respect to existing Membership Interests (including for this
purpose the shares issuable with respect to Debenture #1 and Debenture #2) shall
be 9,000,000 shares.
(3) The number of shares of Common Stock of Surviving Corporation to be
issued with respect to Debenture #1 shall be 450,000 shares.
(4) The number of shares of Common Stock of Surviving Corporation to be
issued with respect to Debenture #2 shall be equal to the outstanding principal
amount of Debenture #2 divided by the initial public offering price for shares
of Common Stock of Surviving Corporation.
(5) The number of shares of Common Stock of Surviving Corporation to be
issued with respect to Senior Units shall be equal to: (i) the number of Senior
Units outstanding immediately prior to the transfer of Membership Interests to
Surviving Corporation, divided by the total number of Units and Senior Units
outstanding at such time, multiplied by (ii) the number of shares described in
Paragraph (2) above reduced by the number of shares issued pursuant to
Paragraphs (3) and (4) above. The shares of Common Stock of Surviving
Corporation to be issued with respect to Senior Units shall be allocated among
the holders thereof in proportion to the number of senior Units owned by each
such holder.
(6) The number of shares of Common Stock of Surviving Corporation to be
issued with respect to Units shall be equal to: (i) the number of Units
outstanding immediately prior to the transfer of Membership Interests to
Surviving Corporation, divided by the total number of Units and Senior Units
outstanding at such time, multiplied by (ii) the number of shares described in
Paragraph (2) above reduced by the number of shares issued pursuant to
Paragraphs (3) and (4) above, and shall be allocated among the holders of Units
as follows:
(a) Those holders of Units who have provided Preferred Capital shall be
issued a number of shares of Common Stock of Surviving Corporation,
with respect to the Preferred Capital, equal to the amount of Preferred
Capital provided divided by $14.00.
(b) Each holder of Units (other than Zachs Family Limited Partnership
Number One)
<PAGE>
shall be issued a number of shares of Common Stock of Surviving
Corporation equal to the number of Units owned multiplied by 0.815842
(the "Unit Conversion Factor").
(c) The remaining shares of Common Stock of Surviving Corporation to be
issued with respect to Units shall be issued to Zachs Family Limited
Partnership Number One.
(7) Options to acquire Membership Interests issued pursuant to the
ZipLink, LLC Unit Option shall be converted to options to acquire shares of
Common Stock of Surviving Corporation as follows:
(a) The number of shares of Common Stock of Surviving Corporation covered
by any such option shall be equal to the number of Units covered by
such option multiplied by the Unit Conversion Factor (and, if the
result is not a whole number, rounded up to the next whole number).
(b) The purchase price for each share of Common Stock of Surviving
Corporation covered by any such option shall be equal to the purchase
price for each Unit covered by such option divided by the Unit
Conversion Factor (rounded to the nearest whole cent).
(8) Warrants to acquire membership interests shall be converted to
warrants to acquire shares of Common Stock of Surviving Corporation as follows:
(a) The number of shares of Common Stock of Surviving Corporation covered
by any such warrant shall be equal to the number of Units covered by
such warrant multiplied by 0.827638 (and, if the result is not a whole
number, rounded up to the next whole number).
(b) The purchase price for each share of Common Stock of Surviving
Corporation covered by any such warrant shall be equal to the purchase
price for each Unit covered by such warrant divided by 0.827638
(rounded to the nearest whole cent).
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER [LOGO OF ZIPLINK, INC. APPEARS HERE] SHARES
ZC
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 989741 10 3
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR
VALUE $.001 PER SHARE OF
ZIPLINK, INC.
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation and the Bylaws and amendments thereto of the
Corporation, to all of which the holder by acceptance hereof assents. The
certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
WITNESS the facsimile signature of the duly authorized officers of the
Corporation.
Dated: [CORPORATE SEAL OF ZIPLINK, INC. APPEARS HERE]
/s/ Eric M. Zachs /s/ Henry M. Zachs
SECRETARY CO-CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
ZIPLINK, INC.
The Corporation will furnish without charge to each stockholder who so
requests, the designations, powers, preferences and relative participating,
optional or other special rights of each class of stock or series thereof of the
Corporation and the qualifications, limitations or restrictions of such
preferences and/or rights. Any such request should be made to the Co-Chairman of
the Corporation or to the Transfer Agent and Registrar named on the face of this
certificate.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to the applicable laws or regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with
right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT- _______________Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP
CODE, OF ASSIGNEE)
Shares
of the Common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
<PAGE>
Dated
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17 Ad-15.
<PAGE>
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the 6th day of
May, 1999, by and among ZipLink, LLC, ("ZipLink") having a usual place of
business at 40 Woodland Street, Hartford, Connecticut 06105, and Williams
Communications, Inc., having a usual place of business at One Williams Center,
Suite 4100, Tulsa, Oklahoma 74172 ("Williams").
RECITALS
WHEREAS, Williams is purchasing certain units of ownership of ZipLink
pursuant to a certain Securities Purchase Agreement of even date herewith (the
"Purchase Agreement"); and
WHEREAS, pursuant to the Purchase Agreement, ZipLink has agreed to
provide Williams 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 Williams or anyone who holds Registrable
Securities to whom the registration rights conferred by this
Section 1 have been transferred in compliance with Section
1.7.
(d) "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.
(e) "Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities
<PAGE>
Act and the declaration or ordering of effectiveness of such
registration statement.
(f) "Registrable Securities" means any and all units of ownership
interest issued to Williams under the Purchase Agreement
(whether held by Williams or any transferee of Williams or any
other Holder pursuant to Section 1.7 hereof), 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, or a reorganization, recapitalization or similar
transaction.
(g) "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 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 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 1.2(a). In such event, the right of
any Holder to registration pursuant to Section 1.2(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
2
<PAGE>
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 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 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
1.3 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 fees and
disbursements of more than one counsel for all Holders who are selling
Registrable Securities in such registration, qualifications or
compliance.
(ii) 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.
1.4 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 1.3, at its expense ZipLink will:
(i) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such
3
<PAGE>
registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(ii) 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.
(iii) 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.
(iv) 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 1.4:
(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.
(vi) 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.
1.5 INDEMNIFICATION. In the event any of the Registrable
Securities are included in a registration statement under Section 1:
(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
4
<PAGE>
actions in respect thereof) arise out of or are based upon any
untrue or alleged untrue statement of any material 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 1.5(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 out 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 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
5
<PAGE>
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 1.5 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 1.5,
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 1.5, 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 1.5.
(d) If the indemnification provided for in this Section 1.5 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 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.
1.6 INFORMATION BY HOLDERS. The Holder or Holders of Registrable
Securities included
6
<PAGE>
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.
1.7 TRANSFER OF REGISTRATION RIGHTS. The registration rights of
the Holders under this Agreement 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 Agreement 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
effect 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
(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.
7
<PAGE>
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 1.7, 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, LLP, 271 Whitney
Avenue, New Haven, CT 06511, or (b) if to any Holder, to the address set forth
on the first page hereof (or such other address as such Holder may 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 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.
4.8 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
8
<PAGE>
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.
4.9 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.
4.10 ENTIRE AGREEMENT. This Agreement and the other documents
delivered pursuant hereto or incorporated by reference herein constitute the
full and entire understanding and agreement of the parties with regard to the
subject matter hereof and thereof and supersede all prior oral or written
understandings, agreements and commitments with regard to such subjects by or
among the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ZIPLINK, LLC
By: /s/ Christopher Jenkins
--------------------------------
Christopher Jenkins
Its President
Williams Communications, Inc.
By: /s/ James W. Dutton
--------------------------------
Name: James W. Dutton
------------------------------
Title: Vice President
-----------------------------
9
<PAGE>
EXHIBIT 5.1
[Letterhead of Brenner, Saltzman & Wallman, LLP]
May 7, 1999
ZipLink, Inc.
900 Chelmsford Street
Tower One, Fifth Floor
Lowell, Massachusetts 01851
Re: ZipLink, Inc.
Gentlemen and Ladies:
We have acted as special counsel to ZipLink, Inc., a Delaware corporation
(the "Company"), in connection with the public offering by the Company of up to
4,025,000 shares (including 525,000 shares subject to an over-allotment option)
(the "Shares") of the Company's common stock, par value $.001 per share (the
"Common Stock").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise, identified to our satisfaction, of the following
documents:
(i) the Registration Statement on Form S-1 (File No. 333-74273) as
filed with the Securities and Exchange Commission (the "Commission") on
March 11, 1999 under the Act; (such Registration Statement, as amended,
being hereinafter referred to as the "Registration Statement");
(ii) Amendment No. 1 to the Registration Statement as filed with
the Commission on April 16, 1999 under the Act;
(iii) Amendment No. 2 to the Registration Statement as filed with
the Commission on May 7, 1999 under the Act;
(iv) the form of Underwriting Agreement (the "Underwriting
Agreement") proposed to be entered into by and among the Company, as
issuer, and Jefferies &
<PAGE>
ZipLink, Inc.
May 7, 1999
Page 2
Company, Inc. and First Albany Corporation, as representatives of the
underwriters named therein (the "Underwriters"), a form of which has
been filed as an exhibit to the Registration Statement;
(v) a specimen certificate representing the Common Stock;
(vi) the Certificate of Incorporation of the Company, as currently
in effect;
(vii) the By-Laws of the Company, as currently in effect; and
(viii) certain resolutions of the Board of Directors and the sole
stockholder of the Company.
We also have examined originals or copies, certified or otherwise identified to
our satisfaction, of such records of the Company and such agreements,
certificates of public officials, certificates of officers or other
representatives of the Company and others, and such other documents,
certificates, records and questions of law as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
In examining such documents, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, photostatic or facsimile
copies and the authenticity of the originals of such latter documents. In making
our examination of executed documents, we have assumed that the parties thereto,
other than the Company, had the power, corporate or other, to enter into and
perform all obligations thereunder and have also assumed the due authorization
by all requisite action, corporate or other, and execution and delivery by such
parties (other than the Company) of such documents and the validity and binding
effect thereof on such parties (other than the Company). As to matters of fact
relevant to this opinion, we have relied solely upon our examination of the
documents referred to above and have assumed the current accuracy and
completeness of the information obtained therefrom. We have made no independent
investigation or attempt to verify the accuracy of any such information or to
determine the existence or non-existence of any other factual matters; however,
we are not aware of any facts that would cause us to believe that the opinion
expressed herein is not accurate.
We assume that appropriate action will be taken, prior to the offer and sale
of the Shares, to register and qualify the Shares for sale under all applicable
state securities or "blue sky" laws.
Members of our firm are admitted to the bar in the State of Connecticut and
we do not express any opinion as to the laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, and we do not express any
opinion as to the effect of any other laws on the opinion stated herein.
<PAGE>
ZipLink, Inc.
May 7, 1999
Page 3
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly and validly authorized and when (i) the Underwriting
Agreement has been duly executed and delivered; (ii) certificates
representing the Shares in the form of the specimen certificate examined by
us have been manually signed by an authorized officer of the transfer agent
and registrar for the Common Stock and registered by such transfer agent and
registrar, and (iii) the Shares have issued and sold in the manner
contemplated by the Underwriting Agreement, and the Company has received
payment therefor as provided in the Underwriting Agreement, the Shares will be
validly issued, fully paid and nonassessable.
This opinion is limited to the matters expressly stated herein, and no
opinion is implied or may be inferred beyond the matters expressly stated
herein. We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter.
This opinion letter has been prepared solely for your use in connection with
the filing of the Registration Statement on the date of this opinion letter and
should not be quoted in whole or in part or otherwise referred to, nor filed
with or furnished to any governmental agency or other person or entity, without
the prior written consent of this firm.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
us under the caption "Legal Matters" in the prospectus contained in Registration
Statement. In giving this consent, we do not thereby admit that we are included
in the category of persons whose consent is required under Section 7 of the Act
or the rules and regulations of the Commission.
This opinion expressed herein is solely for your benefit, and may relied
upon only by you.
/s/ Brenner, Saltzman & Wallman, LLP
<PAGE>
Exhibit 10.4
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
AGREEMENT NUMBER
AGREEMENT FOR
PURCHASE AND LICENSE OF BAY NETWORKS
PRODUCTS AND SERVICES
THIS AGREEMENT is effective as of December 10, 1997 (the "Effective Date") and
is made between BAY NETWORKS USA, INC., a Delaware corporation with offices at 5
Federal Street, Billerica, Massachusetts 01821, acting on behalf of itself and
its affiliates ("Bay"), and Ziplink, LLC, ("Customer"), with offices at 900
Chelmsford Street, Tower One, Fifth Floor, Lowell, MA 01857.
1. PURCHASE OF HARDWARE, SOFTWARE LICENSES AND SERVICES
Under this Agreement, Customer may purchase from Bay certain equipment
("Hardware"), licenses for software including revisions and updates ("Software"
and "Software Release"), or installation, Hardware maintenance, Software
maintenance, professional services, and educational services (collectively
"Services") that are listed in Bay's then-current U.S. price list (the "Price
List").
2. ORDERS
Customer agrees that orders placed with Bay for Hardware and Software
(collectively, the "Products") and for Services are placed under this Agreement.
No order will be effective until accepted by Bay's order acknowledgment (an
"Acknowledgment"). Bay shall not unreasonably refuse to acknowledge any order
meeting standard business criteria. This Agreement shall govern all orders
regardless of any preprinted terms on Customer's order and Bay's Acknowledgment
and shall constitute the entire agreement between Customer and Bay. In the case
of the equipment and services listed on the initial attachment and exhibits to
this Agreement, this Agreement shall serve as the purchase order.
3. PRICES, TAXES, COSTS AND PAYMENT
A. PRODUCT PRICES. The parties have agreed upon pricing for specific Bay
Products. The pricing for the Products is attached as Exhibit 1 to this
Agreement. The pricing in Exhibit 1 is expressly conditional upon Customer
accepting delivery of the entire six million two hundred sixty three thousand
one hundred eighty dollars ($6,263,180) worth of Product (after discount and
before taxes) by December 26, 1997.
B. SERVICE PRICES. The prices for Services are as follows:
ATTACHMENT A- Resident On-Site Engineer: * - Monthly payments begin when
engineer is placed on site.
ATTACHMENT B- Network Management: * - Payable on the
Management/Implementation schedule below.
ATTACHMENT C- Maintenance: * -Effective date is June 20, 1998, billed at
the beginning of each quarter.
ATTACHMENT D- Installation/Implementation: *. - Payable on
Management/implementation Schedule.
ATTACHMENT E- Project Management: *. - Payable on
Management/Implementation Schedule.
The Management/Implementation payment schedule shall be: One third payable on
March 20, 1998, one third payable on June 20, 1998, and the final third payable
when Ninety-five percent of the originally scheduled POPs are installed and
accepting paying customer traffic. For Network Management full payment shall be
due when the test criteria described on Attachment F is completed.
C. TAXES AND OTHER LEVIES.
Prices do not include any tax, value-added tax, fee, duty or
governmental charge, however designated (except for Bay's franchise taxes or for
taxes on Bay's net income), which may be levied or based on the Products or
Services, or the importation, movement, delivery, use, or possession of
Products, including replacement and repair parts. All such taxes and fees shall
be for the account of Customer and any such taxes or fees required to be paid or
collected by Bay shall be paid by Customer to Bay unless Customer provides Bay
with proof of exemption acceptable to the appropriate authority.
D. COSTS. Bay agrees to pay for all applicable transportation costs for products
shipped in calendar 1997. Thereafter
The parties have caused this Agreement to be executed by their authorized
representatives.
- --------------------------------------------------------------------------------
ZIPLINK, LLC. BAY NETWORKS USA, INC.
BY: /s/ HENRY M. ZACHS BY: /s/ J. MANARAS
NAME: HENRY M. ZACHS NAME: MANARAS
TITLE: CEO TITLE: SR. COUNSEL
DATE: 12/23/97 DATE: 12-23-97
- --------------------------------------------------------------------------------
Bay's Agreement for End Use Customers (Rev. USA 1/97)
<PAGE>
transportation costs shall be added to the price of goods sold.
E. PAYMENT. Payment for the Products delivered on or before December 26, 1997,
shall be made in two payments, the first of which shall be in the amount of $2.0
million paid thirty days from the date hereof, with the entire remaining amount
paid on March 20, 1998. All payments are to be made in U.S. dollars. Terms of
payment for Services shall be net thirty days from the date of invoice. If and
to the extent that final acceptance (as defined in section 4E below) of all
products takes place before March 20, 1998, all amounts unpaid as of the date of
final acceptance shall then become due and payable within ten days, but in no
case later than March 20, 1998.
*
G. SERVICE PRICE ESCALATION. Bay agrees that the price for the service component
described in Attachment C, "Everyday with Labor Service Description" for the
three renewal periods following the initial one year term will not be raised by
more than two times the percentage increase in the Consumer Price Index - Urban
Wage Earners and Clerical Workers, All Items, Northeast (1982-1984 = 100,
October 1997 = 165.8) as reported by the Bureau of Labor Statistics (or any
successor index most closely resembling such index) as measured from March 1998
to the first month of any such period. For the purposes of this section only,
the base service price for the year period from June 20, 1998, shall be deemed
to be *.
4. TITLE, RISK OF LOSS, SHIPMENT, RETURNS, AND CHANGES
A. TITLE, RISK OF LOSS, SECURITY INTEREST. For shipments to locations in the
United States, title to Hardware and risk of loss passes to Customer when
presented by Bay or its agent to the carrier, except that for the initial order
Bay retains the risk of loss until delivery. Bay retains and Customer grants Bay
a purchase money security interest in each of the Products until paid for in
full. For shipments to locations outside of the United States, title to Hardware
passes to Customer upon receipt by Bay of payment in full for the corresponding
Product. Risks of loss and damage to Products pass from Bay to Customer upon
arrival at the port of entry in the destination country specified in Customer's
order.
B. SHIPMENT. Bay ships Products by a method and carrier selected by Bay. Bay
will ship freight collect, uninsured if so instructed on Customer's order using
a carrier acceptable to Bay. Notwithstanding the foregoing, the initial order
will be
Page 2
<PAGE>
shipped at Bay's expense and risk.
C. RETURNS. Products received by Customer as a result of an error by Bay in
shipment may be returned for credit. Products with defects covered by the
warranty or covered under a Service order may be returned for repair or
replacement. Customer agrees to first obtain from Bay a return material
authorization number and to return the corresponding Product within 10 days
after receiving the return material authorization number.
D. CHANGES. Customer cannot cancel or reschedule any order in whole or in part
15 days or less before the ship date on the Acknowledgment, nor after the
Product has shipped.
E. FINAL ACCEPTANCE. The Products shall be deemed finally accepted when Bay
demonstrates to the Customer that a) the Products are capable of accessing WebTV
devices through 56K technology at connectivity equal to or better than current
WebTV connectivity (excluding busy signals) as measured by WebTV, and b) the
routers interoperate with WorldCom's Stratacom ATM service.
5. SOFTWARE LICENSES
A. LICENSE FOR CUSTOMER'S OWN USE OF SOFTWARE. Customer's purchase of licenses
is for its own use of the Software and associated user manuals. Customer's
right to use the Software is subject to the "shrink-wrap" license agreement
which accompanies the Software media (and is reproduced in the accompanying
user manual), the "License Agreement".
B. LICENSE FOR USE OF SOFTWARE RELEASES. Certain Services include the delivery
of revisions and updates to Software previously licensed by Customer
("Software Releases") with accompanying release notes, user manuals or
other documentation. Customer's right to use a Software Release is governed
by the License Agreement.
C. LIMITATIONS. Customer may not translate, decompile, disassemble, use for any
competitive analysis, or reverse engineer the Software or its user manuals in
any way. Customer agrees to not translate any portion of the Software or
associated user manuals into any other format or language without Bay's prior
written permission.
6. WARRANTIES
A. WARRANTY PERIOD. The warranty period for the Products shall run from the date
of delivery until June 20, 1998, which date shall be the commencement date of
the first period of the maintenance contract. During the warranty periods, Bay
shall deliver services at the quality and response levels provided for in the
maintenance contract.
B. HARDWARE WARRANTY. Bay warrants each item of Hardware to be free from defects
in workmanship and material for its respective warranty period which begins on
the date Hardware is shipped to Customer. Customer's exclusive remedy and Bay's
sole obligation and liability under this warranty is to repair or replace at
Bay's discretion any failed Hardware item returned by Customer under a proper
return material authorization number.
C. SOFTWARE WARRANTY. Bay warrants each item of Software, as delivered by Bay
and properly installed and operated on the Hardware or other equipment it is
originally licensed for, to function substantially as described in its
accompanying user manual, during its respective warranty period which begins on
the date Software is first shipped to Customer. If any item of Software fails to
so function during its warranty period, as the sole remedy Bay or Bay's supplier
will at its discretion provide a suitable fix, patch or workaround for the
problem which may be included in a future Software Release. For specific
Software which is distributed by Bay as a licensee of third parties, warranty
terms offered by such third parties to end-users may also apply to Customer.
During the term of the Software Warranty Bay will provide any new software
releases applicable to the Products at no additional costs to Customer.
D. SERVICE WARRANTY. Bay warrants that Services will be performed in a
professional and workmanlike manner and within response times set forth in
Schedule C respecting the maintenance period.
E. LIMITATIONS. Bay does not warrant that any item of Software or a Software
Release is error-free or that its use will be uninterrupted. Bay is not
obligated to remedy any Software defect which cannot be reproduced with the
latest Software Release. These warranties do not apply to any Product which has
been (i) altered, except by Bay or according to its instructions, (ii) used in
conjunction with another vendor's product resulting in the defect, or (iii)
damaged by improper environment, abuse, misuse, accident or negligence.
Replacement parts furnished under this warranty may be refurbished or contain
refurbished components. THE FOREGOING WARRANTIES AND LIMITATIONS ARE EXCLUSIVE
REMEDIES AND ARE IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. ANY PRODUCT THAT MAY BE FURNISHED BY BAY WHICH IS NOT LISTED IN THE
PRICE LIST, OR WHICH IS IDENTIFIED IN THE PRICE LIST AS AN "AS IS" PRODUCT, IS
FURNISHED "AS IS" WITH NO WARRANTIES OF ANY KIND.
Page 3
<PAGE>
7. SERVICES
A. SERVICE DESCRIPTIONS. The Services to performed by Bay under this Agreement
are set forth in ATTACHMENTS A through E to this Agreement.
B. PRODUCT ELIGIBILITY. To be eligible for maintenance Service, Hardware must be
in good operating condition at revision levels specified by Bay, and Software
must be at the then-current or immediately preceding Software Release. Bay
charges its standard rates then in effect to make Products eligible for
maintenance Service coverage.
C. RELOCATION OF PRODUCTS. Relocation of Products under maintenance Service is
the sole responsibility of Customer and may result in adjustments to the price
for Service and changes to Service response times. If such Products are
relocated to another country or a remote location, continued Service is subject
to reasonable availability from Bay or a Bay authorized service provider.
D. HAZARDS. Customer agrees to notify Bay in advance if the furnishing of
Services will be in an environment which could pose a health or safety hazard to
Bay's employees or service providers.
E. REPLACEMENT PARTS AND SERVICE TOOLS. All failed parts replaced during Service
coverage become the property of Bay on an exchange basis, whether replaced under
warranty, on a per call request, or during maintenance Service coverage periods.
Replacement parts may be refurbished or contain refurbished components.
Diagnostics, documentation, spare parts, tools, test equipment and other
material used in the performance of Services may be furnished by Bay, or already
included with Products, or otherwise available by Bay at Customer's facility.
Bay grants no title or license to such material which remains the exclusive
property of Bay. Customer agrees to allow Bay immediate access to and recovery
of all such material at Bay's request.
F. LIMITATIONS. Bay's Service does not apply to any Hardware or Software which
has been (i) altered, except by Bay or as otherwise instructed by Bay, (ii) used
in conjunction with another vendor's product resulting in the defect, or (iii)
damaged by improper environment, abuse, misuse, accident or negligence. Where
required by law, Bay will refund the Service price of a covered defective
Product if repair or replacement of the failed Product cannot be made.
8. PROPRIETARY RIGHTS AND INFORMATION
A. USE OF PROPRIETARY INFORMATION. "Proprietary Information" includes,
without limitation, diagnostics, the Software and Software Releases, all
user manuals, other documentation, as well as electronically and visually
transmitted printed materials and information disclosed by Customer or
Bay, such as new product information, financial or technical data, that is
marked with a proprietary or confidential legend. Each party agrees to
hold the Proprietary Information of the other in confidence and to use the
Proprietary Information only for the purposes expressly permitted, and to
disclose Proprietary Information only to its employees and contractors as
allowed by the disclosing party and then only on a need-to-know basis.
Each party agrees to maintain adequate internal procedures, including
appropriate agreements with employees and authorized third parties, to
protect the confidentiality of the Proprietary Information. Each party is
entitled to appropriate injunctive relief in the event of any unauthorized
disclosure or use of its Proprietary Information by the other party.
B. LIMITATIONS. Proprietary Information does not include information which
(i) is rightfully in the receiving party's possession in a complete and
tangible form before it is received from the disclosing party, (ii) is or
becomes a matter of public knowledge through no fault of the receiving
party, (iii) is rightfully furnished to the receiving party by a third
party without restriction on disclosure or use, or (iv) is independently
developed by the receiving party without use of or reference to the
disclosing party's Proprietary Information.
C. RESERVATION OF RIGHTS. Bay, on behalf of itself and its suppliers,
reserves all proprietary rights in and to (i) all designs, engineering
details, and other data pertaining to the Products and Services, (ii) all
original works, computer programs, fixes, updates (but not Customer's
developed programs), discoveries, inventions, patents, know-how and
techniques arising out of work done wholly or in part by Bay or its
contractors, and (iii) any and all products developed as a result of such
work. The performance by Bay of professional Services shall not be deemed
a work-for-hire but shall instead be subject to this section.
D. ADMINISTRATIVE PROCEDURES. Customer is responsible for the security of its
own proprietary and confidential information and for maintaining adequate
procedures apart from the Products to reconstruct lost or altered files,
data or programs.
9. CLAIMS OF INFRINGEMENT
A. INDEMNIFICATION. Bay agrees to defend at its own expense any action brought
against Customer to the extent that it is based on a claim that any Product or
Service as furnished by Bay infringes a United States patent, copyright, trade
mark, or
Page 4
<PAGE>
other intellectual property right and will pay any costs and damages
finally awarded against Customer in any such actions which are attributable to
any such claim. Bay's obligation under the preceding sentence is subject to the
conditions that (i) Customer promptly notifies Bay in writing of any such claim,
(ii) Bay has sole control of such defense and all negotiations for any
settlement or compromise unless in the reasonable opinion of Customer's counsel
there exists a conflict of interest which impairs Bay's ability to adequately
represent Customer's interest, and (iii) should any Product become, or in Bay's
opinion be likely to become, the subject of any such claim, Customer permits
Bay, at Bay's option and expense, to procure for Customer the right to continue
using such Product, to replace or modify it so that it becomes non-infringing,
or to grant Customer a credit for such Product as depreciated on a three-year,
straight-line basis, and accept its return.
B. LIMITATIONS. Bay has no liability to Customer under this section entitled
CLAIMS OF INFRINGEMENT with respect to any claim which is based upon or results
from (i) the combination of any Product with any equipment, device, firmware or
software not furnished by Bay, (ii) any modification of any Product by a party
other than Bay or as otherwise instructed by Bay, (iii) Customer's failure to
install or have installed changes, revisions or updates as instructed by Bay, or
(iv) Bay's compliance with Customer's specifications, designs or instructions.
10. TERM OF AGREEMENT AND TERMINATION
A. TERM AND TERMINATION. The term of this Agreement shall expire 12 months
after Final Acceptance. Thereafter, this Agreement will renew for
successive 12 month terms unless an authorized representative of one party
provides the other party with written notification of its intent not to
renew at least 30 days prior to the expiration of the then current term.
Either party may terminate this Agreement if (i) the other party becomes
insolvent, files or has filed against it a petition in bankruptcy, or
ceases doing business; or (ii) the other party fails to cure a material
breach within 30 days after receipt of written notice of such breach from
the party not in default. Upon termination by Bay for Customer's breach,
Bay may cancel unfulfilled Customer orders.
B. CONTINUING EFFECT. Any expiration or earlier termination of this Agreement
does not modify or alter any of the obligations of the parties which
accrued prior to such expiration or termination. The sections of this
Agreement which address taxes, duty, fee, payment, proprietary rights and
information, warranties, export and re-export, remedies, limitations,
termination and governing law shall survive any expiration or termination
of this Agreement. The section entitled SOFTWARE LICENSES also survives
any expiration or termination provided Customer continues to comply with
its provisions. Section 3F shall survive any termination or expiration of
this Agreement.
C. EFFECT OF TERMINATION. Neither party is liable to the other for damages in
any form solely by reason of the expiration or earlier termination of this
Agreement.
11. INDEMNITY AND LIABILITY
A. INDEMNITY. Bay agrees to indemnify Customer against any claim arising out
of or resulting from Bay's furnishing of Products or Services or this
Agreement, if such claim (i) is attributable to bodily injury, death, or
to injury to or destruction of physical property, and (ii) is caused by
the negligent act or omission of Bay. This obligation on the part of Bay
is subject to Customer's obligation to (a) give Bay prompt written notice
of any such claim, (b) grant Bay control of the defense and settlement of
such claim, and (c) assist fully in the defense provided that Bay
reimburses Customer's out-of pocket costs. Bay has no liability for any
settlement or compromise made without its prior written consent. Under no
circumstances is Bay liable for any third-party claims except for those
described in this section and in the section entitled CLAIMS OF
INFRINGEMENT.
B. INSURANCE. Bay, at its expense, agrees to maintain adequate insurance
coverage to protect against its liabilities under this Agreement. Insurance
coverage will include (a) worker's compensation insurance, (b) comprehensive
general liability insurance, including coverage for Product liability, bodily
injury and property damage, and (c) automobile liability insurance.
C. LIABILITY. IN NO EVENT WILL EITHER PARTY OR THEIR RESPECTIVE SUPPLIERS BE
LIABLE FOR (1) ANY COST OF SUBSTITUTE PROCUREMENT, SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OR (2) ANY DAMAGES RESULTING FROM
INACCURATE OR LOST DATA OR LOSS OF USE OR PROFITS ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT, THE FURNISHING OF SERVICES, OR THE USE OR
PERFORMANCE OF PRODUCTS EVEN IF INFORMED OF SUCH DAMAGES. EXCEPT FOR DAMAGES
RESULTING FROM BODILY INJURY OR DEATH TO PERSONS, OR ARISING UNDER THE SECTION
ENTITLED "CLAIMS OF INFRINGEMENT", IN NO EVENT WILL BAY'S TOTAL LIABILITY FOR
(1) ANY DAMAGES IN ANY ACTION BASED ON OR ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT EXCEED THE TOTAL AMOUNT PAID TO BAY FOR PRODUCTS UNDER THIS
AGREEMENT, OR (2) CLAIMS BASED UPON
Page 5
<PAGE>
BAY'S OBLIGATIONS UNDER THE SECTION ENTITLED "SERVICES" EXCEED THE TOTAL AMOUNT
PAID TO BAY FOR SUCH SERVICES.
12. EXPORT AND RE-EXPORT
Customer agrees not to export, directly or indirectly, any Products, Software,
Software Release or related technical data or information without first
obtaining any required export licenses or other governmental approvals. Without
limiting the foregoing, Customer, on behalf of itself and its subsidiaries and
affiliates, agrees that it will not, without first obtaining all export licenses
and approvals required by the United States government, (i) export, re-export,
transfer or divert any such Software, Software Release or technical data, or any
direct product thereof, to any country to which such exports or re-exports are
restricted or embargoed under United States export control laws and regulations,
or to any national or resident of such restricted or embargoed countries, or
(ii) provide any Product, Software, Software Release or related technical data
or information to any military end user or for any military end use, including
the design, development or production of any chemical, nuclear, or biological
weapons.
13. JOINT MARKETING AND REFERENCE SITES
In consideration of the extraordinary pricing and payment terms provided
Customer by Bay herein, Customer agrees to act as both a demonstration site and
reference selling account for Bay. Customer shall, upon reasonable advance
notice and with due consideration for Customer's operational issues and
requirements, provide select potential Bay customers with tours, demonstrations
and references. Customer and Bay shall prepare either a joint press release and
collateral materials to be released after the execution of this and all
associated agreements, or each may elect to make a separate release, but such
separate release shall be subject to review and approval by the other party.
14. PRODUCT RETURNS
Bay has granted Customer certain extraordinary discounts on 1,920 ports which
replace certain ports Customer had previously obtained from another
manufacturer. In consideration of such discounts Customer shall deliver to Bay
equipment from such other manufacturer supporting 1,200 ports, together with all
applicable documentation and software.
15. GENERAL
A. If any provision of this Agreement is held to be invalid or unenforceable,
the remainder of the provisions shall remain in full force and effect.
B. Bay and Customer agree to comply with the provisions of all applicable laws
and regulations.
C. Neither party is liable for its failure or delay to perform its obligations
due to strikes, wars, revolutions, acts of terrorism, fires, floods, explosions,
earthquakes, parts or labor shortages, government regulations, or other causes
beyond its reasonable control.
D. Except in any case of assignment in connection with the sale or other
transfer of all or substantially all of Customer's ISP business (whether in a
merger, consolidation, reorganization, outright sale or otherwise) this
Agreement may not be assigned by Customer without prior written permission from
Bay. Any attempt by Customer to assign any right, or delegate any duty or
obligation which arises under this Agreement without such permission will be
voidable.
F. Any waiver, amendment or modification of any right or remedy, or of these
terms and conditions will not be effective unless in writing and signed by an
authorized person of the party against whom enforcement is sought. Neither party
shall be bound by typographical or clerical errors.
G. Any notices required to be given shall be in writing and may be sent by mail,
telefax, courier service or otherwise delivered to the party to be notified. All
notices sent to Customer shall be to the address indicated on the signature page
of this Agreement. All notices sent to Bay shall be addressed to 5 Federal
Street, Billerica, MA 01821, Attention: Manager, Contracts.
H. This Agreement is governed by the laws of the State of California. Customer
and Bay expressly exclude the application of the United Nations Convention on
Contracts for the International Sale of Goods to this Agreement.
Page 6
<PAGE>
ATTACHMENT A
On-Site Resident Engineer
Service Description
1. BY MARCH 1, 1998, Bay will assign a resident on-site engineer ( the
"On-Site Engineer") to perform the services described herein ("Services").
The On-Site Engineer will perform these Services at Customer's U.S.
facility identified in Customer's purchase order ("Facility"). ZipLink
will provide tier 1 and tier 2 support which includes active monitoring of
the network. Bay Networks Professional Services will provide dedicated
personnel who provide tier 3 and tier 4 support of Bay Networks Products
to the ZipLink tier 1 and tier 2 personnel. This support will be provided
to a ZipLink work center that is staffed with employees, other contract
employees and to ZipLink Customers that utilize Bay Networks products. The
Bay Networks Professional Services Contract Employees will be expected to
act as ZipLink employees when interfacing with ZipLink Customers on behalf
of ZipLink. The On-Site Engineer shall have the skills appropriate to the
tasks required, and his responsibilities shall include overseeing the
day-to-day operation and the well-being of the Bay equipment, INSTALLING
SOFTWARE UPGRADES, acting as the escalation point for all operational and
technical issues between Bay and Customer and assisting in training
Customer personnel and generating and maintaining network configuration
documentation. Subject to availability of resources, On Site Engineers
will also be offered to Customer on a per day basis at Bay's then current
published prices, provided Bay shall have been provided reasonable advance
written notice of Customers per-day requirements.
2. The "Start Date" for each On-Site Engineer will be confirmed by Bay to
Customer in writing. Customer agrees to notify Bay in writing at least
ninety (90) days prior to the expiration of the first twelve months if
Customer elects to renew such purchase order, subject to Bay's then
current prices or as otherwise mutually agreed.
3. If travel is requested by Customer in the performance of Services,
Customer will reimburse Bay as follows:
(i) commercial transportation - reimbursable on an "incurred cost" basis at
economy, tourist or coach rates. Travel time for each On-Site Engineer
will be considered hours of work expended by each On-Site Engineer;
(ii) private automobile - reimbursable at Bay's then current standard rate
(currently $0.315 per mile);
(iii) per diem - reimbursable for actual hotels, meals, and local transportation
costs;
(iv) all travel, transportation, and per diem expenses, copies of which are to
accompany Bay invoices, for which reimbursement is sought; Customer's
administrator shall promptly authorize all reimbursement which meets the
requirements of 3(i), (ii) and (iii) above. Reimbursements other than as
described above shall require the written authorization of Customer's
administrator.
(v) reimbursement shall be made by Customer within thirty (30) days after
receipt by Customer of an invoice from Bay.
4. The On-Site Engineer will perform the Services five (5) days per week
(Monday through Friday) and will continue to be subject to Bay's personnel
policies during the term of the Agreement including, but not limited to,
holiday, vacation and sick day policies, salary, benefits and compensation
plans. Bay will use reasonable efforts to schedule vacation for each
On-Site Engineer so as not to severely interfere with or unduly delay any
particular or special requirements of Customer provided Customer advises
Bay in advance of such requirements. Bay may schedule training and/or
other required meetings for each On-Site Engineer to attend at reasonable
intervals during the term of this Agreement. These training classes and
meetings will be scheduled at mutually agreed upon times. In the case of
any planned absences such as vacation, training, required meetings and the
like, Bay shall arrange alternate coverage so that Customer has 52 weeks
per year of coverage, less holidays observed locally. Customer
acknowledges that unplanned absences may be inevitable and Bay shall not
be required to provide replacement coverage on short-term illness days or
the like, but shall use its best efforts to provide coverage if illness or
other unplanned absence are expected to last more than a few days. Hours
of work will be limited to forty (40) hours a week based on a work
schedule mutually agreed to by the parties, but generally on a daytime
weekday schedule. Any hours that may be reasonably required to be
performed in excess of the combination of five (5) eight (8) hour days per
week will be provided upon reasonable prior written request, and will be
subject to Bay's approval, not to be unreasonably withheld; such excess
hours will be offset by equal time off during the normal work period, the
allocation of such time off being mutually agreed upon in advance between
the parties. Non-business hours shifts and shift work is to be project
related and for the purposes of providing tier 3 and 4 support during
these projects, not for tier 1 and 2 coverage of the center. The On-Site
Engineer should be
Page 7
<PAGE>
available via beeper (for Zip Link deemed network emergencies) 24 hours a
day, 7 days per week with the exception of vacation. Outside the normal
working time of 40 hours per week, time will be deducted from future
credited hours at the overtime rate of 100% of the hourly rate quoted in
this proposal, less applicable discounts.
5. Customer will provide, promptly upon arrival at the Facility by each
On-Site Engineer, all necessary office space for each such On-Site
Engineer, full and unrestricted access to a telefax machine, a telephone
for calls related to the Services being performed and an adequate area for
storage of related equipment. Customer acknowledges and agrees that
performance by the On-Site Engineer of his/her obligations under this
Agreement is expressly conditional upon the full performance by Customer
of its obligations hereunder. Customer understands that Bay will furnish
each On-Site Engineer with one (1) portable computer with standard
business software application packages (i.e. spreadsheet, word processing,
and mail). If any additional computer resources, tools or test equipment
are required for the On-Site Engineer to perform his/her work, they will
be furnished by Customer at no cost.
6. Customer acknowledges that Bay may replace the On-Site Engineer at any
time upon thirty (30) days prior written notice delivered to Customer's
administrator. Customer agrees that it will not offer employment to any
On-Site Engineer during the term of this Agreement and for a period of one
(1) year after it expires or terminates.
7. Customer will provide direction in the day-to-day performance of Services,
but each On-Site Engineer will at all times be and remain an employee of
Bay and not an employee of Customer. Bay shall maintain sole control and
discretion over the services rendered hereunder. Each On-Site Engineer
will observe Customer's reasonable rules and regulations that Customer
makes known to him/her in writing and in advance with respect to the
safety of persons and property while at the Facility. Each party will
comply with all applicable governmental laws, ordinances, rules and
regulations applicable to the Services.
Page 8
<PAGE>
ATTACHMENT B
Network Management
Network Management (NM) as defined by the various standard organizations
consists of 5 general areas:
a) Fault management
b) Configuration Management
c) Accounting Management
d) Performance Management, and
e) Security Management
The Network Management system that we are proposing for Ziplink will cover all
of the above areas. We will be using a combination of existing Bay Networks
flagship NM systems such as Optivity and also customized and high performance
system based on the NetExpert System from Objective System Integrators, Inc.
Our system will actively manage Ziplink networks based on real time data. It is
an intelligent system that will change and adapt to Ziplink networks over time.
The system will generate customized reports as required for tracking and
historical trending. It will also allow for automated responses to routine
events without operators intervention.
WORK TO BE PERFORMED
1) Network Evaluation, data gathering
2) System Engineering, Requirement document
3) Database design
4) Customization for Ziplink specific needs
5) Custom reports
6) Phased deployment, installation and training
7) Delivery of Documentation
8) Training of Customer Personnel
RESOURCE
Two NM specialists, one Consultant, and one project manager to coordinate with
the other NM specialists from other projects
DURATION
Approximately 6 months
OSI SOFTWARE
A Sun Microsystem hardware platform will be required and an OSI software
platform may be required in order for Bay to perform its work hereunder. Ziplink
shall be responsible for purchasing this hardware and software.
METHODOLOGY
A Bay Networks Consultant will meet with Ziplink to determine its needs and
requirements. He will study the network, understand the traffic and the
connectivity, observe and comment on the operations of the network. He will also
review the current mode of management of the network. From this set of data he
will provide a written set of system engineering documents and the preliminary
NM requirement document. With Ziplink comments and feedback, this document will
be the basis for the Database design and for the customization of the various
existing NM modules to fit Ziplink environment.
Page 9
<PAGE>
Reports will also be customized to reflect Ziplink network.
As each phase of the development is completed, they will be deployed into
Ziplink networks. Training will be provided in each step.
Page 10
<PAGE>
ATTACHMENT C
EVERYDAY WITH LABOR SERVICE DESCRIPTION
1. TRC Access and Information Services
Customer shall be entitled to Technical Response Center ("TRC") support. The TRC
is a telephone handling service staffed by Bay's product support personnel which
provides assistance with diagnosis of defects or failures in the Bay hardware
and software products to conform with published documentation. Currently Bay has
TRCs in Billerica Massachusetts; Santa Clara, California; Valbonne, France;
North Sydney, Australia and Tokyo, Japan.
Customer shall have TRC access seven days per week, twenty-four hours per day,
with no restriction on the number or qualification of Customer's personnel who
are eligible to place telephone calls to report product related questions or
problems. Customer will also receive one annual subscription for Bay's technical
reference library; including CD-Rom and hard copy documentation.
2. Software Updates; Software Fixes
Under this Service Description, Customer shall be entitled to receive Software
Releases, which include new features, enhancements and improvements to Bay's
software, as they are made generally available for release by Bay, for products
covered under the terms of this Service Description.
If Bay diagnoses that a reported problem is due to nonconformance to published
specifications of a supported software version, then Bay will provide any
software fix for the reported nonconformance available at the time the problem
is reported. If there is no such available fix, Bay will use reasonable
commercial efforts to remedy such nonconformance, which may include a workaround
or other temporary fix to the software. If the software is not a currently
supported version, and the nonconformance has been corrected in a supported
version, Customer will be advised to upgrade in order to obtain assistance. Bay
does not promise or guarantee that all nonconformance of the software can be
corrected.
If Bay is unable to complete its diagnosis telephonically, Bay may, at its sole
discretion, dispatch a service technician to the Customer's site in order to
facilitate Bay's diagnosis. There shall be no additional charge to Customer for
such dispatch unless made by Bay at the request of Customer.
3. Hardware Support
Bay will provide same business day on-site replacement of Bay Networks' field
replaceable hardware components at each covered site. The principal period of
maintenance for this Service Description is seven days per week, twenty-four
hours per day.
If Bay diagnoses that a reported problem is due to a failed hardware component,
Bay shall dispatch a service technician to arrive on-site (i) within four hours
following completion of diagnosis to perform on-site replacement, if the
products to be repaired or replaced are installed less than 50 miles from the
nearest parts depot of Bay or any of its authorized representatives, or (ii)
within six hours following completion of diagnosis to perform on-site
replacement if the products to be repaired or replaced are installed more than
50 miles but less than 100 miles from the nearest parts depot of Bay or any of
its authorized representatives, AND AS SOON AS REASONABLY POSSIBLE IN THE CASE
OF PRODUCTS INSTALLED MORE THAN 100 MILES FROM A BAY OFFICE.
On-site replacement is the de-installation by Bay Networks of a defective field
replaceable hardware product component and the installation of a replacement
hardware Product component. The failed component which is de-installed by Bay
Networks shall become the property of Bay Networks on an exchange basis.
Page 11
<PAGE>
4. Responsibilities of Customer
Customer shall ensure that a V.32 modem, or such other modem as Bay may
designate, is installed on the Customer network in order to facilitate Bay's
dial-in diagnostics capability. Customer shall provide Bay all necessary
authorizations for remote access by Bay to the Customer network. Customer agrees
to provide the service technician with immediate access to the products to be
maintained. Customer must advise Bay in writing, of any change of locations for
products to insure proper dispatch and delivery. Customer is responsible for
ensuring that the products are used and maintained in accordance with the
applicable product documentation.
At any site where Customer is purchasing this Service Description for a
particular product, Customer must cover all "like" products at such site under
this Service Description. (By way of example, all Access feeder Nodes (AFNs) are
"like" products. Therefore, an Ethernet AFN is a "like" product to a Token Ring
AFN, but not a "like" product to an Ethernet ASN.) Customer may not split the
coverage of a group of "like" products at any one site between this Service
Description and Service Descriptions BF2300XXX, BG2300XXX, BH2300XXX, BJ2300XXX
or BK2300XXX.
5. Conditions
Bay's support obligations are expressly conditional upon the products not being:
(i) subject to unusual mechanical stress or unusual electrical or environmental
conditions; (ii) subject to misuse, accident or disaster including without
limitation fire, flood, water, wind, lightning or other acts of God; (iii)
altered or modified unless performed or authorized by Bay. Bay shall have no
liability or obligations hereunder for failure of the products to conform to
published specifications resulting from the combination of the products with any
third party hardware or software not authorized in Bay's published documentation
or when caused by Customer's inability to use the products if they are operating
substantially in accordance with published specifications.
Page 12
<PAGE>
ATTACHMENT D
INSTALLATION/IMPLENTATION SERVICE DESCRIPTION
Bay Networks Staging and Integration Services will provide configuration setup,
integration, and testing at each designated Zip Link facility with our staging
and integration facility with a dedicated staff. All hardware and software is
staged to mutually agreed specifications.
Staging and Option
INSTALLATION INTEGRATION SERVICES
o Unpacking the equipment at your site
o Placing the equipment on-site in its designated location
o Powering up and verifying that the equipment is properly functioning
o Connecting the equipment to your network
o Verifying that the equipment is operable on your network
PLACEMENT
o Receiving and inspecting all equipment at Zip Link Site integration
facility
o Placing the equipment in a designated rack or for tabletop
installation
INSTALLATION
o Unpacking the equipment at your site o Placing the equipment on-site in its
designated location o Powering up and verifying that the equipment is properly
functioning o Connecting the equipment to your network o Verifying that the
equipment is operable on your network
ASSEMBLY
o Inserting and connecting system components and cables
o Verifying firmware configuration and parameters
o Performing appropriate diagnostics to verify proper operation
o Loading system software
o Configuring IP, OSPF, and PPP protocols
o Testing the basic configuration by powering it up and conducting a
network ping test
ACCEPTANCE
o Review of the Bay Networks INSTALLATION INFORMATION PACKAGe with your
designated representative
o Verifying that the equipment meets installation specification
o Obtaining your designated representative's sign-off of completion
Page 13
<PAGE>
ATTACHMENT E
BAY NETWORKS PROJECT MANAGER
Bay Networks will provide a highly disciplined Project Manager who possesses
proven technical and program management expertise, for the period of performance
of this contract. As an integral component for the success of the overall
project, The Project Manager will:
/X/ act as primary interface to Bay Networks' management on problem
identification and resolution,
/X/ ensure timely completion of all required Bay Networks tasks through
proactive planning and management activities,
/X/ establish project goals, milestones, and deliverables,
/X/ work with your designated Project Manager to anticipate, evaluate, and
resolve potential project risks,
/X/ minimize disruptions and/or delays through effective contingency planning,
/X/ act as primary contact for Bay Networks project, technical, financial
data, and
/X/ provide technical and/or project management expertise as required.
The Project Manager will have direct control and responsibility for key Bay
Networks Professional Services operational, personnel and financial resources
necessary to ensure successful completion of this project.
The Project Manager will submit to you a Project Status Report as agreed on by
the project the during the Period of Performance. The Project Manager will
maintain close and frequent contact with your organization to include project
status and issues.
Your Project Manager will be the primary team contact to Bay Networks for
network support, implementation, and planning issues as well as the overall
manager for the successful completion of the project. S/he may manage the
efforts of other skilled, experienced individuals assigned to manage or
implement specific project tasks.
PROJECT PLAN
Bay Networks will develop and maintain a Project Plan. The Project Plan will
describe how Bay Networks will organize and manage resources required to
complete your network design and implementation. Bay Networks will develop the
Project Plan using a variety of tools, to include Lotus Notes and Microsoft
Project, according to the Statement of Work. It will include a project
organization, functional matrix, work breakdown structure, responsibility
account matrix, detailed schedules, staffing plans, schedule of deliverables,
including your furnished items, and a risk management plan.
STATUS REPORTING AND PROBLEM ESCALATION
The Bay Networks Project Manager will undertake the necessary steps required to
develop contingency plans as a means to resolve potential issues. The Project
Manager will then review the outlined plans with your team and obtain agreement
on the proposed alternatives. If the key event or activity is related to
activities outside the Bay Networks project scope, the Bay Networks Project
Manager will notify your Project Manager of the situation.
We will conduct major milestones review meetings / conference calls with you.
Bay Networks will present all required documentation and develop a Status Report
for approval at the review meeting. Planning techniques such as PERT (Program
Evaluation and Review Technique) and CPM (Critical Path Method) are commonly
used to develop and review implementation progress. You will be asked to review
all items and approve items completed
Bay Networks will either provide a Project Review with you or provide a summary
report as required. Bay Networks will present complete Project status, including
a discussion of technical issues, schedules, deliverables, Project risks, and
action items.
The Bay Networks Project Manager will conduct telephone conference meetings with
the various Bay Networks project leaders in a weekly basis or as required. Major
issues will be identified and a summary report will be made available to your
Page 14
<PAGE>
team.
CONTRACT MANAGEMENT AND CHANGE CONTROL
Bay Networks and your team will agree on a change control procedure. The Change
Control Procedure will control all requests for change to the network Statement
of Requirements and changes to the work proposed herein. Work changes caused by
late information, inaccurate information, and your supplier delinquencies will
require changes to the scope of this agreement governed by the Change Control
Procedure.
Page 15
<PAGE>
ATTACHMENT F
NETWORK MANAGEMENT COMPLETION CRITERIA
(To be agreed upon between the technical staffs of Bay and Customer)
Page 16
<PAGE>
Exhibit 1
- ---------
*
<PAGE>
AMENDMENT NO. 1
TO
AGREEMENT FOR
PURCHASE AND LICENSE OF BAY NETWORKS PRODUCTS AND SERVICES
THIS Amendment No. 1 ("Amendment") is effective as of June 25, 1998 (the
"Effective Date") and is made between BAY NETWORKS USA, INC., a Delaware
corporation with offices at 5 Federal Street, Billerica, Massachusetts
01821,acting on behalf of itself and its affiliates ("Bay"), and Ziplink, LLC,
("Customer"), with offices at 900 Chelmsford Street, Tower One, Fifth Floor,
Lowell, MA 01857.
WHEREAS, the parties have entered into an agreement number 980138 for the
purchase and license of Bay products and services with an effective date of
December 10, 1997 (the "Agreement"); and
WHEREAS, the parties desire to modify the Agreement.
NOW, THEREFORE, the parties hereby agree as follows.
Discounts For Certain Additional Products
Subject to Section 1(D) below, all Bay Remote Access products purchased by
Ziplink after the Effective Date of this Amendment shall be discounted at *
off of Bay Networks' List Price current on the date of purchase by Ziplink.
Subject to Section 1(D) below, all Bay Backbone Node Router products purchased
by Ziplink after the Effective Date of this Amendment shall be discounted at *
off of Bay Networks' List Price current on the date of purchase by Ziplink. For
all other Bay products, including all System 5000 products purchased by Ziplink
after the Effective Date of this Amendment, the discount shall be * off of
Bay Networks List Price current on the date of purchase by Ziplink. The
discounts in 1(A) and 1(B) above shall apply only to orders placed by Ziplink
during the twelve month period commencing on the Effective Date of this
Amendment, provided that such discounts shall be limited to the first fifteen
million dollars of product (at the Bay Networks then-current List Price)
purchased during such twelve month period. For all orders placed by Ziplink in
excess of fifteen million dollars at List Price, the discount shall be * off
of Bay's then-current List Price for the Remote Access products and * off of
Bay's then-current List Price for the Backbone Router products. No discounts or
price reductions in sections 1 or 2 of this Amendment shall limit or effect any
of Bay's obligations or Ziplink's rights under Section 3F of the Agreement.
Payment
Ziplink agrees to make payment to Bay in full for all outstanding invoices
and all amounts owed to Bay (as of the Effective Date of the Amendment) for
the Products listed in Exhibit 1 to the Agreement (referred to as the
"Initial Product Purchase") no later than June 26, 1998. In exchange for this
payment, Bay agrees to reduce the aggregate total value of such invoices for
the Initial Product Purchase by * dollars. The Resident On-Site Engineer
Services in ATTACHMENT A to the Agreement shall continue to be billed to
Ziplink on a monthly basis.
The Network Management Services in ATTACHMENT B to the Agreement shall be
subject to later mutual agreement of the parties with respect to deliverables,
milestones and the payment schedule. In the event the parties cannot reach a
mutually acceptable agreement, Ziplink can terminate its obligations respecting
Network Management services from Bay and no amount whether for previously
performed or future Network Management services shall be due or payable to Bay.
<PAGE>
The Maintenance Services in ATTACHMENT C to the Agreement shall billed at the
beginning of each quarter as currently set forth in Section 3(B) of the
Agreement provided however, that Bay agrees to reduce maintenance billings
otherwise due and owing by * dollars. This * dollar reduction will be
effected on a pro-rata basis as an effective * discount over the first *
million dollars of maintenance billings. The first * dollars of maintenance
billings includes the * Maintenance Price set forth in Section 3(B) of the
Agreement.
Ziplink agrees to make payment to Bay for the Installation/Implementation
Services and the Project Management Services described in ATTACHMENTS D and E of
the Agreement, respectively, as follows: (i) fifty percent shall be due ten days
following the date upon which the fifteenth Point of Presence has been installed
and (ii) fifty percent shall be due ten days following the date upon which the
twenty-fifth Point of Presence has been installed. For all Bay products
purchased on or after June 1, 1998, payment will be due and owing net thirty
days from the date of invoice. Section 4(E) of the Agreement is hereby deleted.
Bay Professional Services purchased by Ziplink in support of future product
purchases will be subject to Bay's standard terms and conditions.
Warranty and Maintenance
The warranty for the Initial Product Purchase shall commence ten days following
the date upon which the fifteenth Point of Presence has been installed (the
"Warranty Start Date"). The warranty period shall be ninety days. Hardware and
Software Maintenance for the Initial Product Purchase shall continue ninety days
after the Warranty Start Date.
The warranty for all purchases of Bay product purchased on or after June 1, 1998
shall commence upon the tenth day following installation of each such purchase.
The warranty period shall be as set forth in the Bay Price List current on the
date of such purchase by Ziptink.
In the event of a conflict between the terms of this Amendment and the terms of
the Agreement, then the terms of this Amendment shall govern.
The parties have caused this Agreement to be executed by their authorized
representatives.
ZIPLINK, LLC BAY NETWORKS USA, INC.
BY: /s/ Christopher Jenkins BY: /s/ John Manaras
NAME: Christopher Jenkins NAME: John Manaras
TITLE: President TITLE: Senior Counsel
DATE: 7/17/98 DATE: 7/17/98
<PAGE>
Exhibit 10.6
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
ZIPLINK - WEBTV
NETWORK SERVICES AGREEMENT
This Agreement is made and entered into on this 23RD DAY OF OCTOBER, 1996
("Effective Date"), between ZipLink, LLC ("ZipLink") whose address is 40
Woodland Street, Hartford, CT 06105, and WebTV Networks Inc. whose address is
305 Alma Street, Palo Alto, California 94301 ("WNI"). The parties hereto agree
and bind themselves as follows:
1. SERVICE
1.1 NETWORK SERVICES: ZipLink shall sell, and WNI shall purchase,
telecommunications services for the interconnection of WNI's
end users to WNI's facilities. These services consist of two
main components:
1.1.1 Dialup Network Services: ZipLink shall provide dialup
access via standard telephone lines between WNI's end
users and ZipLink's facilities as more fully described
in Schedule A.
1.1.2 Connectivity between ZipLink and WNI: ZipLink shall
provide connectivity between ZipLink's dialup network
facilities and WNI's facilities as more fully described
in Schedule C. The traffic shall be delivered through
dedicated lines between ZipLink's facilities and WNI's
facilities; special provisions may be made for
delivering some or all of the traffic through the
Internet, as described in Schedule C. The cost for
establishing and maintaining such connectivity shall be
paid by the parties as set forth in Schedule C.
1.2 NETWORK PERFORMANCE: ZipLink shall use commercially reasonable
efforts to operate its network services seven (7) days per
week, twenty four (24) hours per day, each day of the year.
ZipLink's telecommunications services provided to WNI shall be
of a quality usual and customary in the industry for national
Internet access providers.
1.3 NETWORK INTEROPERABILITY: Both parties agrees to comply with
the technical requirements listed in Schedule A.
1.4 NETWORK COVERAGE: ZipLink currently maintains a local dial
footprint of 57 local access numbers in 21 major metropolitan
areas in 10 states, as described in Schedule D. ZipLink will
not reduce this local dial coverage below 90% of the existing
local dial coverage, based on the total population of the
areas listed in Schedule D, for a period greater than 60 days.
ZipLink shall provide WNI with 30 days notice prior to
discontinuing an existing local access number and/or a
particular geographic location. If ZipLink breaches any
obligation of this Section 1.4, WNI shall have the right to
renegotiate all terms and conditions of this Agreement. If
such renegotiation does not result in an agreement between the
parties within 30 days, WNI shall have the right to
immediately terminate this Agreement. In addition, upon the
occurrence of any decrease in local dial
1
<PAGE>
coverage, WNI shall have the right to a pro rata decrease in
its Commitment based on the total population of the areas
listed in Schedule D, notwithstanding the requirement of
Section 7.
1.5 CUSTOMER SERVICE AND TECHNICAL SUPPORT: WNI is responsible for
all end user customer support, billing, and collections.
ZipLink shall not be responsible of any hardware and software
requirements of WNI's end-user customers to connect with
ZipLink's facilities. ZipLink's relationship under this
agreement is solely with WNI and not with any WNI end user.
ZipLink shall provide WNI with a toll-free number and a pager
number to report problems relating to network availability.
The toll-free and pager numbers shall be used only by WNI and
shall not be released to WNI's customers. Such telephone
assistance shall be available to WNI on a continuous basis, 24
hours per day, 7 days per week, for each day of the year, and
shall be provided by a qualified technician. ZipLink shall use
commercially reasonable efforts to begin analysis of any
request for assistance or report of problems within one half
hours of any call made by WNI for such purpose. ZipLink shall
make all repairs required for the proper functioning of its
systems as soon as commercially reasonable after the discovery
thereof or WNI's notice to ZipLink thereof. ZipLink shall
actively monitor the performance of its systems, and shall
notify WNI promptly of any condition which materially
adversely affects such performance. ZipLink will use best
efforts to provide WNI with advance information as to the
changes in its service infrastructure, hours of operation,
modification to communications protocols and any other planned
changes in the service that could reasonably be expected to
have a material affect on WNI's ability to service its end
users.
1.6 RESALE: The services provided by ZipLink are for the use of
WNI customers only, and WNI will not resell the services
provided by ZipLink hereunder to any other party for resale by
such party except with the prior written approval of ZipLink,
which approval shall be in the sole discretion of ZipLink, and
only if such party agrees in writing to all of the terms and
conditions of this Agreement. WNI shall not at any time or in
any manner represent itself as the operator of ZipLink.
1.7 PROJECT MANAGEMENT: Prior to the termination of the testing
period provided in Section 6, each party will assign a project
manager for the term of the contract to serve as the other
party's primary single point of contact.
1.8 REPORTING: Within five business days of the end of each
calendar month, and in no event later than the date that any
invoice pursuant to Section 2.2 is delivered, ZipLink shall
provide WNI with monthly usage data detailing network access
by WNI's customers, on which ZipLink shall base its billing to
WNI.
2. PRICING AND BILLING
2.1 PRICING: The prices in Schedule B apply for all services provided by
ZipLink under this Agreement. For all other services which WNI may
request, ZipLink's list prices apply unless other prices have been
specifically negotiated. WNI shall be responsible for any federal,
state or local tax, fee or surcharge upon the products or services
covered by this Agreement other than on the gross income of
2
<PAGE>
ZipLink.
2.2 INVOICES: ZipLink shall provide to WNI a monthly invoice for all
sums due pursuant to this Agreement, and WNI agrees to pay all such
invoices to ZipLink no later than thirty (30) days after the receipt
of such invoices . Any disputed amounts shall be resolved by
arbitration pursuant to the provisions of Paragraph 11. Any payment
made more than 30 days after due is subject to a charge of the
lesser of 1.5% per month or the maximum legal interest rate.
2.3 NETWORK AVAILABILITY: WNI shall maintain and provide to ZipLink
on a monthly basis accurate records (by individual point of
presence) as to each telephone call by WNI customers whose call
is routed to ZipLink's network for internet access via dialup
service. If the Connection Success Ratio for any dialup POP is
less than * for any given month, then ZipLink shall give a credit
to WNI in an amount equal to the Network Availability Credit for
such dialup POP. The Connection Success Ratio shall be expressed
as a percentage and shall be equal to the ratio of Successful
Connections (as defined herein) to Total Connections (as defined
herein). A Successful Connection is any call of a WNI customer to
a ZipLink dialup POP which successfully connects to ZipLink's
facilities for internet access (e.g., no busy signal was
received). A Routed Connection is any call of a WNI customer
which is initially routed to a ZipLink dialup POP for internet
access but which must be rerouted to another internet service
provider because a Successful Connection was not made. Total
Connections shall be equal to the sum of Successful Connections
and Routed Connections. The Network Availability Credit shall be
equal to (a) * minus the Connection Success Ratio times (b) the
Individual POP Access Ratio (as defined herein) times (c) the
monthly fee payable to ZipLink for such month. The Individual POP
Access Ratio shall be expressed as percentage and shall be equal
to the ratio of the number of WNI customer receiving access via
such dialup POP bears to the total number of WNI customers
receiving access via all ZipLink dialup POP. For example if the
Successful Connection Ratio is * for all users of the NY City
POP, and if the NY City POP represents 10% of all the WNI/ZipLink
customers (i.e., the Individual POP Access Ratio) and the fee for
such month for all WNI/ZipLink customers is $200,000, then
ZipLink will reduce that month's total fee by * * 10% *
$200,000). ZipLink will maintain a schedule of the percentage of
customers using each POP. Notwithstanding the foregoing, no
Network Availability Credit will be due or received if the total
dollar amount of services provided by ZipLink for such month
exceeds * of the Commitment (as defined herein) for such month.
The Network Availability Credit is WNI's sole remedy for any
problems with Routed Connections. Any claim for a Network
Availability Credit must be made within 30 days of the end of the
month for which such request is made. ZipLink may audit WNI
records to confirm the appropriateness of any request for a
Network Availability Credit.
3
<PAGE>
INDEMNIFICATION
WNI agrees to have all of its customers enter into an end user agreement (the
"End User Agreement') in substantially the form provided to ZipLink, the receipt
and adequacy of which ZipLink acknowledges. In addition to its rights under
Section 5.1.2, ZipLink may deny or refuse connection or access to any ZipLink
dialup POP to any WNI customer who violates the End User Agreement or notifies
ZipLink that it has a claim against ZipLink or that ZipLink is or might be
responsible to such customer for damages related to any services provided to
such customer through WNI. WNI shall defend, indemnify, and hold harmless
ZipLink against any claims, costs or expenses (including reasonable attorney's
fees) arising out of, relating to or resulting from (a) any breach of this
Agreement by WNI, (b) any use by WNI of ZipLink's services in violation of this
Agreement or (c) any act or omission of any WNI customer which constitutes a
breach of the End User Agreement. ZipLink shall defend, indemnify, and hold
harmless WNI against any claims, costs or expenses (including reasonable
attorneys' fees) arising out of, relating to or resulting from any breach of
this Agreement by ZipLink other than claims of third parties. The
indemnification obligations contained in this Section 3 are the exclusive rights
and remedies of the parties in connection with this Agreement and the services
described herein and the indemnification obligations are limited as described in
Section 10.
4. TERM
The term of this Agreement shall commence on the Effective Date hereof and shall
continue until the date which is three (3) years from the date hereof, which
term shall be automatically renewed for additional one year terms, provided that
neither party has delivered to the other party a written notice of intent not to
renew for the forthcoming term. Such notice of intent shall be delivered not
less than 120 days in advance of the end of the current term.
5. TERMINATION
5.1 This Agreement may be terminated as follows:
5.1.1 Either party may terminate its obligations under this
Agreement for cause, without penalty, in the event that the
other party breaches any material term of this Agreement and
the breaching party does not cure such breach within 30 days
of its receipt of written notice from the non-breaching party
of its intent to terminate, which notice shall describe
clearly the breach giving rise to such termination. A payment
breach by WNI is covered by Section 5.1.3 and no notice and
cure right is applicable to such breach.
5.1.2 ZipLink may terminate its obligations under this Agreement
without penalty and with 10 days written notice to WNI if a
WNI Customer violates the End User Agreement and such
violation is not cured to the satisfaction of ZipLink within
seven (7) days after written notice thereof by ZipLink;
provided however that such 10 day notice period may not be
given until the expiration of the seven (7) day cure period
provided. ZipLink acknowledges that WNI's cancellation of the
subscription of a customer who violates the End User Agreement
is a sufficient cure. ZipLink may terminate its obligations
under this
4
<PAGE>
Agreement without penalty if any amounts due and owing by WNI
remain unpaid 45 days after the date of invoice.
5.1.3 Either party may terminate this Agreement for convenience and
without cause after giving the other party 120 days prior
written notice. In the event of any termination under this
Section 5.1.4 by either party, ZipLink will maintain service
availability through a ramp-down period which will start at
the end of the 120 day notice period, or sooner if mutually
agreed. The party so terminating for convenience will
determine the number of subscribers to be removed each month,
which will be conducted according to the following schedule:
# subscribers max # subscribers ramped
remaining at the end of the month down in the following month
--------------------------------- ---------------------------
1 - 50,000 10,000
50,001 - 100,000 20,000
100,001 - 250,000 40,000
251,001 - 350,000 70,000
351,001 - 500,000 100,000
500,001 - 750,000 150,000
> 750,001 200,000
Eight months after the beginning of the rampdown, any
remaining WNI users may be removed.
5.1.4 Either party can accelerate this ramp-down schedule with the
written consent of the other party. WNI will be responsible
for, and shall pay for, all services provided until the end of
the ramp down period.
5.2 The exercise of any right of termination under Section 5.1.1, 5.1.2
or 5.1.3 shall be in addition to, and not in lieu of, any other
rights and remedies of the nonbreaching party hereunder.
Notwithstanding anything to the contrary in this Agreement, the
provisions of Sections 3, 9, 10 and 15 shall survive the expiration
or termination of this Agreement for any reason.
6. TESTING
During the period of 60 days following execution of this Agreement, both parties
shall use all commercially reasonable efforts to integrate their respective
networks to provide the connectivity described in Schedule C and shall conduct
testing to assure such connectivity. If either party shall reasonably declare
the testing results to be unsatisfactory at the conclusion of the 60 day period,
then the parties shall have another 20 days to correct the problem; and if such
correction is not completed to the mutual and reasonable satisfaction of the
parties within such time, then either party shall be entitled, upon written
notice to the other party, to terminate this Agreement without further liability
to either party. If no such notice is given within 80 days after the execution
hereof, satisfactory completion of technical testing shall be presumed, and the
contract shall remain in full force and effect. Monthly minimum Commitments as
set forth in Section 7 will begin to accrue from the date of the satisfactory
completion of testing. Billing will begin 30 days after the termination of
testing, at the rates described in Schedule B. If testing is completed during
the course of a month, the first month's
5
<PAGE>
minimum Commitment will be prorated to reflect the shortened month.
7. COMMITMENTS
At the end of the testing period provided in Section 6, WNI shall make a
dollar commitment (a "Commitment") for the remainder of the then current
month and a dollar Commitment for the following month. Thereafter, on the
first day of each month, WNI shall provide a Commitment for the next month.
Each Commitment shall be WNI's minimum payment to ZipLink for the services
provided by ZipLink under this Agreement for such month whether or not such
services are used by WNI or its customers. For example, if the testing period
finishes on October 10, 1996, on that date WNI would provide a Commitment
for the period between October 11 and October 31 and a Commitment for the
month of November 1996. Before or on November 1, 1996, WNI would then provide
a Commitment for the month of January 1997. When WNI provides a new
Commitment to ZipLink, ZipLink shall, within five business days of receipt of
a proposed Commitment from WNI, accept all or some of the proposed Commitment
by notice to WNI provided. however that ziplink shall not accept a commitment
that is lower than the service provided to wni by ziplink in the immediately
preceding month. Failure to notify WNI within 5 business days constitutes
acceptance by ZipLink of WNI's proposed Commitment.
All Commitments for a specific month shall not be lower than the Commitment
ACCEPTED BY ZIPLINK For the immediately preceding month.
*
For instance, if the testing period ends on December 15, 1996, WNI would have no
minimum requirement for the period between December 15 and December 31, but
would have to commit for at least $30K for the month of January.
Commitments cover the cumulative traffic coming from the "Per Subscriber"
pricing plan and the "Per Hour" pricing plan. Commitments do not require a
dollar breakout between the two pricing plans.
8. FORECASTS
WNI shall provide ZipLink with initial and periodically revised six-month
forecasts of its expected usage, including the number of users connecting under
the "Per Subscriber" pricing plan (as defined in Schedule B) and the number of
connection hours under the "Per Hour" pricing plan. WNI shall use its best
efforts to provide reasonably accurate forecasts, but both parties acknowledge
and agree that such forecasts are not binding.
WNI shall also use its best efforts to provide ZipLink with advance information
as to marketing programs which WNI expects will materially impact future loads,
particularly as to loads in particular geographical locations/POPs.
9. NO PUBLICITY
6
<PAGE>
Neither party shall disclose the prices and terms of this Agreement, except for
disclosure in confidence to its employees and consultants, accountants,
attorneys, bankers, investors, potential investors, or as required by law.
Neither party shall publicize the existence of this Agreement without the
consent of the other, and in the event of such agreement, all press release
materials shall be reviewed and approved by the other party prior to the
publication of such press release materials.
10. LIMITATION OF LIABILITY
ZIPLINK MAKES NO WARRANTIES OF ANY KIND, WHETHER EXPRESSED OR IMPLIED, FOR THE
SERVICE AND PRODUCTS IT IS PROVIDING. ZIPLINK HEREBY DISCLAIMS ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ZIPLINK WILL NOT BE
RESPONSIBLE FOR ANY DAMAGE SUFFERED BY WNI OR ITS CUSTOMERS AS A RESULT OF ANY
FAILURE OF ZIPLINK NETWORK FUNCTIONALITY, INCLUDING LOSS OF DATA RESULTING FROM
DELAYS, NONDELIVERIES, MISDELIVERIES, OR SERVICE INTERRUPTIONS CAUSED BY
ZIPLINK'S OWN NEGLIGENCE OR ANY ERRORS OR OMISSIONS OF WNI OR ITS CUSTOMERS. USE
OF ANY INFORMATION OBTAINED VIA ZIPLINK'S NETWORK IS AT WNI'S AND ITS CUSTOMERS'
OWN RISK AND ZIPLINK CANNOT GUARANTEE THE ACCURACY OR SECURITY OF ANY NETWORK
CONTENT. ZIPLINK SPECIFICALLY DENIES ANY RESPONSIBILITY FOR THE ACCURACY OR
QUALITY OF INFORMATION OBTAINED THROUGH ITS SERVICES.
NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY STATED OR IMPLIED HEREIN, NEITHER
PARTY SHALL HAVE ANY LIABILITY WHATSOEVER FOR ANY INCIDENTAL, INDIRECT
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES OF ANY KIND (INCLUDING LOST REVENUES
OR PROFITS, LOSS OF BUSINESS OR LOSS OF DATA) ARISING OUT OF OR IN CONNECTION
WITH OR RELATED TO THIS AGREEMENT OR THE SERVICES PROVIDED HEREUNDER SUFFERED BY
THE OTHER OR BY ANY ASSIGNEE OR OTHER TRANSFEREE OF, OR PARTY CLAIMING RIGHTS
DERIVED FROM, THE OTHER, EVEN IF INFORMED IN ADVANCE OF THE POSSIBILITY OF SUCH
DAMAGES . EXCEPT FOR ZIPLINK'S BREACH OF SECTION 15.1 OR ZIPLINK'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT OR CIRCUMSTANCE SHALL ZIPLINK'S
AGGREGATE LIABILITY HEREUNDER EXCEED THE MAXIMUM AMOUNT PAID BY WNI TO ZIPLINK
FOR SERVICES FOR ANY ONE MONTH PERIOD AND WITH RESPECT TO CLAIMS OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT ZIPLINK'S AGGREGATE LIABILITY SHALL NOT EXCEED
THE AGGREGATE AMOUNT PAID BY WNI TO ZIPLINK FOR ANY THREE (3) CONSECUTIVE
MONTHS.
11. GOVERNING LAW
11.1 This Agreement and the rights of the parties hereunder shall be
governed by and interpreted in accordance with the laws of the State
of New York without regard to the principle of conflict of laws.
11.2 Any and all disputes arising under or related to this Agreement
shall be submitted to binding arbitration under the rules then
prevailing of the American Arbitration Association, and judgment
upon any award rendered may be entered and enforced in any court of
competent jurisdiction. If any arbitration is brought by ZipLink it
shall be held in San Francisco, California and if brought by WNI
shall be held in Hartford, Connecticut.
7
<PAGE>
11.3 The party submitting such dispute shall request the American
Arbitration Association to:
(i) Appoint an arbitrator who is knowledgeable in
telecommunications and familiar with the telecommunications
industry and who will follow the substantive rules of law; and
(ii) Require the testimony to be transcribed; and
(iii) Require the award to be accompanied by findings of fact and a
statement of reasons for the decision.
11.4 In the event of any such arbitration or any court action, the losing
party shall pay all reasonable costs of collection, court costs and
attorneys' fees.
12. ENTIRE AGREEMENT
The parties hereto acknowledge that they have read this entire Agreement and
that this Agreement and the exhibits attached hereto constitute the entire
understanding and contract between the parties and supersede any and all prior
or contemporaneous oral or written communications with respect to the subject
matter hereof. This Agreement shall not be modified, amended or in any way
altered except by an instrument in writing signed by the parties.
13. RELATIONSHIP OF PARTIES
The parties to this Agreement are independent contractors. No agency,
partnership, joint venture or employment is created as a result of the
Agreement. Neither party is authorized to bind the other in any respect
whatsoever.
14. BINDING EFFECT
Except as herein otherwise specifically provided, this Agreement shall be
binding upon and inure to the benefit of the parties and their legal
representatives, heirs, administrators, executors, successors and assigns.
15. CONFIDENTIALITY
15.1 The parties agree that all disclosures of confidential and/or
proprietary information during the term of this Agreement shall
constitute confidential information of the disclosing party,
including without limitation all information relating to WNI end
users or usage of ZipLink services by WNI or its end users. Each
party shall use its best efforts to ensure the confidentiality of
such information supplied by the disclosing party, or which may be
acquired by either in connection with or as a result of the
provision of the services under this Agreement. Both parties warrant
that they shall not disclose, use, modify, copy, reproduce, or
otherwise divulge such confidential information. Both parties
further agree to prevent their employees and representatives from
disclosing, using, modifying, copying, reproducing, or otherwise
divulging such confidential information, and shall hold each other
harmless and protect and indemnify the same in the event of any
disclosure by said persons.
8
<PAGE>
15.2 The provisions of this Section 15 shall not apply to any part of
the confidential and/or proprietary information to the extent
that:
15.1.1 Such information was in the possession of the receiving
party prior to disclosure to it hereunder without any
obligation for confidentiality of such information;
15.1.2 Such information was generally known or otherwise in the
public domain prior to disclosure hereunder, or becomes
so known subsequent to such disclosure through no fault
of the receiving party;
15.1.3 Such information was received by the receiving party
from a third party not under an obligation to the owner
of such information not to disclose it;
15.1.4 Such information was independently developed by the
receiving parry without the benefit of the other party's
confidential and/or proprietary information;
15.1.5 Such information was approved for release by written
authorization of the disclosing party;
15.1.6 Such information was disclosed pursuant to the
requirement or demand of a lawful governmental or
political authority, but only to the extent required by
operation of law, regulation or court order.
14. PLURAL/GENDER
Whenever from the context it appears appropriate, each term stated in either the
singular or the plural shall include the singular and the plural, and pronouns
stated in the masculine, the feminine or the neuter gender shall include the
masculine, feminine and neuter. The term "person" means any individual,
corporation, partnership, trust or other entity.
17. SEVERABILTY
If any provision of this Agreement, or the application of such provision to any
person or circumstance, shall be held invalid, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those to which it is held invalid, shall not be affected thereby.
18. COUNTERPARTS
This Agreement may be executed in several counterparts, each of which shall be
deemed an original, but all of which, when taken together, shall constitute one
and the same instrument. it shall not be necessary for all parties to execute
the same counterpart hereof
9
<PAGE>
19. WAIVER
No failure on the part of either party to exercise, and no delay in exercising,
any right or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right or remedy granted
hereby or by law.
20. NOTICE
Unless otherwise provided, any notice to be given hereunder shall be effective
on the fifth day after dispatch. Such notice shall be sent by first class mail,
postage prepaid and marked for delivery by certified or registered mail, return
receipt requested, addressed to the parties listed below at their respective
places of business, or at such other addresses of which notice has been given to
the addressing party:
If to WebTV Networks, Inc.:
WebTV Networks, Inc.
305 Lytton Avenue
Palo Alto, CA 94301
Attention: Bill Yundt
cc: Gary Moore, McCutchen, Doyle,
Brown & Enersen, LLP
If to ZipLink:
ZipLink
40 Woodland Street
Hartford, CT 06105
Attention: Eric M. Zachs
cc: Newton Brenner,
Brenner, Saltzman, & Wallrnan
21. NO ASSIGNMENT
This Agreement shall not be assignable by either party hereto without the prior
written consent of the other party, provided that either party may assign this
Agreement in connection with a merger or reorganization or sale or transfer of
substantially all of its business to any party (a "Transfer"). In the event of
an assignment in connection with a Transfer if the non-assigning party has a
reasonable basis for concern about the quality of continued performance under
this Agreement due to the assignee's conflicts of interest or inferior operating
history or financial condition or that the assignee is a competitor of the
non-assigning party, the non-assigning party shall have the option to terminate
this Agreement for convenience by giving 120 days prior notice, with no
ramp-down period, such option to be exercised only within the first 60 days
following such party's receipt of notice of such Transfer.
22. FORCE MAJEURE
No party shall be liable by reason of any failure or delay in the performance of
its obligations due to strikes, riots, fires, explosions, acts of God, war,
governmental action or any other cause which is
10
<PAGE>
beyond the reasonable control of such party, provided that in the event that a
force majeure described in this Section 22 extends for a period in excess of
sixty (60) days, the other party shall be entitled to terminate this Agreement.
23. COMPLIANCE WITH LAWS
Each party shall comply with all Laws, regulations and other legal requirements
that apply to this Agreement. ZipLink hereby warrants that, to its knowledge, it
has complied with all laws, regulations, and orders relating or pertaining to
the provision of the services to be provided under this Agreement, including
without rotation, all applicable state or federal legislation or rule applicable
to the services in any material respect. To the knowledge of ZipLink, material
permits, licenses, and authorizations required by any regulatory bodies have
been obtained and are in effect for the services.
24. FACSIMILE TRANSMISSION
Parties to this Agreement are authorized to execute the Agreement, and transmit
a signed copy of same via facsimile to the other parties, who hereby agree to
accept and rely upon such documents as if they bore original signatures. The
parties sending such facsimiles hereby acknowledge and agree to provide to the
other parties, within seventy-two (72) hours of transmission, the Agreement
bearing an original signature.
25. NO THIRD PARTY BENEFICIARY
The rights and remedies provided herein are for the exclusive benefit of the
parties hereto and their permitted assignees. No right or benefit of any of the
terms and conditions herein is intended to, or shall, be afforded to any third
party.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as
of the date first above recited.
WEBTV NETWORKS, INC. ZIPLINK, LLC
By: /s/ Stephen G. Perlman By: /s/ Eric Zachs
Name: Stephen G. Perlman Name: Eric Zachs
Title: President & CEO Title: Manager
11
<PAGE>
SCHEDULE A
NETWORK INTEROPERABILITY
1. ZipLink shall make its dialup network access facilities available to
WNI's customers via standard telephone lines.
2. ZipLink shall operate a proxy server that can identify access by WNI
customers and forward login attempts from such customers to WNI's
Radius server for authentication, provided that WNI's Radius server can
be reached through the Internet from ZipLink's network, or with
dedicated lines between the parties.
3 . ZipLink shall operate a TCP/IP network that can link WNI's customers
who connect to ZipLink's dialup network access facilities to WNI's
servers, provided WNI's servers can be reached through the Internet
from ZipLink's network, or with dedicated lines between the parties.
4. ZipLink shall provide WNI with applicable Radius software, as it is
required for interoperability with ZipLink's Radius implementation. WNI
will be responsible for any fees to third parties for licensing this
software for the copies used by WNI. In connection with obtaining the
source code for the Radius Software, WNI must agree to reasonable
confidentiality and source code protection requirements of the owner of
the Radius Software and ZipLink.
5 ZipLink's network services shall maintain Radius server
interoperability during the course of the contract.
6. WNI agrees that it shall operate its own Radius server, which will
perform user validation functions, and will maintain this server in a
secure environment. WNI also will maintain this server with reasonably
current versions of the Radius protocols as provided by ZipLink.
7. WNI agrees to assign each end user customer a unique identification
number for billing purposes, and to reasonably cooperate with ZipLink
in establishing the structure of this identification number.
8. WNI and ZipLink each agree to cooperate with the other in identifying
and resolving any security infringements which involve WNI's customers
and ZipLink's network.
9. WNI will impose inactivity time-outs on the WebTV boxes of a maximum of
15 minutes. ZipLink will implement inactivity time-outs of a minimum of
17 minutes for backup purposes, in case the time-out built into the box
does not kick in.
10. It is recognized and agreed that any billing data supplied on an
interim basis (more frequently than monthly) is an estimate and may not
be relied upon for 100% accuracy.
12
<PAGE>
SCHEDULE B
DIALUP NETWORK SERVICES PRICING
1. ZipLink shall offer 2 different pricing plans:
o "Per Subscriber" pricing plan"
o "Per Hour" pricing plan"
Whenever a WebTV box connects to ZipLink, WNI shall ensure that the box
uses an ID whose prefix identifies which pricing plan to use to bill that
connection (a "Per Subscriber ID" or "Per Hour ID," as applicable).
1.1 "PER SUBSCRIBER" PRICING PLAN
At the end of each month, ZipLink shall count the number of unique Per
Subscriber IDs that were used to connect to the service during that month . A
Per Subscriber ID that was used in a prior month and that was not used in the
month to be billed shall not be accounted for. WNI would then be billed an
amount equal to this number of unique Per Subscriber IDs multiplied by a price
per subscriber defined as follows.
Through March 31, 1997, pricing shall be at * per subscriber per month.
After March 31, 1997, the per subscriber pricing for a specific month shall be
related to the number of subscribers that connected during that month with a Per
Subscriber ID:
NO. OF SUBSCRIBERS AMOUNT PER SUBSCRIBER
*
1.2 "PER HOUR" PRICING PLAN
At the end of each month, ZipLink shall calculate the cumulative numbers of
hours spent on-line by WebTV users that were identified by a Per Hour ID, Each
customer's usage will be calculated in seconds. WNI would then be invoiced an
amount equal to this number of hours multiplied by A price per hour defined as
follows:
The "Per Hour" pricing shall be related to the Commitment made by WNI for
that month as defined in Section 7. This monthly Commitment includes traffic
falling both under the "Per Subscriber" pricing plan and the "Per Hour"
pricing plan.
13
<PAGE>
MONTHLY COMMITMENT HOURLY FEE
*
2. If WNI's customers' usage is such that significant network resources beyond
those anticipated are used, ZipLink will propose a schedule for compensation for
the higher usage at least thirty days in advance of its taking effect at the
beginning of a calendar month. In the event that no such schedule has been
agreed upon by the beginning of said calendar month and Peak Users to Port Ratio
(as described below) is less than *, WNI shall be charged and pay a Peak Port
Fee (as defined below) for that month.
The Peak User to Port Ratio is based on the number of ports required to
support WNI's subscribers. To calculate this ratio for a specific month,
ZipLink shall determine the * of use for its non-WNI customers within the
applicable month. The busiest hours are those hours in which the cumulative
time spent by non WNI users on the ZipLink dialup network is the highest.
During these *, ZipLink shall track for each minute the number of ports used
by non WNI users at the beginning of the minute. The total number of ports in
use divided by * shall be the Average Peak Port Usage. The Peak User to Port
Ratio shall be the number of unique WNI subscribers that connected through
ZipLink during that specific month (the "Total WNI Users") divided by the
Average Peak Port Usage.
The number of Excess Ports is the difference between (a) the Average Peak Port
Usage and (b) the quotient of (x) the Total WNI Users divided by (y) *.
The Peak Port Fee in any month is defined as number of Excess Ports multiplied
by *. A mutually agreed upon schedule may replace these extra usage fees at
any time.
14
<PAGE>
SCHEDULE C
CONNECTIVITY BETWEEN ZIPLINK AND WNI
ZipLink will provide to WNI:
(1) dedicated access facilities (i.e. leased lines or equivalent
transmission facilities and all equipment required at both ends) to carry the
aggregated traffic from WNI's dial-in customers from ZipLink's location(s) to
WNI's computer server facilities in Palo Alto, CA and
(2) backup access for WNI customer traffic from ZipLink to WNI or from
WNI customers directly to the Internet via ZipLink's connection(s) to the
Internet, including management of routing in accordance with reasonable WNI
requirements to insure routing integrity and reliability under both normal
conditions (utilizing the dedicated connection in described in (1) above) and
fallback conditions in which WNI traffic is routed by ZipLink through
connections to Internet backbone providers and NAPs (well known Network Access
Points).
ZipLink will manage all the access delivery provided hereunder. For the
dedicated access services, ZipLink-provided management will include but not be
limited to: ordering of equipment and circuits, equipment (and router software)
configuration in accordance with WNI requirements; active monitoring of network
equipment for operational status, fault detection, measurement and reporting of
traffic volumes; maintenance and repair of hardware and software. A Letter of
Agency will be provided to the LEC/high CAP to allow ZipLink to order and manage
these dedicated access circuits. The contracts for these circuits will be
between WNI and the LEC/high CAP, and WNI will be responsible for the one-time
and recurring fees associated with it.
ZipLink will propose the specific hardware and software to be used for
connecting the two networks. WNI and ZipLink will then modify this proposal as
necessary to accommodate the needs of each network. A list of required items
will be prepared and signed off by both parties, and WNI shall purchase at its
expense the items and deliver them to ZipLink or rent the equipment from ZipLink
on mutually acceptable terms. Execution of any rental agreement will be at the
sole discretion of each party.
On request by WNI, ZipLink will provide read-only SNMP access to the
extent technically feasible and subject to appropriate security to WNI for
routers and other SNMP-managed equipment in the dedicated access facilities.
ZipLink will also provide adequate backhaul capacity to its network to insure
that all WNI traffic to and from its customers using ZipLink dial-in access is
delivered to the dedicated access facilities.
15
<PAGE>
SCHEDULE D
LIST OF LOCAL ACCESS NUMBERS AND LOCATIONS
California
Hollywood 213.957.9226
Oakland 510.835.4638
Los Angeles 213.621.2768
Palo Alto 415.327.9100
Pasadena 818.577.3927
San Diego 619.293.0205
San Francisco 415.243.0200
Santa Clara 408.988.5800
Connecticut
Hartford 860.509.3400
New Haven 203.781.0022
Stamford 203.964.0511
District of Columbia
Washington 202.638.4638
Illinois
Chicago 312.360.2340
Elk Grove 847.427.2170
Hinsdale 630.241.5400
Northbrook 847.509.3380
Maryland
Baltimore 410.752.3214
16
<PAGE>
Massachusetts
Andover 508.933.1400
Ayer 508.772.1156
Beverly 508.720.1400
Boston 617.824.4949
Brockton 508.513.1400
Burlington 617,685.1400
Cambridge 617.528.0400
Canton 617.302.1400
Chelmsford 508.614.1400
Clinton 508,368.7002
Fitchburg 508,353.9000
Foxboro 508,216.1400
Framingham 508.782.1400
Hopkinton 508.435.5055
Lexington 617.869.1400
Lynnfield 617.406.1400
Malden 617,870.1400
Mansfield 508.594.1400
Marlboro 508.382.1400
Northboro/Southboro 508.571.1400
Quincy 617.691.1400
Randolph 617.607.1400
Reading 617.205.1400
17
<PAGE>
Saugus 617.417.1400
Shrewsbury 508.925.1400
Waltham 617.370.1400
Westboro 508.621.1400
Woburn 617.994.1400
Worcester 508.926.1400
New Jersey
Newark 201.557.6037
New York
Bronx 718.637.0898
Brooklyn 718.355.6996
Central Islip
(Long Island) 516.787.1023
Garden City
(Long Island) 516.247.0023
Manhattan 212.479.7000
White Plains 914.323.0364
Pennsylvania
Philadelphia 215.440.7814
Texas
Dallas 214.744.4638
Houston 713.767.1515
18
<PAGE>
SCHEDULE E
NETWORK SERVICES AND CONDITIONS
GENERAL TERMS
The WebTV Network.WebTV Networks, Inc. ("WebTV") hosts the WebTV Network, a
fully integrated Internet service designed especially for the owners of a WebTV
Product, such as, but not limited to, the Sony Internet Terminal, or the Philips
Magnavox Multimedia Access Terminal.
The WebTV Network will connect you to the Internet using your WebTV Product and
a television. Use of the WebTV Network is a service that is made available to
owners of a WebTV Product on a subscription basis. To become a subscriber to the
WebTV Network, you establish an account with WebTV using your WebTV compatible
Internet terminal which is subject to certain terms and conditions established
by WebTV. By registering for the WebTV Network, you accept and agree to comply
with the Terms of Service as outlined below (collectively, the "Terms"), which
Terms are subject to change by WebTV at any time.
CHANGES TO THE SERVICE. The WebTV Network, like the Internet itself, is in a
process of near constant change. To keep up with the steady stream of new Web
sites, new formats and new technologies being introduced on the Internet, the
WebTV Network will continually be updated by WebTV. Most updates will be
provided at no additional cost to your regular subscription fees, although some
special updates may be only be available for an extra charge,
ACCEPTANCE OF CHANGES. You acknowledge that WebTV shall have the right to and
may change the WebTV Network or the Terms at any time. Such changes to the Terms
will become effective upon WebTV posting the revised Terms on the "WebTV Terms
of Service" page (which can be found by choosing the WebTV logo on the WebTV
Home page) and notifying to you of such change. If any changes made either to
the WebTV Network or to the Terms (including new fees, should there be a change
in the fees for the WebTV Network) are unacceptable to you, you agree that your
sole remedy shall be to terminate your WebTV Network account in accordance with
the procedures described below for termination. Continued use of the WebTV
Network after notice of any revision of the Terms, however, shall be deemed as
your acceptance of, and agreement to comply with, such revised Terms.
ACKNOWLEDGMENT OF NATURE OF INTERNET CONTENT. The WebTV Network is designed to
provide you with access to the Internet. The Internet is a vast, global network
of computers on which text, images, audio, software and other materials
("Materials") can be posted by a variety of means. The most common method used
for posting information is through a Web site. People create individual Web
sites, each with its own unique Web address, to organize and make accessible for
public viewing any materials of their own choice. Other means for posting
material include bulletin boards and Usenet news groups, that generally have
information from a variety of sources. Anyone with access to the Internet can
post Materials for public viewing and change or modify such Materials as often
as they wish. This means that the nature, character, quality and accuracy of the
Materials posted on Web sites varies as broadly as does human nature and that
each Web site, itself, can vary from one day to the next. You acknowledge that
you understand that Web sites that may be accessed through the WebTV Network may
contain Materials that some people may find offensive or which are unsuitable
for minors. Although such Materials can be accessed through use of the WebTV
Network, you acknowledge and agree that WebTV is not responsible for and does
not in any manner control or condone any Materials contained within any Web
sites other than its own.
19
<PAGE>
ACKNOWLEDGMENT OF LACK OF SECURITY ON INTERNET.
MOST INFORMATION THAT YOU SEND OR RECEIVE THROUGH THE INTERNET (E.G. E-MAIL
MESSAGES, CREDIT CARD OR OTHER MONETARY TRANSACTIONS, CHAT MESSAGES, INFORMATION
REQUESTED BY WEB SITES FOR YOU TO ENTER), UNLESS EXPLICITLY IDENTIFIED BY THE
WEBTV NETWORK AS BEING SENT SECURELY, IS SENT OVER PUBLIC NETWORKS AND MAY BE
SUBJECT TO INTERCEPTION OR EAVESDROPPING BY UNAUTHORIZED PARTIES. DO NOT SEND
INFORMATION OVER THE INTERNET (ESPECIALLY CONFIDENTIAL INFORMATION THAT MAY BE
REQUESTED BY A WEB SITE SUCH AS CREDIT CARD INFORMATION AND PERSONAL
INFORMATION) THAT MAY BE MISUSED IF INTERCEPTED OR COPIED BY AN UNAUTHORIZED
PARTY. YOU ACKNOWLEDGE AND AGREE THAT WEBTV IS NOT RESPONSIBLE FOR THE SECURITY
OF INFORMATION THAT YOU SEND OR RECEIVE THROUGH THE INTERNET, AND YOU AGREE TO
HOLD WEBTV HARMLESS FROM ANY RESULTS OF ANY SUCH INFORMATION BEING INTERCEPTED,
COPIED OR USED BY ANOTHER PARTY.
USE OF THE WEBTV NETWORK
Subscription Account. To use the WebTV Network, an adult must register as the
Primary User and establish the Primary User Account with WebTV. The Primary User
agrees to pay the monthly subscription fee (payment terms are described below)
when the Primary User Account is established with WebTV.
THE PRIMARY USER IS AN ADULT. Only an adult may register as a Primary User of
the WebTV Network. No minor can register as a Primary User. If you are
registering as a Primary User, you represent to WebTV that you are 18 years old
or older and you agree to be responsible to WebTV for all usage on this account
and ensure full compliance with these Terms by any other users. As the Primary
User, you agree to provide accurate and complete registration information for
yourself. You further agree that, should any information that you enter be found
to be incorrect, WebTV would have the right to terminate your Primary User
Account immediately.
SECONDARY USERS. A Primary User may sign up as many as four additional people as
Secondary Users of the WebTV Network on a Primary User Account at no additional
cost. All fees generated by a Secondary User in his or her use of the WebTV
Network is the obligation of the Primary User that signed up the Secondary User
and will be billed to the Primary User Account. As the Primary User, you agree
to be responsible for the accurate registration of any Secondary User. You agree
to have each Secondary User read through the Terms of Service Agreement (which
can be found by choosing the WebTV logo on the WebTV Home page) and each
Secondary User agrees to comply with the Terms. You agree to be responsible for
the proper usage of the Service and compliance with the Terms by all Secondary
Users.
USE AND PROTECTION OF PASSWORDS. A Primary User Account or a Secondary User
Account that is established with password protection is considered a protected
account. Where there is only a single user of a Primary User account, no
password protection is required (although it is strongly recommended). Where
there is more than one user, and especially where there is a minor who may
become a Secondary User, password protection is required on the Primary User
Account. Password protection also protects your account against unauthorized
access or potentially harmful use (including unauthorized credit card purchases
or sending of e-mail identified as coming from your account). Please select your
password carefully. A "Secure Password" is at least 6 characters long and
consists of both letters and numbers or other characters in a pattern that will
not be found in any dictionary nor
20
<PAGE>
will be known by other persons. Passwords should be changed frequently, Because
your password provides access to the WebTV Network, you agree not to disclose
your password to any other person. In the event your password becomes known to
any other person, you agree to immediately change your password. By not
registering a Secure Password, you agree that any use of an unprotected Primary
User Account or Secondary User Account is authorized use for which you are
responsible.
USAGE BY MINORS. WebTV Network includes a screening technology, designed to
restrict access by minors to Materials on the Internet that may be inappropriate
for minors, that can be activated when setting up a Secondary User Account.
Nonetheless, you acknowledge that Web site screening is an imperfect process and
it may be possible for minors to access inappropriate Materials through use of
the WebTV Network, despite use of the screening technology. If you desire to
ensure that a minor does not access inappropriate Materials, you agree to
physically secure the WebTV Product from the minor's reach or (i) monitor such
minor's use of the WebTV Network, and (ii) select and safeguard Secure Passwords
for the Primary User Account and all Secondary User Accounts. If you are unable
to monitor use by a minor and do not wish such minor to potentially access any
inappropriate Materials through the use of the WebTV Network or its services,
you agree not to allow such minor to register as a Secondary User or to
otherwise use or have access to the WebTV Network. The Primary User acknowledges
that he or she understand that Materials on the Internet or communication from
unauthorized persons through e-mail or chat groups could be potentially HARMFUL
to a minor and the Primary User assumes full responsibility for the use of the
WebTV Service by any minor.
USAGE OF MATERIALS, INFORMATION AND EQUIPMENT
PUBLIC DOMAIN AND COPYRIGHTED MATERIALS. Certain Materials available on the
Internet are considered to be in the public domain and may be accessed, viewed,
redistributed and downloaded by individuals generally. WebTV Networks bears no
responsibility for, and you agree to assume all risks regarding, the
determination of whether any given Materials are in the public domain and the
appropriate use thereof Materials that are copyrighted may be viewed as
presented and downloaded for personal use only. Unless permitted by the
copyright holder, you agree not to alter, falsify, misrepresent, distribute or
otherwise utilize copyrighted Materials for other purposes without the proper
permission of the copyright owner. You agree that, with respect to your use of
copyrighted Materials accessed through the WebTV Network, that you shall hold
WebTV harmless for any improper usage by the Primary User or Secondary Users.
USAGE OF NETWORK SERVICES. The WebTV Network and its services are for the sole
usage of registered Primary Users and their authorized Secondary Users and are
not transferable to another Primary User. In addition, the right to use the
accounts is subject to limits, policies and these Terms, as established by WebTV
and as modified from time to time. Further, usage of the WebTV Network may be
subject to changes in the nature or constraints of the Internet and of the
capabilities and limitations of various contracted service providers. Although
WebTV seeks to provide continuous and uninterrupted service, WebTV does not
warrant that the WebTV Network will be accessible at all times or that any
session will be uninterrupted. WebTV may, in its sole discretion and without
prior notice (i) restrict or limit access to the WebTV Network; (ii) terminate a
user account or user sessions at any time; or (iii) discontinue or modify any or
all aspects of the WebTV Network or its services. You agree to indemnify and
hold WebTV harmless from any claims of damages relating to interruptions or
termination of service, whether intentional or due to technical problems,
PROVISION AND USAGE OF EQUIPMENT. The WebTV Network may only be used in
connection with a WebTV Product. Any product labeled with a "WebTV" symbol may
only be used with the WebTV
21
<PAGE>
Network. As Primary User, you agree that neither you nor any Secondary User
shall tamper with or permit any tampering or adjustment of any WebTV Product,
whether or not the intention is to disassemble, decompile, create derivative
works of, reverse engineer, modify, use for other purposes or repair. All such
activity is strictly prohibited and may result in a termination of the Network
service and the pursuit of other legal remedies.
E-MAIL MESSAGES, All registered Users may save e-mail messages
in their own accounts up to time and space limits determined by WebTV. Users are
required to delete old messages from the system to make room in their Mail boxes
for more messages. From time to time, WebTV may need to make room for new
messages and may delete old messages from a User's Mail box that is older than a
certain date or that exceeds a certain limit of storage. WebTV Networks reserves
the right to read, delete or to disclose to third parties the contents of e-mail
which is lost, misdirected or of illegal nature. Most e-mail sent or received
through the Internet is transmitted without encryption through public networks
and may be subject to interception or eavesdropping by unauthorized parties. Do
not send or request confidential information through e-mail. You agree to hold
WebTV harmless from the result of any e-mail message being intercepted or copied
by an unauthorized party.
USAGE OF SUBSCRIBER INFORMATION. The WebTV Network maintains records of certain
user information pertaining to subscriptions and billing, user-selected options
and preferences and service usage. WebTV reserves the right to and may, from
time to time, share certain information with third parties at WebTV's sole
discretion.
DISALLOWED BEHAVIORS
INAPPROPRIATE OR UNAUTHORIZED USAGE. You agree not to use the WebTV Network in
any manner that does or would have a tendency to disrupt the normal use of the
WebTV Network by other subscribers. In the event of any inappropriate or
unauthorized usage, you may receive an e-mail warning or have your account
temporarily suspended or, in WebTV's sole discretion, terminated. Be advised
that certain unauthorized usage may subject you to civil and/or criminal
liability. Without limit to the foregoing, you agree not to use the WebTV
Network or its services to (i) make unauthorized attempts to access, use or
change the systems, networks or accounts of others; or (ii) to send unsolicited
messages, advertising or promotional Materials to third parties; or (iii) to use
your access to the WebTV Network to provide a minor access to inappropriate
Materials without the consent of the minor's parent or guardian.
NETWORK CONDUCT AND PROPER LANGUAGE. Conduct on the WebTV Network should conform
with public standards of decency and decorum and right of quiet enjoyment. No
user may disrupt, harass, defame or otherwise embarrass, cause discomfort to or
become offensive to another person on the WebTV Network or on the Internet.
Vulgarity and profanity within e-mail, chat groups or within user names is not
permitted. There shall be no advertising to or solicitation of other users.
WebTV reserves the right to prohibit the use of any user name and/or to make
changes to any user name as WebTV, in its sole discretion, requires.
FALSE CREDIT INFORMATION. No Primary User may register for WebTV Network service
using any expired, false or unauthorized credit card. Users are responsible for
the security of their own credit cards and passwords and should notify WebTV
promptly if (i) there is a change in the expiration date of a credit card; (ii)
there is a change in the credit card billing information; or (iii), if there has
been a breach of security, such as a theft of a card or a disclosure of a
password.
22
<PAGE>
PAYMENT OF FEES AND OTHER CHARGES
METHOD OF PAYMENT. The basic WebTV Network subscription fee is currently $19.95
per month (plus any applicable taxes), payable in advance, and covers all basic
services provided by the WebTV Network for access to the Internet. The Primary
User agrees to pay for the WebTV Network monthly subscription charge when the
Primary User Account is activated and until the Primary User Account is
terminated (as described below). The monthly subscription fee is subject to
change upon 30 days notice.
AUTOMATIC CREDIT CARD PAYMENTS. Upon entry of the Primary User's credit card
information during the WebTV Network registration process, the Primary User
agrees that the monthly fee shall be deducted automatically on the first of each
month from this same card until the Primary User Account is terminated. These
automatic transactions are carried out securely and will show up on your monthly
credit card statement as a WebTV Network subscription charge.
MAKING PURCHASES ON YOUR WEBTV ACCOUNT. The WebTV Service will provide a Primary
or authorized Secondary User with the ability to purchase goods or services
securely over the Internet using the credit card specified during the WebTV
Network registration process from a vendor explicitly approved for transactions
by WebTV with the designation "WEBTV SECURE". If a Primary User or an authorized
Secondary User elect to make such a purchase, the Primary User agrees to
authorize payment to the vendor for the purchased goods or services and
authorizes WebTV to serve as the source of secure payment information to those
vendors. The Primary User acknowledges and agrees that WebTV shall have no
responsibility for any aspect of such transaction, neither delivery,
suitability, satisfaction or returns of such goods or services and that WebTV
shall be held harmless for its role of providing authorization for such
purchases. The Primary User also acknowledges that he or she understands (i)
that a purchase with the credit card used during the WebTV Network registration
process can be easily made by an unauthorized person if there is not a Secure
Password provided for each Primary User and Secondary User Account; (ii) that if
a credit card number or other confidential information is provided to a vendor
on the Internet who is not explicitly approved by WebTV with the designation
"WEBTV SECURE", such confidential information may be subject to interception or
copying by unauthorized parties. WebTV will be held harmless from the result of
any confidential information sent to any vendor that is not explicitly approved
by WebTV that is intercepted or copied by unauthorized parties,
OTHER PHONE CHARGES. All users are responsible for all their own telephone
charges incurred for connecting WebTV through telecommunications network access
nodes. You agree that WebTV shall have no responsibility or liability for any
telephone charges, including but not limited to long distance charges, per
minute surcharges or equipment or line costs incurred by users. All disputes
between a user and his/her phone company are agreed to be solely between those
two parties.
LACK OF PAYMENT. The Primary User agrees to provide payment in full of the WebTV
Service subscription fees. In the event that payment for the WebTV Network is
not provided on a timely basis, the Primary User agrees and acknowledges that
WebTV shall have the right to terminate, suspend or restrict his or her access
to the Service. WebTV reserves the right to pursue all legal remedies available
to secure payment of any delinquent accounts.
REINSTATEMENT OF SERVICE. In the event that the Primary User decides to
reactivate the WebTV Network service after a termination, the Primary User
agrees to provide settlement of any outstanding
23
<PAGE>
balances on the account and pay a reactivation fee of US $10 for the set up of a
new registration. WebTV shall have the right to require a full re-registration
and to require submission of additional information as WebTV may request to
verify user and credit information.
REFUNDS. WebTV Network fees are payable in advance for the monthly Service
Period and are not refundable for any reason, in whole or in part after
completion of the Service Period. Subscription fees that are pre-paid for a
particular Service Period are refundable for unused portions of a Service Period
from the date on which the Primary User notifies WebTV to close the Primary User
Account. For the purposes of refunding unused portions, each month shall be
considered to have thirty days, with a Service Period that commences on the
first day of the month.
TERMINATION OF SERVICE
TERMINATION BY THE PRIMARY USER. The Primary User may terminate the Primary User
Account (and thereby terminate all related Secondary User Accounts) at any time,
without cause, but only upon notification to WebTV via the WebTV Network e-mail
service (To: subscriptions @webtv.net) or by letter to WebTV (attention:
Subscription Services). Until such notification is received, the Primary User
remains responsible for all charges incurred up to and including the effective
date of termination. Cancellation notices received prior to 2:00 pm PST shall be
effective the next day and notices received after 5:00 pm PST shall be effective
on the second following day. Upon termination, The Primary and Secondary User
WebTV Network registration and user information may be eliminated, including
removal of e-mail archives, favorites and other stored user preferences.
TERMINATION BY WEBTV. WebTV may terminate the Primary User Account (and thereby
terminate all related Secondary User Accounts) at any time with or without cause
at WebTV's sole discretion. Upon such termination the Primary User will be
notified by Postal Service mail at the address specified during the WebTV
Network registration process. Such cancellations are only likely in the event of
misuse of any part of the WebTV Product or the WebTV Network, delinquency in the
payment of the Primary User Account, bad behavior on the Network or for
disruption or termination of Internet service in your area, although all
cancellations shall be entirely at WebTV's discretion.
DISCLAIMER AND INDEMNITY
DISCLAIMER. YOU AGREE THAT USE OF THE WEBTV NETWORK, ITS SERVICES AND ANY
MATERIALS OBTAINED THROUGH USE OF THE WEBTV NETWORK TO ACCESS THE INTERNET IS AT
YOUR SOLE RISK. NEITHER WEBTV NOR ITS INFORMATION PROVIDERS, LICENSORS,
EMPLOYEES OR AGENTS WARRANT THAT THE WEBTV SERVICE WILL BE UNINTERRUPTED OR
ERROR FREE NOR DO THEY MAKE ANY WARRANTY AS TO THE QUALITY, ACCURACY OR
COMPLETENESS OF ANY MATERIALS AVAILABLE THROUGH USE OF THE WEBTV NETWORK OR ITS
SERVICES. THE WEBTV NETWORK AND ITS SERVICES ARE MADE AVAILABLE ON AN "AS IS"
BASIS WITHOUT WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, AND WEBTV EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
AND NONINFRINGEMENT IN CONNECTION WITH THE WEBTV NETWORK AND ITS SERVICES.
NEITHER WEBTV NOR ANYONE ELSE INVOLVED IN CREATING, PRODUCING OR DELIVERING THE
WEBTV SERVICE SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING
OUT OF THE USE OF, OR INABILITY TO USE, THE WEBTV SERVICE.
24
<PAGE>
INDEMNITY. YOU AGREE TO INDEMNIFY AND HOLD WEBTV HARMLESS FROM AND AGAINST ANY
AND ALL COSTS INCURRED BY WEBTV, INCLUDING BUT NOT LIMITED TO ATTORNEY'S FEES,
AS A RESULT OF ANY CLAIMS ARISING FROM YOUR BREACH OF THESE TERMS OR OTHERWISE
AS A RESULT OF YOUR USAGE OF THE WEBTV SERVICE.
OTHER PROVISIONS
EXPORT CONTROL. A WebTV Product may not be exported or re-exported outside of
the United States without the appropriate United States and foreign government
licenses. WebTV Products utilize sophisticated encryption technology which is
currently not permitted to be exported without special licenses.
INTERPRETATION OF TERMS. In the event that any Term herein is held invalid by a
court with jurisdiction over the parties, such provision shall be deemed to be
restated to reflect as nearly as possible the original intentions of the parties
in accordance with applicable law and the remainder shall remain in full force
and effect. The Terms shall be interpreted in all respects in accordance with
the laws of the State of California, without reference to conflict of laws
principles.
ENFORCEMENT. Any failure by WebTV to enforce strict performance of the Terms or
to exercise its rights under the Terms, shall not be construed as a waiver or
relinquishment of WebTV's right to assert provisions in other instances.
25
<PAGE>
AMENDMENT NO. 1
Amendment No. 1 dated May 13th, 1997 ("Amendment No. 1"), to the Agreement,
dated October 23, 1996 (the "Agreement"), between ZipLink, LLC ("ZipLink")
and WebTV Networks, Inc. ("WNI").
The parties entered into the Agreement pursuant to which Ziplink provides
telecommunication services for the interconnection of WNI end users to WNI
facilities.
The parties desire to amend the Agreement as follows:
1. Section 5.1.1 is replaced as follows:
WNI may terminate its obligations under this Agreement if ZipLink does not
materially meet the performance standards set forth in Section 1.2 (the
"Performance Breach") and ZipLink does not cure the Performance Breach within
90 days of receipt of written notice from WNI of its intent to terminate
which notice shall describe clearly the Performance Breach.
2. All other terms of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of
the date first above recited.
WEBTV NETWORKS, INC. ZIPLINK, LLC
By: /s/ William Yundt By: /s/ Christopher Jenkins
Name: William Yundt Name: Christopher Jenkins
Title: Vice President Title: President
<PAGE>
Amendment #2 to
ZipLink - WebTV
Network Services Agreement
This Amendment is entered into effective as of February 1, 1998 ("Amendment
Effective Date") by and between ZipLink, LLC ("ZipLink"), located at 40 Woodland
Street, Hartford, CT 06105, and WebTV Networks Inc., a wholly owned subsidiary
of Microsoft Corporation, located at 305 Lytton Avenue, Palo Alto, California
94301 ("WNI").
RECITALS
The parties have entered into the ZipLink - WebTV Network Services Agreement as
of October 23, 1996 ("Agreement").
The parties wish to amend the Agreement as follows:
AMENDMENT
1. SECTION 7. Section 7 of the Agreement is deleted in its entirety and replaced
with the following:
7. COMMITMENTS
Effective March 1, 1998, on the first day of each month, WNI shall make
a dollar commitment (a "Commitment") for the following month. Each
Commitment shall be WNI"s minimum payment to ZipLink for the services
provided by ZipLink under this Agreement for such month, whether or not
such services are used by WNI or its customers.
When WNI provides a new Commitment to ZipLink, ZipLink shall, within
five (5) business days of receipt of a proposed Commitment from WNI,
accept all or some of the proposed Commitment by notice to WNI. Failure
to notify WNI within five (5) business days shall constitute acceptance
by ZipLink of WNI"s proposed Commitment.
All Commitments shall be equal to * or greater unless otherwise agreed
by the parties; provided, however, that each Commitment shall be
prorated downwards to the extent required by Section 2.3 of the
Agreement. For example, if ten percent (10%) of ZipLink"s POPs are not
meeting performance requirements per Section 2.3, a * Commitment for
the month in question would be reduced to *.
Commitments cover the cumulative traffic coming from the "Per
Subscriber" pricing plan and the "Per Hour" pricing plan. Commitments do
not require a dollar breakout between the two pricing plans.
1
<PAGE>
2. SECTION 15.3. A new Section 15.3 is hereby added to the Agreement as
follows:
15.3 The parties' obligations of confidentiality under this Agreement
shall not be construed to limit either party's right to
independently develop or acquire products without use of the
other party's confidential or proprietary information. Further,
either party shall be free to use for any purpose the residuals
resulting from access to or work with such confidential or
proprietary information, provided that such party shall maintain
the confidentiality of such confidential or proprietary
information as provided herein. The term "residuals" means
information in non-tangible form, which may be retained by
persons who have had access to confidential or proprietary
information, including ideas, concepts, know-how or techniques
contained therein. Neither party shall have any obligation to
limit or restrict the assignment of such persons or to pay
royalties for any work resulting from the use of residuals.
However, the foregoing shall not be deemed to grant to either
party a license under the other party's copyrights or patents.
3. SECTION 25. The second sentence of Section 25 is hereby deleted in its
entirety.
4. SCHEDULE B. Schedule B of the Agreement is amended as follows:
a. The Per Subscriber Schedule of Section 1.1 of the Schedule is
deleted in its entirety and replaced with the following
effective December 1, 1997:
NO. OF SUBSCRIBERS AMOUNT PER SUBSCRIBER
*
b. The Per Hour Schedule and the second paragraph of Section 1.2
of the Schedule are hereby deleted. Effective December 1,
1997, per hour pricing will be *, regardless of the commitment
level.
c. Section 2 of the Schedule is deleted in its entirety and
replaced with the following:
2
<PAGE>
2. If WNI"s customers' usage is such that significant
network resources beyond those anticipated are used,
ZipLink and WNI will discuss compensation for ZipLink
for the higher usage. A mutually agreed, in writing,
pricing schedule may replace these schedules upon such
agreement.
5. NEW SCHEDULES. Schedule D of the Agreement is deleted in its entirety
and replaced with the Schedule D attached to this Amendment. A new
Schedule E (Terms of Service) is added to the Agreement as attached to
this Amendment
6. OTHER TERMS. Except as expressly amended above, all other terms of the
Agreement shall continue in full force and effect. Except as otherwise
expressly provided in this Amendment, the terms in this Amendment shall
have the same meaning as set forth in the Agreement.
IN WITNESS WHEREOF, the parties hereto have entered into this Amendment as of
the Effective Date.
WEBTV NETWORKS, INC ZIPLINK, L.L.C.
By: /s/ William Yundt By: /s/ Christopher Jenkins
Name (print): William Yundt Name (print): Christopher Jenkins
Title: Vice-President Title: President
Date: 3/4/98 Date: 2/23/98
3
<PAGE>
SCHEDULE D
POP LIST
213-330-2255 "Los Angeles, CA"
213-331-2255 "LA Zone Two, CA"
213-332-2255 "LA Zone Four, CA"
213-474-2255 "LA Zone Three, CA"
213-475-2255 "LA Zone Four, CA"
213-476-2255 "LA Zone Four, CA"
213-477-2255 "LA Zone Four, CA"
213-490-2255 "Montebello, CA"
213-524-2255 "LA Zone Four, CA"
213-527-2255 "LA Zone Four, CA"
213-529-2255 "LA Zone Four, CA"
213-531-2255 "LA Zone Four, CA"
213-601-2255 "LA Zone Four, CA"
213-602-2255 "LA Zone Four, CA"
213-603-2255 "LA Zone Four, CA"
310-507-2255 "Carson, CA"
310-734-2255 "Beverly Hills, CA"
310-735-2255 "Compton, CA"
310-736-2255 "Culver City, CA"
310-765-2255 "El Segundo, CA"
310-819-2255 "Gardena, CA"
310-844-2255 "Hawthorne, CA"
310-846-2255 "Inglewood, CA"
310-953-2255 "Torrance, CA"
408-273-2255 "San Jose North, CA"
408-490-2255 "San Jose West, CA"
408-990-2255 "Sunnyvale, CA"
415-659-2255 "San Francisco: Central, CA"
415-680-2255 "San Francisco: Evergreen, CA"
415-840-2255 "San Francisco: Juniper, CA"
510-214-2255 "Oakland: Alameda, CA"
510-255-2255 "Orinda, CA"
510-269-2255 "Oakland: Fruitvale, CA"
510-285-2555 "Oakland: Main-Piedmont, CA"
510-298-2255 "Lafayefte, CA"
510-404-2255 "FremontNewark:Greenleaf, CA"
4
<PAGE>
ftplist
510-557-2255 "Dublin: San Ramon, CA"
510-731-2255 "Hayward, CA"
510-771-2255 "Fremont-Newark: Oliver, CA"
510-789-2255 "Fremont-Newark: Main, CA"
510-826-2255 "Concord, CA"
510-854-2255 "Danville, CA"
510-877-2255 "Oakland: Trinidad, CA"
510-948-2255 "Walnut Creek, CA"
510-982-2255 "Oakland: Berkeley, CA"
619-210-2255 "Chula Vista, CA"
619-212-2255 "El Cajon, CA"
619-215-2255 "Coronado, CA"
619-410-2255 "La Jolla, CA"
619-415-2255 "La Mesa, CA"
619-419-2255 "National City, CA"
619-716-2255 "Rancho Bernardo, CA"
619-880-2255 "San Diego (Mira Mesa), CA"
619-881-2255 "San Diego, CA"
626-532-2255 "El Mnte, CA"
626-639-2255 "Pasendena, CA"
650-226-2255 "San Carlos, CA"
650-238-2255 "South San Francisco, CA"
650-429-2255 "Mountain View, CA"
650-481-2255 "Redwood City, CA"
650-651-2255 "Millbrae, CA"
650-653-2424 "San Mateo, CA"
650-687-2255 "Palo Alto, CA"
714-481-2255 "Santa Anna/Tustin, CA"
714-591-2255 "Garden Grove, CA"
714-676-2255 "Buena Park, CA"
714-763-2255 "Cypress, CA"
714-782-2255 "Anaheim, CA"
714-869-2255 "Fullerton, CA"
714-923-2255 "Orange, CA"
714-930-2255 "Irvine, CA"
714-983-2255 "Placentia, CA"
714-988-2255 "Brea, CA"
760-710-2255 "Oceanside: Carlsbad, CA"
818-531-2255 "Burbank, CA:"
818-638-2255 "Glendale, CA"
818-742-2255 "Van Nuys, CA"
860-509-3400 "Hartford, CT"
203-781-0022 "New Haven, CT"
5
<PAGE>
ftplist
203-964-0511 "Stamford, CT"
860-941-2020 "Hartford, CT"
312-895-4410 "Franklin, IL"
630-563-4410 "Elmhurst, IL"
630-566-4410 "Aurora, IL"
630-578-4410 "Geneva, IL"
630-929-4410 "Downers Grove, IL"
630-982-4410 "Big Rock, IL"
708-570-4410 "Tinley Park, IL"
708-575-4410 "Chicago Heights, IL"
708-585-4410 "Calumet City, IL"
708-810-4410 "Beecher, IL"
708-876-4410 "Oaklawn, IL"
773-353-4410 "Newcastle, IL"
773-353-4410 "S. Chicago, IL"
815-327-4410 "Plainfield, IL"
815-328-4410 "Lockport, IL"
815-331-4410 "McHenry, IL"
815-333-4410 "Woodstock, IL"
815-346-4410 "Gardner, IL"
815-352-4410 "Kankakee, IL"
815-361-4410 "Manhattan, IL"
815-364-4410 "Morris, IL"
815-366-4410 "Ottowa, IL"
815-371-4410 "Utica, IL"
815-377-4410 "Crescent City, IL"
815-846-4410 "Joliet, IL"
847-556-4410 "Evanston, IL"
847-557-4410 "Libertyville, IL"
847-5744410 "Lakeforest, IL"
847-589-4410 "Antioch, IL"
847-594-4410 "Algonquin, IL"
847-6284410 "Elgin, IL"
847-655-4410 "Park Ridge, IL"
847-7924410 "Hampshire, IL"
847-879-4410 "Elk Grove, IL"
847-919-4410 "Northbrook, IL"
301-337-0337 "Gaithersburg, MD"
410-487-0487 "Glenburnie, MD"
410-616-0264 "Towson, MD"
410-752-3214 "Baltimore, MD"
410-753-0753 "Pikesville, MD"
410-891-0891 "Cockysville, MD"
6
<PAGE>
ftplist
202-478-2255 "Washington, DC"
301-296-0296 "Washington, DC"
301-348-0348 "Washington, DC"
301-364-0364 "Washington, DC"
301-755-0755 "Washington, DC"
301-778-0778 "Washington, DC"
301-968-0468 "Washington, DC"
413-228-1400 "Palmer, MA"
413-332-1400 "Lenox, MA"
413-426-1400 "Holyoke, MA"
413-541-1400 "Gr Barrington, MA"
413-643-1400 "Gilbertville, MA"
413-740-1400 "Cummington, MA"
413-771-1400 "Blandford, MA"
413-825-1400 "Amherst, MA"
413-895-1400 "Adams, MA"
508-216-1400 "Foxboro, MA"
508-228-7934 "Nantucket, MA"
508-248-5690 "Charlton, MA"
508-252-5592 "Rehoboth, MA"
508-252-5875 "Rehoboth, MA"
508-252-5916 "Rehoboth, MA"
508-252-5918 "Rehoboth, MA"
508-278-6520 "Uxbridge, MA"
608-300-1400 "Fall River, MA"
508-302-1400 "Framingham, MA"
508-349-1272 "Wellfleet, MA"
508-362-9869 "Barnstable, MA"
508-430-8528 "Harwich, MA"
508-478-3051 "Hopedale, MA"
508-487-2745 "Provincetown, MA"
508-519-1400 "Worcester, MA"
508-528-9212 "Franklin, MA"
508-529-6430 "Upton, MA"
508-563-3170 "Cataumet, MA"
508-571-1400 "Northboro/Southboro, MA"
508-583-9072 "Brockton, MA"
508-594-1400 "Mansfield, MA"
508-621-1400 "Westboro, MA"
508-696-5810 "Vineyard Haven, MA"
508-698-2880 "Foxboro, MA"
508-747-6218 "Plymouth, MA"
508-748-9651 "Marion, MA"
7
<PAGE>
ftplist
508-804-6100 "Marlboro, MA"
508-829-9750 "Holden, MA"
508-903-6100 "Natick, MA"
508-925-1400 "Shrewsbury, MA"
617-328-4996 "Quincy, MA"
617-507-1400 "Boston, MA"
617-588-3555 "Cambridge, MA"
617-692-6400 "Boston, MA"
617-812-1400 "Cambridge, MA"
617-831-2255 "Newton, MA"
617-983-3101 "Jamaica Plain, MA"
617-992-2255 "Brookline, MA"
781-205-1400 "Reading, MA"
781-207-1400 "Waltham, MA"
781-302-1400 "Canton, MA"
781-370-1400 "Waltham, MA"
781-391-9360 "Medford, MA"
781-406-1400 "Lynnfield, MA"
781-440-0016 "Norwood, MA"
781-551-9550 "Norwood, MA"
781-582-1093 "Kingston, MA"
781-607-1400 "Randolph, MA"
781-658-2255 "Medford, MA"
781-685-1400 "Burlington, MA"
781-749-3967 "Hingham, MA:"
781-749-5240 "Hingham, MA"
781-749-8740 "Hingham, MA"
781-749-7654 "Hingham, MA"
781-778-2255 "Lexington, MA"
781-853-0511 "Revere, MA"
781-994-1400 "Woburn, MA"
781-998-1400 "Burlington, MA"
978-218-6100 "Sudbury, MA"
978-241-6100 "Haverhill, MA"
978-283-2372 "Gloucester, MA"
978-310-6100 "Hudson, MA"
978-326-6100 "Peabody, MA"
978-345-9290 "Fitchburg, MA"
978-363-1850 "W Newbury, MA"
978-363-1853 "West Newbury, MA"
978-363-2746 "West Newbury, MA"
978-363-8187 "West Newbury, MA"
978-418-1400 "Lowell, MA"
8
<PAGE>
ftplist
978-463-3720 "Salisbury, MA"
978-469-0788 "Haverhill, MA"
978-552-6100 "Lawrence, MA"
978-597-1880 "Townsend, M:"
978-597-2802 "Townsend, M:"
978-597-2904 "Townsend, MA"
978-597-5614 "Townsend, MA"
978-597-5980 "Townsend, MA"
978-614-1400 "Chelmsford, MA"
978-630-2040 "Gardner, MA"
978-724-3422 "Petersham, MA"
978-772-6050 "Ayer, MA"
978-825-0811 "Salem, MA"
978-838-9930 "Berlin, MA"
978-887-9002 "Topsfield, MA"
978-889-6100 "Maynard, MA"
978-933-1400 "Andover, MA"
978-964-2255 "Billerica, MA"
201-557-6037 "Jersey City/Newark, NJ"
212-655-3124 "Manhattan, NY"
516-247-0023 "Garden City, NY"
516-787-1023 "Central Islip, NY"
718-355-6996 "Brooklyn, NY"
718-637-0898 "Bronx, NY"
914-323-0364 "White Plains, NY"
215-440-7814 "Philadelphia, PA"
610-226-2255 "Collegeville, PA"
610-228-2255 "Philadelphia, PA"
610-229-2255 "Philadelphia, PA"
610-230-2255 "Philadelphia, PA"
610-234-2255 "Philadelphia, PA"
610-235-2255 "West Chester, PA"
214-210-2255 "Dallas, TX"
713-767-1515 "Houston, TX"
972-375-2255 "Grand Prarie, TX"
404-965-2255 "Atlanta, GA"
770-225-2255 "Chamblee, GA"
770-250-2255 "Marieffa, GA"
770-308-2255 "Smyma, GA"
770-325-2255 "Norcross, GA"
305-908-9329 "Miami, FL"
561-515-8027 "West Palm Beach, FL"
561-962-0041 "Boca Raton, FL"
954-745-8024 "Ft. Lauderdale, FL"
9
<PAGE>
altftplist
864-260-9049 "Anderson, SC"
504-387-0149 "Baton Rouge, LN"
704-335-0409 "Charlotte, NC"
915-496-9504 "El Paso, TX"
864-232-6976 "Greenville, SC"
904-353-8882 "Jacksonville, FL"
606-258-7894 "Lexington, KY"
502-719-9947 "Louisville, KY"
334-323-9947 "Montgomery, AL"
504-568-1910 "New Orleans, LA"
602-308-8000 "Phoenix, AZ"
919-790-1053 "Raleigh, NC"
864-573-9947 "Spartanburg, SC"
813-277-9657 "Tampa, FL"
520-547-9947 "Ruscon, AZ"
864-261-9947 "Anderson, SC"
10
<PAGE>
AMENDMENT #3
TO
ZIPLINK - WEBTV
NETWORK SERVICES AGREEMENT
This Amendment is entered into as of March 9, 1999 by and between ZIPLINK, LLC,
located at 900 Chelmsford Street, Lowell, Massachusetts 01851 and WEBTV
NETWORKS, INC. ("WNI") a wholly owned subsidiary of Microsoft Corporation,
located at 305 Lytton Avenue, Palo Alto, California 94301.
This Amendment amends the Network Services Agreement dated October 23, 1996
between ZipLink and WNI as amended by Amendment #1 dated May 13, 1997 and
Amendment #2 dated February 28, 1998 (collectively, the "Agreement"). Initial
capitalized term shall have the meaning assigned to them in the Agreement. This
Amendment is entered into in recognition of ZipLink's being a leading provider
of internet connectivity to WNl. Effective immediately the Agreement is amended
as follows:
1. SECTION 2.3 Section 2.3 of the Agreement is amended to provide
that Connection Success Ratio shall be reduced from * to *
and shall be measured in the aggregate across all dial up POPS.
2. SECTION 4 Section 4 of the Agreement is amended to extend the
initial term until December 31, 2000.
3. SECTION 5 Section 5.1.3 is replaced with the following:
Either party may terminate this Agreement for convenience and
without cause after giving the other party 90 days prior written
notice. In the event of any termination under this Section 5.1.3
by either party, ZipLink will maintain service availability
through a rampdown period which will start at the end of the 90
day notice period, or sooner if mutually agreed. The maximum
number of subscribers that can be ramped down by WNI each month
after the 90 day notice period is 12.5% of the number of users
at the start of the notice period. Eight months after the
beginning of the rampdown period, any remaining WNI users may be
removed.
4. SECTION 7 The Commitment specified in Section 7 of the Agreement
shall be increased from * per month to * per month.
<PAGE>
5. SUBSECTION OF SCHEDULE B The Per Subscriber Schedule of Section
l.l of the Schedule is deleted in it's entirety and replaced
with the following, effective December 1, 1997:
NO. OF SUBSCRIBERS AMOUNT PER SUBSCRIBER
*
All of the other terms of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have set their hands and seals as to the
date first above recited.
WEBTV NETWORKS, INC. ZIPLINK, LLC
By: /s/ William Yundt By: /s/ Christopher Jenkins
Its: Vice-President Its: President
<PAGE>
Exhibit 10.7
WORLDCOM DATA SERVICES
(REVENUE PLAN)
This Application for Data Services (THE "AGREEMENT") is made by ZIPLINK, L.L.C.,
("CUSTOMER"), a Connecticut corporation with its principal office at 40 WOODLAND
STREET, HARTFORD, CONNECTICUT 06105,("CUSTOMER"), and WORLDCOM, INC., a Georgia
corporation ("WORLDCOM"), for service described below.
1. SERVICES: Interexchange telecommunications service (THE "PRIVATE LINE
SERVICE") and frame relay service (THE "FRAME RELAY SERVICE") shall be
provided by WorldCom pursuant to the applicable tariffs of WorldCom
Network Services, Inc., a wholly owned subsidiary of WorldCom, (THE
"TARIFFS"). The Tariffs provide terms and conditions of the Service
which include, but are not limited to, taxes, credit approval
procedures, Customer credits, termination liability, and limitations
with respect to the assignment of the Service. The Tariffs may be
modified from time to time by WorldCom in accordance with law and
thereby affect the Service furnished to Customer. For purposes of this
Agreement, Private Line Service and Frame Relay Service shall be
collectively referred to as the "SERVICE".
2. TERMS AND CONDITIONS: The parties agree that the terms and conditions of
this Agreement shall supplement, or to the extent they are inconsistent
with the Tariffs, supersede the terms and conditions of the Tariffs.
3. MINIMUM MONTHLY COMMITMENT: Commencing as of the Commitment Commencing
Date set forth below and continuing through the Commitment Ending Date
below, Customer agrees to maintain (i) aggregate monthly Qualifying
Charges for Private Line Service (before the application of discounts)
and/or (ii) the aggregate base rate charge for Frame Relay Services
(before the application of discounts) (COLLECTIVELY THE "AGGREGATE BASE
RATE CHARGE") as follows:
MINIMUM MONTHLY COMMITMENT: $55,000.00
Based on the Customer's monthly Qualifying Charges before the
application of discounts)
4. REVENUE PLAN SERVICE TERM/COMMITMENT:
<TABLE>
<CAPTION>
CUSTOMER COMMITMENT PERIOD: THREE (3) YEAR(S)
<S> <C> <C>
COMMENCEMENT DATE: ___/01/__
COMMITMENT COMMENCING DATE: ___/01/__ (THIS DATE TO BE 3 MONTHS FOLLOWING
THE COMMENCEMENT DATE ABOVE)
COMMITMENT ENDING DATE: ___/01/__ (THIS DATE TO BE 36 MONTHS FOLLOWING
THE COMMITMENT COMMENCEMENT DATE ABOVE)
</TABLE>
** IF THE COMMITMENT ENDING DATE IS IN A MONTH WITH LESS THAN 31 DAYS, THE
ENDING DATE IS ON THE LAST DAY OF SUCH MONTH.
5. APPLICATION OF DISCOUNTS: Commencing as of the Commencement Date set
forth in Section 4 above and continuing through the Commitment Ending
Date, WorldCom agrees to: Aggregate (i) monthly Qualifying Charges for
Private Line Service (before the application of discounts), and (ii)
monthly recurring Network Node charges for Frame Relay Service (before
the application of discounts) in determining Customer's monthly revenue
level and
<PAGE>
corresponding discount for domestic Private Line and Frame Relay
Service. Special DS-1 Connecting Leg Charges will be aggregated in
determining Qualifying Charges for purposes of ascertaining if Customer
has met the Minimum Monthly Commitment, however discounts will not apply
to the Special DS-1 Connecting Leg charges.
6. PROPRIETARY INFORMATION:
(a) Confidential Information: The parties understand and agree that the
terms and conditions of this Agreement, and invoices to Customer for
Service provided hereunder, communications between the parties regarding
this Agreement or the Service to be provided hereunder (including price
quotes to Customer for any Service proposed to be provided or actually
provided hereunder), as well as such information relevant to any other
agreement between the parties (collectively "CONFIDENTIAL INFORMATION"),
are confidential as between Customer and WorldCom.
(b) Limited Disclosure: A party shall not disclose Confidential Information
unless subject to discovery or disclosure pursuant to legal process, or
to any party other than the directors, officers, and employees of a
party or a party's agents including their respective brokers, lenders,
insurance carriers or bona fide prospective purchasers who have
specifically agreed in writing to nondisclosure of the terms and
conditions hereof. Any disclosure hereof required by legal process shall
only be made after providing the non-disclosing party with notice
thereof in order to permit the non-disclosing party to seek an
appropriate protective order or exemption. Violation by a party or its
agents of the foregoing provisions shall entitle the non-disclosing
party, at its option, to obtain injunctive relief without a showing of
irreparable harm or injury and without bond.
(c) Press Releases: The parties further agree that any press release,
advertisement or publication generated by a party regarding this
Agreement, the Service provided hereunder or in which a party desires to
mention the name of the other party or the other party's parent or
affiliated company(ies), will be submitted to the non-publishing party
for its written approval prior to publication.
(d) Survival of Confidentiality: The provisions of this Section 7 will be
effective as of the date of this Agreement and remain in full force and
effect for a period which will be the longer of (i) one (1) year
following the date of this Agreement, or (ii) one (1) year from the
termination of all Service hereunder.
7. LETTER OF AGENCY ("LOA"): The Undersigned [duly authorized
representative of Customer] hereby authorizes WorldCom, if requested by
Customer, to provision Customer's Local Access. This LOA supersedes all
previous LOAs and shall remain in effect until canceled by Customer in
writing.
8. PRICING: (a) Rates for domestic Private Line Service and domestic Frame
Relay Service during the Service Commitment Period shall be set forth in
the applicable Tariffs. Discounts for Private Line Service and Frame
Relay Service are as described below. (b) Rates and discounts for
International Services shall be as set forth in WorldCom's Service
Orders (THE "SERVICE ORDERS").
A. WORLDCOM PRIVATE LINE - DS-1 PRICE SCHEDULE
(BASED ON THREE (3) YEARS/$55,000 TOTAL MINIMUM MONTHLY COMMITMENT)
MONTHLY VOLUME DS-1 DISCOUNT SCHEDULE
$55,000 47%
$75,000 48%
$100,000 49%
<PAGE>
$150,000 49.5%
$250,000 50%
B. WORLDCOM FRAME RELAY DISCOUNTS (DOMESTIC U.S. ONLY)
(BASED ON THREE (3) YEARS, $55,000/ TOTAL MINIMUM MONTHLY COMMITMENT)
MONTHLY VOLUME DISCOUNT
$55,000 26%
$75,000 27%
$100,000 28%
$150,000 29%
$250,000 30%
C. WORLDCOM HIGH SPEED FRAME RELAY DISCOUNTS (DOMESTIC U.S. ONLY) (BASED ON
THREE (3) YEARS, $55,000/ TOTAL MINIMUM MONTHLY COMMITMENT)
MONTHLY VOLUME DISCOUNT
$55,000 26%
$75,000 27%
$100,000 28%
$150,000 29%
$250,000 30%
*BACKHAUL CHARGES ARE NOT DISCOUNTABLE.
9. WAIVER OF PRIVATE LINE INSTALLATION CHARGES: Commencing with the
Commencement Date and continuing through the Commitment Ending Date,
WorldCom agrees to waive WorldCom installation charges and LEC
installation charges (collectively "INSTALLATION WAIVERS") in an amount
not to exceed three (3) times the Monthly Recurring IXC charges for
Private Line Service ordered following the Commencement Date (the "NEW
SERVICE").
10. WAIVER OF FRAME RELAY INSTALLATION CHARGES: Commencing with the
Commencement Date and continuing through the Commitment Ending Date,
WorldCom agrees to waive WorldCom installation charges and LEC
installation charges (collectively "INSTALLATION WAIVERS") in an amount
not to exceed three (3) times the Monthly Recurring Network Node and PVC
charges for Frame Relay Service ordered following the Commencement Date
(the "NEW SERVICE").
ENTIRE AGREEMENT: This Agreement (including any documents incorporated herein by
reference) constitutes the entire understanding between the parties and
supersedes any prior agreements and proposals between the parties, whether oral
or written, for Service provided hereunder.
WORLDCOM, INC. ZIPLINK, L.L.C.
/s/ Frank M. Grillo /s/ Eric Zachs
(Authorized Signature) (Authorized Signature)
FRANK M. GRILLO ERIC ZACHS
(Print Name) (Print Name)
12/20/96 11/15/96
(Date Received) (Date Signed)
<PAGE>
AMENDMENT TO THE
SERVICE AGREEMENT BETWEEN
WORLDCOM, INC. AND ZIPLINK, L.L.C.
(SERVICE AGREEMENT DATED JANUARY 01, 1997)
This Amendment to the above-referenced Agreement is made and entered into by and
betweenWorldCom, Inc., ("WorldCom") and ZIPLINK, L.L.C., ("Customer"). The
Parties agree as follows:
THE AFOREMENTIONED PARTIES HEREBY AGREE TO REPLACE SECTION 1 OF THE AGREEMENT
WITH THE FOLLOWING:
1. SERVICES: Interexchange telecommunications service (THE "PRIVATE LINE
SERVICE") and frame relay service (THE "FRAME RELAY SERVICE") and ATM
Service (THE "WORLDCOM ATM SERVICE") shall be provided by WorldCom
pursuant to the applicable tariffs of WorldCom Network Services, Inc.
d/b/a WilTel Network Services, Inc., a wholly owned subsidiary, (THE
"TARIFFS"). The Tariffs provide terms and conditions of the Service
which include, but are not limited to, taxes, credit approval
procedures, Customer credits, termination liability, and limitations
with respect to the assignment of the Service. The Tariffs may be
modified from time to time by WorldCom in accordance with law and
thereby affect the Service furnished to Customer. For purposes of this
Agreement, Private Line Service Frame Relay Service and ATM Service
shall be collectively referred to as the "SERVICE".
The ATM Service may include the following: (i) equipment necessary to
support the ATM Service including equipment located on Customer's
premises and equipment located on WorldCom's premises, (ii) local access
facilities, (iii) a Network Node (as described below) for each location
requiring connectivity to the WorldCom network, and (iv) maintenance of
the equipment and services provided by WorldCom. A "Network Node"
includes a port connection, i.e., access to the WorldCom network, and
the permanent virtual circuits assigned to said port. ATM Service
configurations for each Network Node shall be described on WorldCom's
Service Orders in effect when the Service is ordered. Charges for ATM
Service shall be established by relevant Service Orders.
THE AFOREMENTIONED PARTIES HEREBY AGREE TO REPLACE SECTION 3 OF THE
AGREEMENT WITH THE FOLLOWING:
2. MINIMUM MONTHLY COMMITMENT: Commencing as of the Commitment Commencing
Date set forth below and continuing through the Commitment Ending Date
below, Customer agrees to maintain aggregate monthly Qualifying Charges
for Private Line Service, the Aggregate Base Rate Charge for Frame Relay
Services and the aggregate base rate charge for ATM Services (before the
application of discounts) (COLLECTIVELY THE "AGGREGATE BASE RATE
CHARGE") as follows:
MINIMUM MONTHLY COMMITMENT: $55,000.00
(Based on the Customer's monthly Qualifying Charges for Service before the
application of discounts)
THE AFOREMENTIONED PARTIES HEREBY AGREE TO REPLACE SECTION 5 OF THE AGREEMENT
WITH THE FOLLOWING:
5. APPLICATION OF DISCOUNTS: Commencing as of the Commencement Date set forth in
Section 4 above and continuing through the Commitment Ending Date, WorldCom
agrees to: Aggregate (i) monthly Qualifying Charges for Private Line Service
(before the application of
<PAGE>
discounts), (ii) monthly recurring Network Node charges for Frame Relay Service
(before the application of discounts) and (iii) monthly recurring Network Node
charges for ATM Service (before the application of discounts) in determining
Customer's monthly revenue level and corresponding discount for Private Line
Service and Domestic Frame Relay Service.
THE AFOREMENTIONED PARTIES HEREBY AGREE TO ADD THE FOLLOWING ITEM D TO SECTION 9
(PRICING) OF THEAGREEMENT:
D. WORLDCOM ATM DISCOUNTS (U.S. Domestic Only)
(BASED ON THREE (3) YEARS, $55,000/ TOTAL MINIMUM MONTHLY COMMITMENT)
MONTHLY VOLUME DISCOUNT
$55,000 - $74,999 26%
$75,000 - $99,999 27%
$100,000 - $149,999 28%
$150,000 - $199,999 29%
$250,000 + 30%
DISCOUNTS LISTED ABOVE WILL APPLY TO WORLDCOM PORT/CIR ONLY. LEC CHARGES ARE NOT
DISCOUNTABLE. NO FURTHER DISCOUNTS MAY BE APPLIED.
BACKHAUL CHARGES ARE NOT DISCOUNTABLE.
Those portions of the Agreement not modified or otherwise affected by this
Amendment are fully incorporated herein by reference. No other portion of the
Agreement is, or is intended by the Parties to be, affected by this Amendment.
IN WITNESS WHEREOF, the Parties have signed this Amendment and the individuals
signing belowrepresent that they have the authority to sign for and on behalf of
the respective parties.
ACCEPTED BY: ACCEPTED BY:
WORLDCOM, INC. ZIPLINK, L.L.C.
BY: /s/ Frank M. Grillo BY: /s/ Eric M. Zachs
--------------------------- ------------------------------
NAME: FRANK M. GRILLO NAME: Eric M. Zachs
------------------------- ----------------------------
TITLE: V.P., MARKETING TITLE President/Manager
------------------------ ----------------------------
DATE: 3/6/97 DATE 2/25/97
------------------------- ----------------------------
<PAGE>
EXHIBIT 10.11
REVOLVING LOAN
AGREEMENT
BETWEEN
ZIPLINK, LLC
AND
FLEET NATIONAL BANK
MARCH 31, 1998
<PAGE>
REVOLVING LOAN AGREEMENT
AGREEMENT, made March 31, 1998, between ZIPLINK, LLC, a Connecticut limited
liability company, with its principal place of business at 40 Woodland Street,
Hartford, Connecticut 06105 ("BORROWER") and FLEET NATIONAL BANK, a national
banking association with an office located at 777 Main Street, Hartford,
Connecticut 06115 ("LENDER").
PREAMBLE
WHEREAS, Borrower has requested Lender to extend to Borrower a revolving
loan in the maximum aggregate principal amount of $15,000,000 (the "Loan").
WHEREAS, Lender has agreed to extend the Loan to Borrower subject to the
terms and conditions set forth below.
NOW, THEREFORE, for the mutual considerations contained in this Agreement,
Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 ACCOUNTING TERMS; ETC. Unless otherwise defined, all accounting
terms shall be construed, and all computations or classifications of assets and
liabilities and of income and expenses shall be made or determined in accordance
with GAAP consistently applied. As used herein, unless otherwise defined, the
following terms shall have the following meanings:
(a) "Agreement" shall mean this Revolving Loan Agreement as the same may
from time to time be amended, supplemented or otherwise modified.
(b) "Airtouch" shall mean Airtouch Communications, Inc., a Delaware
corporation.
(c) "Borrower Collateral" shall have the meaning provided in SECTION 7.1
hereof.
(d) "Borrowing Base" shall mean, as of any date as of which the amount
thereof shall be determined, an amount of up to the lesser of: (i) the
Commitment Amount, or (ii) the aggregate of the following: (A) sixty
percent (60%) of the then current market value of the Airtouch common
stock initially pledged by Guarantor as Collateral pursuant to the
Pledge Agreement, provided that if the market value of such Airtouch
common stock should thereafter decline, the percentage applicable
thereto for purposes of the calculation of the Borrowing Base
hereunder shall be increased, but not beyond seventy percent (70%), to
the extent necessary to offset the effect of such decline in value for
purposes of such calculation, plus (B) sixty percent (60%) of the then
current market of any additional Airtouch common
<PAGE>
stock pledged by Guarantor to Lender as additional Collateral pursuant
to the Pledge Agreement, (C) seventy percent (70%) of the then current
market value of any additional Securities listed on the New York Stock
Exchange or American Stock Exchange and pledged by Guarantor to the
Lender as additional Collateral pursuant to the terms of the Pledge
Agreement, plus (D) fifty percent (50%) of the then current market
value of any Securities listed on any other stock exchange acceptable
to the Lender in its sole discretion and pledged by Guarantor to the
Lender as additional Collateral pursuant to the terms of the Pledge
Agreement, plus (E) eighty percent (80%) of the then current market
value of any municipal bonds having the highest rating by a nationally
recognized securities rating service and pledged by Guarantor to the
Lender as additional Collateral pursuant to the terms of the Pledge
Agreement, plus (F) ninety percent (90%) of the then current market
value of United States Treasury bonds and notes pledged by Guarantor
to the Lender as additional Collateral pursuant to the terms of the
Pledge Agreement.
(e) "Business Day" shall mean any day other than a day on which commercial
banks in Hartford, Connecticut are required or permitted by law to
close.
(f) "Closing Date" shall mean the date hereof.
(g) "Collateral" shall have the meaning provided in the Pledge Agreement.
(h) "Commitment Amount" shall mean FIFTEEN MILLION DOLLARS
($15,000,000.00), or such lesser amount as the Borrower may stipulate.
(i) "Defaulting Event" shall mean the occurrence of an Event of Default or
the occurrence of any condition or event which but for the giving of
notice or passage of time or both would constitute an Event of
Default.
(j) "Default Rate" shall have the meaning assigned in SECTION
3.1(C)hereof.
(k) "Dollar" and the sign "$" shall mean lawful money of the United States
of America.
(l) "ERISA" shall mean the Employee Retirement Income Security Act of 1974
and all rules and regulations promulgated pursuant thereto, as the
same may be supplemented or amended.
(m) "Event of Default" and "Events of Default" shall have the meanings
assigned in SECTION 8.1 hereof.
(n) "Financing Document" or "Financing Documents" shall mean this
Agreement, the Note, the Guaranty, the Pledge Agreement, and any and
all other instruments, agreements and documents executed in connection
herewith or therewith or
-2-
<PAGE>
related hereto or thereto, together with any amendments, supplements
or modifications hereto or thereto.
(o) "GAAP" shall mean generally accepted accounting principals.
(p) "Guarantor" means Henry M. Zachs
(q) "Guaranty" shall mean the Guaranty Agreement dated the date hereof
from the Guarantor to the Lender, as the same may from time to time be
amended, supplemented or otherwise modified.
(r) "Interest Period" shall mean, for a Revolving Loan, a period
commencing on (for the initial Interest Period) the date such
Revolving Loan is advanced or (for each subsequent Interest Period)
the first day after the expiration of the immediately preceding
Interest Period, and ending 30, 60 or 90 days thereafter, as the
Borrower may elect in the Notice of Borrowing; and provided that:
(i) any Interest Period that would otherwise end on a day that is not
a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in
which case such Interest Period shall end on the immediately
preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (iii) below, end on the
last Business Day of a calendar month; and
(iii) unless agreed to in advance by the Lender, the Borrower may not
elect an Interest Period which would otherwise end after the end
of the Term.
(s) "LIBOR" or "LIBOR Rate" shall mean for the then current Interest
Period relating thereto the rate of interest per annum (rounded
upward, if necessary, to the nearest 1/32 of one percent) as
determined on the basis of the offered rates for deposits in U.S.
dollars for a period of time comparable to such Interest Period which
appears on the Telerate page 3750 as of 11:00 a.m. London time on the
day that is two (2) London Banking Days preceding the first day of
such Interest Period; provided, however, if the rate described above
does not appear on the Telerate System on any applicable interest
determination date, the LIBOR Rate shall be the rate (rounded upwards
as described above, if necessary) for deposits in dollars for a period
substantially equal to the Interest Period on the Reuters Page "LIBO"
(or such other page as may replace the LIBO Page on that service for
the purpose of displaying such rates), as of 11:00 a.m. (London Time),
on the day that is two (2) London Banking Days prior to the beginning
of such Interest Period. If both the Telerate and Reuters system are
unavailable, then the rate for that date will be determined on the
basis of the offered rates for deposits in U.S. dollars for a period
of time comparable to such Interest Period which are offered by four
major
-3-
<PAGE>
banks in the London interbank market at approximately 11:00 a.m.
London time, on the day that is two (2) London Banking Days preceding
the first day of such Interest Period as selected by the Lender. The
principal London office of each of the four major London banks will be
requested to provide a quotation of its U.S. dollar deposit offered
rate. If at least two such quotations are provided, the rate for that
date will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for that date will be
determined on the basis of the rates quoted for loans in U.S. dollars
to leading European banks for a period of time comparable to such
Interest Period offered by major banks in New York City at
approximately 11:00 a.m. New York City time, on the day that is two
(2) London Banking Days preceding the first day of such Interest
Period. In the event that the Bank is unable to obtain any such
quotation as provided above, it will be deemed that LIBOR cannot be
determined, and the Lender will set an interest rate for the Revolving
Loans by such means as it shall reasonably deem equitable so that such
rate is comparable to the rate that would be established by the
foregoing means. In the event that the Board of Governors of the
Federal Reserve System shall impose a Reserve Percentage with respect
to LIBOR deposits of the Lender, then for any period during which such
Reserve Percentage shall apply, LIBOR shall be equal to the amount
determined above divided by an amount equal to one minus the Reserve
Percentage.
(t) "Loan" means the revolving loan made pursuant hereto in the maximum
principal amount of the Commitment Amount.
(u) "London Banking Day" means any day on which commercial banks are open
for business in London, England.
(v) "Note" means the Revolving Loan Note.
(w) "Notice of Borrowing" shall have the meaning assigned in SECTION 2.3
hereof.
(x) "Obligation" and "Obligations" mean and include all loans, advances,
interest, indebtedness, liabilities, obligations, fees, charges,
expenses, guaranties, covenants and duties at any time owing by
Borrower to Lender of every kind and description, whether or not
evidenced by any note or other instrument, whether or not for the
payment of money, whether direct or indirect, absolute or contingent,
due or to become due, now existing or hereafter arising, including,
but not limited to, the Revolving Loans, and all other indebtedness,
liabilities and obligations of Borrower arising under this Agreement
and the other Financing Documents or otherwise, and all costs,
expenses, fees, charges incurred by Lender hereunder or otherwise with
respect to Borrower, including without limitation fees and expenses of
attorneys and other professionals incurred in connection with any of
the foregoing, or in any way connected with, involving or relating to
the preservation, enforcement, protection or defense of, or
realization under this Agreement, any of the other Financing
Documents, any related agreement, document or instrument, the
Collateral, the Borrower Collateral and the rights and remedies
hereunder or thereunder.
-4-
<PAGE>
(y) "Plan" means any employee benefit plan or other plan maintained by
Borrower or any entity affiliated with Borrower for employees covered
by Title I of ERISA.
(z) "Pledge Agreement" shall mean that certain Stock Pledge Agreement of
even date herewith by and between Guarantor and Lender, pursuant to
which Guarantor is pledging the Collateral to Lender.
(aa) "Revolving Loan" and "Revolving Loans" have the respective meanings
assigned in SECTION 2.1 hereof.
(bb) "Revolving Loan Account" shall mean the revolving loan account
maintained by the Borrower with the Lender.
(cc) "Revolving Loan Note" shall have the meaning assigned in SECTION 2.3
hereof.
(dd) "Security" or "Securities" shall have the meaning assigned in the
Pledge Agreement.
(ee) "Term" shall have the meaning assigned in SECTION 10.1 hereof.
ARTICLE II
REVOLVING LOANS
SECTION 2.1 AMOUNTS. Subject to the terms and conditions contained in this
Agreement, and so long as no Defaulting Event has occurred, Lender agrees to
make advances on the Loan (the "Revolving Loans" and, individually, a "Revolving
Loan") to Borrower from time to time until terminated as provided below in
principal amounts not exceeding in the aggregate at any one time outstanding the
Borrowing Base, it being agreed and understood that at no time shall the maximum
aggregate principal amount of the Revolving Loans outstanding exceed the
Borrowing Base.
-5-
<PAGE>
SECTION 2.2 PAYMENT.
(a) Interest only as accrued shall be due and payable on the Revolving
Loans on the first day of each month commencing May 1, 1998; provided,
however, that the entire outstanding principal amount of the Revolving
Loans plus all accrued and outstanding interest thereon, and all other
amounts hereunder, shall be due and payable on April 1, 2001.
(b) In the event that the market value of the Airtouch common stock
initially pledged as Collateral pursuant to the Pledge Agreement shall
decline so as to cause the outstanding principal balance of the
Revolving Loans to exceed seventy percent (70%) but not eighty percent
(80%) of the then current market value of such common stock (unless
the Guarantor shall have pledged additional Collateral to Lender as
permitted by and pursuant to the Pledge Agreement so that the
outstanding principal balance of the Revolving Loans does not exceed
the Borrowing Base), a Defaulting Event shall be deemed to have
occurred, which Defaulting Event shall constitute an Event of Default
unless, within thirty (30) days of the date such outstanding principal
balance first exceeds seventy percent (70%) of the current market
value of such common stock, the Borrower either pays down the
outstanding principal balance of the Revolving Loans or the Guarantor
pledges additional Collateral pursuant to the Pledge Agreement, in
either case so that the outstanding principal balance of the Revolving
Loans as of such date no longer exceeds the Borrowing Base. In the
event that the market value of the Airtouch common stock initially
pledged as Collateral pursuant to the Pledge Agreement shall decline
so as to cause the Commitment Amount to exceed eighty percent (80%) of
the current market value of such common stock (unless the Guarantor
shall have pledged additional Collateral to Lender as permitted by and
pursuant to the Pledge Agreement so that the outstanding principal
balance of the Revolving Loans does not exceed the Borrowing Base), a
Defaulting Event shall be deemed to have occurred, which Defaulting
Event shall constitute an Event of Default unless, within five (5)
days of the date such outstanding principal balance first exceeds
eighty percent (80%) of the current market value of such common stock,
the Borrower pays down the outstanding principal balance of the
Revolving Loans or the Guarantor pledges additional Collateral
pursuant to the Pledge Agreement, in either case so that the
outstanding principal balance of Revolving Loans as of such date no
longer exceeds the Borrowing Base.
(c) In the event that the principal amount of the Revolving Loans
outstanding at any time shall exceed the Borrowing Base for any reason
other than one described in subparagraph (b) above, the Borrower
shall, within five (5) days after such outstanding principal amount
first exceeds the Borrowing Base, either pay down the outstanding
principal balance of the Revolving Loans or cause the Guarantor to
pledge additional Collateral pursuant to the terms of the Pledge
Agreement, in either case so that the outstanding principal balance of
the Revolving Loans no longer exceeds the Borrowing Base. In the event
that the Borrower has not reduced
-6-
<PAGE>
such principal balance below the Borrowing Base by the end of such
five (5) day period, an Event of Default shall immediately exist.
SECTION 2.3 ABILITY TO REBORROW, PROCEDURE FOR ADVANCES, NOTICE OF
BORROWING, REVOLVING LOAN NOTE, REVOLVING LOAN ACCOUNT, ETC. Within the limits
of the Borrowing Base and the Term, so long as Borrower is in compliance with
all of the terms and conditions of this Agreement and the other Financing
Documents and no Defaulting Event has occurred, Borrower may request borrowings,
repay and request reborrowings of Revolving Loans. Whenever Borrower desires an
advance, Borrower shall notify Lender in writing or by telephone of the proposed
borrowing. Such notice (each, a "Notice of Borrowing") shall specify the date of
the proposed borrowing and the amount to be borrowed. Each Notice of Borrowing
must be received by Lender no later than 10:00 a.m., Hartford, Connecticut time
on the second London Banking Day preceding the business day on which such
borrowing is requested. The Borrower shall not request any advance in an amount
less than One Hundred Thousand Dollars ($100,000.00) and shall not request more
than one advance per week. In addition to this Agreement, the Revolving Loans
shall be evidenced by a revolving loan promissory note payable to Lender in the
form of EXHIBIT "A" attached hereto (the "Revolving Loan Note"). Insofar as
Borrower may request and Lender shall make Revolving Loans hereunder, Lender
shall enter such advances as debits on a revolving loan account maintained by
Borrower with Lender (the "Revolving Loan Account") and deposit such amounts in
a demand deposit checking account maintained by Borrower with Lender. Lender may
also record to the Revolving Loan Account, in accordance with customary
accounting practices and procedures, all fees, accrued and unpaid interest, late
fees, usual and customary charges for the maintenance and administration of
checking and any other accounts maintained by Borrower with Lender and other
fees, charges and liens which are properly chargeable to Borrower under this
Agreement; all payments, subject to collection, made by Borrower on account of
indebtedness evidenced by the Revolving Loan Account; all proceeds of Borrower
Collateral which are finally paid to Lender in its own office in cash or
collected items; and other appropriate debits and credits. Lender shall record
as credits to the Revolving Loan Account, in accordance with customary
accounting practices and procedures, all Revolving Loan payments made by
Borrower. Borrower hereby authorizes Lender to maintain the Revolving Loan
Account and agrees that the amount shown on the Revolving Loan Account as
outstanding from time to time shall constitute the amount owing to Lender by
reason of the Revolving Loans and other appropriate charges and credits
hereunder, absent manifest error. Borrower hereby authorizes Lender to make such
charges as are described in this Section 2.3 against the Revolving Loan Account
or any other account maintained by Borrower with Lender.
SECTION 2.4 MONTHLY STATEMENTS. On a monthly basis, Lender may render a
statement for the Revolving Loan Account, which statement shall be considered
correct and accepted by Borrower and conclusively binding upon Borrower unless
Borrower notifies Lender to the contrary within thirty (30) days of the receipt
of said statement by Borrower.
SECTION 2.5 LENDER DISCRETION. Nothing herein shall be construed to
prohibit Lender from lending in excess of the Borrowing Base, it being agreed
that all such loans and advances shall be at Lender's sole discretion and shall
not establish a pattern or custom binding upon Lender.
-7-
<PAGE>
ARTICLE III
INTEREST, FEES AND OTHER CHARGES
SECTION 3.1 INTEREST.
(a) INTEREST RATES. So long as no Defaulting Event or Event of Default has
occurred, each of the Revolving Loans shall bear interest for the
applicable Interest Period at a fixed rate per annum equal to the
LIBOR Rate, plus .30%. The Borrower shall elect the length of each
applicable Interest Period, subject to the provisions of this
Agreement. At the expiration of an applicable Interest Period for a
Revolving Loan, the Borrower may elect the length of the next Interest
Period for such Revolving Loan. The Borrower shall not choose an
Interest Period that extends beyond the end of the Term.
(b) PAYMENT OF INTEREST. So long as any of the Obligations remain
outstanding, interest on the Revolving Loans shall be due and payable
without notice or demand monthly in arrears beginning on May 1, 1998
and continuing on the first day of each and every month thereafter
through and including April 1, 2001.
(c) DEFAULT INTEREST RATE. Notwithstanding the foregoing, interest on the
Revolving Loans, at all times after the occurrence of an Event of
Default, and interest on all payments of interest that are not paid
when due, shall accrue at a rate per annum equal to three percentage
points (3.0%) above the applicable interest rates otherwise in effect
under this Agreement (the "Default Rate").
(d) CALCULATION OF INTEREST. Interest on the Revolving Loans shall be
calculated on the basis of a 360-day year and the actual number of
days elapsed.
(e) LATE PAYMENT. If any interest installment due hereunder or under the
Note is not paid within ten (10) days after the date it is due and
payable, without in any way affecting Lender's right to make demand
hereunder or to declare an Event of Default to have occurred, Lender
may in its sole discretion assess a late charge equal to five percent
(5%) of such late payment against Borrower, which late charge shall be
immediately due and payable and may be paid by a charge to Borrower's
Revolving Loan Account as contemplated in Section 2.3 above.
(f) LAWFUL INTEREST. It being the intent of the parties that the rate of
interest and all other charges to Borrower be lawful, if for any
reason the payment of a portion of interest, fees or charges as
required by this Agreement would exceed the limit established by
applicable law which a lender such as Lender may charge to a
commercial borrower such as Borrower, then the obligation to pay
interest or charges shall automatically be reduced to such limit and,
if any amounts in excess of such limits shall have been paid, then
such amounts shall be applied to the unpaid principal amount of the
Obligations or refunded so that under no
-8-
<PAGE>
circumstances shall interest or charges required hereunder exceed the
maximum rate allowed by law, as aforesaid.
(g) SWAP ARRANGEMENT. In order for Borrower to make regular payments as if
the interest rates on the Revolving Loans were fixed, the Lender shall
extend to Borrower the right, but not the obligation, to enter into an
interest rate swap agreement with respect to the Loan, such swap
agreement to be in a form provided by and acceptable to the Lender in
its sole discretion. In the event Borrower elects to enter into a swap
arrangement with Lender, all Revolving Loans to which the swap relates
shall use thirty (30) day Interest Periods only and shall bear
interest per annum at the LIBOR Rate plus .20% for each such thirty
(30) day Interest Period.
SECTION 3.2 PREPAYMENT.
(a) The Borrower shall have the right at any time and from time-to-time to
prepay any Revolving Loan subject to the rights of the Borrower to
reborrow as set forth in this Agreement, together with the applicable
premium.
(b) If the outstanding balance of the Revolving Loans shall, at any time,
exceed the Borrowing Base, the Borrower shall immediately repay the
Revolving Loans in the amount of such excess.
(c) The Borrower agrees to pay to the Lender a prepayment fee on the
principal amount of the Revolving Loans being prepaid equal to the
excess, discounted to its present value as of the date paid to Lender,
of (i) the amount of interest which otherwise would have accrued on
the principal amount of the Revolving Loans being prepaid during the
period (the "Indemnity Period") commencing with the date of such
prepayment and ending on the last day of the applicable Interest
Period at the rate of interest applicable to such Revolving Loan
during such Interest Period over (ii) the amount of interest which
would be earned by the Lender during the Indemnity Period if it
invested the principal amount so prepaid at a rate per annum
determined by the Lender as the rate it would bid in the London
interbank market for a deposit of eurodollars in an amount
approximately equal to such principal amount for a period of time
comparable to the Indemnity Period, plus any other reasonable expenses
that the Lender may sustain or incur by reason of the prepayment. In
the event that Borrower has entered into a swap arrangement as
described above, Borrower agrees to pay to Lender upon prepayment of
any Revolving Loans to which such swap relates a yield maintenance fee
that compensates Lender for any actual loss or expense sustained or
incurred by Lender in respect of such swap arrangement as a result of
such prepayment. For the purposes of this Section, the determination
by the Lender of any prepayment, fees and expenses shall be conclusive
if made reasonably and in good faith. A certificate as to any
additional amounts payable pursuant to this Section setting forth the
basis and method of determining such amounts shall be conclusive,
absent manifest error, as to determination by the Lender set forth
therein if made reasonably and in good faith.
-9-
<PAGE>
(d) The above premiums for prepayment of the Revolving Loans apply at any
time the Revolving Loans are prepaid, for any reason, including demand
due to the occurrence of an Event of Default.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender that:
(a) GOOD STANDING AND QUALIFICATION. It is duly organized, validly
existing and in good standing under the laws of the State of
Connecticut. It has all requisite power and authority to own and
operate its properties and to carry on its business as presently
conducted and is duly qualified to do business and is in good standing
as a foreign limited liability company in each jurisdiction where the
failure to so qualify would have a material adverse effect on the
Borrower.
(b) AUTHORITY. It has full power and authority to enter into this
Agreement, the Note and the other Financing Documents to which it is a
party, to make the borrowings contemplated herein, to execute and
deliver the Note and the other Financing Documents to which it is a
party, and to incur the obligations provided for herein and therein,
all of which have been duly authorized by all necessary and proper
action. No other consent or approval or the taking of any other action
in respect of its members or of any public authority is required as a
condition to the validity or enforceability of this Agreement, the
Note, the other Financing Documents or any other instrument, document
or agreement delivered in connection herewith or therewith.
(c) BINDING AGREEMENTS. This Agreement, the Note and the other Financing
Documents executed and/or delivered by Borrower in connection herewith
or therewith constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their respective terms,
except as enforcement may be limited by principles of equity,
bankruptcy, insolvency, or other laws affecting the enforcement of
creditors' rights generally.
(d) LITIGATION. Except as set forth on Schedule 4.1(d) hereof, there are
no actions, suits or proceedings pending against Borrower before any
court or administrative agency, nor are there any actions, suits or
proceedings threatened, which, either in any case or in the aggregate,
would materially and adversely affect the financial condition, assets
or operations of Borrower, nor are there any such actions, suits or
proceedings which question the validity of this Agreement, the Note,
any of the
-10-
<PAGE>
other Financing Documents, or any action to be taken in connection
with the transactions contemplated hereby or thereby.
(e) NO CONFLICTING LAW OR AGREEMENTS. The execution, delivery and
performance by Borrower of this Agreement, the Note and the other
Financing Documents, as the case may be, do not (i) violate any
provision of its Articles of Organization or Operating Agreement or
any order, decree or judgment, or any provision of any statute, rule
or regulation; (ii) violate or conflict with, result in a breach of or
constitute (with notice or lapse of time, or both) a default under any
agreement, mortgage, indenture or other contract or undertaking to
which it is a party, or by which its properties are bound; and (iii)
result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any property or assets of
Borrower except for the liens granted hereunder to Lender.
(f) TAXES. It has filed all tax returns which are required to be filed and
all federal, state, municipal, franchise and other taxes shown on such
filed returns have been paid or are being diligently contested by
appropriate proceedings and have been reserved against, as required by
GAAP, consistently applied.
(g) FINANCIAL STATEMENTS. It has heretofore delivered to Lender: (i) its
annual balance sheet as of December 31, 1997, and the related
statements of income, retained earnings and cash flows for the fiscal
year or period then ended. Each of such statements fairly presents in
all material respects its consolidated financial condition as of the
dates and for the periods referred to and has been prepared in
accordance with GAAP consistently applied by it throughout the periods
involved. There are no liabilities, direct or indirect, fixed or
contingent, of Borrower as of the dates of said balance sheets which
are required to be disclosed and listed under GAPP and which are not
reflected in such statements or in the notes thereto.
(h) ADVERSE DEVELOPMENTS. Since September 1, 1997, there has been no
material adverse change in the financial condition, business,
operations, affairs or prospects of Borrower or in any of its
properties or assets.
(i) TITLE TO ASSETS. It has good title to its properties and assets,
including the properties and assets reflected in the financial
statements referred to herein. Such properties and assets are not
subject to any mortgage, pledge, lien, lease, encumbrance or charge
except those shown on Schedule 4.1(i), if any.
(j) REGULATIONS G, T, U AND X. The proceeds of the borrowings hereunder
are not being used and will not be used, directly or indirectly, for
the purposes of purchasing or carrying any margin stock in
contravention, or which would cause any Lender to be in violation, of
Regulations G, T, U or X promulgated by the Board of Governors of the
Federal Reserve System.
-11-
<PAGE>
(k) COMPLIANCE. It is not in default with respect to any order, writ,
injunction or decree of any court or of any federal, state, municipal
or other governmental department, commission, board, bureau, agency,
authority or official, nor is it in violation of any law, statute,
rule or regulation to which it is or its properties are subject and it
has not received notice of any such default from any party and is not
in default in the payment or performance of any of its obligations to
any third parties or in the performance of any mortgage, indenture,
lease, contract or other agreement to which it is a party or by which
any of its assets or properties are bound.
(l) PENSION PLANS.
(i) No fact, including but not limited to any "reportable event", as
that term is defined in Section 4043 of ERISA, exists in
connection with any Plan which might constitute grounds for
termination of any such Plan by the Pension Benefit Guaranty
Corporation (the "PBGC"), or for the appointment by the
appropriate United States District Court of a trustee to
administer any such Plan. Each Plan of the Borrower, if any, is
described on SCHEDULE 4.1(L) attached hereto;
(ii) No "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") exists or will exist upon the execution and
delivery of this Agreement and the other Financing Documents, or
the performance by the parties hereto or thereto of their
respective duties and obligations hereunder and thereunder;
(iii) Any Plan complies currently, and has complied in the past, both
as to form and operation, with its terms and with provisions of
the Code and ERISA, and all applicable regulations thereunder and
all rules issued by the Internal Revenue Service, U.S. Department
of Labor and the PBGC and as such, is and remains a "qualified"
plan under the Code;
(iv) No actions, suits or claims are pending (other than routine
claims for benefits) against any Plan, or the assets of any such
Plan; and
(v) The Borrower has performed all obligations required to be
performed by it under any Plan is not in default, or in violation
of any Plan.
(m) OFFICE. Its chief executive office and principal place of business,
and the office where its books and records concerning Borrower
Collateral are kept, is at 900 Chelmsford Street, Lowell,
Massachusetts 01851.
(n) PLACES OF BUSINESS. Except as set forth on the attached SCHEDULE
4.1(n), it has no other places of business and locates no Borrower
Collateral, specifically including books and records, at any location
other than as set forth in the first paragraph of
-2-
<PAGE>
this Agreement. It shall locate a full and complete set of its books
and records in its offices at the chief executive office described in
the immediately preceding paragraph.
(o) UNIONS. It is not a party to any collective bargaining or union
agreement.
(p) LICENSES. It has all licenses, permits and other permissions required
by any government, agency or subdivision thereof, or from any
licensing entity necessary for the conduct of its business, all of
which it represents to be in good standing and in full force and
effect.
(q) BORROWER COLLATERAL. It is and shall continue to be the sole owner of
the Borrower Collateral; Borrower is fully authorized to sell,
transfer, pledge and/or grant a security interest in each and every
item of the Borrower Collateral to Lender; all documents and
agreements related to the Borrower Collateral shall be true and
correct and in all respects what they purport to be; all signatures
and endorsements that appear thereon shall be genuine and all
signatories and endorsers shall have full capacity to contract; none
of the transactions underlying or giving rise to the Borrower
Collateral shall violate any applicable state or federal laws or
regulations; all documents relating to the Borrower Collateral shall
be legally sufficient under such laws or regulations and shall be
legally enforceable in accordance with their terms; and Borrower
agrees to defend the Borrower Collateral against the claims of all
persons other than Lender.
(r) TRADENAMES. Except as set forth on the attached SCHEDULE 4.1(r), it
does not have any tradenames.
(s) FINANCIAL INFORMATION. All financial information submitted by it to
Lender, whether previously or in the future, is and will be true,
correct and complete in all material respects.
(t) PARENT, AFFILIATE OR SUBSIDIARY CORPORATIONS. Except as set forth on
the attached SCHEDULE 4.1(t), Borrower has no parent corporation and
has no affiliate or subsidiary.
(u) OFFICERS AND DIRECTORS. The officers, members and managers of Borrower
are set forth on the attached SCHEDULE 4.1(u).
(v) PAYMENT OF DEBTS. Prior to and immediately after receiving the
Revolving Loans, the Borrower is solvent and able to pay its debts as
they come due.
(w) USE OF PROCEEDS. It will use the proceeds of the Revolving Loans
solely (i) for refinancing in full its indebtedness to Bank of Boston
Connecticut; and (ii) for working capital purposes.
-13-
<PAGE>
ARTICLE V
CONDITIONS OF LENDING
SECTION 5.1 CONDITIONS OF THE INITIAL REVOLVING LOAN. Subject to the terms
hereof, the obligation of Lender to make the Loan under this Agreement is
subject to the fulfillment of the following conditions precedent at the time of
the execution of this Agreement:
(a) NOTE. Lender shall have received a duly executed Revolving Loan Note
drawn to its order.
(b) EVIDENCE OF ACTION. Lender shall have received certified copies of all
manager and member action (in form and substance satisfactory to
Lender) taken by Borrower to authorize the execution, delivery and
performance of this Agreement, the Note, and the other Financing
Documents to which it is a party, and the borrowings to be made
hereunder and thereunder, together with true copies of Borrower's
Articles of Organization and Operating Agreement and such other papers
as Lender or its counsel may require.
(c) OPINION OF COUNSEL. Lender shall have received a favorable written
opinion of counsel for Borrower and the Guarantor, and accompanied by
such supporting documents as Lender or its counsel may require.
(d) GUARANTOR'S DOCUMENTS. Lender shall have received the Guaranty and the
Pledge Agreement, each duly executed by the Guarantor.
(e) UCC-1 FINANCING STATEMENTS. Lender shall have received from Borrower
and the Guarantor duly executed UCC-1 financing statements and such
other documents as Lender deems necessary or proper to perfect the
security interest in the Collateral and the Borrower Collateral, all
of which shall be in form, scope and substance satisfactory to Lender
and its counsel.
(f) STOCK CERTIFICATES. Lender shall have received the Pledged Stock (as
defined in the Pledge Agreement) along with stock powers executed in
blank, and all other conditions and requirements of the Pledge
Agreement shall have been met to the satisfaction of the Lender and
its counsel.
(g) INSURANCE. Lender shall have received evidence of insurance of such
types and in such amounts and with such companies reasonably
satisfactory to Lender, and Lender shall be named as a loss payee on
all such insurance.
(h) SOLVENCY CERTIFICATE. Lender shall have received a Solvency
Certificate from the Guarantor in the form of EXHIBIT "B" attached
hereto.
-14-
<PAGE>
(i) FINANCIAL STATEMENTS. Lender shall have received such internally
generated financial statements of the Borrower and the Guarantor as
Lender shall require in its sole discretion.
(j) NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change in the financial condition or operating condition of Borrower
or Guarantor since September 1, 1997.
(k) REGULATION U. Borrower shall have executed and delivered to Lender
such documentation as Lender shall require to evidence and confirm
that the Revolving Loans will not be used in any fashion as to cause
the Lender to be in violation of Regulation U or any other regulation
promulgated by the Board of Governors of the Federal Reserve System
relating to "margin stock".
(l) FURTHER DOCUMENTS. Lender shall have received such further documents,
instruments and agreements as Lender may request.
SECTION 5.2 CONDITIONS OF ADDITIONAL REVOLVING LOANS. In addition to the
conditions in Section 5.1 above, Lender shall make no further Revolving Loans
(collectively, the "Further Loans") unless the following conditions shall exist
or have been satisfied by Borrower at the time any Further Loan is requested:
(a) ABSENCE OF TERMINATION OR DEFAULT. Lender shall not have terminated
the Revolving Loan facility hereunder, nor shall a Defaulting Event or
Event of Default exist.
(b) COMPLIANCE CERTIFICATES. On the date of each request for a Revolving
Loan hereunder, and from time-to-time as Lender shall have requested,
Borrower shall have delivered to Lender, upon Lender's request, a
Certificate of Compliance executed by its chief financial officer (or
officer with equivalent position) which shall state, among other
things, that: (i) Borrower has complied, and is when in compliance,
with all the terms, covenants and conditions of this Agreement and the
other Financing Documents which are binding upon it; (ii) there exists
no Event of Default or Defaulting Event; and (iii) the representations
and warranties contained herein and in the other Financing Documents
are true and correct with the same effect as though such
representations and warranties had been made as of the time of each
Further Loan.
(c) BORROWING BASE. The indebtedness of Borrower by virtue of the making
of any Further Loan shall not exceed the Borrowing Base. Borrower
shall not request any Further Loan if the effect of such Further Loan
shall be to cause the principal balance of all outstanding Revolving
Loans to exceed the Borrowing Base.
(d) FURTHER DOCUMENTS. Lender shall have received such further documents,
instruments and agreements as Lender may reasonably request.
-15-
<PAGE>
ARTICLE VI
COVENANTS
A. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that from the date hereof until payment and
performance in full of all Obligations, and until the termination of this
Agreement, unless Lender otherwise consents in writing, Borrower shall:
SECTION 6.1 FINANCIAL STATEMENTS. Deliver or cause to be delivered to
Lender:
(a) within ninety (90) days after the close of each fiscal quarter of
Borrower and the close of each fiscal year of Borrower, internally
prepared financial statements of Borrower including (i) balance sheet;
(ii) statement of income; and (iii) statement of retained earnings,
each as of the close of such quarter or fiscal year, respectively, and
for that portion of the fiscal year-to-date then ended, and each
prepared on a basis consistent with that of the preceding quarter or
containing disclosure of the effect on financial condition or results
of operations of any change in the application of GAAP during such
period, and each certified by the chief financial officer (or
equivalent position) of Borrower as being accurate and fairly
presenting the financial condition of Borrower; provided that if any
Defaulting Event or Event of Default shall exist, such annual
financial statement shall be audited by an independent certified
public accountant.
(b) contemporaneously with the delivery to shareholders or governmental
agencies, copies of all reports and information delivered to
shareholders or filed with governmental agencies;
(c) within one hundred twenty (120) days after the close of each calendar
year, the Guarantor shall deliver to Lender (i) annual updates of
personal financial statements and (ii) personal tax returns prepared
by an accountant reasonably acceptable to Lender;
(d) promptly upon Lender's written request, such other information about
the financial condition and operations of Borrower or the Guarantor,
as Lender may, from time to time, reasonably request; and
(e) promptly upon becoming aware of any Event of Default, or the
occurrence or existence of a Defaulting Event, notice thereof in
writing.
SECTION 6.2 INSURANCE AND ENDORSEMENTS. (a) Keep the Borrower Collateral
insured against fire and other hazards (so-called "All Risk" coverage) in
amounts and with companies satisfactory to Lender to the same extent and
covering such risks as is customary in the same or a similar business; maintain
public liability coverage, including without limitation, products
-16-
<PAGE>
liability coverage, against claims for personal injuries or death; and maintain
all worker's compensation, employment or similar insurance as may be required by
applicable law; and (b) all insurance shall contain such terms, be in such form,
and be for such periods reasonably satisfactory to Lender, and be written by
such carriers duly licensed by the appropriate states where any Borrower
Collateral is located and reasonably satisfactory to Lender. Without limiting
the generality of the foregoing, such insurance must provide that it may not be
cancelled without thirty (30) days' prior written notice to Lender. Borrower
shall cause Lender to be endorsed as a loss payee with a long form Lender's Loss
Payable Clause, in form and substance acceptable to Lender on all insurance. In
the event of failure to provide and maintain insurance as herein provided,
Lender may, at its option, provide such insurance and charge the amount thereof
to the Revolving Loan Account. Borrower shall furnish to Lender certificates or
other satisfactory evidence of compliance with the foregoing insurance
provisions. Borrower hereby irrevocably appoints Lender as its attorney-in-fact,
coupled with an interest, to make proofs of loss and claims for insurance, and
to receive payments of the insurance and execute and endorse all documents,
checks and drafts in connection with payment of the insurance. Any insurance
proceeds received by Lender shall be applied to the Obligations in such order
and manner as Lender shall determine in its sole discretion.
SECTION 6.3 TAX AND OTHER LIENS. Comply with all statutes and government
regulations and pay all taxes, assessments, governmental charges or levies, or
claims for labor, supplies, rent and other obligations made against it or its
property which, if unpaid, might become a lien or charge against Borrower or its
properties, except liabilities being contested in good faith and against which,
if requested by Lender, Borrower shall set up reserves in amounts and in form
satisfactory to Lender.
SECTION 6.4 PLACE OF BUSINESS. Maintain its chief place of business and
chief executive offices at the address set forth in Section 4.1(m) unless
Borrower shall have given Lender thirty (30) days' prior written notice of any
change in such place of business.
SECTION 6.5 INSPECTIONS. Allow Lender by or through any of its officers,
attorneys, and/or accountants designated by it, for the purpose of ascertaining
whether or not each and every provision hereof and of any related agreement,
instrument and document is being performed, to enter the offices and plants of
Borrower to examine or inspect any of the properties, books and records or
extracts therefrom, to make copies of such books and records or extracts
therefrom, and to discuss the affairs, finances and accounts thereof with
Borrower all at such reasonable times, upon reasonable notice and as often as
Lender or any representative of Lender may reasonably request.
SECTION 6.6 LITIGATION. Promptly advise Lender of the commencement or
threat of litigation, including arbitration proceedings and any proceedings
before any governmental agency (but excluding product liability claims which are
either fully covered by insurance or adequately covered by insurance and which
is not likely to have a material adverse effect on the business, assets or
condition (financial or otherwise) of Borrower), which is instituted against
Borrower or the Guarantor and is reasonably likely to have a materially adverse
effect upon the condition, financial, operating or otherwise, of Borrower or the
Guarantor.
-17-
<PAGE>
SECTION 6.7 MAINTENANCE OF EXISTENCE. Maintain its existence and comply
with all valid and applicable statutes, rules and regulations, and maintain its
properties in good repair, working order and operating condition. Borrower shall
immediately notify Lender of any event causing material loss in the value of its
assets.
SECTION 6.8 ERISA. Immediately notify Lender of any event which causes it
not to be in compliance in all material respects with ERISA.
SECTION 6.9 NOTICE OF CERTAIN EVENTS. Give prompt written notice to Lender
of:
(a) any material dispute that may arise between Borrower and any
governmental regulatory body or law enforcement agency;
(b) any labor controversy resulting or likely to result in a strike or
work stoppage against Borrower;
(c) any proposal by any public authority to acquire the assets or business
of Borrower;
(d) the location of any Borrower Collateral other than at Borrower's
places of business disclosed in this Agreement other than Borrower
Collateral in transit in the ordinary course of Borrower's business;
(e) any proposed or actual change of the name, identity or structure of
Borrower; and
(f) any other matter which has resulted or is reasonably likely to result
in a material adverse change in the financial condition or operations
of Borrower or Guarantor.
SECTION 6.10 DEFAULTS. Upon the occurrence of an Event of Default or of a
Defaulting Event, give prompt written notice of such occurrence to Lender signed
by the president or chief financial officer of Borrower describing such
occurrence and the steps, if any, being taken to cure the Event of Default or
Defaulting Event.
SECTION 6.11 DUTIES. Comply with any and all federal, state and local laws
affecting its business. Borrower agrees to indemnify Lender against and hold
Lender harmless from, all claims, actions and losses, including reasonable
attorneys' fees and costs incurred by Lender arising from any contention,
whether well founded or otherwise, that there has been a failure to comply with
such laws.
SECTION 6.12 BORROWER COLLATERAL DUTIES. Do whatever Lender may reasonably
request from time to time by way of obtaining, executing, delivering and filing
financing statements, assignments and other notices and amendments and renewals
thereof, and Borrower will take any and all steps and observe such formalities
as Lender may request, in order to create and maintain a valid and enforceable
first lien upon, pledge of, and first priority security interest in, any and all
of the Borrower Collateral. Lender is authorized to file financing statements
without the signature of Borrower and to execute and file such financing
statements on behalf of Borrower as
-18-
<PAGE>
specified by the Uniform Commercial Code to perfect or maintain its security
interest in all of the Borrower Collateral. All reasonable charges, expenses and
fees Lender may incur in filing any of the foregoing, together with reasonable
costs and expenses of any lien search required by Lender, and any taxes relating
thereto, shall be charged to the Revolving Loan Account and added to the
Obligations.
SECTION 6.13 OFFICERS, MEMBERS AND MANAGERS. Promptly notify Lender in
writing upon any changes or additions to Borrower's officers, members or
managers.
B. NEGATIVE COVENANTS.
Borrower covenants and agrees that from the date hereof until payment and
performance in full of all Obligations, and until the termination of this
Agreement, unless Lender otherwise consents in writing, Borrower shall not:
SECTION 6.14 ENCUMBRANCES. After the occurrence of an Event of Default or
Defaulting Event, incur or permit to exist any lien, mortgage, charge or other
encumbrance against any of the Borrower Collateral, except: (a) liens required
or expressly permitted by this Agreement; (b) pledges or deposits in connection
with or to secure worker's compensation, unemployment or liability insurance;
and (c) those listed on SCHEDULE 4.1(i) attached hereto.
SECTION 6.15 CONSOLIDATION OR MERGER. Merge into or consolidate with or
into any entity, except in connection with an Incorporation Transaction as that
term is defined in the Borrower's Operating Agreement, provided the surviving
corporation executes and delivers all documents required by Lender, including,
without limitation, an assumption of all of the Obligations.
SECTION 6.16 SALE AND LEASE OF ASSETS. Sell or lease any of the assets of
Borrower, except for sales of inventory and equipment in the ordinary course of
business consistent with past practices and on an arms-length basis.
SECTION 6.17 NAME CHANGES. Change its name or conduct its business under
any trade name or style other than as set forth in this Agreement.
SECTION 6.18 PROHIBITED TRANSFERS. Transfer, in any manner, either directly
or indirectly, any cash, property, or other assets to any parent or any of its
affiliates or subsidiaries, or any shareholder, officer and director, other than
sales made in the ordinary course of business and for fair consideration on
terms no less favorable than if such sale had been an arms-length transaction
between Borrower and an unaffiliated entity.
SECTION 6.19 MANAGEMENT CHANGE. Suffer any change in the ownership interest
of the Guarantor in the Borrower or in the Guarantor's participation in the
management of the Borrower.
ARTICLE VII
-19-
<PAGE>
BORROWER COLLATERAL
SECTION 7.1 GRANT. To secure the prompt payment and performance of each and
all of the Obligations, Borrower pledges, assigns, transfers and grants to
Lender a continuing, first lien security interest in the following property of
Borrower, now owned or hereafter acquired or arising (herein called the
"Borrower Collateral"):
(a) All accounts and accounts receivable related to or arising from the
sale or lease of inventory or rendering of services by Borrower (the
"Accounts") and all other accounts, bank accounts, contracts, contract
rights, notes, documents, chattel paper, instruments, acceptances,
drafts or other forms of obligations and receivables (collectively
with Accounts, the "Receivables"), whether or not the same are listed
on any schedules, assignments or reports furnished to Lender from time
to time, and whether such Receivables are now existing or are created
or .arise at any time hereafter, together with all goods, inventory
and merchandise returned by or reclaimed by or repossessed from
customers wherever such goods, inventory and merchandise are located,
and all proceeds thereto including without limitation, proceeds of
insurance thereon and all guaranties, securities, and liens which
Borrower may hold for the payment of any such Receivables, including
without limitation, all rights of stoppage in transit, replevin and
reclamation and all other rights and remedies of an unpaid vendor or
lienor, and any liens held by Borrower as a mechanic, contractor,
subcontractor, processor, materialman, machinist, manufacturer,
artisan, or otherwise;
(b) All documents, instruments, documents of title, general intangibles,
policies and certificates of insurance, guaranties, securities,
chattel paper, deposits, tax returns, proceeds of insurance, proceeds
of an eminent domain or condemnation award, cash, liens or other
property, which are now or may hereinafter be in the possession of
Borrower or as to which Borrower may now or hereafter control
possession by documents of title or otherwise, including, but not
limited to, all property at locable to unshipped orders relating to
Receivables and Inventory;
(c) All books, records, customer lists, supplier lists, ledgers, evidences
of shipping, invoices, purchase orders, sales orders and all other
evidences of Borrower's business records, including all cabinets,
drawers, etc. that may hold the same; computer records, lists,
software, programs, wherever located, all whether now existing or
hereafter arising or acquired;
(d) All of Borrower's inventory, whether now owned or hereafter acquired,
including without limitation (collectively herein called the
"Inventory"): (i) all goods manufactured or acquired for sale or
lease, and any piece goods, raw materials, work in process and
finished merchandise, findings or component materials, and all
supplies, goods, incidentals, office supplies, packaging materials,
and any and all items including machinery and equipment used or
consumed in the operation of the business of Borrower or which
contribute to the finished product or to the
-20-
<PAGE>
sale, promotion and shipment thereof, in which Borrower now or at any
time hereafter may have an interest; (ii) all inventory whether or not
the same is in transit or in the constructive, actual or exclusive
occupancy or possession of Borrower or is held by Borrower or by
others for the Accounts, including without limitation, all goods
covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers; (iii) all inventory which may be located
on premises of Borrower or of any carrier, forwarding agents,
truckers, warehousemen, vendors, selling agents or third parties; (iv)
all general intangibles relating to or arising out of inventory; and
(v) all proceeds and products of the foregoing resulting from the
sale, lease or other disposition of inventory, including cash,
accounts receivable, other non-cash proceeds and trade-ins;
(e) All general intangibles, including without limitation, tax refunds,
proceeds of insurance, eminent domain awards, condemnation proceeds,
and patents, copyrights, tradenames, trademarks, applications
therefor, and licenses to any patent, copyright, trademark, or
tradename that Borrower now owns, has the right to use or may
hereafter own or acquire the right to use;
(f) All equipment, machinery, appliances, and furniture and fixtures, now
existing or hereafter arising, wherever located, and all contracts,
contract rights and chattel paper arising out of any lease of any of
the foregoing;
(g) All other collateral in which Borrower may hereafter grant to Lender a
security interest; and
(h) All renewals, substitutions, replacements, additions, accessions,
proceeds, and products of any and all of the foregoing, including
without limitation, all proceeds of credit, fire and other insurance.
SECTION 7.2 SUBORDINATION AND RELEASE. In the event that no Defaulting
Event or Event of Default shall exist, and the outstanding principal amount of
the Revolving Loans shall not otherwise exceed the Borrowing Base, then, upon
written request of the Borrower, with the written consent of the Guarantor, each
delivered at least ten (10) days in advance of the requested date of
subordination or release, Lender shall execute and deliver such documents as
shall be reasonably requested by Borrower in order to subordinate Lender's
security interest in any or all of the Borrower Collateral to that of another
creditor of Borrower or release Lender's interest in any or all of the Borrower
Collateral, as requested by Borrower; provided that (a) all costs and expenses
associated with such subordination or release shall be borne by Borrower, and
(b) in no event shall Lender be required to make any representation, warranty,
covenant or agreement in connection with such subordination or release beyond
the subordination or release of its security interest in the Borrower
Collateral. In no event shall Lender be required to take any action with respect
to the Collateral, in which Lender shall in all events retain a perfected
first-priority security interest. In no event shall Lender be required to
subordinate or release its security interest in the Borrower Collateral if a
Defaulting Event or Event of Default shall exist on the date of the requested
subordination or release, or if the outstanding principal balance of the
Revolving Loans otherwise exceeds the Borrowing Base on such date.
-21-
<PAGE>
The Borrower shall not request the release of any Borrower Collateral pursuant
to this Section 7.2 or otherwise without the written consent of the Guarantor.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 EVENTS OF DEFAULT. Any and all Obligations, including without
limitation, the Obligations arising pursuant to or in connection with the
Revolving Loans shall, at the option of Lender and notwithstanding any time or
credit allowed by any note or agreement, become immediately due and payable
without notice if any one or more of the following events (herein called "Events
of Default" and individually, an "Event of Default") shall occur:
(a) Borrower's failure to pay principal due hereunder or under the Note or
under any other Financing Document;
(b) Borrower's failure to pay interest or any other sum due hereunder or
under the Note or under any other Financing Document (except as
provided in (a) above) for three (3) business days after notice from
Lender; provided that Lender shall not be obligated to wait such three
(3) day period after notice in the event that Lender reasonably
concludes that such delay will materially impair its ability to
recover from the Borrower, the Guarantor, the Collateral or the
Borrower Collateral.
(c) The occurrence of an Event of Default under Section 2.2(b) or (c)
hereof;
(d) Borrower's failure to pay or perform when due any other covenant,
duty, indebtedness, liability or obligation arising under this
Agreement or any other Financing Document, or any such failure by
Guarantor under any Financing Document, in each case within fifteen
(15) days after notice from Lender, provided that if any such covenant
cannot be reasonably performed within fifteen (15) days it shall not
constitute an Event of Default if Borrower or Guarantor, as the case
may be, has commenced performance within such fifteen (15) day period
and diligently completes the same;
(e) any representation or warranty by Borrower herein or by Borrower or
Guarantor in any other Financing Document or otherwise made to Lender
in connection with the Loan is untrue in any material respect;
(f) the failure by Borrower to maintain the insurance required by this
Agreement or any other Financing Document;
(g) the failure of the Borrower or Guarantor generally to pay its debts as
such debts become due;
(h) the entry of a decree or order for relief by a court having
jurisdiction in respect of the Borrower or Guarantor in an involuntary
case under the federal bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state
-22-
<PAGE>
bankruptcy, insolvency or other similar law, or the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Borrower or the Guarantor or for any
substantial part of the Borrower's or Guarantor's property, and the
continuance of any such decree or order unstayed and in effect for a
period of sixty (60) consecutive days; or upon the commencement by the
Borrower or the Guarantor of a voluntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar
law, or the consent by the Borrower or the Guarantor to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official)
of the Borrower or the Guarantor or for any substantial part of the
property of the Borrower or the Guarantor or the making by the
Borrower or the Guarantor of any assignment for the benefit of
creditors;
(i) a final, unappealed judgment shall be entered against the Guarantor by
any court for the payment of money which is not satisfied within
thirty (30) days after the last date for which an appeal can be filed
and which, together with all such other outstanding judgments against
the Borrower or the Guarantor, as applicable, exceeds $750,000 in the
aggregate;
(j) the occurrence of a default or event of default (howsoever defined)
under the Pledge Agreement, the Guaranty or any other Financing
Document;
(k) the declaration of a default under any material obligation of Borrower
or Guarantor to any other creditor; and
(l) for so long as any stock of Airtouch shall constitute Collateral,
Airtouch shall fail to be current on any regular, periodic or other
required filing with the Securities and Exchange Commission.
Upon the occurrence of any Event of Default, at the option of Lender: (x)
any and all Obligations, including without limitation the Obligations arising
from or in connection with the Revolving Loans, shall become immediately due and
payable, and (y) Borrower's eligibility to request any further Revolving Loans
shall automatically and immediately terminate, without presentment, demand,
protest, notice of protest or other notice or requirements of any kind, all of
which Borrower expressly waives. Notwithstanding the foregoing sentence, if any
Event of Default under clause (h) occurs, the acceleration of Obligations and
termination of Borrower's eligibility to request further Revolving Loans shall
be automatic.
Thereafter, Lender may proceed to enforce the rights of Lender whether by
suit in equity or by action at law, whether for specific performance of any
covenant or agreement contained in this Agreement, the Note or the other
Financing Documents, or in aid of the exercise of any power granted in either
this Agreement or the Note or any other Financing Document, or it may proceed to
obtain judgment or any other relief whatsoever appropriate to the enforcement of
such rights, or proceed to enforce any legal or equitable right which Lender may
have by reason of the occurrence of any Event of Default hereunder.
-23-
<PAGE>
-24-
<PAGE>
ARTICLE IX
RIGHTS AND REMEDIES OF LENDER
SECTION 9.1 REMEDIES OF LENDER. Upon the occurrence of any Event of
Default, Lender shall have in any jurisdiction where enforcement hereof is
sought, in addition to all other rights and remedies which Lender may have under
law and equity, the following rights and remedies, all of which may be exercised
with or without further notice to Borrower and without a prior judicial or
administrative hearing, which notice and hearing are expressly waived: to
enforce or foreclose the liens and security interests created under this
Agreement or under any other Financing Document relating to Borrower Collateral
by any available judicial procedure or without judicial process; to enter any
premises where any Borrower Collateral may be located for the purpose of taking
possession or removing the same; to sell, assign, lease, or otherwise dispose of
Borrower Collateral or any part thereof, either at public or private sale, in
lots or in bulk, for cash, on credit or otherwise, with or without
representations or warranties, and upon such terms as shall be acceptable to
Lender, all at Lender's sole option and as Lender in its sole discretion may
deem advisable; to bid or become purchaser at any such sale if public; and, at
the option of Lender, to apply or be credited with the amount of all or any part
of the Obligations owing to Lender against the purchase price bid by Lender at
any such sale.
SECTION 9.2 SPECIFIC POWERS. Lender may at any time, after the occurrence
of an Event of Default, at Lender's sole reasonable discretion: (i) give notice
of assignment to any entity obligated to Borrower upon an Account (an "Account
Debtor"); (ii) collect Receivables and charge, or cause to be charged, the
collection costs and expenses to the Revolving Loan Account; (iii) exercise all
other rights granted in this Agreement and the other Financing Documents; (iv)
receive, open and dispose of all mail addressed to Borrower and notify the Post
Office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender; (v) endorse the name of Borrower on any checks or
other evidence of payment that may come into possession of Lender and on any
invoice, freight or express bill, bill of lading or other document; (vi) in the
name of Borrower or otherwise, demand, sue for, collect and give acquittance for
any and all monies due or to become due on Receivables; (vii) compromise,
prosecute or defend any action, claim or proceeding concerning Receivables; and
(viii) do any and all things necessary and proper to carry out the purposes
contemplated in this Agreement, the other Financing Documents and any other
agreement between the parties. Neither Lender nor any person acting as its
representative hereunder shall be liable for any acts or omissions or for any
error of judgment or mistake of fact or law, except for bad faith or willful
misconduct or failure to act in a commercially reasonable manner. Borrower
agrees that the powers granted hereunder, being coupled with an interest, shall
be irrevocable so long as any Obligation remains unsatisfied. Notwithstanding
the foregoing, it is understood that Lender is under no duty to take any of the
foregoing actions and that after having made demand upon Account Debtors for
payment, Lender shall have no further duty as to the collection or protection of
Receivables or any income therefrom and no further duty to preserve any rights
pertaining thereto, other than the safe custody thereof.
SECTION 9.3 DUTIES AFTER DEMAND OR DEFAULT. Borrower will, at Lender's
request, assemble all Borrower Collateral and make it available to Lender at
places which Lender may
-25-
<PAGE>
reasonably select, whether at the premises of Borrower or elsewhere and will
make available to Lender all premises and facilities of Borrower for the purpose
of Lender taking possession of Borrower Collateral or of removing or putting the
Borrower Collateral in salable form. In the event any goods called for in any
sales order, contract, invoice or other instrument or agreement evidencing or
purporting to give rise to any Receivable shall not have been delivered or shall
be claimed to be defective by any customer, Lender shall have the right in its
discretion to use and deliver to such customer any goods of Borrower to fulfill
such order, contract or the like so as to make good any such Receivable. If any
Borrower Collateral shall require repairing, maintenance, preparation, or the
like, or is in process or other unfinished state, Lender shall have the right,
but shall not be obligated, to do such repairing, maintenance, preparation,
processing or completion of manufacturing for the purpose of putting the same in
such salable form as Lender shall deem appropriate, but Lender shall have the
right to sell or dispose of such Borrower Collateral without such processing.
The net cash proceeds resulting from the collection, liquidation, sale, lease or
other disposition of Borrower Collateral shall be applied first to the expenses
(including all reasonable attorneys' and professionals' fees) of retaking,
holding, storing, processing and preparing for sale, selling, collecting,
liquidating and the like and then to the satisfaction of all Obligations,
application as to particular Obligations or against principal or interest or
other sums to be at Lender's sole discretion, and then, upon full and final
payment of the Obligations, and unless otherwise prohibited by court order or
law, to Borrower, it being agreed that if any such payment made to Lender is
recovered from or repaid by Lender in whole or in part in any bankruptcy,
insolvency or similar proceeding instituted by or against Borrower, this
Agreement automatically shall be reinstated without any further action by
Borrower and Lender. Borrower shall be liable to Lender and shall pay to Lender
on demand any deficiency which may remain after such sale, disposition,
collection or liquidation of Borrower Collateral.
SECTION 9.4 CUMULATIVE REMEDIES. The enumeration of Lender's rights and
remedies set forth in this Article is not intended to be exhaustive and the
exercise by Lender of any right or remedy shall not preclude the exercise of any
other rights or remedies, all of which shall be cumulative and shall be in
addition to any other right or remedy given hereunder or under any other
agreement between the parties or which may now or hereafter exist in law or at
equity or by suit or otherwise. No delay or failure to take action on the part
of Lender in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between Borrower and Lender or its
employees shall be effective to change, modify or discharge any provision of
this Agreement or to constitute a waiver of any Event of Default.
-26-
<PAGE>
ARTICLE X
TERM AND TERMINATION
SECTION 10.1 TERM AND TERMINATION. Unless sooner terminated by Lender as a
result of an Event of Default or a Defaulting Event, Borrower's eligibility to
request Revolving Loans shall commence on the date hereof and shall continue for
a period through and including March 31, 2001 (the "Term"). Borrower's
eligibility to request Revolving Loans may be extended after the Term only with
the express written consent of both Borrower and Lender. At the end of the Term,
Borrower shall pay the entire balance of the Revolving Loans outstanding and all
other outstanding Obligations. Further, upon termination of the Revolving Loan
facility, all of the rights, interests and remedies of Lender and Obligations of
Borrower shall survive and Borrower shall have no right to receive, and Lender
shall have no obligation to make, any further Revolving Loans. Upon full, final
and indefeasible payment of the Obligations to Lender, all rights and remedies
of Borrower and Lender hereunder shall cease, so long as any payment so made to
Lender and applied to the Obligations is not thereafter recovered from or repaid
by Lender in whole or in part in any bankruptcy, insolvency or similar
proceeding instituted by or against Borrower, whereupon this Agreement shall be
automatically reinstated without any further action by Borrower and Lender and
shall continue to be fully applicable to such Obligations to the same extent as
though the payment so recovered or repaid had never been originally made on such
Obligations.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 PAYMENT SET-ASIDE. To the extent that Borrower makes a payment
or payments to Lender (whether hereunder, under the Note, or under the other
Financing Documents) or Lender enforces its security interests or rights or
exercises its right of setoff, and such payment or payments or the proceeds of
such enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to Borrower, a
trustee, receiver or any other person under any law (including without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action) in each case in connection with any bankruptcy or similar
proceeding involving Borrower, then to the extent of any such restoration, the
obligation, or part thereof originally intended to be satisfied, shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
SECTION 11.2 SET-OFF. Borrower hereby gives Lender a lien and right of
setoff for all its liabilities to Lender upon and against all its deposits,
credits, collateral and property now or hereafter in the possession or control
of Lender or in transit to it. Lender may, upon the occurrence of any Event of
Default, apply or set off the same, or any part thereof, to any liability of
Borrower to Lender, even though unmatured.
-27-
<PAGE>
SECTION 11.3 COVENANTS TO SURVIVE; BINDING AGREEMENT. All covenants,
agreements, warranties and representations made herein, in the Note, in the
other Financing Documents, and in all certificates or other documents of
Borrower shall survive the advances of money made by Lender to Borrower
hereunder and the delivery of the Note and the other Financing Documents, and
all such covenants, agreements, warranties and representations shall be binding
upon and inure to the benefit of Lender and its successors and assigns, whether
or not so expressed.
SECTION 11.4 CROSS-DEFAULT. Borrower acknowledges and agrees that an Event
of Default and/or Defaulting Event under any one of the Financing Documents
shall constitute an Event of Default or Defaulting Event under all of the other
Financing Documents.
SECTION 11.5 AMENDMENTS AND WAIVERS. Neither this Agreement, the Note, the
Guaranty, the Pledge Agreement, the other Financing Documents, nor any term,
covenant or condition hereof or thereof may be changed, waived, discharged,
modified or terminated except by a writing executed by the parties hereto or
thereto. No failure on the part of Lender to exercise, and no delay in
exercising, any right, remedy or power hereunder or under the Note or the other
Financing Documents shall preclude any other or future exercise thereof, or the
exercise of any other right, remedy or power.
SECTION 11.6 NOTICES. All notices or other communications required or
permitted to be given under this Agreement shall be considered properly given if
sent by a nationally recognized overnight messenger service or mailed first
class United States mail, postage prepaid, registered or certified mail, with
return receipt requested, or by delivery of same to the address listed below by
prepaid messenger or telegram, as follows:
If to Borrower: ZIPLINK, LLC
40 Woodland Street
Hartford, Connecticut 06105
Attn: Henry M. Zachs
With a copy to:
Brenner, Saltzman & Wallman
271 Whitney Avenue
New Haven, Connecticut 06511
Attn: Wayne A. Martino
If to Lender: Fleet National Bank
777 Main Street
Hartford, Connecticut 06115
Attention: Brian Howard, Private Clients Group
Mail Stop: CTMOHO3A
or such other place as any party hereto may be notified in writing as a place
for service or notice hereunder. Notice so sent shall be effective upon delivery
to such address, whether or not receipt thereof is acknowledged or is refused by
the addressee or any person at such address.
-28-
<PAGE>
SECTION 11.7 WAIVERS.
(a) BORROWER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF
NONPAYMENT, PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS. BORROWER
ACKNOWLEDGES THAT THE LOANS EVIDENCED HEREBY ARE COMMERCIAL TRANSACTIONS AND
WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903A OF THE CONNECTICUT
GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO USE, AND FURTHER
WAIVES ITS RIGHTS TO REQUEST THAT LENDER POST A BOND, WITH OR WITHOUT SURETY, TO
PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY
SOUGHT OR OBTAINED BY LENDER.
(b) BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION
OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART AND/OR THE
ENFORCEMENT OF ANY OF LENDER'S RIGHTS, INCLUDING WITHOUT LIMITATION, TORT
CLAIMS. BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY,
WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER
WITH ITS ATTORNEYS. BORROWER FURTHER ACKNOWLEDGES THAT LENDER HAS NOT
REPRESENTED TO BORROWER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
(c) BORROWER ACKNOWLEDGES THAT IT MAKES THE FOREGOING WAIVERS IN (A) AND
(b) ABOVE, KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION
OF THE RAMIFICATIONS OF SUCH WAIVERS WITH ITS ATTORNEYS.
SECTION 11.8 SECTION HEADINGS; SEVERABILITY; ENTIRE AGREEMENT. Section and
subsection headings have been inserted herein for convenience only and shall not
be construed as part of this Agreement. Every provision of this Agreement, the
Note and the other Financing Documents is intended to be severable; if any term
or provision of this Agreement, the Note, the other Financing Documents, or any
other document delivered in connection herewith shall be invalid, illegal or
unenforceable for any reason whatsoever, the validity, legality and
enforceability of the remaining provisions hereof or thereof shall not in any
way be affected or impaired thereby. All Exhibits and Schedules to this
Agreement shall be annexed hereto and shall be deemed to be part of this
Agreement. This Agreement, the other Financing Documents, and the Exhibits and
Schedules attached hereto and thereto embody the entire agreement and
understanding between Borrower and Lender and supersede all prior agreements and
understandings relating to the subject matter hereof unless otherwise
specifically reaffirmed or restated herein.
-29-
<PAGE>
SECTION 11.9 GOVERNING LAW. This Agreement and the other Financing
Documents, and all transactions, assignments and transfers hereunder and
thereunder, and all the rights of the parties, shall be governed as to validity,
construction, enforcement and in all other respects by the laws of the State of
Connecticut (but not its conflicts of law provisions). Borrower agrees that the
Superior Court for the Judicial District of Hartford or the United States
District Court for the District of Connecticut at Hartford shall have
jurisdiction to hear and determine any claims or disputes pertaining to the
financing transactions of which this Agreement is a part and/or to any matter
arising or in any way related to this Agreement or any other agreement between
Lender and Borrower, and Borrower expressly submits and consents in advance to
such jurisdiction in any action or proceeding.
SECTION 11.10 INDEMNIFICATION. In consideration of Lender's execution and
delivery of this Agreement and Lender's making of the Revolving Loans hereunder
and in addition to all other obligations of Borrower under this Agreement,
Borrower hereby agrees to defend, protect, indemnify and hold harmless Lender,
its successors, assigns, officers, directors, employees and agents (including
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Indemnities") from and
against any and all actions, causes of action, suits, claims, losses, costs,
penalties, fees, liabilities and damages and expenses in connection therewith
(irrespective of whether any such Indemnities is a party to any action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements as and when incurred (the "Indemnifiable Liabilities")
incurred by the Indemnities or any of them as a result of, or arising out of, or
relating to (i) the execution, delivery, performance or enforcement of this
Agreement and the other Financing Documents and any instrument, document or
agreement executed pursuant hereto to any of the Indemnities; (ii) Lender's
status as lender to, or creditor of, Borrower; or (iii) the operation of
Borrower's business from and after the date hereof. To the extent that the
foregoing undertaking by Borrower may be unenforceable for any reason, Borrower
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnifiable Liabilities which is permissible under applicable law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first above written.
ZIPLINK, LLC
By: S/Henry M. Zachs
-----------------------
Name: Henry M. Zachs
FLEET NATIONAL BANK
-30-
<PAGE>
By: /S/Brian A. Howard
-----------------------
Brian A. Howard
Assistant Vice President
-31-
<PAGE>
SCHEDULES
Schedule 4.1(d) -- Litigation
Schedule 4.1(i) -- Liens
Schedule 4.1(l) -- Pension Plans
Schedule 4.1(n) -- Collateral Locations
Schedule 4.1(r) -- Tradenames
Schedule 4.1(t) -- Affiliates, Parents and Subsidiaries
Schedule 4.1(u) -- Officers, Members and Managers
<PAGE>
EXHIBIT A
"REVOLVING LOAN NOTE"
<PAGE>
EXHIBIT A
REVOLVING LOAN NOTE
$15,000,000.00 March 31, 1998
Hartford, Connecticut
For value received, the undersigned, ZIPLINK, LLC (the "Borrower"),
promises to pay to the order of FLEET NATIONAL BANK (the "Lender") at its
office at 777 Main Street, Hartford, Connecticut 06115, or at such other
place as Lender may designate, the principal amount of FIFTEEN MILLION AND
00/100 DOLLARS ($15,000,000.00), or such amount thereof as shall be
outstanding pursuant to the Loan Agreement (as hereafter defined) together
with interest on the unpaid balance of this Note, beginning as of the date
hereof, at a rate per annum for each Interest Period equal to the LIBOR Rate
plus .30% for such Interest Period, or such other rate as shall be provided
in the Loan Agreement, together with all taxes levied or assessed on this
Note or the debt evidenced hereby against Lender, and together with all
costs, expenses and attorneys' fees incurred in the collection of this Note,
or to enforce or foreclose any security agreement, pledge agreement or other
document including, without limitation, the Loan Agreement and the Pledge
Agreement (as hereinafter defined), securing or relating to this Note, or in
protecting or defending the lien thereof, or in any litigation or matter
arising from or connected therewith or with this Note. Interest shall be
computed monthly in arrears on the basis of a 360-day year and actual days
elapsed. The interest rate for each Revolving Loan shall be determined in
accordance with the terms of the Loan Agreement. The terms "Interest Period",
"LIBOR Rate" and "Revolving Loan" as used herein shall have the definitions
assigned in the Loan Agreement.
The principal amount of this Note shall be advanced, upon the request of
Borrower pursuant to a certain Revolving Loan Agreement between Borrower and
Lender of even date herewith (the "Loan Agreement"). This Note is issued and
secured pursuant to the Loan Agreement, the terms of which are deemed
incorporated by reference. This Note is guaranteed by a Guaranty of even date
herewith (the "Guaranty") from Henry M. Zachs (the "Guarantor"). The Guaranty
is secured by a Stock Pledge Agreement of even date herewith between
Guarantor and Lender (the "Pledge Agreement") pursuant to which the Guarantor
has pledged certain marketable securities to the Lender. Lender shall
maintain a Revolving Loan Account (as defined in the Loan Agreement) on which
it will keep record of all outstanding amounts hereunder.
Interest shall be paid on the first day of each month beginning on the
first day of May, 1998 and continuing on the first day of each month
thereafter, until the principal balance with accrued interest thereon is paid
in full. If not sooner paid, the entire principal balance plus accrued
interest thereon shall be paid in full on April 1, 2001.
Borrower may repay this Note in whole or in part at any time, provided
that Borrower shall pay such fees and premiums in connection with a
prepayment as are set forth in the Loan Agreement.
<PAGE>
Upon the occurrence of an Event of Default under and as defined in the
Loan Agreement, the entire indebtedness, with accrued interest thereon due
under this Note, shall, at the option of Lender, become immediately due and
payable without demand or notice of any kind. Borrower agrees that the
interest rate shall increase by three (3%) percentage points per annum over
the otherwise applicable rate upon the occurrence of such Event of Default.
If any interest installment due hereunder is not paid within ten (10)
days after the date it is due, a late charge equal to five percent (5%) of
said amount shall be assessed against Borrower, and shall be immediately due
and payable without demand or notice of any kind.
All payments received hereunder shall be applied first to late charges,
prepayment premiums and fees, and other costs and expenses, then to accrued
interest and then to principal, except as otherwise provided herein or in the
Loan Agreement or Pledge Agreement.
Borrower hereby grants to Lender a lien and right of setoff for all of
Borrower's liabilities to Lender upon and against all the deposits, credits,
collateral and property of Borrower, now or hereafter in the possession or
control of Lender or in transit to it. Lender may, at any time, apply or set
off the same, or any part thereof, to any liability of Borrower, whether or
not matured or demanded.
Notwithstanding any provisions of this Note to the contrary, the rate of
interest to be paid by Borrower to Lender under this Note shall not exceed
the highest or the maximum rate of interest permitted to be charged by Lender
under applicable laws. Any amounts paid by Borrower to Lender in excess of
such rate shall be deemed to be partial prepayments of principal hereunder.
No delay or omission by Lender in exercising any right hereunder, nor
failure by Lender to insist upon the strict performance of any terms herein,
shall operate as a waiver of such right, any other right hereunder, or any
terms herein. No waiver of any right shall be effective unless in writing and
signed by Lender, nor shall a waiver on one occasion be constituted as a bar
to, or waiver of, any such right on any future occasion.
Borrower and each and all endorsers, guarantors and sureties of this
Note waive diligence, demand, presentment for payment, notice of nonpayment,
protest and notice of protest, and notice of any renewals or extensions of
this Note, and all rights under any statute of limitations, and all
endorsers, guarantors and sureties agree that the time for payment of this
Note may be extended at Lender's sole discretion, without impairing their
liability thereon, and further consent to the release of all or any part of
the security for the payment hereof, at the discretion of Lender, or the
release of any party liable for this obligation without affecting the
liability of the other parties hereto.
THE BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION, AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS NOW CONSTITUTED OR
HEREAFTER AMENDED OR AS OTHERWISE ALLOWED UNDER ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO USE, AND
FURTHER WAIVES ITS RIGHTS TO REQUEST THE LENDER POST A BOND, WITH OR WITHOUT
SURETY, TO
-2-
<PAGE>
PROTECT BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY
SOUGHT OR OBTAINED BY LENDER. THE BORROWER ACKNOWLEDGES THAT IT MAKES THESE
WAIVERS KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION
OF THE RAMIFICATIONS OF THESE WAIVERS WITH ITS ATTORNEYS.
THE BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION,
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS NOTE OR THE FINANCING TRANSACTION OF WHICH THIS NOTE IS A PART, OR THE
DEFENSE OR ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES IN
CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER
KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
This Note shall be governed by and construed in accordance with the laws
of the State of Connecticut.
All references to the "Borrower" or the "Lender" shall apply to their
respective successors and assigns.
ZIPLINK, LLC
By:
---------------------------------
Henry M. Zachs
Its Manager
-3-
<PAGE>
EXHIBIT B
"SOLVENCY CERTIFICATE"
<PAGE>
EXHIBIT B
SOLVENCY CERTIFICATE
Personally appeared before me, the undersigned, who, being first duly
sworn according to law, deposes and says:
1. He has personal knowledge of the facts sworn to in this Certificate.
2. As of the date hereof and upon and after the initial funding of the
$15,000,000 revolving loan facility (the "Loan") being extended to ZIPLINK,
LLC (the "Borrower") by Fleet National Bank (the "Lender") pursuant to the
Revolving Loan and Security Agreement (the "LOAN AGREEMENT") of this date and
the undersigned's execution and delivery of (i) the Guaranty of even date
(the "Guaranty"), guarantying the obligations of Borrower under the Loan
Agreement and other related documents and instruments and (ii) the Stock
Pledge Agreement of even date herewith (the "Pledge Agreement") pursuant to
which the undersigned pledged certain shares of capital stock as collateral
for the Guaranty, (a) the undersigned is "Solvent" as that term is defined
below, (b) no petition in bankruptcy has been filed, whether voluntary or
involuntary, by or against the undersigned, and (c) there has not been an
assignment for the benefit of creditors filed under the bankruptcy or
insolvency laws of the United States or any state thereof or any other action
brought under the aforesaid bankruptcy or insolvency laws against or with
respect to the undersigned. "Solvent," as used herein means that the
undersigned's total tangible assets as a going concern on a fair market basis
exceed its total liabilities, calculated in accordance with generally
accepted accounting principles, consistently applied.
3. The undersigned does not contemplate filing a petition in bankruptcy
or for a reorganization under the Bankruptcy Code, and the undersigned does
not have any knowledge of any threatened bankruptcy or insolvency proceedings
against the undersigned.
4. The transactions contemplated by the documents evidencing, securing
and guarantying the Loan, including, without limitation the Loan Agreement,
the Guaranty, the Pledge Agreement and the Note (as defined in the Loan
Agreement) (collectively, the "FINANCING AGREEMENTS"), are not intended to
hinder, delay or defraud either the undersigned's present or future creditors.
5. The undersigned does not intend to incur debts beyond its ability to
pay them as they mature.
6. The aggregate of the undersigned's property and assets at a fair
valuation is sufficient in amount to pay its debt.
7. The undersigned has examined the representations, warranties,
amendments, and covenants contained in the Financing Agreements, and the
undersigned certifies that, as of the date hereof, all of the certificates,
statements, representations, warranties
<PAGE>
and covenants as to past or present existing facts which are contained
therein are true and correct in all material respects, and that no default
exists as of the date hereof.
8. The statements contained herein shall be continuing in nature and
shall be deemed to have been remade upon each borrowing by the Borrower under
the Financing Agreements, unless and until the undersigned gives the Lender
prior written notice (in the manner and to the persons required by the
Financing Agreements) to the contrary. The undersigned hereby acknowledges
that the Lender has relied upon the warranties, representations, agreements
and covenants contained herein.
9. The financial statements previously submitted to the Lender are a
fair presentation of the assets and liabilities of the Borrower and the
undersigned as of the date of such financial statements and there has not
been a material adverse change in the financial or other condition of the
Borrower or the undersigned since such date.
10. This Certificate is made to induce the Lender to extend the Loan to
the Borrower.
----------------------------------------
Henry M. Zachs
Subscribed and sworn to before
me this _____ day of March, 1998.
- ---------------------------------
Commissioner of the Superior Court
Notary Public
My Commission Expires
-3-
<PAGE>
MODIFICATION TO LOAN AGREEMENT
THIS MODIFICATION TO LOAN AGREEMENT (this "Modification"), dated October
15, 1998, by and between FLEET NATIONAL BANK, a national banking association
with an office located at 777 Main Street, Hartford, Connecticut 06115
("Lender") and ZIPLINK, LLC, a Connecticut limited liability company, with
its principal place of business at 40 Woodland Street, Hartford, Connecticut
06105 ("Borrower").
PREAMBLE
WHEREAS, Borrower and Lender entered into a Revolving Loan Agreement,
dated March 31, 1998 (the "Agreement"), pursuant to which Lender extended a
revolving loan to Borrower in the original principal amount of $15,000,000
(the "Loan"); and
WHEREAS, Borrower and Lender wish to amend the Agreement to increase the
amount of the Loan and make certain other changes.
NOW, THEREFORE, for the mutual consideration contained in this
Modification and the Agreement, Borrower and Lender agree as follows:
1. The title of the Agreement is changed in all applicable places to
"Revolving Loan and Security Agreement."
2. The amount "$15,000,000" is deleted in the Preamble of the Agreement and
"$20,000,000" shall be added in its place.
3. The definition of "Commitment Amount" in Section 1.1(h) of the Agreement is
deleted and the following is added in its place:
"Commitment Amount" shall mean TWENTY MILLION AND
00/100 DOLLARS ("$20,000,000.00"), or such lesser amount
as the Borrower may stipulate.
4. The following is added as Section 2.6 of the Agreement:
"SECTION 2.6 OVERADVANCES. Lender may, in its sole discretion and
subject to the terms and conditions set forth in this Agreement or any other
conditions which Lender may impose in its sole discretion, including, without
limitation, the payment of fees, an increased interest rate, or posting of
additional collateral, make temporary advances so that the aggregate
principal amount of all outstanding Revolving Loans is in excess of the
Borrowing Base or the Commitment Amount from time to time (each such
temporary Revolving Loan is referred to herein as an "Overadvance"). Nothing
contained in this Section 2.6 or elsewhere in this Agreement shall constitute
or be deemed to constitute a commitment or agreement by Lender to make any
Overadvances, nor shall the making of
<PAGE>
an Overadvance at any time or from time to time constitute or be deemed to
constitute a course of dealing by Lender with respect to Overadvances."
5. Exhibit "A" to the Agreement is deleted and Exhibit "A" in the form
attached to this Modification is added in its place.
6. In all other respects, the terms and conditions of the Agreement are hereby
ratified and confirmed.
IN WITNESS WHEREOF, the parties set their hands as of the date first
provided above.
ZIPLINK, LLC
By: s/ Henry M. Zachs
-----------------------------
Henry M. Zachs
Its Manager
FLEET NATIONAL BANK
By:s/Brian A. Howard
-----------------------------
Brian A. Howard
Its Assistant Vice President
<PAGE>
EXHIBIT "A"
AMENDED AND RESTATED REVOLVING LOAN NOTE
<PAGE>
EXHIBIT A
AMENDED AND RESTATED REVOLVING LOAN NOTE
$20,000,000.00 Dated March 31, 1998, amended and
restated as of October 15, 1998
Hartford, Connecticut
For value received, the undersigned, ZIPLINK, LLC (the "Borrower"),
promises to pay to the order of FLEET NATIONAL BANK (the "Lender") at its
office at 777 Main Street, Hartford, Connecticut 06115, or at such other
place as Lender may designate, the principal amount of TWENTY MILLION AND
00/100 DOLLARS ($20,000,000.00), or such amount thereof as shall be
outstanding pursuant to the Loan Agreement (as hereafter defined) together
with interest on the unpaid balance of this Note, beginning as of the date
hereof, at a rate per annum for each Interest Period equal to the LIBOR Rate
plus .30% for such Interest Period, or such other rate as shall be provided
in the Loan Agreement, together with all taxes levied or assessed on this
Note or the debt evidenced hereby against Lender, and together with all
costs, expenses and attorneys' fees incurred in the collection of this Note,
or to enforce or foreclose any security agreement, pledge agreement or other
document including, without limitation, the Loan Agreement and the Pledge
Agreement (as hereinafter defined), securing or relating to this Note, or in
protecting or defending the lien thereof, or in any litigation or matter
arising from or connected therewith or with this Note. Interest shall be
computed monthly in arrears on the basis of a 360-day year and actual days
elapsed. The interest rate for each Revolving Loan shall be determined in
accordance with the terms of the Loan Agreement. The terms "Interest Period",
"LIBOR Rate" and "Revolving Loan" as used herein shall have the definitions
assigned in the Loan Agreement.
The principal amount of this Note shall be advanced, upon the request of
Borrower pursuant to a certain Revolving Loan Agreement between Borrower and
Lender, dated March 31, 1998, as amended by that Modification to Loan
Agreement, dated October 15, 1998, and as further amended from time to time
(the "Loan Agreement"). This Note is issued and secured pursuant to the Loan
Agreement, the terms of which are deemed incorporated by reference. This Note
is guaranteed by a Guaranty, dated March 31, 1998, as amended from time to
time (the "Guaranty"), from Henry M. Zachs (the "Guarantor"). The Guaranty is
secured by a Stock Pledge Agreement dated March 31, 1998, between Guarantor
and Lender, as amended from time to time (the "Pledge Agreement"), pursuant
to which the Guarantor has pledged certain marketable securities to the
Lender. Lender shall maintain a Revolving Loan Account (as defined in the
Loan Agreement) on which it will keep record of all outstanding amounts
hereunder.
Interest shall be paid on the first day of each month beginning on the
first day of May, 1998 and continuing on the first day of each month
thereafter, until the principal balance with accrued interest thereon is paid
in full. If not sooner paid, the entire principal balance plus accrued
interest thereon shall be paid in full on April 1, 2001.
<PAGE>
Borrower may repay this Note in whole or in part at any time, provided
that Borrower shall pay such fees and premiums in connection with a
prepayment as are set forth in the Loan Agreement.
Upon the occurrence of an Event of Default under and as defined in the
Loan Agreement, the entire indebtedness, with accrued interest thereon due
under this Note, shall, at the option of Lender, become immediately due and
payable without demand or notice of any kind. Borrower agrees that the
interest rate shall increase by three (3%) percentage points per annum over
the otherwise applicable rate upon the occurrence of such Event of Default.
If any interest installment due hereunder is not paid within ten (10)
days after the date it is due, a late charge equal to five percent (5%) of
said amount shall be assessed against Borrower, and shall be immediately due
and payable without demand or notice of any kind.
All payments received hereunder shall be applied first to late charges,
prepayment premiums and fees, and other costs and expenses, then to accrued
interest and then to principal, except as otherwise provided herein or in the
Loan Agreement or Pledge Agreement.
Borrower hereby grants to Lender a lien and right of setoff for all of
Borrower's liabilities to Lender upon and against all the deposits, credits,
collateral and property of Borrower, now or hereafter in the possession or
control of Lender or in transit to it. Lender may, at any time, apply or set
off the same, or any part thereof, to any liability of Borrower, whether or
not matured or demanded.
Notwithstanding any provisions of this Note to the contrary, the rate of
interest to be paid by Borrower to Lender under this Note shall not exceed
the highest or the maximum rate of interest permitted to be charged by Lender
under applicable laws. Any amounts paid by Borrower to Lender in excess of
such rate shall be deemed to be partial prepayments of principal hereunder.
No delay or omission by Lender in exercising any right hereunder, nor
failure by Lender to insist upon the strict performance of any terms herein,
shall operate as a waiver of such right, any other right hereunder, or any
terms herein. No waiver of any right shall be effective unless in writing and
signed by Lender, nor shall a waiver on one occasion be constituted as a bar
to, or waiver of, any such right on any future occasion.
Borrower and each and all endorsers, guarantors and sureties of this
Note waive diligence, demand, presentment for payment, notice of nonpayment,
protest and notice of protest, and notice of any renewals or extensions of
this Note, and all rights under any statute of limitations, and all
endorsers, guarantors and sureties agree that the time for payment of this
Note may be extended at Lender's sole discretion, without impairing their
liability thereon, and further consent to the release of all or any part of
the security for the payment hereof, at the discretion of Lender, or the
release of any party liable for this obligation without affecting the
liability of the other parties hereto.
THE BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION, AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER
CHAPTER 903a OF THE CONNECTICUT GENERAL STATUTES, AS
-2-
<PAGE>
NOW CONSTITUTED OR HEREAFTER AMENDED OR AS OTHERWISE ALLOWED UNDER ANY STATE
OR FEDERAL LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY
DESIRE TO USE, AND FURTHER WAIVES ITS RIGHTS TO REQUEST THE LENDER POST A
BOND, WITH OR WITHOUT SURETY, TO PROTECT BORROWER AGAINST DAMAGES THAT MAY BE
CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY LENDER. THE BORROWER
ACKNOWLEDGES THAT IT MAKES THESE WAIVERS KNOWINGLY, VOLUNTARILY, WITHOUT
DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF THESE WAIVERS
WITH ITS ATTORNEYS.
THE BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION,
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS NOTE OR THE FINANCING TRANSACTION OF WHICH THIS NOTE IS A PART, OR THE
DEFENSE OR ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES IN
CONNECTION THEREWITH. THE BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER
KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
This Note shall be governed by and construed in accordance with the laws
of the State of Connecticut.
All references to the "Borrower" or the "Lender" shall apply to their
respective successors and assigns.
This Amended and Restated Revolving Loan Note amends, restates and
supersedes that certain Revolving Loan Note of the Borrower, dated March 31,
1998, in the original principal amount of $15,000,000.00.
ZIPLINK, LLC
By:
-------------------------------
Henry M. Zachs Its Manager
-3-
<PAGE>
SECOND MODIFICATION TO LOAN AGREEMENT
THIS SECOND MODIFICATION TO LOAN AGREEMENT (the "Modification"), dated
April 16, 1999, by and between FLEET NATIONAL BANK, a national banking
association with an office located at 777 Main Street, Hartford, Connecticut
06115 ("Lender") and ZIPLINK, LLC, a Connecticut limited liability company, with
its principal place of business at 40 Woodland Street, Hartford, Connecticut
06105 ("Borrower").
PREAMBLE
WHEREAS, Borrower and Lender entered into a Revolving Loan Agreement,
dated March 31, 1998 (the "Agreement"), pursuant to which Lender extended a
revolving loan to the Borrower in the original principal amount of FIFTEEN
MILLION ($15,000,000.00) DOLLARS; and
WHEREAS, on October 15, 1998, the Borrower and the Lender amended said
Agreement in order to increase the amount of the Loan and make certain other
changes.
NOW, THEREFORE, for the mutual consideration contained in this Second
Modification and the Agreement, Borrower and Lender hereby agree as follows:
1. The amount $15,000,000.00 is deleted in the Preamble of the
Agreement (as amended on October 15, 1998) and $25,000,000.00 shall be added in
its place.
2. The definition of "Commitment Amount in Section l.1(h) of the
Agreement (as amended on October 15, 1998) is deleted and the following is added
in its place:
"COMMITMENT AMOUNT" SHALL MEAN TWENTY FIVE MILLION AND 00/100 DOLLARS
($25,000,000.00), OR SUCH LESSER AMOUNT AS THE BORROWER MAY STIPULATE.
In all other respects, the terms and conditions of the Agreement dated
March 31, 1998 and the Modification to Loan Agreement dated October 15, 1998 are
hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto by and through their duly
authorized representatives have executed, sealed and delivered this instrument
as a sealed instrument on this 16th day of April, 1999.
BORROWER:
ZIPLINK, LLC (A CONNECTICUT LIMITED LIABILITY COMPANY)
/s/ Henry M. Zachs
- ------------------------------
BY: HENRY M. ZACHS, DULY AUTHORIZED AND IN HIS CAPACITY AS MANAGER
/s/ Brian A. Howard
- ------------------------------
WITNESS AS TO BORROWER
(Continued, Next Page)
LENDER:
<PAGE>
FLEET NATIONAL BANK
BY: /s/ Brian A. Howard
--------------------------
TITLE: VP
------------------------
/s/ Dawn L. Griswold
- ------------------------------
WITNESS AS TO BANK
<PAGE>
SECOND AMENDED AND RESTATED REVOLVING LOAN NOTE
$25,000,000.00 DATED MARCH 31, 1998, FIRST AMENDED AND
RESTATED AS OF OCTOBER 15, 1998 AND
FURTHER AMENDED AND RESTATED BY T HIS
SECOND AMENDMENT DATED AS OF APRIL 16,
1999 HARTFORD, CONNECTICUT
For value received, the undersigned, ZIPLINK, LLC (the "Borrower"),
promises to pay to the order of FLEET NATIONAL BANK (the "Lender") at its office
at 777 Main Street, Hartford, Connecticut 06115, or at such other place as
Lender may designate, the principal amount of TWENTY FIVE MILLION AND 00/100
DOLLARS ($25,000,000.00), or such amount thereof as shall be outstanding
pursuant to the Loan Agreement (as hereafter defined) together with interest on
the unpaid balance of this Note, beginning as of the date hereof, at a rate per
annum for each Interest Period equal to the LIBOR Rate plus .30%o for such
Interest Period, or such other rate as shall be provided in the Loan Agreement,
together with all taxes levied or assessed on this Note, or the debt evidenced
hereby against Lender, and together with all costs, expenses and attorneys' fees
incurred in the collection of this Note, or to enforce or foreclose any security
agreement, pledge agreement or other document including, without limitation, the
Loan Agreement and the Pledge Agreement (as hereinafter defined), securing or
relating to this Note, or in protecting or defending the lien thereof, or in any
litigation or matter arising from or connection therewith or with this Note.
Interest shall be computed monthly in arrears on the basis of a 360-day year and
actual days elapsed. The interest rate for each Revolving Loan shall be
determined in accordance with the terms of the Loan Agreement. The terms
"Interest Period", "LIBOR Rate" and "Revolving Loan" as used herein shall have
the definitions assigned in the Loan Agreement.
The principal amount of this Note shall be advanced, upon the request
of Borrower pursuant to a certain Revolving Loan Agreement between Borrower and
Lender dated March 31, 1998, as amended by that Modification to Loan Agreement
dated October 15, 1998, and as further amended from time to time (the "Loan
Agreement"). This Note is issued and secured pursuant to the Loan Agreement, the
terms of which are deemed incorporated by reference. This Note is guaranteed by
a Guaranty, dated March 31, 1998, as amended from time to time (the "Guaranty")
from Henry M. Zachs (the "Guarantor"). The Guaranty is secured by a Stock Pledge
Agreement dated March 31, 1998, between Guarantor and Lender, as amended from
time to time (the "Pledge Agreement"), pursuant to which the Guarantor has
pledged certain marketable securities to the Lender. Lender shall maintain a
Revolving Loan Account (as defined in the Loan Agreement) on which it will keep
record of all outstanding amounts hereunder.
Interest shall be paid on the first day of each month beginning on the
first day of June, 1999 and continuing on the first day of each month
thereafter, until the principal balance with accrued interest thereon is paid in
full. If not sooner paid, the entire principal balance plus accrued interest
thereon shall be paid in full on APRIL L, 2001.
Borrower may repay this Note in whole or in part at any time, provided
that Borrower shall pay such fees and premiums in connection with a prepayment
as are set forth in the Loan Agreement.
Upon the occurrence of an Event of Default under and as defined in the
Loan Agreement, the entire indebtedness, with accrued interest thereon due under
this Note, shall, at the option of the Lender, become immediately due and
payable without demand or notice of any kind. Borrower agrees that the interest
rate shall increase by three (3%) percentage points per annum over the otherwise
applicable rate upon the occurrence of such Event of Default.
<PAGE>
If any interest installment due hereunder is not paid within ten (10)
days after the date it is due, a late charge equal to five percent (5%) of said
amount shall be assessed against Borrower, and shall be immediately due and
payable without demand or notice of any kind.
All payments received hereunder shall be applied first to late charges,
prepayment premiums and fees, and other costs and expenses, then to accrued
interest and then to principal, except as otherwise provided herein or in the
Loan Agreement or Pledge Agreement.
Borrower hereby grants to Lender a lien and right of setoff for all of
Borrower's liabilities to Lender upon and against all the deposits, credits,
collateral and property of Borrower, now or hereafter in the possession or
control of Lender or in transit to it. Lender may, at any time, apply or setoff
the same, or any part thereof, to any liability of Borrower, whether or not
matured or demanded.
Notwithstanding any provisions of this Note to the contrary, the rate
of interest to be paid by Borrower to Lender under this Note shall not exceed
the highest or the maximum rate of interest permitted to be charged by Lender
under applicable laws. Any amounts paid by Borrower to Lender in excess of such
rate shall be deemed to be partial prepayments of principal hereunder.
No delay or omission by Lender in exercising any right hereunder, nor
failure by Lender to insist upon the strict performance of any terms herein,
shall operate as a waiver of such right, or any other right hereunder, or any
terms herein. No waiver of any right shall be effective unless in writing and
signed by Lender, nor shall a waiver on one occasion be constituted as a bar to,
or waiver of, any such right on any future occasion.
Borrower and each and all endorsers, guarantors and sureties of this
Note waive diligence, demand, presentment for payment, notice of nonpayment,
protest and notice of protest, and notice of any renewals or extensions of this
Note, and all rights under any statute of limitations and all endorsers,
guarantors and sureties agree that the time for payment of this Note may be
extended at Lender's sole discretion, without impairing their liability thereon,
and further consent to the release of all or any part of the security for the
payment hereof, at the discretion of Lender, or the release of any party liable
for this obligation without affecting the liability of the other parties hereto.
THE BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS NOTE IS A
COMMERCIAL TRANSACTION, AND WAIVES ITS RIGHT TO NOTICE AND HEARING UNDER CHAPTER
903A OF THE CONNECTICUT GENERAL STATUTES, AS NOW CONSTITUTED OR HEREAFTER
AMENDED OR AS OTHERWISE ALLOWED UNDER ANY STATE OR FEDERAL LAW WITH RESPECT TO
ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO USE, AND FURTHER WAIVES
ITS RIGHTS TO REQUEST THE LENDER POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT
BORROWER AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY SOUGHT OR
OBTAINED BY LENDER THE BORROWER ACKNOWLEDGES THAT IT MAKES THESE WAIVERS
KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE
RAMIFICATIONS OF THESE WAIVERS WITH ITS ATTORNEYS.
THE BORROWER WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION,
PROCEEDING OR ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO
THIS NOTE OR THE FINANCING TRANSACTION OF WHICH THIS NOTE IS A PART, OR THE
DEFENSE OR ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES IN CONNECTION
THEREWITH. THE BORROWER ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY,
VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF THE RAMIFICATIONS OF
THIS WAIVER WITH ITS ATTORNEYS.
This Note shall be governed by and construed in accordance with the
laws of the State of Connecticut.
<PAGE>
All references to the "Borrower" or the "Lender" shall apply to their
respective successors and assigns.
This Second Amended and Restated Revolving Loan Note amends, restates
and supersedes that certain Revolving Loan Note of the Borrower, dated March 3l,
1998, in the original principal amount of $15,000,000.00 and the Amendment
thereto amended and restated as of October 15, 1998, in the original principal
amount of $20,000,000.00.
IN WITNESS WHEREOF, the undersigned Borrower, by and through its duly
authorized representative, has executed, sealed and delivered this instrument as
a sealed instrument as of this 16 day of April, 1999.
BORROWER:
ZIPLINK, LLC (A CONNECTICUT LIMITED LIABILITY COMPANY)
/s/ Henry M. Zachs
- ------------------------------
BY: HENRY M. ZACHS, DULY AUTHORIZED AND IN HIS CAPACITY AS MANAGER
EXECUTED IN THE PRESENCE OF:
/s/ Brian A. Howard
- ------------------------------
WITNESS AS TO BORROWER
<PAGE>
SECOND CONFIRMATION OF GUARANTY
AND AMENDMENT TO STOCK PLEDGE AGREEMENT
THIS SECOND CONFIRMATION OF GUARANTY AND AMENDMENT TO STOCK PLEDGE
AGREEMENT (this "Second Confirmation and Amendment"), dated April 16, 1999 by
and between HENRY M. ZACHS ("Zachs") and FLEET NATIONAL BANK ("Lender"), a
national banking association.
PREAMBLE
WHEREAS, Lender has made a revolving loan (the "Loan") to ZIPLINK, LLC,
a Connecticut limited liability company (the "Borrower"), in the original
principal amount of FIFTEEN MILLION ($15,000,000.00) DOLLARS, pursuant to a
Revolving Loan Agreement dated March 31,1998 between Borrower and Lender (the
"Loan Agreement"); and
WHEREAS, Zachs guaranteed payment of the Loan and payment and
performance by the Borrower under the Loan Agreement pursuant to a Guaranty from
Zachs to Lender dated March 31,1998 (the "Guaranty"); and
WHEREAS, the Guaranty is secured by a pledge of certain securities by
Zachs in favor of Lender, pursuant to a Stock Pledge Agreement dated March 31,
1998 (the "Pledge Agreement"); and
WHEREAS, on October 15, 1998, the Borrower and the Lender agreed to
increase the Loan from Fifteen Million ($ 15,000,000.00) Dollars to Twenty
Million ($20,000,000.00) Dollars and entered into a Modification to Loan
Agreement (the "Modification") and an Amended and Restated Revolving Loan Note
(the "Amended Note") to evidence the increased Loan; and
WHEREAS, the Borrower and the Lender wish to again increase the Loan to
Twenty Five Million ($25,000,000.00) Dollars and are entering into this Second
Modification to Loan Agreement (the "Second Modification") in connection
therewith and the Borrower is executing a Second Amended and Restated Revolving
Loan Note (the "Second Amended Note") to evidence the increased Loan; and
WHEREAS, it is a condition to Lender's entering into this Second
Modification and increasing the Loan that Zachs enter into this Second
Confirmation and Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Zachs consents and agrees to all modifications to the Loan Agreement
as provided in the Modification and the Second Modification and the delivery by
the Borrower of the Amended Note and the Second Amended Note in connection with
the increase in the Loan, and confirms
<PAGE>
that the Guaranty continues in full force and effect with respect to the Loan as
further increased pursuant to the Second Modification and Second Amended and
Restated Revolving Loan Note.
2. All references in the Guaranty and in the Pledge Agreement to the
"Loan" shall mean the Loan as increased pursuant to this Second Modification and
all references in the Guaranty and in the Pledge Agreement to the "Note" shall
mean the Second Amended Note
3. In all other respects, the terms and conditions of the Guaranty and
the Pledge Agreement dated March 3l, 1998, as amended as evidenced by the
Confirmation of Guaranty and Amendment to Stock Pledge Agreement dated October
15, 1998 are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto by and through their duly
authorized representatives have executed, sealed and delivered this instrument
as a sealed instrument on this 16th day of April, 1999.
GUARANTOR/PLEDGOR:
/s/ Henry M. Zachs
- ------------------------------
HENRY M. ZACHS
/s/ Brian A. Howard
- ------------------------------
WITNESS AS TO BORROWER
LENDER:
FLEET NATIONAL BANK
BY: /s/ Brian A. Howard
--------------------------
TITLE: VP
------------------------
/s/ Dawn L. Griswold
- ------------------------------
WITNESS AS TO LENDER
<PAGE>
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
STATEMENT OF PURPOSE FOR AN EXTENSION OF CREDIT
Secured by Margin Stock
FLEET NATIONAL BANK
Name of Bank
(Federal Reserve Form U-1)
This form is required by law (15 U.S.C. ee78g and 78w; 12 CFR 221)
INSTRUCTIONS
1. This form must be completed when a bank extends credit in excess of $ 100,000
secured directly or indirectly, in whole or in part, by any margin stock.
2. The term "margin stock" is defined in Regulation U (12 CFR 221) and includes,
principally: (1) stocks that are registered on a national securities exchange or
that are on the Federal Reserve Board's List of Marginable OTC Stocks; (2) debt
securities (bonds) that are convertible into margin stocks; (3) any over-the
counter security designated as qualified for trading in the National Market
System under a designation plan approved by the Securities and Exchange
Commission (NMS security); and (4) shares of mutual funds, unless 95 percent of
the assets of the fund are continuously invested in U.S. government, agency,
state, or municipal obligations.
3. Please print or type (if space is inadequate, attach separate sheet).
PART I. TO BE COMPLETED BY BORROWER(S).
L. WHAT IS THE AMOUNT OF THE CREDIT BEING EXTENDED? $25,000,000.00
2. WILL ANY PART OF THIS CREDIT BE USED TO PURCHASE OR CARRY MARGIN STOCK? NO.
IF THE ANSWER IS "NO," DESCRIBE THE SPECIFIC PURPOSE OF THE CREDIT. PROCEEDS
SHALL BE USED BY THE BORROWER TO PURCHASE NEW EQUIPMENT AND FOR ADDITIONAL
WORKING CAPITAL PURPOSES. THIS AMOUNT REPRESENTS A $5,000,000.00 INCREASE TO
BORROWER'S EXISTING $20,000,000.00 LINE OF CREDIT CURRENTLY OUTSTANDING WITH THE
BANK.
I (we) have read this form and certify that to the best of my (our) knowledge
and belief the information given is true, accurate, and complete, and that the
margin stock and any other securities collateralizing this credit are authentic,
genuine, unaltered, and not stolen, forged, or counterfeit.
ZIPLINK, LLC
/s/ Henry M. Zachs Date: 4/16/99
- ------------------------------ ------------
BY: HENRY M. ZACHS, DULY AUTHORIZED
AND IN HIS CAPACITY AS MANAGER
A BORROWER WHO FALSELY CERTIFIES THE PURPOSE OF A CREDIT ON THIS FORM OR
OTHERWISE WILLFULLY OR INTENTIONALLY EVADES THE PROVISIONS
OF REGULATION U WILL ALSO VIOLATE FEDERAL RESERVE
REGULATION X, "BORROWERS OF SECURITIES CREDIT."
PART II. TO BE COMPLETED BY BANK ONLY IF THE PURPOSE OF THE CREDIT IS TO
PURCHASE OR CARRY MARGIN STOCK (PART 1 (2) ANSWERED "YES"
1. List the margin stock securing this credit; do not include debt securities
convertible into margin stock. The maximum loan value of margin stock is
_________ percent of its current market value under the current Supplement to
Regulation U.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------
No. of Shares Issue Market price per share Date and source of Total market value per
valuation (See note issue
below)
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------
</TABLE>
<PAGE>
2. List the debt securities convertible into margin stock securing this credit.
The maximum loan value of such debt securities is ____________ percent of the
current market value under the current Supplement to Regulation U.
<TABLE>
<CAPTION>
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------
Principal amount Issue Market price Date and source of Total market value per
valuation (See note issue
below)
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
- --------------------------- ------------------------ ------------------------ ------------------------ ------------------------
</TABLE>
3. List other collateral including non-margin stock securing this credit.
<TABLE>
<CAPTION>
- ----------------------------- --------------------------- ------------------------------ -----------------------------
Describe briefly Market Price Date and source of valuation Good faith loan value
(See note below)
- ----------------------------- --------------------------- ------------------------------ -----------------------------
<S> <C> <C> <C>
- ----------------------------- --------------------------- ------------------------------ -----------------------------
</TABLE>
Note: Bank need not complete "Date and source of valuation" if the market value
was obtained from regularly published information in journal of general
circulation.
PART III. TO BE SIGNED BY A BANK OFFICER IN ALL INSTANCES.
I am a duly authorized officer of the Bank and understand that this credit
secured by margin stock may be subject to the credit restrictions of Regulation
U. I have read this form and any attachments, and I have accepted the customer's
statement in Part I in good faith as required by Regulation U*, and I certify
that to the best of my knowledge and belief, all the information given is true,
accurate, and complete. I also certify that if any securities that directly
secure the credit are not or will not be registered in the name of the borrower
or its nominees. I have or will cause to have examined the written consent of
the registered owner to pledge such securities. I further certify that any
securities that have been or will be physically delivered to the Bank in
connection with this credit have been or will be examined, that all validation
procedures required by Bank policy and the Securities Exchange Act of 1934
(section 17(f), as amended) have been or will be performed, and that I am
satisfied to the best of my knowledge and belief that such securities are
genuine and not stolen or forged and their faces have not been altered.
FLEET NATIONAL BANK
By: /s/ Brian A. Howard
------------------------------
Title: VP
------------------------
Printed Name: Brian Howard
------------------------------
Date: 4/16/99
-------------------------
* To accept the customer's statement in good faith, the officer of the bank must
be alert to the circumstances surrounding the credit and, if in possession of
any information that would cause a prudent person not to accept the statement
without inquiry, must have investigated and be satisfied that the statement is
truthful. Among the facts which would require such investigation are receipt of
the statement through the mail or from a third party. This form must be retained
by the bank for at least three years after the credit is extinguished.
<PAGE>
Exhibit 10.15
SECURITIES PURCHASE AGREEMENT
Agreement made as of May 6, 1999 ("Effective Date"), by and between
ZipLink, LLC, a Delaware limited liability company (the "Company"), and Williams
Communications, Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and Purchaser have entered into that certain
Carrier Services Agreement for Purchase and Sale of Services of even date
herewith (the "Services Agreement") which provides, among other things, that the
Company will purchase a minimum amount of ATM Services and Collocation Services
from the Purchaser (the "Revenue Commitment") and that the Purchaser will grant
to the Company, subject to certain conditions and adjustments, $2.7 million of
ATM Services and Collection Services credits (the "Service Credits") to be
applied against such Revenue Commitment in exchange for the Company issuing
certain equity interests to the Purchaser; and
WHEREAS, the Company has filed a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission (the "SEC")
and contemplates an initial public offering of its securities (the "IPO")
pursuant to such registration statement, as amended (the "Registration
Statement"); and
WHEREAS, immediately prior to the effectiveness of the IPO (the date
thereof being referred to as the "IPO Effective Date"), the Company intends to
convert its business form from a limited liability company to a corporation (the
"Reorganization") and the securities offered in the IPO and issued to the
Purchaser hereunder will consist of common stock of the resulting corporation
("Common Stock"); and
WHEREAS, if the Reorganization is not consummated, the equity interests
of the Company will consist of units of ownership interest ("Units") and the
Purchaser will be issued Units hereunder.
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 Purchase and Sale of Stock. Subject to the terms and conditions of
this Agreement, the Company hereby agrees to sell and deliver to the Purchaser,
and the Purchaser hereby agrees to purchase from the Company the following
equity interests:
(a) In the event the Reorganization is consummated and the IPO occurs,
a number of shares of Common Stock equal to the product of $3,037,500 divided by
the IPO Price Per Share.
2
<PAGE>
The "IPO Price Per Share" shall mean the price per share of Common Stock sold in
the IPO as set forth on the cover page of the final prospectus for the IPO; and
(b) In the event that the Reorganization is consummated on or before
May 31, 1999, and the IPO does not occur within 61 days thereafter, a number of
shares of Common Stock equal to the product of the Revenue Commitment times
.28125 divided by the Assumed IPO Price Per Share. The "Assumed IPO Price Per
Share" shall mean the price per share of Common Stock stated on the outside
front cover of the prospectus included in the latest filed Registration
Statement of the Company, or, if there shall be no stated price per share, the
midpoint of the range of prices per share stated on the outside front cover of
the prospectus included in such Registration Statement; and
(c) In the event that the Reorganization is not consummated on or prior
to August 1, 1999, a number of Units equal to the product of the Revenue
Commitment times .28125 divided by the Assumed IPO Price Per Share.
A numerical example of the above-described calculations is set forth for
purposes of illustration only on Schedule A to this Agreement. All calculations
of Common Stock or Shares shall be rounded up to the next whole number.
The equity interests sold to the Purchaser hereunder, whether consisting of
Common Stock or Units, are from time to time referred to herein as "Purchaser
Shares."
1.2 Delivery of Purchaser Shares. The Company shall duly authorize,
issue and deliver the Purchaser Shares to the Purchaser on the earlier to occur
of (a) the date which is three business days after the IPO Effective Ddate, (b)
August 1, 1999 and (c) the date of the closing of any sale or transfer of all or
substantially all of the the assets or equity interests of the Company other
than in connection with the Reorganization.
1.3 Purchase Price. In consideration for the Purchaser Shares, the
Purchaser shall grant to the Company, on the terms and conditions set forth in
this Agreement and in the Services Agreement, the Service Credits described
above upon receipt of the Purchaser Shares. If the Company does not comply with
all of the material obligations hereunder related to proper issuance and
delivery of the Purchaser Shares to Purchaser, then the Purchaser shall have no
obligation to issue any Service Credits to the Company and any Service Credits
previously issued shall be canceled in their entirety.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that the statements
contained in this
3
<PAGE>
Article II are true and correct as of the date hereof.
2.1. Organization, Qualification and Corporate Power. The Company is
currently a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware. 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 to Purchaser copies of
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 as of the date
of this Agreement consist of 9,899,083 Units. As of the date of this
Agreement, there are outstanding warrants and options to purchase
517,412_ Units and convertible debentures in the face amount of
$7,500,000 convertible into Units (the "Convertible Securities"). All
of the issued and outstanding Units are, and all Units that may be
issued upon exercise or conversion of Convertible Securities will be,
duly authorized, validly issued and free of all preemptive rights. Upon
the issuance of Purchaser Shares in accordance herewith, such Purchaser
Shares will be duly authorized, validly issued and free of all
preemptive rights and, if such Purchaser Shares consist of Common
Stock, fully paid and nonassessable. All of the issued and outstanding
Units were issued in compliance with applicable federal and state
securities laws and upon consummation of the Reorganization, all of the
Common Stock issued by the Company will be issued in compliance with
applicable state and federal securities laws. Upon issuance of the
Purchaser Shares in accordance herewith, the Purchaser Shares 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 Purchaser Shares will be stated in the Company's
Operating Agreement or Certificate of Incorporation, as the case may
be. 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 equity interests, other than the Convertible
Securities. There are no outstanding or authorized unit appreciation,
phantom unit or any similar rights with respect to the Company.
2.3. Authorization. The Company has all requisite power and authority
to execute and deliver this Agreement, to authorize, issue and deliver
the Purchaser Shares in accordance with the terms of this Agreement and
to perform its obligations hereunder. The execution and delivery of
this Agreement and the performance by the Company of this Agreement and
the consummation by the Company of the transactions contemplated by
this Agreement have been duly and validly authorized by all necessary
action on the part of the Company and its members. This Agreement has
been duly and validly executed and delivered by the Company and this
Agreement constitutes a valid and binding obligation of the Company,
enforceable against the Company 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
4
<PAGE>
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 its Certificate of Organization or Operating
Agreement, (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
applicable 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 other than ZipLink, Inc., a wholly-owned subsidiary formed
for the purposes of effecting the Reorganization.
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 December 31, 1998
and an unaudited balance and income statement for the year-to-date
through March 31, 1999 (such financial statements being collectively
referred to 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 March 31, 1999 Financial
Statements).
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
5
<PAGE>
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 the
Purchaser Shares have not been registered under the Securities Act.
Purchaser also understands that the Purchase Shares 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 Purchaser Shares issuable to the Purchaser 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 Purchaser Shares. 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 Purchaser Shares, 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 Purchaser Shares 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 Purchaser Shares. Purchaser
understands that the Purchaser Shares 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, the Registration Statement and amendments thereto
as filed with the SEC prior to the date hereof, 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
6
<PAGE>
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
Purchaser Shares issuable to the Purchaser 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 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 Shares are subject to restrictions on transfer as set forth
in Article IV below.
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
7
<PAGE>
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.
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. Termination of Rights Upon IPO. Upon an IPO, the Company's
obligations under Sections 4.1, 4.2 and 4.3 shall terminate.
4.5 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.
8
<PAGE>
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.
4.6 Registration Statement. The Company has provided the Purchaser
with copies of the Registration Statement and all amendments thereto
filed by the Company with the SEC prior to the date hereof and shall
provide to the Purchaser a copy of each amendment thereto as filed by
the Company hereafter. The Company acknowledges and agrees that
Purchaser is relying upon the information set forth in such
Registration Statement in entering into this Agreement and performing
its obligations hereunder.
4.7 Restrictions on Sale. The maximum number of Purchaser Shares
which may be sold during each one-year period following receipt of the
Purchaser Shares shall be the greater of:
(a) the number of Purchaser Shares having a
value, based on the IPO Price Per Share (or the
Assumed IPO Price Per Share if issued pursuant to
Section 1.1(b) or (c)) , equal to the total value of
Service Credits utilized by Company as of the date of
such sale, or
(b) one-third (1/3) of the Purchaser Shares.
The restrictions in this Section 4.7 shall terminate three years from the date
of delivery of the Purchaser Shares.
ARTICLE V
MISCELLANEOUS
5.1. Governing Law. This Agreement will be governed in all respects by
the laws of the State of New York as such laws are applied to
agreements between New York residents entered into and to be performed
entirely within New York.
5.2. Survival. The representations, warranties, covenants and
agreements made herein will survive the execution of this Agreement and
the Closing of the transactions contemplated hereby.
5.3. 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
corporation into which
9
<PAGE>
the Company may be converted. Purchaser may not assign its rights to
purchase the Purchase Shares (except to the direct or indirect parents,
subsidiaries and affiliates of Purchaser) and the Company may not
assign its rights to receive the Service Credits, except to the
corporation into which the Company may be converted.
5.4. 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.
5.5. 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: Williams Communications, Inc.
One Williams Center, Suite 4100
Tulsa, Oklahoma 74172
Attention: General Counsel
the Company: ZipLink LLC
40 Woodland Street
Hartford, CT 06105
Attention: Henry M. Zachs
with a copy each to:
ZipLink LLC
900 Chelmsford Street
Tower One, Fifth Floor
Lowell, Massachusetts 01857
Attn: President
Brenner, Saltzman & Wallman, LLP
271 Whitney Avenue
New Haven, CT 05511
Attention: Wayne A. Martino, Esq.
5.6. 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.
5.7. 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
10
<PAGE>
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.
5.8. 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.
5.9. 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.
5.10. 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.
The parties have executed this Agreement as of the day and year
first above written.
ZIPLINK, LLC
By: /s/ Christopher Jenkins
-------------------------------
Christopher Jenkins, President
WILLIAMS COMMUNICATIONS, INC.
By: /s/ James W. Dutton
-------------------------------
James W. Dutton
Vice President
11
<PAGE>
SCHEDULE A
NUMERICAL EXAMPLE
1.1(a) If the IPO Price is $13.00 per share then Purchaser shall receive 233,
654 shares of Common Stock of ZipLink, Inc.
1.1(b) If the Revenue Commitment is $4,000,000 and the Assumed IPO Price Per
Share is $13.00 then Purchaser shall receive 86,539 shares of Common Stock of
Ziplink, Inc.
1.1(c) If the Revenue Commitment is $4,000,000 and the Assumed IPO Price Per
Share is $13.00 but the Reorganization has not occurred, then Purchaser shall
receive 86,539 Units of membership interest in Ziplink LLC.
12
<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.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 4, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 303,060
<SECURITIES> 0
<RECEIVABLES> 935,908
<ALLOWANCES> 40,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,658,367
<PP&E> 13,955,240
<DEPRECIATION> 4,941,173
<TOTAL-ASSETS> 10,781,206
<CURRENT-LIABILITIES> 4,585,103
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (19,643,340)
<TOTAL-LIABILITY-AND-EQUITY> 10,781,206
<SALES> 2,745,324
<TOTAL-REVENUES> 2,745,324
<CGS> 1,758,390
<TOTAL-COSTS> 4,093,255
<OTHER-EXPENSES> 33,124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 355,816
<INCOME-PRETAX> (1,736,871)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,736,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,736,871)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
