<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............. to ................
Commission File Number 000-26147
ZIPLINK, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3457219
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
900 Chelmsford Street,Tower 1, Fifth Floor
Lowell, Massachusetts 01851
(Address of principal executive offices)
(Zip Code)
(978) 551-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 8, 2000
----- --------------------------
Common Stock, par value $0.001 per share 12,939,987 shares
<PAGE>
ZIPLINK, INC.
FORM 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at March 31, 2000 3
(Unaudited) and December 31, 1999
Consolidated Statements of Operations for the 4
three months ended March 31, 2000 and
March 31, 1999 (Unaudited)
Consolidated Statements of Cash Flows for the three 5
months ended March 31, 2000 and 1999 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities and Use of Proceeds 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
EXHIBIT INDEX 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZIPLINK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $12,290 $17,384
Accounts receivable, net.................................... 2,267 1,491
Prepaid expenses and other current assets................... 2,638 2,256
------------- -------------
Total current assets................................... 17,195 21,131
Property and Equipment, net.................................... 21,789 15,917
Other Long term Assets......................................... 6,108 1,557
------------- -------------
Total assets........................................... $45,092 $38,605
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligation................. $4,080 $2,197
Accounts payable............................................ 5,806 3,511
Accrued expenses............................................ 1,757 1,550
Deferred revenue............................................ 101 95
Other current liabilities................................... 246 -
------------- -------------
Total current liabilities.............................. 11,990 7,353
Capital lease obligation, less current portion................. 7,792 3,943
Long term liabilities, less current portion 70 -
------------- -------------
Total liabilities...................................... 19,852 11,296
Stockholders' Equity
Common stock, $.001 par value, 50,000 shares authorized,
12,940 and 12,770 shares issued and outstanding at March
31, 2000 and December 31,1999, respectively................. 13 13
Additional paid-in capital..................................... 63,907 60,690
Accumulated deficit............................................ (38,668) (33,320)
Cumulative translation adjustment.............................. (12) -
Deferred stock-based compensation.............................. - (74)
------------- -------------
Total stockholders' equity..................................... 25,240 27,309
------------- -------------
Total liabilities and stockholders' equity............. $45,092 $38,605
------------- -------------
------------- -------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
ZIPLINK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Revenues................................ $ 5,492 $ 2,745
------------ ------------
Costs and Expenses:
Cost of revenues..................... 5,321 1,758
Selling, general and administrative.. 3,612 1,385
Depreciation and amortization........ 1,952 950
------------ ------------
Total costs and expenses........ 10,885 4,093
------------ ------------
Loss from operations............ (5,393) (1,348)
------------ ------------
Other Income (expense):
Interest expense..................... (146) (356)
Interest income...................... 191 5
Other income (expense) .............. - (38)
------------ ------------
45 (389)
------------ ------------
Net loss........................ $ (5,348) $ (1,737)
------------ ------------
------------ ------------
Net Loss per Unit (Note 4):
Net Loss per unit -
Basic and diluted.............. $ - $ (0.18)
------------ ------------
------------ ------------
Weighted average units -
Basic and diluted .............. $ - 9,899
------------ ------------
------------ ------------
Net Loss per Share (Note 4):
Net Loss per share -
Basic and diluted............... $ (0.41) $ -
------------ ------------
------------ ------------
Weighted average shares -
Basic and diluted.............. 12,892 -
------------ ------------
------------ ------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE>
ZIPLINK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss............................................. $(5,348) $ (1,737)
Adjustments to reconcile net loss to net cash used
in operating activities
Noncash telecommunications expense............... 173 -
Depreciation and amortization..................... 1,952 950
Loss on disposal of property and equipment........ - 38
Compensation expense associated with the granting
of share/unit options and warrants.............. (8) 2
Translation adjustment............................ (12) -
Changes in assets and liabilities, net of
acquired amounts:
Accounts receivable, net........................ (727) (217)
Prepaid expenses and other current assets....... 58 (388)
Due from Interhop............................... (67) -
Accounts payable................................ 1,878 127
Accrued expenses................................ 76 230
Deferred revenue................................ 6 173
Other current liabilities....................... (38) -
Due to affiliates............................... - (476)
------------ -----------
Net cash used in operating activities...... (2,057) (1,299)
------------ -----------
Cash Flows from Investing Activities:
Purchases of property and equipment.................. (1,380) (199)
Cash used in acquisition............................. (1,150) -
------------ -----------
Net cash used in investing activities........ (2,530) (199)
Cash Flows from Financing Activities:
Proceeds from borrowings under notes payable......... - 1,400
Proceeds from exercise of stock options.............. 41 -
Payments of principal made on capital lease
obligation........................................ (548) (111)
------------ -----------
Net cash(used in)provided by financing
activities................................ (507) 1,289
------------ -----------
Net (Decrease) in Cash and Cash Equivalents............. (5,094) (209)
Cash and Cash Equivalents, beginning of period.......... 17,384 512
------------ -----------
Cash and Cash Equivalents, end of period............. $12,290 $ 303
------------ -----------
------------ -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest............................... $ 119 $ 383
------------ -----------
------------ -----------
Supplemental Disclosure of Non-Cash Financing and
Investing Activities:
Acquisition of equipment under capital leases ...... $ 6,223 $ -
------------ -----------
------------ -----------
Investment in subsidiary $ 3,472 $ -
------------ -----------
------------ -----------
Forgiveness of accrued compensation by
Capital Member ................................... $ - $ 180
------------ -----------
------------ -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE>
ZIPLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY AND BASIS OF PRESENTATION
THE COMPANY - ZipLink, Inc., a Delaware corporation (the "Company" or
"ZipLink"), was formed as a wholly-owned subsidiary of ZipLink, LLC on March
9, 1999. ZipLink, LLC was organized as a Connecticut limited liability
company on November 21, 1995 and reorganized as a Delaware LLC on March 9,
1999. On May 25, 1999, ZipLink, LLC was reorganized from a limited liability
company to a corporation. In connection with this reorganization, all of the
membership units in ZipLink, LLC were transferred to and merged with and into
the Company, as a result of which, all of the assets and liabilities of
ZipLink, LLC were transferred to the Company. As these entities are under
common control, the merger transaction was accounted for as a reorganization
of entities under common control similar to a pooling of interest.
BASIS OF PRESENTATION - The Company has prepared the accompanying unaudited
consolidated financial statements pursuant to the rules and regulations of
the Securities and Exchange Commission regarding interim consolidated
financial reporting. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete annual consolidated financial statements and
should be read in conjunction with the audited financial statements and notes
thereto for the year ended December 31, 1999, in the Company's Annual Report
on Form 10-K. In the opinion of the Company's management, the accompanying
unaudited consolidated financial statements contain all adjustments which are
necessary to present fairly its financial position as of March 31, 2000 and
the results of its operations and cash flows for the three months ended March
31, 2000 and 1999, and are of a normal and recurring nature. The results of
operations for interim periods are not necessarily indicative of the
operating results to be expected for the full year.
The accompanying consolidated financial statements include the accounts of
the Company and it's subsidiary, Interhop Network Services, Inc. All
intercompany balances and transactions have been eliminated in consolidation.
The accounts of the Company's foreign subsidiary are translated in accordance
with SFAS No. 52, Foreign Currency Translation. In translating the accounts
of the foreign subsidiary into U.S. dollars, assets and liabilities are
translated at the rate of exchange in effect at quarter end, while
stockholders' equity is translated at historical rates. Revenue and expense
accounts are translated using the weighted average exchange rate in effect
during the quarter. Foreign currency translation and transaction gains or
losses for the Company's subsidiary are included in the accompanying
consolidated balance sheet since the functional currency for the Company's
subsidiary is in Canadian dollars.
2. ACQUISITION OF INTERHOP NETWORK SERVICES, INC.
On January 18, 2000, the Company acquired the assets of Interhop Network
Services, Inc. of Toronto, Ontario, an Internet service provider providing
Internet connectivity services throughout Canada. The consideration paid in
the acquisition consisted of $1,150,000 in cash, 153,997 shares of common
stock valued at $2,350,000 and the assumption of liabilities of $907,000.
Goodwill and other intangibles are amortized over 15 years. For financial
statement purposes, this acquisition was accounted for as a purchase, and
accordingly, the results of operations of Interhop Network Services, Inc.
subsequent to January 18, 2000 are included in the Company's consolidated
statements of operations.
The Company has allocated the purchase price, including transaction costs of
approximately $152,000 to the fair value of the assets acquired and
liabilities assumed as follows:
Current assets......................................$ 75,000
Property and equipment.............................. 334,000
Goodwill and other intangible assets................ 4,907,000
Total liabilities assumed........................... (907,000)
------------------
$ 4,409,000
------------------
------------------
Proforma information has not been presented as the acquisition was not material.
6
<PAGE>
3. COMPREHENSIVE LOSS
Comprehensive loss includes net loss as well as other changes in
stockholders' equity (deficit), except for stockholders' investments and
distributions. The components of comprehensive loss are as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net loss .......................... $5,348 $ -
Foreign currency
translation adjustment ......... 12 -
------ ------
Comprehensive loss ................ $5,360 $ -
------ ------
------ ------
</TABLE>
4. SIGNIFICANT CUSTOMER
WebTV Networks, Inc., a wholly-owned subsidiary of Microsoft Corporation,
represented approximately 46% and 80% of the Company's revenues during the
three months ended March 31, 2000 and 1999, respectively; and 37% and 57% of
the Company's accounts receivable at March 31, 2000 and December 31, 1999,
respectively.
5. NET LOSS PER SHARE AND NET LOSS PER UNIT
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. Antidilutive securities, which consist of options/unit options,
warrants and convertible debentures that are not included in diluted net loss
per share/unit were 834,727 shares for the three months ended March 31, 2000
and 570,299 units for the three months ended March 31, 1999.
The following tables present information necessary to calculate net loss per
share/unit (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
March 31, 2000
---------------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
--------------- ----------------- ---------------
<S> <C> <C> <C>
Basic net loss per share:
Loss available to common stockholders ... $ (5,348) 12,892 $ (0.41)
Effect of dilutive securities:
Stock options/warrants ................ - -
--------------- -----------------
Diluted net loss per share .............. $ (5,348) 12,892 $ (0.41)
--------------- ----------------- ---------------
--------------- ----------------- ---------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
------------------------------------------------------
Earnings Unit Per Unit
(Numerator) (Denominator ) Amount
--------------- ----------------- --------------
<S> <C> <C> <C>
Basic net loss per unit:
Loss available to unit members ......... $ (1,737) 9,899 $ (0.18)
Effect of dilutive securities:
Unit options/warrants ................ - -
Convertible debentures - -
--------------- ----------------- --------------
Diluted net loss per unit .............. $ (1,737) 9,899 $ (0.18)
=============== ================= ==============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Any statements in this quarterly report concerning the Company's business
outlook or future economic performance, anticipated profitability, revenues,
expenses or other financial items, and network or service offering growth,
together with other statements that are not historical facts, are
"forward-looking statements" as that term is defined under the Federal
Securities Laws. Any forward-looking statements are estimates, reflecting the
best judgement of the party making such statements based upon currently
available information and involve a number of risks, uncertainties and other
factors which could cause actual results to differ materially from those
stated in such statements. Risks, uncertainties and factors which could
affect the accuracy of such forward-looking statements are identified in the
public filings made by the Company with the Securities and Exchange
Commission, and forward-looking statements contained in this Form 10-Q or in
other public statements of the Company should be considered in light of those
factors. The Company does not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect events or
uncertainities after the date hereof or reflect the accuracy of unanticipated
events.
OVERVIEW
ZipLink is a provider of wholesale Internet connectivity services in the United
States and Canada to Internet service providers and developers and vendors of
Internet appliances.
8
<PAGE>
The Company provides wholesale Internet access services under the name
ZipDial to Internet service providers, or ISPs, in the United States and
Canada which, in turn, offer Internet access to their subscribers using
ZipLink's network infrastructure. These ISPs consist of traditional local,
regional, and national providers that generally collect a monthly fee from
their subscribers in addition to emerging model providers, such as free
access providers and PC manufacturers and distributors. ZipLink also offers a
range of Internet connectivity services for Internet appliances, including
Internet access and subscriber authentication.
The Company derives a significant portion of its revenues from the provision
of wholesale Internet access services for Internet appliances, including
Internet connectivity, subscriber authentication and other specially
developed services. One customer, WebTV, accounts for substantially all of
the Company's revenues from Internet appliance services. Revenues from the
provision of wholesale Internet access to WebTV are recognized monthly as
services are performed. The Company receives a fixed price per WebTV
subscriber per month if WebTV uses the Company as its first choice provider
of connectivity to WebTV. If ZipLink is not designated as the first choice
provider by WebTV, it receives an hourly rate to the extent that a WebTV
subscriber actually obtains connectivity through the Company's network.
The Company also provides wholesale national dial-up Internet access and
enhanced services, under the brand name ZipDial. These services enable ISPs
to quickly and inexpensively expand their existing geographic coverage and
offer national dial-up Internet access, without investing in costly
infrastructure. Revenues from the ZipDial program are recognized monthly as
services are provided.
The Company also provides direct Internet access under the ZipLink name to a
limited number of retail users, although we devote minimal resources to
marketing in this area. Revenues from these users are derived from service
subscriptions and are recognized monthly.
Since inception, the Company has incurred net losses and experienced negative
cash flow from operations. The Company had an accumulated deficit at March
31, 2000 of $38.7 million. The Company expects to continue to operate at a
net loss and experience negative cash flow for the foreseeable future given
the level of planned operating activities and capital expenditures. The
Company's ability to achieve profitability and positive cash flow from
operations is dependent upon its ability to substantially grow its revenue
base through expansion of its ZipDial program and an increase in sales of
access services for Internet appliances, and its ability to expand the
network and achieve operating efficiencies. The Company plans to make
significant capital expenditures to expand its network and to increase its
operating expenses based in large part on its estimate of potential future
revenues. If the Company's future revenues fall short of its estimates or if
its operating expenses exceed its expectations, then the Company may never
obtain or sustain profitability.
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of revenues for the three months ended March 31, 2000 and 1999:
9
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Revenues .............. 100.0% 100.0%
Cost of revenues ...... 96.9 64.0
Selling, general and
administrative ........ 65.8 50.4
Depreciation and
amortization .......... 35.5 34.6
----------- -----------
Loss from operations (98.2) (49.1)
Interest and other
expense, net .......... 0.8 (14.2)
----------- -----------
Net loss (97.4)% (63.2)%
=========== ===========
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31,1999
REVENUES. Revenues increased 104% to $5.5 million for the three months
ended March 31, 2000 from $2.7 million for the three months ended March 31,
1999. This increase was due primarily to an increase in ZipDial and other
program revenues, including revenues from free Internet access providers,
from $0.6 million to $3.0 million, and an increase in revenues from WebTV
from $2.2 million for the three months ended March 31, 1999 to $2.5 million
for the three months ended March 31, 2000.
COST OF REVENUES. Cost of revenues consists primarily of telecommunication
and collocation costs for super points of presence (SuperPops). Cost of
revenues increased to $5.3 million for the three months ended March 31, 2000
from $1.8 million for the three months ended March 31, 1999. Substantially
all of this increase was due to an increase in telecommunication and
collocation costs reflecting the expansion of the Company's network
infrastructure from approximately 10,000 ports as of March 31, 1999 to
56,000 ports as of March 31, 2000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of salaries, legal and other professional
services, marketing and promotional materials to expand the Company's revenue
base and other costs related to sales, finance and administrative functions.
Selling, general and administrative expenses increased to $3.6 million for
the three months ended March 31, 2000 from $1.4 million for the three months
ended March 31, 1999. This increase was primarily due to salaries and other
related expenses from an increase in headcount totaling 105 employees as of
March 31, 2000 compared with 54 employees as of March 31, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation expense increased to $2.0 million
for the three months ended March 31, 2000 from $1.0 million 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 in
support of the network expansion during 1999 and, to a lesser extent,
additional capital assets purchased and placed in service during the three
months ended March 31, 2000.
10
<PAGE>
INTEREST EXPENSE. Interest expense decreased to $0.1 million for the three
months ended March 31, 2000 from $0.4 million for the three months ended
March 31, 1999. Substantially all of this decrease was due to the repayment
of $20.0 million of indebtedness outstanding under the Company's line of
credit in June 1999, and reduction of interest expense due to the conversion
of convertible debentures to common stock concurrent with the closing of the
Company's IPO. The decrease is offset by an increase from the interest
expense associated with capital leases during fiscal years 2000 and 1999.
INTEREST INCOME. Interest income increased approximately $0.2 million for the
three months ended March 31, 2000 from the same period in the prior year due
to the investment of the net proceeds from the IPO in the form of commercial
paper and repurchase agreements backed by U.S. Treasury securities.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was $5.2 million and $13.8 million at March 31, 2000 and
December 31, 1999, respectively. The Company had cash and cash equivalents
totaling $12.3 million at March 31, 2000. The Company currently invests in
commercial paper and repurchase agreements backed by U.S. Treasury securities
that are highly liquid, of high-quality investment grade, and have maturities
of less than three months with the intent to make such funds readily
available for operating purposes.
Net cash used in operating activities was $2.1 million and $1.3 million for
the three months ended March 31, 2000 and March 31, 1999, respectively. Net
cash used in the three months ended March 31, 2000 was primarily attributable
to the Company's net loss, increase in accounts receivable, partially offset
by an increase in depreciation and amortization, and accounts payable.
Net cash used in investing activities was $2.5 million and $0.2 million for
the three months ended March 31, 2000 and March 31, 1999, respectively.
Principal investments were capital expenditures of $1.4 million and the
acquisition of Interhop Network Services, Inc of $1.2 million. Subject to its
capital resources, the Company currently expects that its capital
expenditures will be substantially higher in future periods in connection
with the expansion of its network capacity and the increase in its area of
service coverage.
Since November 1999, the Company secured approximately $19 million of capital
lease financing from three major network equipment providers, of which $14
million was used for network equipment purchases from November 1999 through
March 31, 2000. The Company is continuing to seek one or more debt financing
aggregating between $10.0 million and $20.0 million to be used for capital
expenditures, working capital and other general corporate purposes.
Net cash (used in) or provided by financing activities was $(0.5) million and
$1.3 million for the three months ended March 31, 2000 and March 31, 1999,
respectively. Net cash used in financing activities for the three months
ended March 31, 2000 include payments on the Company's capital lease
obligations.
The Company believes that funds provided by operations and its existing cash
and cash equivalent balances should be sufficient to execute it's operating
plan through 2000. The Company is currently seeking debt or equity financing.
The proceeds from such a financing would be used to further expand our
network, for working capital and other general corporate purposes, including
investments in strategic partnerships and further acquisitions. There can be
no assurance that the Company would be able to obtain such financing on
reasonable terms, if at all.
11
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition." This bulletin, as
amended, estabilished guidelines for revenue recognition and is effective for
periods beginning after March 15, 2000. We do not expect that the adoption of
the guidance required by SAB 101 will have a material impact on our financial
condition or results of operations.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation, an intrepretation of APB Opinion
No. 25." This intrepretation clarified the application of Opinion 25, among
other issued (a) the definition of employee for purposes of applying Opinion
25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequences of various
modifications to the terms of a previously fixed stock option or award, and
(d) the accounting for an exchange of stock compensation awards in a business
combination. The Intrepretation is effective July 1, 2000 and the effects of
applying the Intrepretation are recoginized on a prospective basis. We do not
expect that the adoption will have a material impact on our financial
condition or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of the Company's investment activities is the
preservation of principal and liquidity while at the same time maximizing the
income it receives from investments without significantly increasing risk.
The Company currently invests in commercial paper and repurchase agreements
backed by U.S. Treasury securities that are highly liquid, of high-quality
investment grade, and have maturities of less than three months with the
intent to make such funds readily available for operating purposes. As such,
the Company considers its exposure to market risk to be minimal.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
12
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Changes in Securities
On January 18, 2000, the Company issued 153,997 unregistered shares of its
common stock in partial consideration for its acquisition of substantially
all the assets of Interhop Network Services, Inc. of Toronto, Ontario, an
Internet service provider providing Internet connectivity services throughout
Canada. The foregoing issuance was made in reliance upon the exemption from
registration pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1+ Agreement between Registrant and SpinMedia Network,
Inc. d/b/a Spinway.com, dated as of January 12,
2000, and First Amendment dated March 31, 2000
10.2+ Equipment Lease,dated March 31, 2000 between
Registrant and NTFC Capital Corporation.
27. Financial data schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the three months ended
March 31, 2000.
-----------------
+ Confidential treatment has been requested for certain portions
of this exhibit pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 2000
ZIPLINK, INC.
By: /s/ Gary P. Strickland
-------------------------
Gary P. Strickland
Chief Financial Officer
(Principal Financial and Accounting
Officer and Authorized Signatory)
14
<PAGE>
EXHIBIT INDEX
EXHIBIT
10.1+ Agreement between Registrant and SpinMedia Network, Inc.
d/b/a Spinway.com, dated as January 12, 2000 and First
Amendment dated March 31, 2000.
10.2+ Equipment Lease, dated March 31, 2000 between Registrant
and NTFC Capital Corporation.
27. Financial data schedule
+ Confidential treatment has been requested for certain portions of this
exhibit pursuant to Rule 406 promulgated under the Securities Act of
1933, as amended.
15
<PAGE>
Exhibit 10.1
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 filed separately with the Securities and
Exchange Commission.
ZIPLINK, INC.
ZIPDIAL CONTRACT
COMPANY CONFIDENTIAL
THIS AGREEMENT, dated as of this day of January 12, 2000 by and between
ZIPLINK, Inc., a Delaware corporation (hereinafter referred to as "ZIPLINK")
with its principal business at 900 Chelmsford Street, Lowell, MA 01851 and Spin
Media Network, Inc. d/b/a Spinway.com, a California corporation (hereinafter
referred to as "Reseller") with its principal business at 925 Commercial Street,
Palo Alto, California, 94303.
WITNESSETH
WHEREAS, ZIPLINK provides Internet access and related communication
services all as more particularly described in SCHEDULE I (the
"ZIPLINK Services"); and
WHEREAS, Reseller wishes to obtain from ZIPLINK the non-exclusive right
to resell to its subscribers ("Reseller's Subscribers") ZIPLINK's
Services on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the above premises and other good
and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. TERM
A. The initial term of this Agreement shall be one (1) year from the
date first above written and this Agreement may be renewed for
additional one (1) year terms, "Renewal Period", upon written
notice by Reseller at least 90 days prior to the expiration of the
then-current term of its intention to renew this Agreement. At the
option of the Reseller, this Agreement may be terminated up to 90
days from the commencement of the Agreement.
B. Thereafter, the Agreement shall remain in full force and effect
for its entire term and any extensions thereof, unless terminated
as defined in Section 7 or as defined in other sections as
applicable.
2. ZIPLINK RESPONSIBILITIES
ZIPLINK agrees to provide Reseller and Reseller's Subscribers with
those ZIPLINK Services on SCHEDULE I. Reseller acknowledges that from
time to time hereafter ZIPLINK may make network software or hardware
enhancements leading to specific service additions or deletions with
respect to the ZIPLINK Services including the addition, limitation or
temporary closing of points of presence. ZIPLINK will provide written
notification to Reseller in the event of material adverse change to the
ZIPLINK Services and in such event Reseller, after reasonable notice
and providing a thirty (30) day opportunity to cure to ZIPLINK may
terminate the Agreement without penalty.
A. ZIPLINK will provide Reseller with a monthly statement identifying
the charges and fees for ZIPLINK Services then in effect with
respect thereto.
B. ZIPLINK will assign an account manager who will be responsible for
communication with Reseller with respect to network operability,
enhancements and other modifications that have a material impact
on Reseller's Subscribers' use of ZIPLINK Services.
C. Expansion Requests: Should Reseller require local access in a
specific area that is currently unavailable via the ZipDial
Network, Reseller may submit a written request to ZIPLINK asking
to explore the ramifications attributed to the expansion and or
build-out of the ZipDial Network to a New Location. Upon receipt
of Reseller Expansion Request, ZIPLINK will make commercially
reasonable efforts to (a) review Reseller's request, and (b)
provide Reseller feedback regarding the feasibility of the request
within five (5) business days of such request, and (c) provide
Reseller contractual documentation (i.e. Service Quotation,
Estimated Timelines, Amendment, Addendum) outlining the commitment
and applicable pricing required to expand to the New Location for
Reseller's review.
D. ZIPLINK, its officers, directors, employees and any authorized
sub-licensee will (i) conduct their business in an honest,
professional and ethical manner and (ii) not knowingly or through
gross negligence commit any action or omission to act which could
adversely affect Reseller, its name, reputation or ability to
conduct its business.
3. RESELLER RESPONSIBILITIES
A. Reseller shall require each Subscriber to agree to an Acceptable
Use Policy that is consistent and material to terms set forth on
SCHEDULE II hereto. In the event that ZIPLINK determines in its
sole discretion that any of Reseller's Subscribers is engaged in
material abuse or disregard of the acceptable use policy set forth
on SCHEDULE II, ZIPLINK may, after reasonable notice to Reseller
and providing Reseller twenty (20) day opportunity to cure (except
as to "spamming" which shall be limited to 24 hour notice and an
obligation to immediately cure), terminate the provision of
ZIPLINK Services to such Reseller Subscriber(s). ZIPLINK shall
promptly notify Reseller of any such termination of services, and
such termination of ZIPLINK Services shall constitute ZIPLINK's
sole and exclusive remedy for any breach of any applicable
Acceptable Use Policy by a Reseller Subscriber.
B. Reseller will be solely responsible for all sales, equipment,
services and subscriber support to Reseller's Subscribers.
C. Except as provided under this Agreement, Reseller shall not make
any warranties, express or implied, with regard to ZIPLINK Services
to any third party and specifically agrees it shall make no such
warranties to any Reseller Subscriber.
D. Reseller, its officers, directors, employees and any authorized
sub-licensee will (i) conduct their business in an honest,
professional and ethical manner and (ii) not knowingly or through
gross negligence commit any action or omission to act which could
adversely affect ZIPLINK, its name, reputation or ability to
conduct its business.
E. Reseller will not permit ZIPLINK Services to be resold by any other
party without the express written permission of ZIPLINK.
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4. COMPENSATION
A. Subject to paragraph 4.B. and 4.C. below, Reseller shall pay to
ZIPLINK the rates and fees for ZIPLINK Services set forth in
SCHEDULE I ATTACHED hereto. Upon sixty (60) day written notice to
Reseller, ZIPLINK may modify any rate or fee set forth in SCHEDULE
I ATTACHED HERETO; provided that such modified rates or fees shall
not be effective with respect to any of Reseller's Subscribers then
receiving ZIPLINK Services affected thereby for a period equal to
the lesser of (a) the remaining term of this Agreement, or (b) six
months after the date of such notice. In addition, Reseller may
without penalty terminate this Agreement pursuant to its applicable
provisions with 60 day written notice to ZIPLINK if the modified
rates or fees are greater than 5% of the prior rates charged to
Reseller. Following notice from Reseller to terminate this
Agreement per this section, Reseller's fees for the remainder of
the notice period will remain at the then current rate charged by
ZIPLINK to Reseller. Notwithstanding anything to the contrary
herein, should rates decrease Reseller's existing Subscribers will
be afforded the decreased rates afforded new subscribers of the
Reseller. Reseller's obligation to pay ZIPLINK under this Paragraph
4.A. is not in any way contingent upon Reseller's collections from
Reseller's Subscriber.
B. Notwithstanding Paragraph 4A, if any provider of telephony or
Internet services to ZIPLINK which are used in connection with
ZIPLINK Services increases the cost of such services, ZIPLINK may
increase its service charges to reflect such increase. ZIPLINK will
provide Reseller not less than sixty (60) day written notice prior
to any such rate increases to Reseller. In the event such increase
is greater than 5% of the prior rate, Reseller may without penalty
terminate this Agreement under its applicable provisions with 60
day written notice to ZIPLINK. Following notice from Reseller to
terminate this Agreement per this section, Reseller's fees for the
remainder of the notice period will remain at the then current rate
charged by ZIPLINK to Reseller.
C. Reseller 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 income of ZIPLINK.
5. BILLING
A. ZIPLINK shall provide invoices to Reseller monthly setting forth
all rates, fees or other charges due pursuant to this Agreement.
Reseller agrees to pay the full-undisputed amount reflected on each
invoice to ZIPLINK by no later than 30 days after the receipt
thereof. Reseller shall define "Past Due" as after 30 days
from receipt of invoice.
B. Any undisputed amounts remaining unpaid 30 days past
Reseller's receipt of the invoice shall accrue interest at the
lesser of one percent (1%) per month or the maximum rate allowed by
law for such interest charges.
C. In the event Reseller disputes any charges, Reseller shall use
commercially reasonable efforts to fully detail in written notice
its basis for dispute within fifteen (15) days of receipt of any
such disputed invoice. Both parties agree to assign to a person of
at least a Vice President level any dispute for mediation of
amounts not resolved by mutual agreement within 30 days of
Reseller's notification of such a dispute so that the issues may be
finally resolved. If the parties are unable to resolve a billing
dispute within sixty (60) days from the due date, either party may
then invoke the arbitration provisions of Section 19.
6. ADVERTISING AND PROMOTION
Neither party shall use the other party's name or logo or refer to such
party in any advertising, marketing, or sales presentation to any other
person, release to any professional or trade publication or for any
other purpose without such party's prior written approval, provided
that either party may use the other party's name or logo, or both, in a
list of such party's customers or providers, if such use does not imply
endorsement. Either party shall be allowed to issue press releases and
public announcements regarding this Agreement with the other party's
prior written approval which shall not be unreasonably withheld or
delayed.
7. DEFAULT
A. Each of the following events shall constitute a default hereunder:
(i) Failure to make any undisputed payment when due according to
the applicable provisions of this Agreement;
(ii) Insolvency, assignment for the benefit of creditors,
appointment or sufferance of appointment of a trustee, a
receiver or similar officer, or commencement of a proceeding
seeking reorganization, rehabilitation, liquidation or
similar relief under the bankruptcy, insolvency or similar
debtor-relief statutes; or
(iii) Material failure to observe or perform any of the covenants
contained in this Agreement or in any other Agreement or
document executed pursuant hereto; or
(iv) Unsolicited advertising ("spamming") via email, newsgroup
posting, or cross-posting may result in termination of
service pursuant to Section 3A to the offending Reseller
Subscriber should Reseller fail to institute appropriate
restrictions within 24 hours from notice to Reseller to
curtail future spamming incidents by the Reseller's
Subscriber.
C. In the event either party shall be in default of its obligations
under this Agreement, the party not in default shall have the right
to terminate this Agreement (i) in twenty (20) days from the "Past
Due" date and upon Reseller's receipt of written notice in the case
of a default in payment (ii) in all other cases, if the defaulting
party fails to cure such default within thirty (30) days of
receiving written notice thereof. Notwithstanding any statement to
the contrary above, with respect to an incident of spamming by
Reseller's Subscribers ZIPLINK may at its sole option, but after 24
hour notice to Reseller, terminate ZIPLINK Services to Reseller's
offending Subscriber(s) pursuant to Section 3A.
D. The following sections shall survive any termination or expiration
of this Agreement: 3(B), 3(C), 3(E), 4(A), 4(C), 5, 6, 7, 8, 9, 10,
11, 12, 13, 14, 16, 17, 19, 20 and, all related schedules thereto.
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8. ASSIGNMENT
This Agreement shall be binding upon the parties and their respective
successors and assigns; provided, however, that no rights or
obligations hereunder, including but not limited to Reseller's
Subscriber accounts, shall be assigned or transferred, in whole or in
part, by either of the parties hereto to any person, firm or
corporation without prior written consent by the other party, which
consent shall not be unreasonably withheld or delayed. Notwithstanding
the foregoing, Reseller may assign this Agreement, without the prior
consent of the other party, to any person, partnership, firm or
corporation affiliated by common ownership with the assigning party,
acquiring all or substantially all of such party's assets.
9. LIMITATION OF LIABILITY AND WARRANTIES
A. ZIPLINK hereby represents and warrants to Reseller that neither
the ZIPLINK Services, nor the use of such ZIPLINK Services by
Reseller or Reseller's Subscribers shall infringe any worldwide
patent, copyright, trademark, trade secret or other intellectual
property or proprietary right of any third party.
B. Other than as set forth in the last sentence of this paragraph,
ZIPLINK shall not be responsible for any damage suffered by
Reseller or Reseller's Subscribers as a result of any interruption,
termination or other failure or cessation of ZIPLINK Services,
including loss of data, whether or not caused by ZIPLINK's
negligence. Use of any information obtained via ZIPLINK Services is
at Reseller's and Reseller's Subscribers' own risk and ZIPLINK
cannot guarantee the accuracy or security of any such content.
ZIPLINK specifically disclaims responsibility for the accuracy or
quality of the information obtained through ZIPLINK Services.
Reseller further agrees that ZIPLINK shall not be liable for any
special, incidental, indirect, punitive or consequential damages or
for lost profits, business or revenues, arising out of, or in
connection with, this Agreement or the services provided hereunder,
whether suffered by Reseller, any of Reseller's Subscribers or any
party claiming rights derived therefrom, even if ZIPLINK shall have
been advised in advance of the possibility of such potential loss
or damage. In no event shall ZIPLINK's aggregate liability with
respect to Reseller or Reseller's Subscriber exceed the amount of
all fees and charges actually paid respectively by Reseller or its
Subscriber to ZIPLINK in respect thereof for the twelve (12) month
period immediately prior to ZIPLINK's actions giving rise to such
damages.
C. EXCEPT FOR THE EXPRESS WARRANTIES CONTAINED IN THIS SECTION 9 AND
SECTION 20, EACH PARTY PROVIDES ALL MATERIALS AND SERVICES TO THE
OTHER PARTY "AS IS," WITHOUT ANY WARRANTY OF ANY KIND, INCLUDING
WITHOUT LIMITATION, ANY WARRANTIES (EXPRESS, IMPLIED, OR STATUTORY)
OF TITLE, NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A
PARTICULAR PURPOSE.
D. NEITHER PARTY SHALL BE LIABLE FOR LOST PROFITS OR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (HOWEVER ARISING, INCLUDING
NEGLIGENCE) ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
EVEN IF THE PARTIES ARE AWARE OF THE POSSIBILITY OF SUCH DAMAGES.
THIS LIMITATION ON LIABILITY SHALL NOT EXCUSE RESELLER OF ITS
PAYMENT OBLIGATIONS UNDER THIS AGREEMENT.
E. Reseller will indemnify and hold ZIPLINK, its agents, successors,
affiliates, suppliers and assigns free and harmless from any and
all obligations, costs, expenses, claims, judgments, attorneys'
fees and attachments arising from, growing out of, or in any way
connected with, a) any breach by Reseller of its Subscriber
Agreements, (b) any use of ZIPLINK Services by any of Reseller's
Subscribers throughout its chain of distribution, including any
claims relating to the quality or functionality of ZIPLINK
Services.
F. Both parties to this Agreement will indemnify and hold each other
free and harmless from any and all obligations, costs, expenses,
claims, judgments, attorneys' fee and attachments arising from,
growing out of, or in any way connected with any breach of the
express warranties contained in this Agreement, or any third party
claims that any product services, marks, software, or software
provided by ZIPLINK infringe any copyright, patent, trade secret,
trademark or any other proprietary right of any third party or
violates any application law or regulation. Provided, however, that
the party seeking indemnification shall: (a) promptly notify the
other party in writing of the claim, (b) provide to the other party
all reasonably requested assistance in the defense of such a claim,
and (c) shall grant the other party sole control of the litigation
and any settlement negotiations related thereto, provided that no
settlement may be entered into by the other party without the prior
written consent of the party seeking indemnification.
G. ZIPLINK shall not be liable for delays or failure to deliver or
perform due to acts of God, acts of the other party, acts of civil
or military authorities, fires, strikes, floods, or other similar
events beyond its control. Reseller shall not be liable for any
penalties or payments for services not received by ZIPLINK. In the
event that of a situation as defined here lasts longer that ten
(10) days, Reseller may terminate the Agreement without penalty.
10. ENTIRE AGREEMENT
The parties have read this Agreement and all of its Schedules, Exhibits
and attachments and agree to be bound by its terms, and further agree
that it constitutes the complete statement of the Agreement between
them which supersedes all other Agreements, covenants, representations
or proposals, oral or written, and all other communications between
them relating to the subject matter of this Agreement. In the event of
a conflict between the terms and conditions of this Agreement and any
Amendments to this Agreement, the terms and conditions of the
Amendment(s) shall prevail. In the event of a conflict between the
terms and conditions of this Agreement and any Schedules to this
Agreement, the terms and conditions of this Agreement shall prevail.
11. ALL AMENDMENTS IN WRITING
This Agreement may not be changed or modified except by a written
Agreement, executed on behalf of both parties.
12. RELATIONSHIP OF THE PARTIES
The parties hereto are independent contractors and shall not be deemed
co-ventures, partners, fiduciaries or agents of one another. Neither
party is authorized to act as an agent for, or legal representative of,
the other party nor shall either party have
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authority to assume or create any obligation on behalf of, or binding
upon, the other party. Reseller shall not represent itself as an agent
of ZIPLINK.
13. CONFIDENTIALITY
A. Each party acknowledges that, during the term of this Agreement, it
will be provided with confidential information relating to the
business policies and procedures and products of the other party.
For the purposes of this Agreement, "Confidential Information"
shall mean any confidential or proprietary information of either
party, including information related to the Intellectual Property
of either party, and any other information relating to any
composition, research project, working process, future development,
scientific, engineering, manufacturing, marketing, business plan,
financial or personnel matter relating to either party, its present
of future products, sales, suppliers, customers, employees,
investors or business, whether in written, graphic or electronic
form, which is marked by the disclosing party as "confidential" or
"proprietary". If disclosed in oral form, such information must be
reduced to writing and marked as "confidential" or "proprietary"
within thirty (30) days of such oral disclosure. Confidential
Information shall not include any information which the receiving
party can prove by competent evidence: (i) is now, or hereafter
becomes, through no act or failure to act on the part of the
receiving party, generally known or available; (ii) is known by the
receiving party at the time of receiving such information, as
evidenced by its records; (iii) is hereafter furnished to the
receiving party by a third party, as a matter of right and without
restriction on disclosure; (iv) is independently developed by the
receiving party without the aid, application or use of information
of the other party; or (v) is the subject of a written permission
to disclose provided by the disclosing party.
B. Other than the existence of this Agreement, no party shall disclose
the terms of this Agreement, including the fees and charges set
forth herein, except for disclosure in confidence to its employees,
consultants, accountants, attorneys, bankers, investors, potential
investors, or as required by law.
C. All Confidential Information that is disclosed by the disclosing
party, and received by the receiving party, shall remain in strict
confidence throughout the terms of the Agreement. The receiving
party shall hold confidential information in confidence, and shall
not disclose any Confidential Information to anyone, inside or
outside of the receiving party, except those employees, directors,
contractors or affiliates (and their respective employees) of the
receiving party who have a need to know the Confidential
Information to effect the use permitted hereby, and where such
individuals are bound by confidentiality provisions substantially
similar to those contained herein. Each party shall treat all
Confidential Information with the same degree of care as the party
accords to its own Confidential Information, but in no case less
than reasonable care.
D. No license to any patent, trademark, copyright or other proprietary
rights are granted hereby. The receiving party's use of
Confidential Information shall remain in effect throughout the
terms of the Agreement and all Confidential Information shall
remain the property of the disclosing party.
E. All information disclosed or made available to the receiving party
by the disclosing party shall be deemed to be Confidential
Information, unless otherwise agreed in writing by the disclosing
party, except that the obligations of this Agreement shall not
apply to information which: (a) becomes publicly known through no
fault of the receiving party; or (b) was or becomes rightfully
known to the receiving party without confidential or proprietary
information restriction from source other than the disclosing
party; or (c) is approved by the disclosing party for disclosure
without restriction in a written document which is signed by a duly
authorized officer of the disclosing party; or (d) is independently
developed by the receiving party without use of the Confidential
Information; or (e) is required to be disclosed under operation of
law, by court order, or governmental regulation and the receiving
party provides prompt written notice to the disclosing party of
such disclosure requirement.
14. NOTICES
Except as otherwise provided in this Agreement, all notices required or
permitted to be given to any party shall be in writing and shall be
deemed to have been duly given after five (5) business days if sent by
certified mail, postage prepaid, in any post office in the United
States, where receipt thereof is confirmed, or if sent by confirmed
receipt of facsimile or by confirmed receipt of a nationally recognized
overnight delivery service to such party at the address set forth below
or to such other address as has been designated by the other party in
accordance with this Section.
15. NON-CONFLICT
ZIPLINK and Reseller warrant that no obligation provided for herein is
in conflict with any other contractual obligation with any third party.
16. BINDING EFFECT
This Agreement and the rights and obligations of the parties shall
inure to the benefit of and be binding upon any successor or assignee
and any subsidiary, affiliate, agent, Reseller or related entity.
17. SEVERABILITY
Should any part of this Agreement for any reason be declared invalid by
order of any court or regulatory agency, such order shall not affect
the validity of any remaining portion, which shall remain in force and
effect as if this Agreement had been executed with the invalid portion
eliminated, and it is hereby declared the intention of the parties that
they would have executed the remaining portion of this Agreement
without including therein any such part or portion which may, for any
reason, be hereafter declared invalid.
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18. SERVICE LEVEL WARRANTY
ZIPLINK warrants that it will use its commercially reasonable efforts
to minimize Excess Packet Loss and Latency, and to avoid Downtime, and
that ZIPLINK will provide the following remedies to Reseller: (Excess
Packet Loss, Latency and Downtime are defined below)
18.1 PACKET LOSS AND LATENCY. ZIPLINK shall proactively monitor the
packet loss or transmission latency of specific Resellers. In
the event that ZIPLINK discovers (either from its own efforts
or after being notified by Reseller) that Reseller is
experiencing packet loss in excess of *********
("Excess Packet Loss") or transmission latency in excess of
*********** round-trip time based on ZIPLINK's
measurements ("Latency") between any two routers within the
continental United States portion of the Network on average
for each hour, and Reseller notifies ZIPLINK (or ZIPLINK has
notified Reseller), then ZIPLINK will use its commercially
reasonable actions to determine the source of the Excess
Packet Loss or Latency and correct the problem.
18.2 REMEDY FOR FAILURE. If either Excess Packet Loss or Latency
occurs and it stems from a source within the Network and not
from the Reseller or beyond the Network, and if ZIPLINK fails,
to correct the Excess Packet Loss or Latency after using its
commercially reasonable efforts for a period of ************
after the onset of such Excess Packet Loss or Latency, then
ZIPLINK will credit Reseller's account the pro-rata Fees for
the continuous duration of such Excess Packet Loss or Latency;
provided that all such credits will not exceed an aggregate
maximum credit of Fees otherwise due from Reseller for one (1)
calendar month for failures in any one (1) calendar month.
18.3 INABILITY TO ACCESS THE INTERNET (DOWNTIME). ZIPLINK will use
its commercially reasonable efforts to avoid Downtime
network-wide for 99.5% of the hours as an average calculated
network-wide over each calendar month. If Reseller is unable
to transmit and receive information from the Network to other
portions of the Internet because ZIPLINK failed to provide
Network access Services ("Downtime") for more than *********
**********, then ZIPLINK will credit Reseller's account
the pro-rata Fees for the continuous duration of such Excess
Packet Loss or Latency; provided that all such credits will
not exceed an aggregate maximum credit of Fees otherwise due
from Reseller for one (1) calendar month for failures in any
one (1) calendar month. For purposes of the foregoing, "unable
to transmit and receive" shall mean sustained packet loss in
excess of ************** based on ZIPLINK's measurements.
18.4 Reseller shall have the right to terminate this Agreement
without penalty if (a) Reseller experiences ***********
********** of downtime within a **********************
period or experiences cumulative outages of over sixteen (16)
hours in any ninety (90) day period of Service, or (b)
Reseller experiences excessive Latency or Packet Loss, as
defined in Section 19 1.1, for a period of ************ in
a ******************************* in a 90 day period.
Notwithstanding anything to the contrary herein, ZIPLINK will
be afforded a ********** opportunity to cure any breach of
its warranties under this section and Reseller's right to
terminate this Agreement shall not be effective in the event
that ZIPLINK reasonably cures any such breach as defined in
Section 18 in a timely manner.
19. DISPUTE RESOLUTION
Any dispute not resolved pursuant to Section 5C arising out of or
relating to this Agreement shall be settled by arbitration by a panel
of three arbitrators, one of which shall be an arbitrator chosen by
ZIPLINK, one of which shall be an arbitrator chosen by Reseller, and
one of which shall be chosen by the previously chosen arbitrators and
in accordance with the rules of the American Arbitration Association.
The decision of the arbitrator shall be final and binding. Any court
with jurisdiction may enter judgment upon the award rendered by the
arbitrators. All such arbitration shall be conducted in California.
Pending resolution of the dispute, the parties agree to continue to
perform all obligations arising under this Agreement.
20. YEAR 2000
ZIPLINK warrants that its internal operating and network systems are
designed to operate during calendar year 2000 C.E. without material
error or interruption relating to date data (including, without
limitation, date data which represents or references different
centuries or more than one century or leap year) in any level of the
systems assuming, in each case, that all systems and products used in
combination with them properly exchange data (hereinafter referred to
as "Year 2000 Compliant"). In the event that ZIPLINK's systems are not
Year 2000 Compliant, ZIPLINK shall promptly seek to modify its systems
so as to ensure that the systems are Year 2000 Compliant to the extent
that such modifications can be accomplished on a commercially
reasonable basis. If ZIPLINK's systems are not Year 2000 Compliant and
are not promptly modified to become Year 2000 Compliant, then Reseller
shall have the right to terminate this Agreement without penalty, which
shall constitute Reseller's sole remedy with respect to such systems
not being Year 2000 Compliant.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
on behalf of each other by a person with full power and authority to bind such
party.
By: /s/ Mark A. Manuel
---------------------------------------------
Print Name: Mark A. Manuel
---------------------------------------------
Title: Vice President of Sales
---------------------------------------------
ZIPLINK, Inc.
By:
----------------------------------------------
By: /s/ Marta S. Hotell
---------------------------------------------
Print Name: Marta S. Hotell
---------------------------------------------
Title: Vice President of Strategic Alliances
---------------------------------------------
Spinway.com
By:
----------------------------------------------
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RESELLER AGREEMENT SCHEDULE I
COMPANY CONFIDENTIAL
ZIPDIAL SERVICES
1. MINIMUM MONTHLY USER COMMITMENT
Reseller commits to a minimum monthly usage commitment of ********. If the
minimum monthly usage commitment is not achieved, ZIPLINK will charge a $100
monthly account maintenance fee plus actual incurred usage.
The account maintenance fee does not apply during the first 180 days of the
Agreement.
2. ZIPLINK SERVICES (ZIPDIAL):
2.1.1 DIAL-UP NETWORK SERVICES: ZIPLINK shall provide dial-up access via
standard telephone lines between Reseller's end users and ZIPLINK's
facilities.
2.1.2 CONNECTIVITY BETWEEN ZIPLINK AND RESELLER: Reseller shall provide
connectivity between ZIPLINK's dial-up network facilities and Resellers
facilities. The traffic shall be delivered through dedicated lines
between ZIPLINK's and Reseller's facilities or through the Internet.
The Reseller shall pay the cost for establishing and maintaining such
connectivity.
2.2 RESELLER SERVICE AND TECHNICAL SUPPORT: Reseller is responsible for all
Subscriber support, billing, and collections. ZIPLINK shall not be
responsible for any hardware and software requirements of Reseller's
Subscriber to connect with ZIPLINK's facilities. ZIPLINK's relationship
under this Agreement is solely with Reseller and not with any of
Reseller's Subscriber. ZIPLINK shall provide Reseller with Network
Operations Center (NOC) phone number, which shall be used only by
Reseller or Reseller's qualified sub-contractor and shall not be
released, to Reseller's Subscriber. ZIPLINK shall actively monitor the
performance of its systems, and shall notify in writing Reseller
promptly of any condition, which materially adversely affects such
performance. ZIPLINK will use reasonable commercial efforts to provide
Reseller with advanced written 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
Reseller's ability to service its Subscribers.
2.3 NETWORK REPORTS: ZIPLINK shall provide network performance reports to
Reseller on a monthly basis as defined by both parties.
2.4 NETWORK COVERAGE: ZIPLINK currently maintains a local calling area
footprint of local access numbers (each, a "dialup POP"), as described
in "Attachment A". ZIPLINK will not reduce this local calling area
coverage below 90% of the existing local calling areas listed in
"Attachment A", without thirty (30) days written notice prior to
discontinuing an existing local access number and/or a particular
geographic location. If ZIPLINK breaches any obligation of this
Section, Reseller shall have the right to renegotiate all terms and
conditions of this Agreement without affecting the validity and
enforceability of this Agreement until this Agreement is replaced by a
new agreement between the parties or until this Agreement is otherwise
terminated. If such renegotiation does not result in an agreement
between the parties within thirty (30) days, Reseller shall have the
right to immediately terminate this Agreement without penalty.
2.5 PROJECT MANAGEMENT: Upon the execution of the Agreement, ZIPLINK will
assign a project manager for the term of the Agreement to serve as the
Reseller's primary single point of contact.
2.6 MANAGED DISCONNECT: ZIPLINK will provide Reseller with "Managed
Disconnect" functionality. This service/protocol/script will allow
Reseller to immediately terminate individual user sessions that have
current dial-up connections on ZIPLINK's network. Users may be
identified for disconnection by login, IP address, RADIUS session ID,
or a NAS/PORT combination.
3. FEES AND CHARGES
3.1 BASIC HOURLY RATES PER EACH MONTH FOR DIAL-UP SERVICES
<TABLE>
<CAPTION>
Hours of monthly usage Rate per hour
<S> <C>
0-1 million ...................... ******
1 mil. -2 million ................ ******
2 mil. - 3 million ............... ******
</TABLE>
The pricing offered under this Agreement is conditioned upon a one (1)
year commitment of the Reseller and the agreement by the Reseller to
occupy ports over a distribution of cities served by ZIPLINK's network.
For each Renewal Period of this Agreement, the pricing quoted by
ZIPLINK is conditioned upon Reseller agreeing to limit average monthly
usage during peak hours (those hours defined as 7 p.m. - 12 a.m. local
standard time for the port city) so that it does not exceed 35% of the
total monthly usage of the Reseller or its Subscribers on the ZIPLINK
network in any given month. In the event, total usage is greater than
35% during peak hours during the Renewal Period, ZIPLINK will notify
Reseller and Reseller agrees to take reasonable efforts to limit usage
to less than the 35% during peak hours and if such over-usage is not
remedied within 90 business days during the Renewal Period after
written notice. ZIPLINK reserves the right to terminate service to
Reseller and its Subscribers if Reseller fails to take corrective
action in a timely manner.
At any time the six (6) month average monthly usage (the "Base Monthly
Average") exceeds 4,000,000 monthly hours for Reseller's Subscribers,
Reseller agrees not to reduce usage more than *** in a given month.
After achieving the Base Monthly Average, in the event monthly usage
for its Subscribers declines more than *** in a given month because
Reseller substitutes
Confidential
7
<PAGE>
another vendor for ZIPLINK as Reseller's vendor for network services,
Reseller shall pay ZIPLINK that amount over the *** reduction due for
average monthly usage attributable for the number of users
discontinuing services but only to the extent it declines over *** of
the average monthly usage for ZIPLINK Services.
3.2 OTHER FEES AND CHARGES APPLICABLE FOR DIAL-UP SERVICES
3.2.1 Set up Fees - A setup fee of $500 will be charged to the Reseller for
the initial 5 realms prior to the provision of services. Each
additional realm will be set-up with no additional charge. ZIPLINK will
provide all reasonable assistance to assist Reseller's radius server to
proxy request between ZIPLINK and Reseller's Radius Server. In most
cases this is accomplished in less than 30 minutes for each realm.
3.2.2 Additional Realm Use Fees (defined as any realm over the initial 5
realms): Reseller shall pay ZIPLINK an additional fee of ****** in the
event after twelve (12) months said Additional Realm does not generate
****** hours of monthly usage by Reseller's Subscribers. The Additional
Realm use fee shall be waived in the event Subscriber monthly usage
exceeds ***** hours within ninety days after initial set-up.
Confidential
8
<PAGE>
RESELLER AGREEMENT SCHEDULE II
COMPANY CONFIDENTIAL
SUBSCRIBER AGREEMENTS
ACCEPTABLE USE POLICY:
This policy may be changed from time to time by ZIPLINK. In the event the change
adversely and materially impacts Reseller's relationship to its Subscribers,
Reseller may after reasonable notice of no less than 10 days and opportunity to
cure given to ZIPLINK of 10 days, terminate this Agreement without penalty.
Reseller shall maintain a policy that is consistent with the material terms as
defined in the following:
A. RESELLER allows no more than one dial-up connection from a
Reseller's Subscriber account at a time.
B. RESELLER makes no warranties of any kind, whether expressed or
implied, including any implied warranty of merchantability or
fitness of this service for a particular purpose. RESELLER takes no
responsibility for any damages suffered by you including, but not
limited to, loss of data from delays, non-deliveries,
mid-deliveries, or service interruptions caused by RESELLER's own
negligence or your errors, and/or commissions.
C. The services of RESELLER may only be used for lawful purposes.
Transmission of material is subject to compliance with any
applicable laws and regulations. This includes, but is not limited
to: copyright material, threatening or obscene material, or
material protected by trade secret. SUBSCRIBER agrees to indemnify
and hold harmless RESELLER from any claims resulting from your use
of this service, which damages you or another party. At RESELLER
sole discretion, RESELLER may revoke SUBSCRIBER access for
inappropriate usage.
D. If SUBSCRIBER uses another organization's networks or computing
resources, SUBSCRIBER is subject to their respective permission and
usage policies. These policies relate to the use of such services
as electronic mail, news postings, file transfers, Telnet or rlogin
accesses, and World Wide Web server access.
E. Use of any information obtained via this service is at SUBSCRIBER's
own risk. RESELLER is not responsible for the accuracy, quality, or
content of information obtained through RESELLER's services.
F. All RESELLER services are for Subscriber use only and may not be
resold to third parties without a separate Reseller Agreement on
file with RESELLER.
Confidential
9
<PAGE>
RESELLER AGREEMENT SCHEDULE III
NETWORK INTEROPERABILITY
A. ZIPLINK shall make its dial-up (Internet) network access facilities
available to Reseller via the public switched telephone network
using circuit termination equipment which complies with current
interface and modem standards (i.e. V.34 for 33,600 bps service,
with extensions for V.90 as available) and supports dial-in
connection speeds of (at least) 36,600 bps. In addition, ZIPLINK
will use equipment, which supports PPP connections and PAP
authentication in a manner, which is compatible with industry
standards. ZIPLINK will reasonably notify Reseller of changes in
its modem and terminal server hardware and software in advance of
making such changes and if Reseller should determine that planned
changes are not compatible with Reseller systems and services,
Reseller may exercise its rights to terminate this agreement
without penalty.
B. ZIPLINK shall operate a proxy server that can identify access by
Reseller's Subscribers and forward login attempts from such
Subscribers to Reseller's Radius server for authentication,
provided that Reseller's Radius server can be reached through the
Internet from ZIPLINK's network, or with dedicated lines between
the parties.
C. Reseller agrees to assign each Subscriber a unique identification
number for ZIPLINK billing purposes, and to reasonably cooperate
with ZIPLINK in establishing the structure of this identification
number.
D. Reseller will impose inactivity time-outs of a minimum of fifteen
(15) minutes. ZIPLINK will implement inactivity time-outs of a
minimum of seventeen (17) minutes for backup purposes, in case the
time-out is not effective.
Reseller Initials MSH Date 1/12/00 ZIPLINK Initials MM Date 1/12/00
--- ------- -- -------
Confidential
10
<PAGE>
ATTACHMENT A
LOCAL ACCESS NUMBERS
City Number
*******
By: /s/ Mark A. Manuel
---------------------------------------------
Print Name: Mark A. Manuel
---------------------------------------------
Title: Vice President of Sales
---------------------------------------------
By: /s/ Marta S. Hotell
---------------------------------------------
Print Name: Marta S. Hotell
---------------------------------------------
Title: Vice President of Strategic Alliances
---------------------------------------------
Confidential 11
<PAGE>
*********
Confidential 12
<PAGE>
**********
Confidential 13
<PAGE>
***********
Confidential 14
<PAGE>
************
Confidential 15
<PAGE>
************
Confidential
16
<PAGE>
FIRST AMENDMENT TO ZIPDIAL CONTRACT
On this 31st day of March, 2000, reference is made to that certain
Agreement dated January 12, 2000 (the "Agreement"), between ZipLink, Inc
("ZIPLINK") 900 Chelmsford Street, Lowell, Massachusetts and Spin Media Network,
Inc. d/b/a Spinway.com ("Spinway") 925 Commercial Street, Palo Alto, California,
under which Agreement ZIPLINK has agreed to provide and, Spinway has agreed to
purchase, telecommunication services as more particularly described in Schedule
I of the Agreement.
WHEREAS, for good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged, the Parties hereby agree to the
following amendments to the Agreement:
A. SECTION 1 of the Agreement is amended to extend the term of this agreement to
March 31, 2002.
B. SECTION 3 of the Agreement shall be amended to include the following
additional SUB-SECTION 3. F.:
Effective April 30, 2000 and on a monthly basis thereafter, Spinway shall
provide Ziplink a rolling 3 month forecast of Spinway hourly usage (the "Usage
Forecasts") designated by "Tier 1", "Tier 2" and "Tier 3" cities" as such "Tier
cities" are delineated in Schedule I-A attached hereto. To the extent actual
usage by Tier city varies in excess of 20% to the Usage Forecasts, Spinway shall
not be entitled to assert the remedies available to it under Section 18.5 of the
Agreement.
C. SECTION 18 of the Agreement shall be amended to include the following
SUB-SECTION 18.5
NETWORK AVAILABILITY. If the overall connection success rate for a Ziplink point
of presence ("POP") is less than *** as reasonably and accurately computed by
Spinway's internal dial reports produced monthly for distribution between the
parties and, Spinway has previously provided Ziplink its Usage Forecast pursuant
to Section 3 (F), Spinway shall be entitled to a reduction of its "minimum
monthly usage commitment" obligation under Section 1 of Schedule I by a
percentage equal to the percentage of all Spinway Subscribers using that
specific POP multiplied by the minimum monthly usage commitment. This reduction
of the minimum monthly usage commitment shall remain in effect until such time
as Ziplink exceeds an *** connection success rate for two consecutive monthly
reporting periods at which time the scheduled minimum monthly usage commitment
shall be reinstated.
(For example, if Ziplink's Chicago POP's Connection success rate is below
**** and 5% of the Spinway Subscribers on Ziplink's access numbers
connect to the Chicago POP,
Confidential
17
<PAGE>
Spinway's minimum monthly usage commitment for the subsequent months will
be reduced by 5% until such time as Ziplink's Chicago POP's success rate is
above *** for two consecutive monthly reporting periods. If Spinway has
failed to provide the Usage Forecast no recalculation or reduction shall
be applied under the Agreement.).
D. SECTION 1 OF SCHEDULE I is deleted in its entirety and in its stead is
inserted the following:
1. Spinway agrees to minimum monthly hourly usage commitments ( the "minimum
monthly usage commitment") based on the following Schedule I-A corresponding
with the term of this Agreement.
SCHEDULE I-A
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AMENDED TERM MONTH MINIMUM MONTHLY USAGE COMMITMENT (BY HOURS)
- --------------------------------------------------------------------------------
<C> <C>
1 *********
- --------------------------------------------------------------------------------
2 *********
- --------------------------------------------------------------------------------
3 *********
- --------------------------------------------------------------------------------
4 *********
- --------------------------------------------------------------------------------
5 *********
- --------------------------------------------------------------------------------
6 *********
- --------------------------------------------------------------------------------
7 *********
- --------------------------------------------------------------------------------
8 *********
- --------------------------------------------------------------------------------
9 *********
- --------------------------------------------------------------------------------
10 *********
- --------------------------------------------------------------------------------
11 *********
- --------------------------------------------------------------------------------
12 *********
- --------------------------------------------------------------------------------
13 *********
- --------------------------------------------------------------------------------
14 *********
- --------------------------------------------------------------------------------
15 *********
- --------------------------------------------------------------------------------
16 *********
- --------------------------------------------------------------------------------
17 *********
- --------------------------------------------------------------------------------
18 *********
- --------------------------------------------------------------------------------
19 *********
- --------------------------------------------------------------------------------
20 *********
- --------------------------------------------------------------------------------
21 *********
- --------------------------------------------------------------------------------
22 *********
- --------------------------------------------------------------------------------
23 *********
- --------------------------------------------------------------------------------
24 *********
- --------------------------------------------------------------------------------
</TABLE>
Confidential
18
<PAGE>
Spinway, with a 90 day written notice, shall have the option to reduce its
minimum monthly usage commitment. In the event Spinway opts to reduce its
minimum monthly usage commitment for a particular month within 360 days from
that particular month it will be obligated to pay Ziplink, a network
availability fee of 50% of the agreed charge for the original committed hours
less the charge for that particular month for actual hours used by Spinway. For
months commencing greater than 360 days from the date of notice Spinway shall be
obligated to pay Ziplink a network availability fee of 25% of the charge
pursuant to the Agreement for the original committed hours less the actual hours
used by Spinway. The network availability fee shall be based on the lowest
available Tier city rate. (For example, in Month 3 of this Agreement, Spinway
notifies Ziplink that it intends to restate the Month 13 utilization to be
********** hours. Actual usage is ********* hours in Month 13. Spinway would be
liable for a network availability fee equal to the charge for ************* (50%
of ****************). If actual usage was ************ hours Spinway would be
liable for a network availability fee of ******* hours determined by computing
the shortfall to the revised commitment of ******************************
plus 50% of the original ******** hours reduction in the minimum monthly usage
commitment.)
F. SECTION 3 OF SCHEDULE I is deleted in its entirety and in its stead is
inserted the following language:
3. CHARGE BY TIER CITY. Spinway shall be charged the following rates for its
Minimum Monthly Usage Commitment by Tier City as defined herein:
<TABLE>
<CAPTION>
HOURLY RATE
<S> <C>
Tier 1 City ................... ********
Tier 2 City ................... ********
Tier 3 City ................... ********
</TABLE>
Spinway will make available one Ziplink access number for each unique calling
area to Spinway end users.
If Ziplink reduces the number of Tier 1 or Tier 2 cities by more than 15%,
Spinway, at its sole option may terminate without penalty this Agreement.
G. SCHEDULE I-B is hereby included in the Agreement:
SCHEDULE I-B
TIER CITIES
[The parties should regularly update and amend this list by mutual
agreement.]
Confidential
19
<PAGE>
The Tier cities as defined in this Agreement shall be as follows:
Tier 1 Cities:
************
Tier 2 Cities:
*************
Confidential
20
<PAGE>
************
Tier 3 Cities:
**************
Confidential
21
<PAGE>
Except as herein specifically amended, altered or modified, each and every
other provision of the Agreement and any and all documents related thereto
remain in full force and effect and are hereby ratified and confirmed.
Spin Media Network, Inc.,
By:_________________________________Date:_______________________________
Ziplink, Inc.,
By:_________________________________Date:________________________________
<PAGE>
Exhibit 10.2
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 filed separately with the Securities and
Exchange Commission.
Lessor NFTC Capital Corporation Master Lease Agreement
- --------------------------------------------------------------------------------
Lessee ZIPLINK, INC.
- --------------------------------------------------------------------------------
Contact MR. GARY P. STRICKLAND
Title CFO
- --------------------------------------------------------------------------------
Address
900 CHELMSFORD STREET, TOWER ONE, 5TH FLOOR
- --------------------------------------------------------------------------------
Telephone Number Facsimile Number
978/551-8915
- --------------------------------------------------------------------------------
Master Lease Agreement No.
6862229
- --------------------------------------------------------------------------------
City County/Province State/Country Zip Code
LOWELL MIDDLESEX MA 01851
- --------------------------------------------------------------------------------
Corporation Proprietorship Partnership Other
X
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS (The Reverse side contains Terms and Conditions
which are also a part of this Agreement)
- --------------------------------------------------------------------------------
1. LEASE: Lessor shall purchase and lease to Lessee the equipment and associated
items ("Equipment") described in any Equipment Schedule ("Schedule") executed
from time to time by Lessor and Lessee that makes reference to this Master Lease
Agreement ("Agreement"). This Agreement shall be incorporated into each
Schedule. When computer programs and related documentation are furnished with
the Equipment, and a non-exclusive license and/or sublicense (collectively,
"Software") is granted to Lessee in an agreement ("Supplier Agreement") with the
suppliers (collectively, "Supplier") identified on the Schedule, Lessor, to the
extent permitted, grants Lessee a similar non-exclusive sublicense to use the
Software only in conjunction with the Equipment for so long as the Equipment is
leased hereunder. The Equipment and Software include, but are not limited to,
all additions, attachments and accessions thereto and replacements therefore
(collectively, "System"). Any reference to "Lease" shall mean with respect to
each System, this Agreement, a Schedule, a Consent of Supplier, an Acceptance
Certificate, any riders, amendments and addenda thereto, and any other documents
as may from time to time be made a part thereof.
As conditions precedent to Lessor's obligation to purchase any Equipment and
obtain any Software, not later than the Commitment Date set forth on the
applicable Schedule (a) Lessee and Lessor shall execute this Agreement, a
Schedule, an Acceptance Certificate and other documentation contemplated herein,
and (b) there shall have been no material adverse change in Lessee's financial
condition. Upon Lessor's execution of a Schedule, Lessee assigns to Lessor its
rights to receive title to the Equipment and any non-exclusive sublicense to use
the Software described in the Supplier Agreement as of the day the System is
delivered to the Installation Site set forth in the applicable Schedule but no
other right or any warranty thereunder. In consideration of such an assignment
and subject to the terms and conditions herein, Lessor agrees to pay to the
Supplier the Price (as defined in Section 3 below) for the System pursuant to
the Supplier Agreement, but not to perform any other obligation thereunder.
Unless Lessee exercises its Purchase Option as set forth in the applicable
Schedule, Lessee hereby assigns to Lessor all of Lessee's then-remaining rights
pursuant to the applicable Supplier Agreement effective upon the termination or
expiration of the Term (as set forth in the applicable Schedule) for any reason.
2. TERM, RENEWAL AND EXTENSIONS: If all other conditions precedent to a Lease
have been met, the Lease Term for the System described on each Schedule shall
commence on the date of Lessee's execution of an Acceptance Certificate
("Commencement Date"), and continue for the number of whole months or other
periods set forth in such Schedule ("Initial Term"), the first such full month
commencing on the first day of the month following the Commencement Date (or
commencing on the Commencement Date if such date is the first day of the month).
If Lessee selects Purchase Option B or C in the applicable Schedule, on the
expiration date of the initial Term, the Lease shall be automatically renewed
for a six-month period ("Renewal Term") unless, by giving written notice to
Lessor six (6) months prior to the expiration date, the Lessee elects to
terminate the Lease. After the Renewal Term, at Lessors option, the Lease shall
be automatically extended on a month-to-month basis until either party gives the
other not less than thirty (30) days prior written notice of its intention to
terminate the Lease. Any renewals and extensions shall be on the same terms and
conditions as during the Initial Term. "Term" shall mean the applicable Initial
Term, the Renewal Term, if any, and any extension thereof as provided herein.
3. RENT AND PAYMENT: Lessee shall pay to Lessor all the rental payments as shown
in the applicable Schedule ("Rent") during the Term of the Lease, except as such
Rent may be adjusted pursuant to this Section and Sections 2 and 8 of a
Schedule, plus such additional amounts as are due Lessor under the Lease. Rent
shall be paid as designated in the applicable Schedule in advance on the first
day of each Payment Period ("Rent Payment Date"). If the Commencement Date is
not the first day of a calendar month (or other Payment Period), Lessee shall
pay to Lessor, on demand, interim Rent prorated daily based one 360-day year for
each day from and including the Commencement Date to and including the last day
of such month or other Payment Period.
The Rent is based upon the Price of the System and the acceptance of the System
by Lessee on or before the Commitment Date set forth in the applicable Schedule.
The "Price" of the System shall be as set forth in the Schedule, and shall
exclude all other costs, including sales or other taxes included in the Supplier
Agreement as part of the purchase price. If the Price is increased or decreased
as a result of a job change order ("JCO"), the Lessee authorizes Lessor to
adjust the Rent. If the Commencement Date occurs after the Commitment Date, and
Lessor waives the condition precedent that the Commencement Date occur on or
before the Commitment Date. Lessor's then-current Lease Rate Factor for similar
transactions shall apply and the Lessee authorizes Lessor to adjust the Rent,
accordingly.
Whenever any payment of Rent or other amount is not made within ten (10) days
after the date when due, Lessee agrees to pay on demand (as a fee to offset
Lessor's collection and administrative expenses), the greater of twenty-five
dollars ($25.00) or ten percent (10%) of each such overdue amount, but not
exceeding the lawful maximum, if any. All payments shall be payable to Lessor in
U.S. dollars at Lessor's address set forth in Section 18 or such other place as
Lessor directs in writing. If Lessee requests changes or amendments to any
Lease, Lessor may charge Lessee Lessor's reasonable costs and expenses of
negotiation and documentation, including fees of legal staff or outside counsel.
4. DELIVERY: All transportation, delivery and installation costs (unless
included in the Price) are the sole responsibility of Lessee. Lessee assumes all
risk of loss and damage if the Supplier fails to deliver or delays in the
delivery of any System, or if any System is unsatisfactory for any reason
5. NET LEASE: Lessee's obligations under each Lease are absolute, unconditional
and non-cancellable and shall not be subject to any delay, reduction, setoff,
defense, counterclaim or recoupment for any reason including any failure of any
System, or any misrepresentations of any supplier, manufacturer, installer,
vendor or distributor. Lessor is not responsible for the delivery, installation,
maintenance or operation of any System.
6. WARRANTIES: Lessor agrees that third-party warranties, if any, inure to the
benefit of Lessee during the Term and on exercise of the Purchase Option. Lessee
agrees to pursue any warranty claim directly against such third party and shall
not pursue any such claim against Lessor. Lessee shall continue to pay Lessor
all amounts payable under any Lease under any and all circumstances.
7. QUIET ENJOYMENT: Lessor shall not interfere with Lessee's quiet enjoyment and
use of the System during the Term if no Event of Default has occurred and is
continuing.
8. TAXES AND FEES: Lessee shall promptly reimburse Lessor, upon demand, as
additional Rent, or shall pay directly, if so requested by Lessor, all license
and registration fees, sales, use, personal property taxes and all other taxes
and charges imposed by any federal, state, or local governmental or taxing
authority, relating to the purchase, ownership, leasing, or use of the System or
the Rent excluding, however, all taxes computed upon the net income of Lessor.
9. DISCLAIMER OF WARRANTIES AND DAMAGES: LESSEE ACKNOWLEDGES THAT (a) THE SIZE,
DESIGN, CAPACITY OF EACH SYSTEM AND THE MANUFACTURER AND SUPPLER HAVE BEEN
SELECTED BY LESSEE; (b) LESSOR IS NOT A MANUFACTURER, SUPPLIER, DEALER,
DISTRIBUTOR OR INSTALLER OF ANY SYSTEM; (c) NO MANUFACTURER OR SUPPLIER OR ANY
OF THEIR REPRESENTATIVES IS AN AGENT OF LESSOR OR AUTHORIZED TO WAIVE OR ALTER
ANY TERM OR CONDITION OF ANY LEASE; AND (d) EXCEPT FOR LESSOR'S WARRANTY OF
QUIET ENJOYMENT SET FORTH IN SECTION 7, LESSOR HAS NOT MADE, AND DOES NOT HEREBY
MAKE, ANY REPRESENTATION, WARRANTY OR COVENANT, WRITTEN OR ORAL, STATUTORY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER INCLUDING, WITHOUT LIMITATION,
THE DESIGN, QUALITY, CAPACITY, MATERIAL, WORKMANSHIP, OPERATION, CONDITION,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, HIDDEN OR LATENT DEFECTS,
OR AS TO ANY PATENT, COPYRIGHT OR TRADEMARK INFRINGEMENT, LESSEE LEASES EACH
SYSTEM "AS IS, WHERE IS."
LESSOR SHALL HAVE NO LIABILITY TO LESSEE OR ANY THIRD PARTY FOR ANY SPECIAL,
DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY SORT INCLUDING,
WITHOUT LIMITATION, DAMAGES FOR PERSONAL INJURY, LOSS OF PROFITS OR SAVINGS,
LOSS OF USE, OR ANY OTHER DAMAGES, WHETHER BASED ON STRICT LIABILITY OR
NEGLIGENCE, WHETHER RESULTING FROM USE OF A SYSTEM OR BREACH OF A LEASE OR
OTHERWISE, EXCEPT FOR DIRECT, SPECIFIC DAMAGES FOR PERSONAL INJURY OR PROPERTY
DAMAGE TO THE EXTENT CAUSED BY LESSOR'S ACTIVE GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
- --------------------------------------------------------------------------------
Except as otherwise provided in Section 3 of this Agreement and Sections 2, 3,
and 8 of a Schedule, any modifications, amendments or waivers to a Lease shall
be effective only if mutually agreed upon in a writing, duly executed by
authorized representatives of the parties.
- --------------------------------------------------------------------------------
NTFC Capital Corporation ZIPLINK, INC.
BY /s/ Joe Stephen Slinkard BY /s/ Gary P. Strickland
------------------------------ ------------------------------
Authorized Representative Authorized Representative
PRINT NAME Joe Stephen Slinkard PRINT NAME Gary P. Strickland
---------------------- ----------------------
TITLE Operations Manager DATE 3/31/00 TITLE CFO DATE 3/31/00
------------------ ------- --- -------
- --------------------------------------------------------------------------------
MLA 11/1/99 Telecom Financial Services Legal Staff
<PAGE>
- --------------------------------------------------------------------------------
IF LESSEE HAS ELECTED PURCHASE OPTION [ILLEGIBLE] C, ARTICLE 2A OF THE UCC MAY
APPLY TO THE LEASE AND LESSEE MAY HAVE CERTAIN RIGHTS THEREUNDER. IF SO, LESSEE
ACKNOWLEDGES THAT SUCH A LEASE IS A FINANCE LEASE AS DEFINED IN UCC ss.2A-103.
TO THE EXTENT PERMITTED BY LAW, LESSEE HEREBY WAIVES ANY RIGHTS OR REMEDIES
LESSEE MAY HAVE UNDER UCC ss.ss. 2A-508-522 INCLUDING, WITHOUT LIMITATION,
RIGHTS OF REJECTION, REVOCATION, CANCELLATION, GRANTING OF SECURITY INTERESTS,
AND RECOVERY FOR BREACH OF WARRANTY.
10. INSURANCE: At its expense, Lessee shall keep each System insured against all
risks of loss and damage for an amount equal to the installed replacement cost
of such System with Lessor named as a loss payee. Lessee shall also maintain
comprehensive general liability insurance, with Lessor named as an additional
insured. All insurance policies shall be with an insurer having a rating of "B+"
or better by A.M. Best Company, Inc., and be in such form, amount and
deductibles as are satisfactory to Lessor. Each such policy must state by
endorsement that the insurer shall give Lessor not less than thirty (30) days
prior written notice of any amendment, renewal or cancellation. Lessee shall,
upon request, furnish to Lessor satisfactory evidence that such insurance
coverage is in effect. Lessee may self insure for such coverages only with
Lessor's prior written consent.
11. CASUALTY: If any System, in whole or in part, is lost, stolen, damaged or
destroyed, or is taken in any condemnation or similar proceeding (an "Event of
Loss"), Lessee shall immediately notify Lessor. Lessee shall, at its option (a)
immediately place the affected Equipment and Software in good condition and
working order, (b) replace the affected item with like equipment or software in
good condition and transfer clear title and any sublicense to Lessor, or (c) pay
to Lessor, within thirty (30) days of the Event of Loss an amount equal to the
Stipulated Loss Value ("SLV") as defined below, for such affected Equipment or
Software plus any other unpaid amounts then due under the Lease. If an Event of
Loss occurs as to part of a System for which the SLV is paid, a prorata amount
of Rent shall abate from the date the SLV payment is received by Lessor. Upon
payment of the SLV, title to the applicable Equipment and the sublicense to the
applicable Software shall pass to Lessee with no warranties, subject to the
rights, if any, of the insurer.
The SLV shall be an amount equal to all future Rent from the last Rent Payment
Date for which Rent has been paid to the end of the Term with each such payment
discounted to present value at a simple interest rate of five percent (5%) per
annum or the Lease Rate, as applicable, or, if such rate is not permitted by
law, then at the lowest permitted rate, plus (a) if Lessee selects Purchase
Option B, twenty percent of the product obtained by multiplying the total number
of Rent payments shown on the Schedule for the applicable Term by the then
periodic Rent, or (b) if Lessee selects Purchase Option C, the percent set forth
in the Purchase Option C election in the Schedule times the Price as it may have
been adjusted ("Percent Option Amount"). If Lessor received any insurance
proceeds, Lessor shall apply such proceeds to Lessee's outstanding obligations
with any remaining sums to be delivered to Lessee.
12. INDEMNITY: Lessee shell indemnity Lessor against, and hold Lessor harmless
from, and covenants to defend Lessor against, any and all losses, claims, liens,
encumbrances, suits, damages, and liabilities (and all costs and expenses
including, without limitation, reasonable attorneys' fees) related to the Lease
including, without limitation, the selection, purchase, delivery, ownership,
condition, use, operation of a System, or violation of a Software sublicense, or
arising by operation of law (excluding any of the foregoing to the extent caused
by the active gross negligence or willful misconduct of Lessor). Lessee shall
assume full responsibility for or, at Lessor's sole option, reimburse Lessor for
the defense thereof. This Section shall survive the termination of the Lease but
not longer than the applicable statute of limitations.
13. TAX INDEMNITY: If Lessee selects Purchase Option B, the Lease is entered
into based upon the assumptions ("Assumptions") that for federal, state, and
local income tax purposes, Lessor shall be entitled to deduct, at the highest
marginal rate of tax imposed on corporations, the maximum depreciation or cost
recovery allowances provided in the Internal Revenue Code of 1986, as amended,
and under state and local law in effect on the date Lessee executes the
applicable Schedule. If, in its reasonable Opinion, Lessor determines that its
net after-tax economic yield or after-tax cash flow ("Net Economic Return") has
been adversely affected as a result of a change in the Assumptions (a "Loss"),
Lessee agrees to pay to Lessor, on demand, an amount which will cause Lessor's
then Net Economic Return to equal the Net Economic Return that Lessor would have
received had such Loss not occurred. Lessee shall have no right to inspect the
tax returns of Lessor.
14. DEFAULT: Any of the following shall constitute an Event of Default: (a)
Lessee fails to pay when due any Rent or other amount payable under a Lease that
is not paid within ten (10) days of Lessee's receipt of written notice of
nonpayment; (b) Lessee fails to perform any other material term in any Lease or
other agreement given in connection with any Lease that continues uncured for
twenty (20) days after Lessee's receipt of written notice thereof; (c) the
inaccuracy of any material representation or warranty made by Lessee or any
guarantor in connection with any Lease and the continuation thereof for thirty
(30) days or more; (d) Lessee attempts to make a Transfer (as defined in Section
16) without Lessor's prior written consent; (e) Leases dissolves or ceases to do
business as a going concern; (f) Lessee sells all or substantially all of its
assets, merges or consolidates with or into, or reorganizes with any entity; (g)
Lessee becomes insolvent, makes an assignment for the benefit of creditors,
files a voluntary petition or has an involuntary petition filed or action
commenced against it under the United States Bankruptcy Code or any similar
federal or state law; (h) Lessee fails to perform its obligations under any
other Lease or agreement with Lessor; or (i) Any partner of Lessee or any
guarantor takes any actions described in subsections (e), (f), or (g) above.
15. REMEDIES: If an Event of Default has occurred, Lessor shall have the right
to exercise one or more of the following remedies set forth below. Lessor may
(a) terminate and/or declare an Event of Default under any Lease or other
agreement with Lessee (b) recover from Lessee all Rent and any and all amounts
then due and unpaid and (c) recover from Lessee all Rent and other amounts to
become due, by acceleration or otherwise (plus, if the System is not returned in
accordance with Section 9 of the applicable Schedule, an amount equal to (i)
Lessor's reasonable estimate of the fair market value of the System at the end
of the applicable Term if Lessee selects Purchase Option B in the Schedule, or
(ii) if Lessee selects Purchase Option C in the Schedule, the Percent Option
Amount). The amounts described in subsection (c) shall be present valued using a
five percent (5%) simple interest rate per annum or the Lease Rate, as
applicable, or, if such [ILLEGIBLE] not permitted by law, then at the lowest
permitted rate. The amounts set forth in subsections (b) and (c) above shall be
the agreed upon damages ("Lessor's Loss"). Lessor may also charge Lessee
interest on the Lessors Loss from the date of the Event of Default until paid at
the rate of one and one-half percent (1-1/2%) per month, but in no event more
than the maximum rate permitted by law; demand the Lessee return any System to
Lessor in the manner provided in Section 9 of the Schedule; and take possession
of, render unusable, or disable any System wherever located, with or without
demand or notice or any court order or any process by law.
Upon repossession or return of a System, Lessor shall have the right to sell,
lease or otherwise dispose of the System, with or without notice and by public
or private bid, and shall apply the net proceeds thereof, if any, toward
Lessor's Loss but only after deducting from such proceeds (a) in the case of any
reletting of the System, the rent due for any period beyond the scheduled
expiration of the Lease; (b) in the case of sale, (i) if Lessee has elected
Purchase Option B, the estimated fair market value of the System as of the
scheduled expiration of the Term of the Lease, or (ii) if Lessee has elected
Purchase Option C, an amount equal to the Percent Option Amount; and (c) all
expenses including, without limitation, reasonable attorneys' fees incurred in
enforcement of any remedy. Lessee shall be liable for any deficiency if the net
proceeds available after the permitted deductions are less than Lessor's Loss.
No right or remedy is exclusive of any other provided herein or permitted by law
or equity. All rights and remedies shall be cumulative and may be enforced
concurrently or individually from time to time.
16. ASSIGNMENT: Lessor may, without notice to or the consent of Lessee, sell,
assign, grant a security interest in, or pledge its interest in all or a portion
of a System and/or a Lease and any amounts payable hereunder to any third party
("Assignee"). Lessee shall, if directed, pay all Rent and other amounts due to
Assignee free from any claim, counterclaim, defense or other right which Lessee
may have against Lessor, Lessor shall be relieved of its future obligations
under the Lease as a result of such assignment if Lessor assigns to Assignee its
interest in the System and Assignee assumes Lessor's future obligations. WITHOUT
LESSOR'S PRIOR WRITTEN CONSENT, LESSEE SHALL NOT ASSIGN, SUBLEASE, TRANSFER,
PLEDGE, MORTGAGE OR OTHERWISE ENCUMBER ("TRANSFER") ANY SYSTEM OR ANY LEASE OR
ANY OF ITS RIGHTS THEREIN OR PERMIT ANY LEVY, LIEN OR ENCUMBRANCE THEREON. Any
attempted non-consensual Transfer by Lessee shall be void ab initio. No Transfer
shall relieve Lessee of any of its obligations under a Lease.
17. ORGANIZATION AND AUTHORITY: Lessee is duly organized, validly existing and
in good standing under the laws of its State of formation and in any
jurisdiction where a System is located. Lessee has the power and authority to
execute, deliver and perform each Lease. The person executing this Agreement and
any Schedules on behalf of Lessee has been given authority to bind the Lessee
and each Lease constitutes or will constitute a legally binding and enforceable
obligation of the Lessee. The execution, delivery and performance of each Lease
is not and will not be in contravention of, or will not result in a breach of,
any of the terms of Lessee's organizational documents, and any agreements,
contracts or instruments to which Lessee is a party or under which it is bound.
18. NOTICES: Notices, demands and other communications shall be in writing and
shall be sent by hand delivery, certified mail (return receipt requested), or
overnight courier service, or facsimile transmission (effective upon
transmission) with a copy sent by one of the foregoing methods, to Lessee at the
address or facsimile number stated above and to Lessor at [ILLEGIBLE] Drive,
Suite [ILLEGIBLE], Franklin, Tennessee [ILLEGIBLE], Attention: V.P. Finance, or
facsimile no. (615) 771-6292. Notices shall be effective upon the earlier of
actual receipt or four days after the mailing date. Either party may substitute
another address by written notice.
19. JURISDICTION AND GOVERNING LAW: EACH LEASE SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF TENNESSEE AND THE LESSEE CONSENTS AND AGREES THAT, AT LESSOR'S
OPTION, PERSONAL JURISDICTION, SUBJECT MATTER JURISDICTION AND VENUE SHALL BE
WITH THE COURTS OF THE STATE OF TENNESSEE, OR THE FEDERAL COURT FOR THE MIDDLE
DISTRICT OF TENNESSEE.
20. MISCELLANEOUS: (a) Any failure of Lessor to require strict performance by
Lessee, or any waiver by Lessor of any provision of a Lease, shall not be
construed as a consent to or waiver of any other breach of the same or of any
other provision, (b) If there is more than one Lessee, the obligations of each
Lessee are joint and several. (c) Lessee agrees to execute and deliver, upon
demand, any documents necessary, in Lessor's reasonable opinion, to evidence the
intent of a Lease, and/or to protect Lessor's interest in a System. Lessee
appoints Lessor as its attorney-in-fact for the sole purpose of executing and
delivering any UCC financing statements. Lessee agrees to pay Lessor's
out-of-pocket costs of filing and recording such documentation. (d) Lessee shall
deliver to Lessor such additional financial information as Lessor may reasonably
request. (e) If any provision shall be held to be invalid or unenforceable, the
validity and enforceability of the remaining provisions shall not in any way be
affected or impaired. (f) In the event Lessee fails to pay or perform any
obligations under a Lease, Lessor may, at its option, pay or perform such
obligation, and any payment made or expense incurred by Lessor in connection
therewith shall be due and payable by Lessee upon Lessor's demand with interest
thereon accruing at the maximum rate permitted by law until paid. (g) Time is of
the essence in each Lease. (h) Lessee shall pay Lessor, on demand, all costs and
expenses, including reasonable attorneys' and collection fees, incurred by
Lessor in enforcing the terms and conditions of a Lease or in protecting Lessors
rights and interests in a Lease or a System. (i) LESSOR INTENDS TO COMPLY WITH
ALL APPLICABLE LAWS, INCLUDING THOSE CONCERNING THE REGULATION OF INTEREST.
Therefore, no lease charge, late charge, fee or interest, if applicable is
intended to exceed the maximum amount permitted to be charged or collected by
applicable law. If one or more of such charges exceed such maximum, then such
charges will be reduced to the legally permitted maximum charge and any excess
charge will be used to reduce the future Rent and/or the Price of the System or
refunded. (j) Each Lease may be executed by one or more of the parties on any
number of separate counterparts (which may be originals or copies sent by
facsimile transmission), each of which counterparts shall be an original. (k)
Each Lease constitutes the entire agreement between Lessor and Lessee with
respect to the subject matter thereof and supersedes all previous writings and
understandings of any nature whatsoever. (l) No agent, employee, or
representative of Lessor has any authority to bind Lessor to any representation
or warranty concerning any System and, unless such representation or warranty is
specifically included in a Lease, it shall not be enforceable by Lessee against
Lessor.
MT
- --------------------------------------------------------------------------------
MLA 3/98 (C) Telecom Financial Services Legal Staff
<PAGE>
Lessor NTFC Capital Corporation Equipment Schedule
- --------------------------------------------------------------------------------
Lessee ZIPLINK, INC.
- --------------------------------------------------------------------------------
Billing Address Attention
900 CHELMSFORD STREET, TOWER ONE, 5TH FLOOR MR. GARY P. STRICKLAND
- --------------------------------------------------------------------------------
City County/Province State/Country Zip Code
LOWELL MIDDLESEX MA 01851
- --------------------------------------------------------------------------------
Installation Site City County/Province State/Country Zip Code
COMPLETE EQUIPMENT LISTING BY INSTALLATION
SITE TO BE FURNISHED BY VENDOR.
- --------------------------------------------------------------------------------
Supplier Name
NORTEL NETWORKS
- --------------------------------------------------------------------------------
Purchase Option
|X| (A) $1.00
|_| (B) FMV
|_| (C)
- --------------------------------------------------------------------------------
Advance Payment
*
The Advance Payment shall be applied to the first 1 and last 1 Rent payment(s).
- --------------------------------------------------------------------------------
Agreement No./Schedule No.
6862229-001
- --------------------------------------------------------------------------------
Price
*
- --------------------------------------------------------------------------------
Payment Nos.
1 - 36
- --------------------------------------------------------------------------------
Lease Rate Factor
*
- --------------------------------------------------------------------------------
Rent
*
- --------------------------------------------------------------------------------
Date of Schedule
1/26/2000
- --------------------------------------------------------------------------------
Initial Term (months)
36
- --------------------------------------------------------------------------------
Commitment Date
3/31/2000
- --------------------------------------------------------------------------------
Payment Period
|X| Monthly |_| Other
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS (The Reverse side contains Terms and
Conditions which are also a part of this Schedule)
- --------------------------------------------------------------------------------
The terms and conditions of the Master Lease Agreement between Lessor and Lessee
referenced above are made a part of this Schedule. Lessor and Lessee hereby
agree to the terms defined above and further agree as set forth herein.
1. ADVANCE PAYMENT: Lessee shall pay to Lessor, upon the execution and delivery
of this Schedule, the advance payment set forth above ("Advance Payment") in
consideration of the Lessor holding funds available to purchase the Equipment
and obtain the Software and as compensation for Lessor's review of Lessee's
credit and document preparation. Upon Lessor's acceptance of the Lease, the
Advance Payment shall be applied to the payment of Rent as set forth above. Any
Advance Payment shall be non-refundable if Lessee fails to timely provide all
documentation or satisfy all conditions required by this Lease.
2. PURCHASE PRICE PAYMENTS: Lessee acknowledges that it has signed and received
a copy of the Supplier Agreement. If Lessee is required to make payments to
Supplier under the Supplier Agreement prior to the Commencement Date ("Purchase
Price Payments"), Lessee requests Lessor to pay such payments subject to the
following terms and conditions. The Price will be increased by adding a price
adjustment for each Purchase Price Payment. Each such price adjustment shall be
computed by-multiplying the Purchase Price Payment paid by Lessor to Supplier by
a rate equal to the "Base Lending Rate" from time to time designated by Citibank
N.A., NY, NY in effect on the date Lessor makes the first Purchase Price Payment
plus two and one-half percent, divided by 360, and multiplied by the actual
number of days elapsed from the date of the Purchase Price Payment to the
Commencement Date or, if the Lease does not commence, to the date Lessee refunds
the Purchase Pride Payments to Lessor in accordance with Section 3. In no event
will all or any price adjustment(s) exceed any limits imposed by applicable law.
The periodic Rent shell be increased as a result of adding to the Price of the
System an amount equal to the total price adjustment(s).
3. ACCEPTANCE: Lessee agrees to accept the System for purposes of this Lease by
signing the Acceptance Certificate within ten (10) days after the System has met
the acceptance criteria specified in the Supplier Agreement. If Lessee fails or
refuses to sign the Acceptance Certificate within such (10) ten day period,
Lessor may declare lessee's assignments and Lessor's agreement to pay the Price
set forth in Section 1 of the Agreement and Section 2 of this Schedule to be
null and void ab initio and thereupon the Lease shall terminate. Lessor shall
then have no obligations under the Lease and Lessee shall, within ten (10) days
of a demand therefore, immediately pay to Lessor all Purchase Price Payments and
all price adjustment(s) under Section 2 herein as well as Lessor's out-of-pocket
expenses.
4. MAINTENANCE, USE. AND OPERATION: At all times during the Term, at its sole
cost and expense, Lessee shall maintain the System in good repair, condition and
working order, ordinary wear and tear excepted. Lessee shall use the System and
all parts thereof for its designated purpose and in compliance with all
applicable laws, shall keep the System in its possession and control and shall
not permit the System to be moved from the Installation Site set forth above
without Lessor's prior written consent.
5. PERSONAL PROPERTY: The System is, and shall at all times remain, personal
property even if the Equipment is affixed or attached to real property or any
improvements thereon. At Lessor's request, Lessee shall, at no charge, promptly
affix to the System any tags, decals, or plates furnished by Lessor indicating
Lessor's interest in the System and Lessee shall not permit their removal or
concealment. At Lessee's expense, Lessee shall (a) at all times keep the System
free and clear of all liens and encumbrances, except those described in Section
6 and those arising through the motions of Lessor, and (b) otherwise cooperate
to defend Lessor's interest in the System and to maintain the status of the
System and at parts thereof as personal property. If requested by Lessor, Lessee
will, at Lessee's expense, furnish a waiver of any interest in the System from
any party having an interest in the real estate or building in which the System
is located. Lessor may inspect the System and any related maintenance records at
any time during Lessee's normal business hours.
6. TRUE LEASE AND SECURITY INTEREST: If Lessee has selected Purchase Option B,
(a) Lessor holds title to the Equipment and the right to use the Software and
Lessor shall be entitled to all tax benefits resulting therefrom, (b) Lessee
shall have no right, title or interest therein, other than possession and use as
a lessee and non-exclusive sublicensee, and (c) Lessee and Lessor intend
- --------------------------------------------------------------------------------
A complete description of the System is set forth on the Equipment
and Software Listing attached hereto and made a part hereof.
- --------------------------------------------------------------------------------
NTFC Capital Corporation ZIPLINK, INC.
BY /s/ Joe Stephen Slinkard BY /s/ Gary P. Strickland
------------------------------ ------------------------------
Authorized Representative Authorized Representative
PRINT NAME Joe Stephen Slinkard PRINT NAME Gary P. Strickland
---------------------- ----------------------
TITLE Operations Manager DATE 3/31/00 TITLE CFO DATE 3/31/00
------------------ ------- --- -------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
this Lease to create a true lease and not a security interest, and the
provisions of this Section or the filing of any financing statements with
respect to this Lease shall not be deemed evidence of any contrary intent out of
an attempt to protect Lessor's rights and title. Regardless of the purchase
option selected, and without limiting or negating the foregoing sentence, to
secure the performance of Lessee's obligations under this Lease including,
without limitation, the repayment of any Purchase Price Payments, price
adjustments and out-of-pocket expenses under Section 3 above, Lessee hereby
grants to Lessor a first priority security interest in Lessee's existing and
future right, title and interest in, to and under (i) the System Including all
additions, attachments, accessions, and leased Modifications and Additions (as
defined in Section 7 below) thereto, and replacements therefor, (ii) the
applicable Supplier Agreement, and (iii) all products and proceeds of the
foregoing including, without limitation, insurance proceeds, rents and all sums
due or to become due to Lessee with respect to any of the foregoing, and all
monies received in respect thereof.
7. MODIFICATIONS, ADDITIONS AND ALTERATIONS: After the Commencement Date of this
Lease and without notice to Lessor, Lessee may, at Lessee's expense, alter or
modify any item of Equipment with an upgrade, accessory or any other equipment
that meets the specifications of the System's manufacturer for use on or in
connection with the System ("Modification") or with Software or other associated
items or materials that meet the specifications of such manufacturer and are to
be used on or in connection with such System ("Addition"). Any other
modification or addition ("Alteration") shall be permitted only upon written
notice to Lessor and at Lessee's expense and risk, and any such Alteration shall
be removed and the System restored to its normal, unaltered condition at
Lessee's expense prior to its return to Lessor. If not removed upon return of
the System, any Modification or Addition shall become, without charge, the
property of [ILLEGIBLE] any parts removed in connection with the installation of
an Alteration, Modification or Addition. Any Equipment or Software installed in
connection with warranty or maintenance service or manufacturer's upgrades
provided at no charge to Lessee shall be the property of Lessor.
8. LEASES FOR MODIFICATIONS AND ADDITIONS: During the Term of this Lease, at
Lessee's request, Lessor may elect to lease to Lessee Modifications and
Additions ("CSO Equipment") subject to the terms of this Lease. While the CSO
Equipment shall be added to and become a part of this Lease as of the CSO
Commencement Date (as defined below), the CSO Lease Addendum shall be assigned a
separate Schedule number. The lease for CSO Equipment shall expire at the same
time as this Lease. The applicable Lease Rate Factor shall be Lessor's
then-current Lease Rate Factor for similar transactions based upon the remaining
length of the Term. The rent for CSO Equipment shall be determined by Lessor who
shall adjust the then-current Rent and notify Lessee in writing of such
adjustment(s), which shall be effective as of the first day of the month
following the date of the notice (or the date of the notice if it is the first
day of the month) ("CSO Commencement Date"). Any adjustment notice shall be
added to and become a part of this Lease.
CSO Equipment must be ordered by Lessee from the Suppler. On the date any CSO
Equipment is delivered to Lessee, Supplier shall pass title to such CSO
Equipment (other than any Software which shall be licensed and/or sublicensed)
directly to Lessor. Such title shall be good and marketable and free and clear
of any and all liens and encumbrances of any nature whatsoever. Lessor shall
promptly pay to Supplier the appropriate price of the CSO Equipment after the
later of (a) the date the CSO Equipment is installed and functioning, or (b)
Lessor's receipt of a full and complete listing of the CSO Equipment and the
Supplier's invoice. No interest shall be payable by Lessor to Supplier with
respect to such payment. Lessor's agreement to lease any CSO Equipment is
subject to the condition that the Price payable to Supplier with respect thereto
shall not exceed $100,000.00 or be less than $1,000.00, and is subject to
satisfactory credit review by Lessor of Lessee's credit at the time of the CSO.
9. RETURN OF SYSTEM: (a) Upon any termination of this Lease pursuant to the term
hereof prior to the end of the Term, (b) at Lessor's request upon the occurrence
of an Event of Default, or (c) if Lessee has not exercised its Purchase Option
set forth herein at the end of the applicable Term, Lessee shall, at its own
risk and sole expense, immediately return the System to Lessor by properly
removing, disassembling and packing it for shipment, loading it on board a
carrier acceptable to Lessor, and shipping the same to a destination in the
continental United States specified by Lessor, freight and insurance prepaid.
The returned System shall be in the same condition and operating order as
existed when received, ordinary wear and tear excepted. If Lessee does not
immediately return the System to Lessor as required, Lessee shall pay to Lessor,
on demand, an amount equal to the then-current Rent prorated on a duly basis for
each day from and including the termination or expiration date of the Lease
through and including the day Lessee ships the System to Lessor in accordance
with this Section. Lessee shall pay to Lessor, upon written demand, any amount
necessary to place the System in good repair, condition and working order.
ordinary wear and tear excepted.
10. PURCHASE OPTION: At the expiration of the initial Term, or any Term, if
Lessee has performed all terms and conditions of the Lease, except the return of
the System pursuant to Section 9 herein, Lessee shall have the right to purchase
all, but not less than all, of the Equipment and all leased Modifications and to
receive an assignment of all, but not less than all, non-exclusive sublicenses
to use the Software and Additions, if any, for the purchase price described
below subject to the following terms and conditions:
If Lessee has elected Purchase Option B or C above, Lessee shall provide written
notice to Lessor at least six (6) months prior to such purchase that Lessee has
elected to exercise its Purchase Option. In any event, upon exercise of its
purchase option, Lessee shall purchase the Equipment and all leased
Modifications and obtain a non-exclusive sublicense to use the associated
Software and Additions AS-IS, WHERE-IS, WITH ALL FAULTS AND SUBJECT TO THE SAME
DISCLAIMERS OF WARRANTIES AND DAMAGES AS SET FORTH IN SECTION 9 OF THE
AGREEMENT. Lessee also shall be responsible for the payment of any sales tax or
other fees in connection with Lessee's exercise of this Purchase Option. The
purchase price shall be due and payable to Lessor by Lessee at the expiration of
the applicable Term.
Upon satisfaction by Lessee of the purchase conditions, Lessor's sole and
exclusive obligations under this Purchase Option shall be to deliver to Lessee
good title to such Equipment and leased Modifications such as Lessor received
from the Supplier, to assign to Lessee a non-exclusive sublicense, as described
in the Supplier Agreement, to use the associated Software and Additions, free
and clear of all liens, encumbrances and rights of others arising solely out of
or created by Lessor's actions. Lessor's assignment of the sublicense is limited
to such sublicense as Lessor can assign without incurring further cost and is
subject to all applicable terms and conditions of the license and/or sublicense
set forth in the [ILLEGIBLE].
The purchase price shall be as follows:
(a) Purchase Option A. If Lessee has selected Purchase Option A above, the
purchase price shall be $1.00.
(b) Purchase Option B. If Lessee has selected Purchase Option B above, the
purchase price shall be the installed fair market value thereof assuming the
System is in good repair, condition and working order, ordinary wear and tear
excepted ("FMV"). The FMV shall be determined by Lessor and Lessee. If Lessor
and Lessee are unable to agree, the FMV shall be determined by an independent
appraiser selected by Lessor and approved by Lessee which approval shall not be
unreasonably withheld or delayed. Lessee shall bear the fees of the appraiser.
(c) Purchase Option C. If Lessee has selected Purchase Option C, the purchase
price shall be the product obtained by multiplying the Price, as it may have
been adjusted, by the percent set forth in Option C above.
11. LEASE RATE: By signing a Lease with a Purchase Option A or Purchase Option
C, Lessee agrees to pay Rent (consisting of a principal payment for Equipment
and, if applicable, Software, maintenance, and/or other costs) based on the
Price of such items and a Lease charge derived from an implied interest rate
("Lease Rate"). The Lease Rate, as used to calculate the portion of each monthly
Rent payment that constitutes a lease charge, may be determined by applying to
the Price, the rate that will amortize such Price (adjusting for any Advance
Rent) down to the amount of the Purchase Option at a constant rate over the
initial Term by payment of the monthly Rent. The Lease Rate is the constant rate
referred to in the preceding sentence. The Lease Rate can also be calculated
using the Price as the present value, the Purchase Option as the future value,
the Rent as the payment and the stated Term.
- ------------------------------------------------------------------------------
SCHED 3/98 (C) Telecom Financial Services Legal Staff
<PAGE>
- ------------------------------------------------------------------------------
Lease Rate Factor Addendum
- ------------------------------------------------------------------------------
Lessee ZIPLINK, INC. Agreement No./Schedule No.
6862229-001
- ------------------------------------------------------------------------------
Contemporaneously with entering into the Schedule to the Master Lease
Agreement referenced above, Lessor and Lessee hereby agree that the fourth
sentence of the second paragraph of Section 3 of the Agreement, only with
respect to the Schedule, is deleted and the following substituted in lieu
thereof:
The Lease Rate Factor of ******** quoted by Lessor on 12/22/1999
("Quote Date") shall be increased or decreased based upon changes
from the Quote Date until the Commencement Date in three year
Treasury Constant Maturities' yield ("Yield") as reported by the
Federal Reserve Statistical Release (H.15 Report). For each 25
basis points of increase or decrease (rounded downward to the
nearest whole 25 basis point increment or decrement) in the
Yield, the Lease Rate Factor shall be increased or decreased,
respectively by 0.00011200. This adjusted Lease Rate Factor
shall be the Lease Rate Factor used to determine the Rent
relative to the Schedule, unless the Commencement Date occurs
after 3/11/2000, in which event Lessor's then-current Lease
Rate Factor for similar transactions shall be used to determine
the Rent. Lessee authorizes Lessor to adjust the Rent, if
required.
- ------------------------------------------------------------------------------
NTFC Capital Corporation ZIPLINK, INC.
BY /s/ Joe Stephen Slinkard BY /s/ Gary P. Strickland
------------------------------ ----------------------------
PRINT NAME Joe Stephen Slinkard PRINT NAME Gary P. Strickland
--------------------- --------------------
TITLE Operations Manager DATE 3/31/00 TITLE CFO DATE 3/31/00
------------------ ------- ------ ---------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Equipment and Software Listing
- ------------------------------------------------------------------------------
Lessee ZIPLINK, INC. Agreement No./Schedule No.
6862229-001
- ------------------------------------------------------------------------------
Lessor and Lessee agree that the following described Equipment and Software
are subject to the Master Lease Agreement and Schedule referenced above.
QUANTITY DESCRIPTION
- -------- -----------
COMPLETE EQUIPMENT LISTING BY INSTALLATION SITE TO BE FURNISHED BY VENDOR.
- -------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD
ENDED MARCH 31, 2000.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 12,290
<SECURITIES> 0
<RECEIVABLES> 2,298
<ALLOWANCES> 31
<INVENTORY> 0
<CURRENT-ASSETS> 17,195
<PP&E> 29,277
<DEPRECIATION> 7,488
<TOTAL-ASSETS> 45,092
<CURRENT-LIABILITIES> 11,989
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 25,227
<TOTAL-LIABILITY-AND-EQUITY> 45,092
<SALES> 5,492
<TOTAL-REVENUES> 5,492
<CGS> 5,320
<TOTAL-COSTS> 10,885
<OTHER-EXPENSES> 38
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> (5,348)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,348)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
