<PAGE>
As filed with the Securities and Exchange Commission on March 19, 1999
Registration No. 333--
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
NETWORK ACCESS SOLUTIONS CORPORATION
(Exact name of registrant as specified in its charter)
100 Carpenter Drive
Sterling, Virginia 20164
(703) 742-7700
(Address of principal executive offices)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 4813 54-1738938
(State or other (Primary standard industrial (I.R.S. employer
jurisdiction of classification code number) identification number)
incorporation or
organization)
</TABLE>
-------------------
Jonathan P. Aust
President and Chief Executive Officer
Network Access Solutions Corporation
100 Carpenter Drive
Sterling, Virginia 20164
(703) 742-7700
(Name, address, including zip code and telephone number, including area code
of agent for service)
-------------------
Copies to:
Edwin M. Martin, Jr., Esquire Scott M. Wornow, Esquire
Nancy A. Spangler, Esquire Paul, Hastings, Janofsky & Walker LLP
Piper & Marbury L.L.P. 399 Park Avenue, 31st Floor
1200 19th Street, N.W. New York, New York 10022
Washington, D.C. 20036 (212) 318-6000
(202) 861-3900
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Securities To Proposed Maximum Aggregate Amount of
Be Registered Offering Price (1) Registration Fee
- ----------------------------------------------------------------------------------
<S> <C> <C>
Shares of Common Stock, par value
$.001................................ $100,000,000 $27,800
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--March 19, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999
[LOGO OF NAS]
NETWORK ACCESS SOLUTIONS
Shares of Common Stock
- --------------------------------------------------------------------------------
The Company: The Offering:
. We are a . The Company is
regionally-focused offering shares.
data communications
and enterprise . The underwriters
networking have an option to
solutions company, purchase an
offering both high additional
speed DSL shares from us to
connectivity and a cover any over-
complete suite of allotments.
value-added
solutions to . This is our
businesses. initial public
offering, and no
. Network Access public market
Solutions currently exists
Corporation for our shares.
100 Carpenter Drive
Sterling, Virginia 20164 . We currrently estimate
(703) 742-7700 that the price of the
shares will be between
Proposed Symbol & $ and $ .
Market:
. NASC/Nasdaq . We plan to use the proceeds
National Market from this offering
(after expenses) to
finance capital
expenditures,
working capital and
general corporate
purposes and to
finance operating
losses that we
expect to incur as
we expand our
customer base and
network.
. Closing: ,
1999.
-------------------------------------------------------
<TABLE>
<CAPTION>
Per
Share Total
----------------------------------------------------
<S> <C> <C>
Public offering price (estimated): $ $
Underwriting fees:
Proceeds to Company (after expenses):
----------------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on Page 5.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
J.P. Morgan & Co.
The undersigned is facilitating Internet distribution.
DLJdirect Inc.
<PAGE>
[Graphic: Map of Bell Atlantic region showing network coverage]
[Graphic: Diagram of network]
We use market data and industry forecasts throughout this prospectus, which
we have obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of this information is not
guaranteed. Similarly, we believe that the surveys and market research we or
others have performed is reliable, but we have not independently verified this
information. Neither we nor any of the underwriters represents that any such
information is accurate.
We own applications for federal registration and claim rights in the
following trademarks: COPPERNET(TM), CU COPPERNET(TM) and CUNET(TM).
This prospectus also refers to trade names and trademarks of other
companies.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Selected Financial and Other Data... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................ 27
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management........................ 45
Related Transactions.............. 50
Principal Stockholders............ 51
Description of our Capital Stock.. 52
Shares Eligible for Future Sale... 55
Underwriting...................... 57
Validity of the Shares............ 59
Experts........................... 59
Available Information............. 59
Glossary of Terms................. A-1
Index to Financial Statements..... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain important information regarding our business
and this offering. You should read this entire prospectus, including the "Risk
Factors" and the financial statements and all related notes before deciding to
purchase our common stock. We use the terms "we," "our" and "us" to refer to
Network Access Solutions Corporation. Our business uses a number of technical
terms that are not easily understandable. We have provided a glossary of terms
for your convenience beginning on page A-1. All share information reflects a
two for one exchange of our common stock effective March 18, 1999. Except as
otherwise indicated, the information in this prospectus assumes that:
. our common stock will be sold at $ per share, which is the mid-point of
the range shown on the cover page of this prospectus;
. the underwriters will not exercise their over-allotment option;
. $5.0 million of our Series A Preferred Stock will be converted into
shares of our common stock at the public offering price with the
remaining shares and all accrued dividends cancelled without additional
payment to the holders of those shares; and
. we will complete a for one exchange of our common stock before this
offering.
The Company
Our Business
We are a regionally-focused data communications and enterprise networking
solutions company. Through our CuNet (pronounced "CopperNet") branded service,
we offer our customers high speed connectivity in the Bell Atlantic region
using digital subscriber line, or DSL, technology. As a complement to CuNet, we
offer our customers a complete suite of value-added enterprise networking
solutions, including network integration, network management, network security
and professional services. Our network supports both legacy telecommunications
infrastructures, including traditional voice, and newer, more efficient packet-
based communications, such as Asynchronous Transfer Mode (ATM), Frame Relay and
Internet Protocol (IP). We plan to take advantage of the growth in the
Internet, the expansion of local (LAN), metropolitan (MAN) and wide (WAN) area
networking, the increase in telecommuting professionals and the introduction of
advanced applications, such as video conferencing, multi-media and e-commerce,
all of which are contributing to the explosion in the data communications
requirements of businesses of all sizes. We believe that CuNet, which provides
our customers with dedicated, "always on" connections to local, metropolitan
and wide area networks, and our value-added enterprise networking solutions
address the needs of those businesses.
We believe that we have formed a closer day-to-day working relationship with
Bell Atlantic than our competitors, and that we will be able to offer a more
responsive, consistent and higher quality service in our target markets. In
April 1997, we entered into our first interconnection agreement with Bell
Atlantic and began CuNet service trials in November 1997. CuNet offers our
customers both symmetrical and asymmetrical DSL connections at speeds ranging
incrementally from 128 Kbps to as high as 7 Mbps, approximately two to 120
times the speed available through a standard 56 Kbps modem. CuNet provides
speeds comparable to or higher than traditional T1 and Frame Relay services at
30% to 70% of the cost of those technologies.
We currently offer CuNet in Boston, New York, Philadelphia, Baltimore,
Washington, D.C. and Richmond and have collocated our equipment in 44 central
offices. We own and operate a series of hybrid, ATM/Frame Relay, metropolitan
area networks in each of these markets that are connected by our own private
high speed fiber backbone. This enables us to deliver a wide area, virtual
private network with the capacity, speed, reliability and level of service that
our customers require. We expect to extend our network coverage to include
Norfolk, Pittsburgh and Wilmington, Delaware by the end of 1999, and to raise
the number of central offices in which we have collocated equipment to 340 by
the end of this year. As opportunities present themselves, we may decide to
expand our network beyond our initial target markets and into adjacent regions
which may be served by local exchange carriers other than Bell Atlantic.
1
<PAGE>
We began operations by providing integrated products and services for wide
area networks, serving as a premier partner for Paradyne Corporation, Ascend
Communications, Inc. and Cisco Systems, Inc. Shortly thereafter, we began
offering a complete suite of value-added enterprise networking solutions,
including network integration, network management, network security and
professional services. We have over 400 customers for our enterprise networking
solutions business, including business customers and network service providers.
We seek to provide bundled, comprehensive solutions to our customers. To sell
those solutions, we employ a direct sales force, which we expect to grow to
more than 140 people by the end of 1999, and also market our services through
our wholesale and channel partners, including Internet service providers,
inter-exchange carriers, other competitive local exchange carriers, or CLECs,
and systems integrators.
Industry Overview
We believe that a substantial business opportunity has been created by the
growing demand for high speed data communications and enterprise networking
solutions; the increasing network congestion being caused by the rapid growth
in data traffic and the imbalance in capacity between local and wide area
networks; the commercial availability of low cost DSL technology which reuses
the existing copper telephone lines; and the regulatory changes resulting from
the passage of the Telecommunications Act of 1996, or the 1996 Telecom Act.
Gartner Group, a leading industry analyst, estimates that the U.S. market for
packet-based, virtual private network and Internet protocol data services will
grow from $3.4 billion in 1997 to $18.5 billion in 2002, a compounded annual
growth rate of 40.3%. International Data Corporation estimates that the U.S.
market for network operations outsourcing services will more than double from
$4.0 billion in 1997 to $9.1 billion in 2002, a compounded annual growth rate
of 17.6%.
Our Business Strategy
Our goal is to become the premier provider of data communications and
enterprise networking solutions in our target markets. We plan to:
. rapidly provide depth of coverage in our markets;
. capitalize on our core competency in direct sales and engineering support
to businesses;
. quickly provision reliable services by building relationships with
service providers;
. provide superior customer care;
. deliver our products and services through multiple sales channels;
. enhance and expand our network to meet the broadest array of business
requirements; and
. capitalize on the compelling economics of DSL.
Our senior management has extensive experience in network integration,
network management and network security and in providing professional services.
Our President and Chief Executive Officer, Jonathan P. Aust, while with AT&T
Corp., was one of the principal architects of the data network created to
handle monetary transfers for the Federal Reserve System. Other members of our
senior management team have worked for well-known telecommunications companies,
including Level 3 Communications Inc., MCI WorldCom Inc., AT&T and Cable and
Wireless, USA. Our principal equity sponsor, Spectrum Equity Investors, has
invested over $8.4 million in our company and more than $300 million in
telecommunications companies.
Our Organization
We were incorporated in Virginia in December 1994 and began operations in
January 1995. We reincorporated in Delaware in August 1998. Our executive
offices are located at 100 Carpenter Drive, Sterling, Virginia 20164. Our
telephone number is (703) 742-7700. We have established a Web site at www.nas-
corp.com. The information on our Web site is not a part of this prospectus.
2
<PAGE>
The Offering
We present below a summary of this offering. of the shares being offered
have been reserved for purchase by our directors, officers and employees and
their business associates and related persons. After this offering, we will
also have outstanding options to purchase shares of our common stock,
including options to purchase shares that will be exercisable immediately
after this offering.
<TABLE>
<C> <S>
Stock offered................................ shares of common stock.
Stock to be outstanding after this offering.. shares of common stock, or
shares of common stock,
assuming the underwriters
exercise their over-allotment
option in full.
Use of proceeds.............................. We plan to use the proceeds
from this offering (after
expenses) to finance capital
expenditures, working capital
and general corporate purposes
and to finance operating
losses that we expect to incur
as we expand our customer base
and network. See "Use of
Proceeds."
Dividend policy.............................. We do not anticipate declaring
or paying dividends for the
foreseeable future. Instead,
for the foreseeable future, we
will retain our earnings, if
any, for the future operation
and expansion of our business.
Proposed Nasdaq National Market symbol....... NASC
</TABLE>
3
<PAGE>
Summary Financial And Other Data
We present below summary financial and other data for our company. The
summary historical balance sheet data as of December 31, 1998 and the summary
historical statement of operations and other data for each of the three years
ended December 31, 1998 have been derived from our audited financial statements
that are included elsewhere in this prospectus. PricewaterhouseCoopers LLP has
audited the financial statements as of and for each of the three years in the
period ended December 31, 1998. The summary financial data for the year ended
December 31, 1995 have been derived from our unaudited financial statements
that are not included in this prospectus. You should refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the more complete financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1996 1997 1998
(unaudited)
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue................................ $1,927 $14,482 $8,945 $ 11,639
------ ------- ------ --------
Cost of revenue:
Direct costs......................... 1,490 12,066 7,411 9,401
Network services..................... -- -- 2 40
------ ------- ------ --------
Total cost of revenue.............. 1,490 12,066 7,413 9,441
Operating expenses:
Selling, general and administrative.. 299 2,255 1,437 4,017
Amortization of deferred
compensation........................ -- -- -- 219
Depreciation and amortization........ 9 7 12 130
------ ------- ------ --------
Total operating expenses........... 308 2,262 1,449 4,366
------ ------- ------ --------
Income (loss) from operations.......... 129 154 83 (2,168)
Interest income (expense), net......... -- (1) (5) 64
------ ------- ------ --------
Income (loss) before income taxes...... 129 153 78 (2,104)
Provision (benefit) for income taxes... 39 63 36 (28)
------ ------- ------ --------
Net income (loss)...................... $ 90 $ 90 $ 42 $ (2,076)
====== ======= ====== ========
Net income (loss) per common share
(basic and diluted)................... $ 0.01 $ 0.01 $ 0.00 $ (0.22)
====== ======= ====== ========
Weighted average common shares
outstanding (basic and diluted)....... 9,740 9,740 9,740 12,134
====== ======= ====== ========
Pro forma net income (loss) per common
share (basic and diluted) (1).........
Pro forma weighted average common
shares outstanding (basic and
diluted) (1)..........................
Other Data:
EBITDA (2)............................. $ 138 $ 161 $ 95 $ (1,819)
Capital expenditures................... 18 30 122 1,156
Net cash provided by (used in)
operating activities.................. 3 (27) 805 (2,810)
Net cash used in investing activities.. 18 30 122 1,341
Net cash provided by financing
activities............................ 42 55 9 8,956
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1998
------------------------------------
Pro Forma
Actual Pro Forma(1) as Adjusted(3)
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................ $ 5,518 $ 5,518 $
Property and equipment, net.............. 5,031 5,031
Total assets............................. 12,928 12,928
Total debt (including capital lease
obligations)............................ 2,513 2,513
Mandatorily redeemable preferred stock... 5,641 --
Total stockholders' equity .............. 932 6,573
</TABLE>
- --------------------
(1) The "pro forma" summary financial data as of and for the year ended
December 31, 1998 reflects the conversion of $5.0 million of our
mandatorily redeemable Series A Preferred Stock into shares of our
common stock at the public offering price and the cancellation without
consideration of the remaining shares of our Series A Preferred Stock and
all accrued dividends as if such conversion and cancellation had occurred
as of December 31, 1998 for the pro forma balance sheet data and on January
1, 1998 for the pro forma statement of operations data.
(2) We define EBITDA as our net income (loss) excluding net interest, income
taxes, depreciation and amortization of property and equipment and
amortization of deferred compensation. EBITDA is presented to aid your
understanding of our operating results and is not intended to represent
cash flow or results of operations in accordance with generally accepted
accounting principles. We may calculate our EBITDA differently from other
companies.
(3) The "pro forma as adjusted" summary financial data as of December 31, 1998
reflects the events described in note 1 and the issuance of our common
stock in this offering and the application of the net offering proceeds as
described in "Use of Proceeds."
4
<PAGE>
RISK FACTORS
You should consider carefully the following risks, together with all other
information included in this prospectus before you decide to buy our common
stock. The risks and uncertainties described below are not the only ones we
face. Please keep these risks in mind when reading any forward looking
statements appearing elsewhere in this prospectus. If any of the following
risks actually occur, our business, financial condition or results of
operations would likely suffer. The trading price of our common stock may
decline, and you could lose all or part of the money you paid to buy our common
stock.
Our business model is evolving, especially our CuNet business model which is
unproven
We commenced operations in 1995 as a products integration and network
services business. Since that time, we have broadened our business plan to
offer customers CuNet, our DSL-based high speed digital communication services.
We entered into our first interconnection agreement with Bell Atlantic in April
1997 and conducted CuNet service trials in cooperation with Bell Atlantic from
November 1997 to August 1998. We began commercially offering CuNet in
Washington, D.C. and Philadelphia in January 1999. Although we are now offering
CuNet in six markets, we are unable to determine whether these services will be
profitable for us. To achieve the growth that we expect, we are depending on
the success of our CuNet business. While we believe that we have been
successful in managing our network integration, network management and network
security business since our formation, if our CuNet business does not evolve as
we expect, we will likely grow at a significantly slower pace than would be the
case if our CuNet business is successful. If that situation arises, it is
possible that the price of our common stock may reflect the slower growth
associated with a business that does not offer DSL-based services.
We have not tested our CuNet business model and strategy. The combination of
our unproven business model and the highly competitive and quickly changing
market in which we compete makes it difficult for us to predict the extent to
which CuNet will achieve market acceptance. To be successful, we must develop
and market services that are widely accepted by businesses at profitable
prices. We may never be able to deploy our network as planned or achieve
significant market acceptance, favorable operating results or profitability.
You must consider our prospects in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development, particularly in new and rapidly evolving markets. To overcome
these risks, we must, among other things:
. rapidly expand the coverage of our services within our regions;
. attract and retain customers;
. increase awareness of our services;
. respond to competitive developments;
. continue to attract, retain and motivate qualified persons;
. continue to upgrade our technologies;
. introduce and develop new technology for our network services; and
. effectively manage our expanding operations.
We cannot assure you that we will be successful in addressing these
requirements.
Due to the so far limited deployment of CuNet, we cannot guarantee that our
network will be able to connect and manage a substantial number of end users at
high transmission speeds. We may be unable to scale our network to service a
substantial number of end users while achieving high performance.
5
<PAGE>
Our revenue mix is changing significantly
We believe our financial results now and in the future are not, and will not
be, directly comparable to our prior financial results. Substantially all of
our revenue in 1995, 1996, 1997 and 1998 was derived from our value-added
enterprise networking solutions business. Our largest customers have been AT&T
and Zeneca Pharmaceuticals, a division of Zeneca, Inc. AT&T and Zeneca
accounted for 50.4% and 9.6%, respectively, of our revenue in 1998, so the loss
of either customer could adversely affect our business. Although in the short
term we expect to derive the majority of our revenue from our value-added
enterprise networking solutions business, we expect that over time our CuNet
revenue will constitute the more significant portion of our total revenue.
Revenue from CuNet to date has been minimal. Accordingly, you have very limited
historical financial information upon which to base your evaluation of our
performance and an investment in our common stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
We cannot predict the future growth or ultimate size of the market for CuNet
The market for CuNet is in the early stages of development. Various
providers of high speed digital communication services are testing products
from various suppliers for various applications, and suppliers have not broadly
adopted an industry standard. Critical issues concerning commercial use of DSL
for Internet and local area network access, including security, reliability,
ease and cost of access and quality of service, remain unresolved and may
impact the growth of this market. If the market for CuNet fails to develop,
grows more slowly than anticipated or becomes saturated with competitors our
business will not produce the level of profitability we hope to achieve.
Future growth will strain our resources
We have rapidly and significantly expanded our operations. We anticipate
further significant expansion of our operations in an effort to achieve our
CuNet network rollout and deployment objectives. This rapid growth is likely to
place a significant strain on our business resources. Our expansion to date has
strained our management, financial controls, operations systems, personnel and
other resources. Any future rapid expansion would increase these strains. If
our marketing strategy is successful, we may be unable to respond to our
customers' demand for services and technical support in a timely manner and in
accordance with their expectations. Rapid growth of our business would make it
difficult to implement successfully our strategy to provide superior customer
service. To manage our growth effectively, we must:
. improve existing and implement new operational, financial and management
information controls, reporting systems and procedures in an efficient
and in a timely manner;
. hire, train and manage sufficient additional qualified personnel to
support our future operations;
. expand and upgrade our technologies; and
.manage multiple relationships with our customers, vendors and other third
parties.
Failure to manage our future growth effectively could adversely affect the
expansion of our customer base and service offerings and could result in a
lower level of profitability than we hope to achieve.
We depend on Bell Atlantic for collocation facilities, copper telephone lines
and back-office services
We depend on Bell Atlantic for collocation facilities to connect our
equipment to our node sites in our target markets. We began collocating our
equipment in Bell Atlantic central offices in late 1997 and to date we have
collocated in 44 spaces. We plan to collocate our equipment in 340 spaces by
the end of 1999. As opportunities present themselves, we may decide to expand
our network beyond our initial target markets and into adjacent regions which
may be served by incumbent local exchange carriers, or ILECs, other than Bell
Atlantic. If that expansion occurs, we will require collocation facilities,
copper telephone lines and back office services from such other ILECs.
We have experienced, and expect to experience in the future, lengthy periods
between our request for and the actual provision of collocation space. Any
delay in obtaining access to collocation space or rejection of our applications
for collocation could result in delays in the rollout of our CuNet services.
Bell Atlantic may
6
<PAGE>
experience, or claim to experience, a shortage of collocation space capacity.
The number of other CLECs that request collocation space will also affect the
availability of space. Existing telecommunications regulatory requirements give
us three collocation options in a given central office: physical collocation,
virtual collocation or secured collocation in an open physical environment
(SCOPE). With physical collocation, we install and maintain our equipment in
Bell Atlantic's central offices and have complete access to the space. With
SCOPE collocation, we install and maintain our equipment in Bell Atlantic's
central offices, but our access to the space is non-exclusive. With virtual
collocation, Bell Atlantic installs and maintains the equipment on our behalf,
but we have no access to the space. While we have used virtual and SCOPE
collocation in our network, those alternatives reduce our control over our
equipment, and therefore may reduce the level of quality and service we provide
to our customers.
We depend on Bell Atlantic for the copper telephone lines we use in our
CuNet services to connect end users to our equipment collocated in Bell
Atlantic's central offices. Our ability to provide DSL-based services to
customers depends on the quality, physical condition, availability and
maintenance of telephone lines within Bell Atlantic's control. We believe that
the current condition of copper telephone lines in some cases will be
inadequate to permit us to implement our network services without delay. Bell
Atlantic may claim their copper telephone lines are not of sufficient quality
to allow us to implement our network services without delay.
We depend on Bell Atlantic for the operational support services, or OSS,
necessary to order, provision, repair and maintain the copper telephone lines
we use to provide CuNet. The systems that Bell Atlantic uses to provide OSS and
the regulatory requirements with which ILECs must comply in providing OSS, are
still under development. Bell Atlantic's failure to provide OSS in a timely or
efficient manner could delay our ability to order, provision, maintain or
repair the copper lines over which CuNet is offered and cause our customers to
be dissatisfied with CuNet.
Bell Atlantic is the sole supplier of copper telephone lines and collocation
space in our target markets. Because we compete with Bell Atlantic in our
target markets, Bell Atlantic may be reluctant to cooperate with us. For
example, Bell Atlantic may seek, through the regulatory process, to change the
prices or other terms under which copper telephone lines and collocation space
is made available to us. Bell Atlantic's position as both a DSL service
competitor and a supplier of numerous essential inputs to our DSL offerings
gives Bell Atlantic an incentive to cross subsidize its own DSL offerings by
failing to fully allocate to its DSL service the costs it incurs in providing
that service. Existing regulations are designed to minimize the risk of cost
misallocation, but the need for strong enforcement of these regulations is
critical and cannot be guaranteed. If Bell Atlantic does not meet its
obligations under our interconnection agreements, we may face additional delays
in building our network. See "Business--Interconnection Agreements with Bell
Atlantic." To the extent we expand into markets outside of the Bell Atlantic
service region, we will have to develop relationships with other ILECs and
enter into interconnection agreements with them, which may be a lengthy
process. We cannot assure you that we will be successful in developing these
relationships or entering into these interconnection agreements.
Our operating results and common stock price may fluctuate significantly
Our annual and quarterly operating results may fluctuate significantly in
the future due to numerous factors, including:
.the rate of customer acquisition and turnover;
.the prices our customers are willing to pay;
.the amount and timing of expenditures relating to the expansion of our
services and infrastructure;
. the timing and availability on reasonable terms of Bell Atlantic copper
telephone lines and central office collocation space;
. the timing and availability on reasonable terms of Bell Atlantic
operations support and spectrum management services;
7
<PAGE>
.the timing and availability on reasonable terms of transport facilities;
.the ability of our equipment and service suppliers to meet our needs;
.our ability to deploy our network on a timely basis;
.the success of our relationships with our partners and distributors;
.introduction of new services or technologies by our competitors;
. regulatory developments governing our industry, including potential new
or changed laws or regulations and interpretations of the 1996 Telecom
Act;
.technical difficulties or network downtime;
.the condition of the telecommunications and network service industries;
and
.general economic conditions.
Many of these factors are beyond our control. Thus, our operating results in
one or more future periods could fail to meet or exceed the expectations of
securities analysts or investors.
Our common stock price may also fluctuate as a result of fluctuations in our
operating results or as a result of factors beyond our control, such as
announcements by others. You should also consider that trading prices for the
stock of newly-public companies like ours are often very volatile.
We depend on Bell Atlantic and other third parties to provide fiber optic
transport facilities
We depend on the availability of fiber optic transmission facilities from
Bell Atlantic and other third parties to connect our equipment within and
between metropolitan areas. These fiber optic carriers include long distance
carriers, ILECs and other CLECs. Many of these entities are, or may become, our
competitors. We have not established a history of obtaining transmission
facilities in large volumes which we expect will be necessary for the
deployment of our intended product and service offerings. We may be unable to
negotiate or renew favorable supply agreements. We depend on the timeliness of
fiber optic carriers to process our orders for customers who seek to use our
services. We have in the past experienced supply problems with certain of our
fiber optic suppliers, and they may not be able to meet our needs on a timely
basis in the future. If this occurs, we may not have alternative means of
connecting our DSL equipment with our node sites.
The lengthy CuNet sales cycle may adversely affect our operating results
The sales cycle for CuNet varies depending on the size and complexity of the
customer's network, whether the business is a new or existing customer and on
the number of end users. Our sales cycle typically involves:
.a significant technical evaluation;
.an initial trial rollout to a relatively small number of end users;
.a commitment of capital and other resources by the customer;
.delays associated with the customer's internal procedures to approve large
capital expenditures;
.time required to engineer the deployment of our services;
.coordination of the activation of multiple access lines with Bell
Atlantic; and
.testing and acceptance of our services.
For these and other reasons, our sales cycle for large businesses may last
six months. During the lengthy sales cycle, we incur significant expenses in
advance of our receipt of revenue. If sales that we forecast for a particular
period do not occur, our expenses for that period may exceed our revenue to a
greater extent than expected.
8
<PAGE>
We may not be able to compete effectively
We will face competition in the DSL market from many competitors with
significantly greater financial resources, well-established brand names and
large, existing installed customer bases. We expect the level of competition to
intensify in the future. We expect significant competition from Bell Atlantic,
from traditional and new long distance carriers, cable modem service providers,
Internet service providers, wireless and satellite data service providers and
major DSL providers. Bell Atlantic has existing metropolitan area networks and
circuit-switched local access networks and its own Internet service provider
businesses, and has started residential sales of DSL-based access services. We
believe that Bell Atlantic presently has the potential to quickly overcome many
of the issues that have delayed its widespread deployment of DSL services in
the past.
Many of the leading traditional long distance carriers, including AT&T, MCI
WorldCom and Sprint Corporation, are expanding their capabilities to support
high speed, end-to-end networking services. The newer long distance carriers,
including The Williams Companies, Inc., Qwest Communications International Inc.
and Level 3 Communications, are building and managing high bandwidth,
nationwide packet-based networks and partnering with Internet service providers
to offer services directly to the public. Cable modem service providers, like
At Home Corporation, are offering or preparing to offer high speed Internet
access over hybrid fiber networks to consumers and have positioned themselves
to do the same for businesses. Several new companies are emerging as wireless
or satellite-based data service providers. Some Internet service providers with
significant and even nationwide presences provide DSL-based Internet access to
residential and business customers. Other companies, including Covad
Communications Group, Inc., Rhythms NetConnections Inc. and NorthPoint
Communications Holdings, Inc., have begun offering DSL-based access services,
and have attracted marketing allies and product development partners. Others
are likely to do the same in the future.
Many of these competitors are offering, or may soon offer, technologies and
services that will directly compete with some or all of our service offerings.
Our competitors use technologies for local access connections that include
ISDN, DSL, wireless data and cable modems. We compete on the basis of
transmission speed, reliability of service, breadth of service,
price/performance, network security, ease of access and use, content bundling,
customer support, strategic relationships and operating experience. Some of our
competitors or potential competitors may have the financial resources to
withstand substantial price competition, and we cannot assure you that we will
be able to compete successfully in the future. Moreover, our competitors may be
better situated to negotiate contracts with suppliers of telecommunications
services which are more favorable than contracts negotiated by us. The
regulatory environment in which we operate is subject to change, which could
create greater competitive advantages for all or some of our competitors or
could make it easier for additional parties to provide DSL services. Our
failure to compete effectively would have a material and adverse effect on our
business, operating results and financial condition.
Because our market is new and evolving, and because current and future
competitors are likely to introduce competing services, we cannot accurately
predict the rate at which our market will grow, if at all, or whether new or
increased competition will result in market saturation.
Industry consolidation could adversely affect us
Consolidation of companies offering high speed local data transport is
occurring through acquisitions, joint ventures and licensing arrangements
involving our competitors. We cannot predict with any certainty how industry
consolidation will affect us or our competitors. We cannot assure you that we
will be able to compete successfully in an increasingly consolidated industry.
Any heightened competitive pressures that we may face may have a material
adverse effect on our business, operating results and financial condition.
We need significant additional funds to expand our business
We will require significant additional capital to expand our business. We
intend to seek substantial additional financing in the future to fund the
growth of our operations, including funding the significant capital
expenditures and working capital requirements we need to provide service in our
targeted markets. We believe
9
<PAGE>
that our current capital resources, including the proceeds of this offering,
will be sufficient to fund our aggregate capital expenditures and working
capital requirements, including operating losses, until . We may not have
completed our network rollout by this date and may need additional capital. Our
actual funding requirement may differ materially if our assumptions underlying
this estimate turn out to be incorrect or change as our business model evolves.
Therefore, you should consider that our funding requirements may increase,
perhaps substantially, if we are unable to generate revenue in the amount and
within the time frame we expect or if we have unexpected cost increases.
We may be unable to obtain any future equity or debt financing on acceptable
terms or at all. A market downturn or general market uncertainty may adversely
affect our ability to secure additional financing. Any future borrowing
instruments, like credit facilities, are likely to contain restrictive
covenants that limit our ability to incur additional indebtedness and pay
dividends. These instruments could also require us to pledge assets as security
for the borrowings. If we were to leverage our business by incurring
significant debt, we may be required to devote a substantial portion of our
cash flow to service that indebtedness. This could require us to modify our
business plan, for example, by delaying the capital expenditures necessary to
complete our network. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Changes in laws or regulations could adversely affect the way we operate our
business
The terms under which we obtain the facilities and services we need in order
to provide CuNet are subject to regulation at the federal, state and/or local
levels. Future federal or state legislation and regulations may be less
favorable to us than current regulation and therefore have an adverse impact on
our business, operating results and financial condition. For example, we cannot
control the rates, terms or conditions under which we collocate our equipment,
connect to copper telephone lines or gain the use of transmission facilities.
Instead, the FCC and state public utility commission regulatory policies and
ILEC tariffs determine the price, terms and conditions under which collocation
space is provided to us. Significant changes in existing collocation policies
could hurt our CuNet business. We may be required to obtain prior approvals
from state public utility commissions or similar state regulatory agencies in
connection with this offering. We may not obtain these approvals on a timely
basis or at all.
The state public utility commissions or similar state regulatory bodies, the
FCC and the courts oversee, in varying degrees, the rates, terms and conditions
under which we gain access to an ILEC's copper telephone lines and transport
facilities that we need in order to provide CuNet. These government entities
may modify the terms or prices of our interconnection agreements and our access
to an ILEC's copper telephone lines and transmission facilities in ways that
would be adverse to our business. The methodology prescribed by the FCC to set
the rates at which ILECs such as Bell Atlantic must make access and
interconnection available to carriers such as us is the subject of a court
challenge, and the rule governing which network elements an ILEC must make
available to other carriers such as us has been sent back to the FCC by the
U.S. Supreme Court for review. A change in this methodology and the FCC's rules
could hurt our CuNet business. ILECs may from time to time propose new rates,
terms or conditions on the availability of their lines, and the outcomes of
future proceedings and rulings could have a material and adverse effect on our
business, operating results and financial condition.
FCC and state public utility commission policies may affect the speed with
which Bell Atlantic provides us with efficient back office support services --
such as OSS and spectrum management -- that are crucial to the success of our
CuNet business. We have no choice but to depend on Bell Atlantic for some of
these essential back office services. Because Bell Atlantic is potentially one
of our most significant competitors in the DSL service market, without strong
regulatory oversight, Bell Atlantic may not provide us with these necessary
services in a timely and efficient manner.
In addition, telecommunications providers pay a variety of surcharges and
fees on their gross revenue from interstate and intrastate services. The
surcharges and fees we currently are required to pay may increase due to
periodic revisions of the applicable surcharges by federal and state
regulators, which may hurt our CuNet business.
10
<PAGE>
We may fall behind technology trends and evolving industry standards
The telecommunications industry is subject to rapid and significant
technological changes, like continuing developments in DSL technology and
alternative technologies for providing high speed data communications. We
cannot predict the effect of technological changes on our business. We will
rely in part on third parties, including our competitors and potential
competitors, for the development of and access to new communications and
networking technology. We expect that new products and technologies applicable
to our market will emerge. New products and technologies may be superior to
ours and render obsolete our products and technologies. Our future success will
depend, in part, on our ability to anticipate and adapt to technological
changes and evolving industry standards. We may be unable to obtain access to
new technology on acceptable terms or at all. We may be unable to adapt to new
technologies and offer services in a competitive manner.
New technologies and products may not be compatible with our technologies.
We believe that the telecommunications industry must set standards to make
various products and technologies compatible. Although we intend to support
emerging standards in our market, industry standards may not be established. If
standards become established, we may not be able to conform to these new
standards in a timely fashion and maintain a competitive position in the
market.
Our success depends on our retention of our key personnel and on their
performance
Our success depends on Jonathan P. Aust, our President and Chief Executive
Officer, and our other executive officers and key employees. Members of our
senior management team have worked together for only a short period of time. We
do not have "key person" life insurance policies on any of our employees.
Generally, members of our senior management team can terminate their employment
agreements with us on thirty days notice. Any of our other employees may
terminate his or her employment with us at any time. Given our stage of
development, we depend on our ability to retain and motivate high quality
personnel, especially our management. Our future success depends on our
continuing ability to identify, hire, train and retain highly qualified
technical, sales, marketing and customer service personnel. The industry in
which we compete has a high level of employee mobility and aggressive
recruiting of skilled personnel. In particular, we face intense competition for
qualified personnel, particularly in software development, network engineering
and product management. We may be unable to continue to employ our key
personnel or to attract and retain qualified personnel in the future. See
"Business--Employees" and "Management."
We depend on third parties for our equipment and some of our installation and
field service
We plan to purchase our equipment from many vendors, including Ascend and
Paradyne. At peak demand times we intend to outsource some of the installation
and field service of our network to third parties. Our reliance on third party
vendors involves a number of risks, including the absence of guaranteed
capacity and reduced control over delivery schedules, quality assurance,
production yields and costs.
If any of our vendors reduces or interrupts its supply, or if any
significant installer or field service provider interrupts its service to us or
fails to perform to required specifications, our business could be disrupted.
Our suppliers may be unable to manufacture and deliver the amount or quality of
equipment we order, or the available supply may be insufficient to meet our
demand. Currently, the DSL modem and DSL multiplexing equipment used for a
single connection over a copper line must come from the same vendor since there
are no existing interoperability standards for the equipment used in our higher
speed services. If our suppliers or licensors enter into competition with us,
or if our competitors enter into exclusive or restrictive arrangements with our
suppliers or licensors, then these events may materially and adversely affect
the availability and pricing of the equipment we purchase and the technology we
license.
11
<PAGE>
A system failure could cause delays or interruptions of our service
Our operations depend on our ability to avoid damages from such events as:
.fires;
.earthquakes;
.floods;
.power losses;
.excessive sustained or peak user demand;
.telecommunications failures;
.network software flaws; and
.transmission cable cuts.
A natural disaster or other unanticipated problem at our owned or leased
facilities could interrupt our services. If an ILEC, CLEC or other service
provider fails to provide the communications capacity we require, as a result
of a natural disaster, operational disruption or any other reason, then this
failure could interrupt our services.
A breach of our network security could cause delays or interruptions of our
service
Despite the implementation of security measures, our network may be
vulnerable to unauthorized access, computer viruses and other disruptive
problems. Corporate networks and Internet service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of accidental or intentional actions of Internet users, current and
former employees and others. Unauthorized access could also potentially
jeopardize the security of confidential information stored in the computer
systems of our customers, which might cause us to be liable to our customers,
and might deter potential customers. Eliminating computer viruses and
alleviating other security problems may require interruptions, delays or
cessation of service to our customers and our customers' end users.
We may not be able to protect our intellectual property and may be subject to
infringement and other claims
The steps we have taken may be inadequate to protect our technology or other
intellectual property. We rely on a combination of licenses, confidentiality
agreements and other contracts to establish and protect our technology and
other intellectual property rights. We have applied for trademarks and
servicemarks on terms and symbols that we believe are important for our
business. We currently have no patents or patent applications pending. We also
rely on unpatented trade secrets and know-how to maintain our competitive
position. We seek to protect this information by confidentiality agreements
with employees, consultants and others. These agreements may be breached or
terminated and we may not have adequate remedies for any breach. Our
competitors may learn or discover our trade secrets.
Our competitors may independently develop technologies that are
substantially equivalent or superior to ours. Third parties, including our
competitors, may assert infringement claims against us and, in the event of an
unfavorable ruling on any claim, we may be unable to obtain a license or
similar agreement to use technology we need to conduct our business. Our
management personnel were previously employees of other telecommunications
companies. In many cases, these individuals are conducting activities for us in
areas similar to those in which they were involved prior to joining us. As a
result, we or our employees could be subject to allegations of violation of
trade secrets and other similar claims.
12
<PAGE>
Our principal stockholders and management will be able to exercise significant
influence
Our executive officers, directors and principal stockholders together will
beneficially own % of our common stock after this offering, or % if the
underwriters exercise their over-allotment option in full. These stockholders
will be able to determine the composition of our board of directors, will
retain the voting power to approve all matters requiring stockholder approval,
including any merger, and will continue to have significant influence over our
affairs. This concentration of ownership could have the effect of delaying or
preventing a change in our control or otherwise discouraging a potential
acquirer from attempting to obtain control of us, which in turn could have a
material and adverse effect on the market price of our common stock or prevent
you from realizing a premium over the market price for your shares of common
stock. See "Principal Stockholders" for information about the ownership of
common stock by our executive officers, directors and principal stockholders.
Problems related to the Year 2000 issue could negatively impact our business
The Year 2000 issue could result in system failures or miscalculations,
causing disruptions in our operations. We have formulated a plan to address our
Year 2000 issues. Our Year 2000 plan applies to two areas: internal business
systems and compliance by external customers and vendors. We have completed our
assessment and remediation of all internally identified Year 2000 problems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of the Year 2000 Issue."
We have not been able to conduct a compliance check of Bell Atlantic or
assess Bell Atlantic's Year 2000 compliance. To the extent that Bell Atlantic
or other third parties experience Year 2000 problems, our network and services
could be adversely affected. Based on responses from our external customers and
vendors, other than Bell Atlantic, we believe that they will not experience
Year 2000 problems that would materially and adversely affect our business, but
we do not have any way of verifying this information. Furthermore, the
purchasing patterns of our customers may be affected by Year 2000 issues as
they expend significant resources to correct their current systems for Year
2000 compliance. These expenditures may result in reduced funds available for
our services. Any of these developments could have a material and adverse
effect on our business, operating results and financial condition.
We have not formulated a contingency plan to address the worst-case Year
2000 scenario.
Our common stock has not been traded in the public market before this offering
Our common stock has not been traded in the public market before this
offering. We will apply to the Nasdaq National Market to list our common stock,
but we do not know whether active trading in our common stock will develop or
continue after this offering. We will determine the price you will pay for our
common stock through negotiations with the underwriters. You may not be able to
resell your shares at or above the price you will pay for our common stock. For
a description of the factors that will be taken into account to determine the
offering price, see "Underwriting--Pricing of this Offering."
Future sales of our common stock in the public market could lower our stock
price
After this offering, we will have shares of common stock outstanding,
of which shares will be "restricted shares." Sales of a substantial amount
of common stock in the public market, or the perception that these sales may
occur, could adversely affect the market price of our common stock prevailing
from time to time in the public market and could impair our ability to raise
funds in additional stock offerings.
The shares of common stock sold in this offering will be freely
tradeable under the Securities Act, except for shares purchased by an affiliate
of ours, sales of which will be generally limited by Rule 144 under the
Securities Act. Holders of "restricted shares" generally will be entitled to
sell their shares in the public market without registration either under Rule
144 or any other applicable exemption under the Securities Act.
13
<PAGE>
The number of shares of common stock available for sale in the public market
is limited by lock-up agreements under which the holders of substantially all
of our outstanding shares of common stock and options to purchase our common
stock have agreed not to sell or otherwise dispose of any of their shares for a
period of 180 days after this offering without the consent of Donaldson, Lufkin
& Jenrette Securities Corporation. Donaldson, Lufkin & Jenrette Securities
Corporation, in its sole discretion and at any time without notice, may release
all or any portion of the securities subject to lock-up agreements.
After this offering, the holders of 9,800,000 shares of common stock will
have the right to require us to register the sale of their shares, subject to
limitations and to the lock-up agreements with the underwriters. These holders
also have the right to require us to include their shares in any future public
offerings of our equity securities. Within approximately 180 days after this
offering, we intend to file one or more registration statements under the
Securities Act to register 4,500,000 shares of common stock subject to
outstanding stock options or reserved for issuance under our stock incentive
plan. The sale of these shares will also be subject to certain resale
limitations and lock-up agreements with the underwriters. See "Shares Eligible
for Future Sale."
Our anti-takeover protections could hurt our stockholders
Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire control of our company, even if a change
in control would be beneficial to stockholders. Our certificate of
incorporation will provide for a classified board of directors and will allow
our board to issue, without stockholder approval, preferred stock with terms
set by the board. The preferred stock could be issued quickly with terms that
delay or prevent the change in control of our company or make removal of
management more difficult. Also, the issuance of preferred stock may cause the
market price of our common stock to decrease. See "Description of our Capital
Stock" for more information.
This prospectus contains forward-looking statements which may not prove to be
accurate
This prospectus contains forward-looking statements and information relating
to our company. We generally identify forward-looking statements in this
prospectus using words like "believe," "intend," "expect," "may," "should,"
"plan," "project," "contemplate," "anticipate" or similar statements. These
statements are based on our beliefs as well as assumptions we made using
information currently available to us. Because these statements reflect our
current views concerning future events, these statements involve risks,
uncertainties and assumptions. Actual results may differ significantly from the
results discussed in these forward-looking statements.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive approximately $ million in net proceeds
from this offering based upon an assumed initial public offering price of $
per share. This amount reflects deductions from the gross proceeds of the
offering of:
. approximately $ million, which will be retained by the underwriters
as discounts and commissions; and
. approximately $ million, representing our estimated expenses for this
offering.
We will use the net proceeds from this offering to finance capital
expenditures, working capital and general corporate purposes and to finance
operating losses that we expect to incur as we expand our customer base and
network. The actual amount of net proceeds we spend on a particular use will
depend on many factors, including:
. our future revenue growth, if any;
. our future capital expenditures; and
. the amount of cash generated by our operations.
Many of these factors are beyond our control. Therefore, we will retain
broad discretion in the use of the net proceeds.
This use of proceeds does not reflect the underwriters' exercise of their
over-allotment option. We estimate that we will receive $ million in
additional net proceeds if the underwriters exercise their over-allotment
option in full.
Until we use the net proceeds of this offering, we intend to invest the net
proceeds in short-term investment-grade securities.
DIVIDEND POLICY
We have never declared or paid dividends. We do not anticipate declaring or
paying dividends for the foreseeable future. Instead, for the foreseeable
future, we will retain our earnings, if any, for the future operation and
expansion of our business.
15
<PAGE>
CAPITALIZATION
The following table shows our capitalization at December 31, 1998 on an
actual basis, a pro forma basis and pro forma as adjusted to give effect to
this offering and the application of the estimated net proceeds we will receive
in this offering. See "Use of Proceeds." You should also refer to our financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
(in thousands)
Pro Forma
Actual Pro Forma(1) as Adjusted(2)
<S> <C> <C> <C>
Cash and cash equivalents.................. $5,518 $ $
======
Long-term obligations:
Capital lease obligations (including
current portion)........................ 1,513
Note payable............................. 1,000
Deferred compensation (including current
portion)................................ 500
------
Total long-term obligations (including
current portion)...................... 3,013
------
Series A mandatorily redeemable preferred
stock, $0.001 par value, 10,000,000 shares
authorized, issued and outstanding (liqui-
dation preference $10,322,192) (actual);
no shares issued and outstanding (pro
forma); no shares issued and outstanding
(pro forma as adjusted)................... 5,641
------
Stockholders' equity:
Common stock, $0.001 par value,
50,000,000 shares authorized, 19,800,000
shares issued (actual), shares is-
sued (pro forma); shares issued (pro
forma as adjusted)...................... 20
Additional paid-in capital............... 8,116
Deferred compensation.................... (3,463)
Deficit.................................. (1,841)
Less treasury stock, at cost, 3,800,000
shares.................................. (1,900)
------
Total stockholders' equity............. 932
------
Total capitalization................. $9,586
======
</TABLE>
- ---------------------
(1) Reflects the conversion of $5.0 million of our mandatorily redeemable
Series A Preferred Stock into shares of our common stock at the
public offering price and the cancellation without consideration of the
remaining shares of our Series A Preferred Stock and all accrued dividends
as if such conversion and cancellation had occurred as of December 31,
1998.
(2) Reflects the events described in note 1 and the issuance of our common
stock in this offering and the application of the net offering proceeds as
described in "Use of Proceeds."
16
<PAGE>
DILUTION
Our net tangible book value at December 31, 1998 was $ or $ per common
share. Net tangible book value is the amount of total tangible assets less
total liabilities. Net tangible book value per common share is net tangible
book value divided by the number of shares of common stock outstanding. Net pro
forma tangible book value per common share is determined by dividing our net
tangible book value by the number of shares of our common stock outstanding
after giving effect to this offering. Assuming no changes in our net tangible
book value, other than to give effect to the sale of the common stock offered
by this prospectus and the application of the net offering proceeds as
described under "Use of Proceeds," our pro forma net tangible book value at
December 31, 1998 would have been $ , or $ per common share.
This represents an immediate increase in pro forma net tangible book value
of $ per common share to existing stockholders, and an immediate dilution in
pro forma net tangible book value of $ per common share to new investors
purchasing our common stock in this offering. The following table illustrates
this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per common share................ $
Net tangible book value per common share at December 31, 1998....... $
Increase per share attributable to new investors....................
Net tangible book value per common share after this offering..........
----
Dilution per common share to new investors............................ $
====
</TABLE>
The following table summarizes at December 31, 1998:
. the number of shares of our common stock purchased by existing
stockholders, the total consideration and the average price per share
paid to us for these shares, valuing these shares at the initial public
offering price;
. the number of shares of our common stock purchased by new investors, the
total consideration and the price per share paid by them for these
shares; and
. the percentage of shares of our common stock purchased by the existing
stockholders and new investors and the percentage of consideration paid
to us for these shares.
This table assumes that none of the stock options outstanding upon the
closing of this offering will be exercised.
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Price Per
-------------- -------------- Common Share
Number Percent Amount Percent ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ % $ % $
New Investors........................
Total.............................. 100.0% $ 100.0% $
</TABLE>
17
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
We were incorporated in December 1994 and began operations in January 1995.
We present below selected financial and other data for our company. The
historical balance sheet data as of December 31, 1997 and 1998 and the
historical statement of operations and other data for each of the three years
ended December 31, 1998 have been derived from audited financial statements
that are included elsewhere in this prospectus. The balance sheet data as of
December 31, 1996 have been derived from audited financial statements that are
not included in this prospectus. PricewaterhouseCoopers LLP has audited the
financial statements as of and for each of the three years in the period ended
December 31, 1998. The financial data as of and for the year ended December 31,
1995 have been derived from our unaudited financial statements that are not
included in this prospectus. You should refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the more
complete financial information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1996 1997 1998
(unaudited)
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue................................. $1,927 $14,482 $8,945 $11,639
------ ------- ------ --------
Cost of revenue:
Direct costs........................... 1,490 12,066 7,411 9,401
Network services....................... -- -- 2 40
------ ------- ------ --------
Total cost of revenue.................. 1,490 12,066 7,413 9,441
Operating expenses:
Selling, general and administrative.... 299 2,255 1,437 4,017
Amortization of deferred compensation.. -- -- -- 219
Depreciation and amortization.......... 9 7 12 130
------ ------- ------ --------
Total operating expenses............... 308 2,262 1,449 4,366
------ ------- ------ --------
Income (loss) from operations........... 129 154 83 (2,168)
Interest income (expense), net.......... -- (1) (5) 64
------ ------- ------ --------
Income (loss) before income taxes....... 129 153 78 (2,104)
Provision (benefit) for income taxes.... 39 63 36 (28)
------ ------- ------ --------
Net income (loss)....................... $ 90 $ 90 $ 42 $ (2,076)
====== ======= ====== ========
Net income (loss) per common share
(basic and diluted)..................... $ 0.01 $ 0.01 $ 0.00 $ (0.22)
====== ======= ====== ========
Weighted average common shares
outstanding (basic and diluted)........ 9,740 9,740 9,740 12,134
====== ======= ====== ========
Pro forma net income (loss) per common
share (basic and diluted) (1)..........
Pro forma weighted average common shares
outstanding (basic and diluted) (1)....
Other Data:
EBITDA (2).............................. $ 138 $ 161 $ 95 $ (1,819)
Capital expenditures.................... 18 30 122 1,156
Net cash provided by (used in) operating
activities............................. 3 (27) 805 (2,810)
Net cash used in investing activities... 18 30 122 1,341
Net cash provided by financing
activities............................. 42 55 9 8,956
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------
1998
1995 1996 1997 -----------------------------------
Pro Forma
(unaudited) Actual Pro Forma(1) as Adjusted(3)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 24 $ 22 $ 713 $ 5,518 $5,518 $
Property and equipment,
net.................... 8 31 140 5,031 5,031
Total assets............ 458 5,352 1,865 12,928 12,928
Total debt (including
capital lease
obligations)........... 30 84 93 2,513 2,513
Mandatorily redeemable
preferred stock........ -- -- -- 5,641 --
Total stockholders'
equity................. 118 208 250 932 6,573
</TABLE>
- ---------------------
(1) The "pro forma" selected financial data as of and for the year ended
December 31, 1998 reflects the conversion of $5.0 million of our
mandatorily redeemable Series A Preferred Stock into shares of
our common stock at the public offering price and the cancellation without
consideration of the remaining shares of our Series A Preferred Stock and
all accrued dividends as if such conversion and cancellation had occurred
as of December 31, 1998 for the balance sheet data and on January 1, 1998
for the statement of operations data.
(2) We define EBITDA as our net income (loss) excluding net interest, income
taxes, depreciation and amortization of property and equipment and
amortization deferred compensation. EBITDA is presented to aid your
understanding of our operating results and is not intended to represent
cash flow or results of operations in accordance with generally accepted
accounting principles. We may calculate our EBITDA differently from other
companies.
(3) The "pro forma as adjusted" selected financial data as of December 31, 1998
reflects the events described in note 1 and the issuance of our common
stock in this offering and the application of the net offering proceeds as
described in "Use of Proceeds."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Since we began operations in January 1995, our primary activity has
consisted of providing comprehensive networking solutions to businesses of all
sizes. From 1995 through 1998, our revenue was derived primarily from the sale
of hardware, technical consulting and network services.
In February 1997, we began developing technical standards for delivery of
DSL-based services within our target markets through a joint effort with Bell
Atlantic. In April 1997, we entered into our first interconnection agreement
with Bell Atlantic. We began DSL service trials in November 1997 and began
offering CuNet, our DSL service, commercially in Philadelphia and Washington
D.C. in January 1999. We currently offer CuNet in Boston, New York,
Philadelphia, Baltimore, Washington, D.C. and Richmond. We expect to extend our
network coverage to include Norfolk, Pittsburgh and Wilmington, Delaware by the
end of 1999. We have collocated DSL equipment in 44 Bell Atlantic central
offices. We expect to raise the number of central offices in which we have
collocated DSL equipment to 340 by the end of 1999. As opportunities present
themselves, we may decide to expand our network beyond our initial target
markets and into adjacent regions which may be served by other ILECs.
Since February 1997, we have invested increasing amounts in the development
and deployment of our CuNet service. The proceeds of our preferred and common
stock financing in August 1998 have been used to fund the deployment of our
CuNet service. As of December 31, 1998, we had an accumulated deficit of $1.6
million. We intend to substantially increase our operating expenses and capital
expenditures in an effort to expand rapidly our infrastructure and DSL-based
network services. We expect to incur substantial operating losses, net losses
and negative cash flow during the build-out of our network and our initial
penetration of each new market we enter. These losses are expected to continue
for at least the next two to three years. Although in the short term we expect
to derive the majority of our revenue from our value-added enterprise
networking solutions business, we expect that over time our CuNet revenue will
constitute the more significant portion of our total revenue.
Revenue
Revenue consists of:
. Product sales. We sell, install and configure selected equipment from our
manufacturing partners on a turn-key basis. Our engineers select the
right manufacturer's product solution based upon customized dependable
network designs to improve customers' operations and network
efficiencies.
. Network solutions. We charge monthly service fees for access to our CuNet
local, metropolitan and wide area networks. We provide a wide variety of
value-added services to customers, including remote network management
and monitoring, network security, virtual private networks, PBX
emulation, Internet access, e-commerce and other data applications. Some
of these services are delivered to customers using resources from third
party providers under contract to us. In addition to monthly service
fees, we bill customers for nonrecurring service activation and
installation charges. We also bill our customers for network integration,
network management, network security and professional services based on
time and materials for contracted services. In addition, we derive
revenue from the maintenance and installation of equipment. From time to
time, some of these services may be provided through third party
providers under contract to us.
19
<PAGE>
Cost of Revenue
Direct costs
We purchase equipment from various vendors whose technology and hardware
solutions we recommend to our customers. We do not manufacture any of this
equipment. Direct costs also include charges for hardware maintenance,
installation and certain contract services which we purchase from third
parties.
Network services
Our network service costs generally comprise non-employee-based charges such
as:
. CuNet service fees. We pay a monthly service fee for each copper line
and for each collocation arrangement, as well as usage fees, for the
back office services we obtain from the ILECs we work with in order to
serve our CuNet customers. Sometimes, we must pay these ILECs to perform
special work, such as line conditioning, when such work is required in
order to serve a particular client.
. Backbone connectivity charges. We incur charges for metropolitan area
network backbone, typically from a CLEC or ILEC, and for wide area
network backbone from an inter-exchange carrier. We pay these carriers a
one-time installation and activation fee and a monthly service fee for
these leased network connections.
. Network operations expenses. We incur various recurring costs at our
network operations center. These costs include data connections,
engineering supplies and certain utility costs.
. Equipment operating lease expenses. In the future, we may decide to
enter into operating leases for some or all of our network equipment,
including DSL multiplexers, ATM and Frame Relay switches and customer
premise equipment. Currently, we generally use capital leases to finance
the acquisition of substantially all of this equipment, which we
depreciate over a range of two to five years.
. Line installation, repair and support costs. During peak service times,
we subcontract installation crews to install customer premise equipment
and any required inside wiring at customer sites.
Operating Expenses
Selling, general and administrative expenses
Our selling, general and administrative expenses include all employee-based
charges, including field technicians, engineering support, customer service and
technical support, information systems, billing and collections, general
management and overhead and administrative functions. Headcount in functional
areas, such as sales, customer service and operations will increase
significantly as we expand our network and as the number of customers
increases.
. Sales and marketing expenses. We distribute our products and services
through direct sales, channel sales, agents and telemarketing. Our sales
and marketing efforts focus on attracting and retaining small, medium
and large business customers in our target markets. We enter into
partnerships with other service providers, value-added resellers and
wholesale partners.
. General and administrative expenses. As we expand our network, we expect
the number of employees located in specific markets to grow. Certain
functions, such as customer service, network operations, finance,
billing and administrative services, are likely to remain centralized in
order to achieve economies of scale. We pay licensing fees for standard
systems to support our business processes such as operating support
systems (OSS) and billing systems.
20
<PAGE>
Amortization of deferred compensation
As of December 31, 1998, we had granted a total of 3,151,500 incentive stock
options at an exercise price of $.20 per share. At December 31, 1998, all of
these options were exercisable into restricted shares of our common stock which
generally vest over a three to four year period. We estimate that the fair
value of the underlying common stock on the date of grant was in excess of the
exercise price of the options. As a result, we recorded deferred compensation
of $3.7 million for the year ended December 31, 1998. We recorded this amount
as a reduction to stockholders' equity which will be amortized as a charge to
operations over the vesting periods. For the year ended December 31, 1998, we
recognized $219,000 of stock compensation expense related to these options.
Depreciation and amortization
Depreciation expense arising from our network and customer premise equipment
purchases will be significant. Collocation fees, build-out costs, including
one-time installation and activation fees, and other DSL-based equipment costs
are capitalized and amortized over a range of two to five years.
Interest Income (Expense), Net
Interest income (expense), net, primarily consists of interest income from
our cash and short-term investments less interest expense associated with our
debt and capital leases.
Results of Operations
The following table presents our results of operations data and the
components of net income (loss) as a percentage of our revenue:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
------------------------ -------------------
1996 1997 1998 1996 1997 1998
(percent of
(dollars in thousands) revenue)
<S> <C> <C> <C> <C> <C> <C>
Revenue........................ $14,482 $8,945 $11,639 100.0% 100.0% 100.0%
------- ------ ------- ----- ----- -----
Cost of revenue:
Direct costs................. 12,066 7,411 9,401 83.3 82.9 80.8
Network services............. -- 2 40 -- 0 0.3
------- ------ ------- ----- ----- -----
Total cost of revenue...... 12,066 7,413 9,441 83.3 82.9 81.1
------- ------ ------- ----- ----- -----
Gross profit................... 2,416 1,532 2,198 16.7 17.1 18.9
------- ------ ------- ----- ----- -----
Operating expenses:
Selling, general and adminis-
trative..................... 2,255 1,437 4,017 15.6 16.1 34.5
Amortization of deferred com-
pensation................... -- -- 219 -- -- 1.9
Depreciation and
amortization................ 7 12 130 0.0 0.1 1.1
------- ------ ------- ----- ----- -----
Total operating expenses... 2,262 1,449 4,366 15.6 16.2 37.5
------- ------ ------- ----- ----- -----
Income (loss) from
operations.................. 154 83 (2,168) 1.1 0.9 (18.6)
Interest income (expense),
net......................... (1) (5) 64 0 0 0.6
Provision (benefit) for
income taxes................ 63 36 (28) 0.4 0.4 (0.2)
------- ------ ------- ----- ----- -----
Net income (loss)............ $ 90 $ 42 $(2,076) 0.7% 0.5% (17.8)%
======= ====== ======= ===== ===== =====
</TABLE>
21
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenue. We recognized $11.6 million in revenue for the year ended December
31, 1998, as compared to $8.9 million for the year ended December 31, 1997, an
increase of $2.7 million, or 30.3%. Revenue increased as a result of a $1.7
million increase in product sales, primarily from one of our largest customers,
AT&T, and from growth in network solutions revenue of $0.7 million arising from
the launch of our network operations center services in late 1997.
Direct costs. Direct costs were $9.4 million for the year ended December 31,
1998, as compared to $7.4 million for the year ended December 31, 1997, an
increase of $2.0 million, or 27.0%. The increase was attributable to growth in
cost related to additional product sales of $1.3 million and growth in network
solutions revenue of $0.7 million.
Network services. Network service costs were $40,000 for the year ended
December 31, 1998, as compared to $2,000 for the year ended December 31, 1997,
an increase of $38,000. The increase in network service costs was attributable
to expenses incurred to develop our CuNet network and other network solutions.
Gross profit. Gross profit was $2.2 million and 18.9% of revenue for the
year ended December 31, 1998, as compared to $1.5 million and 17.1% of revenue
for the year ended December 31, 1997, an increase of $0.7 million or 47.0%. The
increase in gross profit was attributable to higher product sales, increased
revenue from network solutions and the introduction of our network operations
center services in late 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $4.0 million and 34.5% of revenue for the year
ended December 31, 1998, as compared to $1.4 million and 16.1% of revenue for
the year ended December 31, 1997, an increase of $2.6 million, or 186%. This
increase was primarily due to increased staffing and other expenses incurred to
develop our CuNet network and other network solutions.
Amortization of deferred compensation. Amortization of deferred compensation
was $219,000 for the year ended December 31, 1998. We had no amortization of
deferred compensation for the year ended December 31, 1997.
Depreciation and amortization expense. Depreciation and amortization expense
was $130,000 and 1.1% of revenue for the year ended December 31, 1998, as
compared to $12,000 and less than 1% of revenue for the year ended December 31,
1997, an increase of $118,000. This increase was primarily due to investments
in computer equipment and software, office furnishings and leasehold
improvements.
Income (loss) from operations. Our loss from operations was $2.2 million for
the year ended December 31, 1998, as compared to income from operations of
$83,000 for the year ended December 31, 1997. The loss in 1998 was primarily
due to increased staffing and other operating expenses we incurred in support
of our CuNet business.
Interest income (expense), net. For the year ended December 31, 1998, we
recorded net interest income of $64,000, consisting of interest income of
$145,000 which was primarily attributable to interest income earned from the
proceeds of our issuance of $10.0 million of preferred and common stock in
August 1998, offset by $81,000 in interest expense, compared to $5,000 of
interest expense in 1997. The increase in interest expense is primarily due to
interest on deferred compensation liabilities and notes payable.
Provision (benefit) for income taxes. We had a benefit for income taxes of
$28,000 for the year ended December 31, 1998, as compared to a provision for
income taxes of $36,000 for the year ended December 31, 1997. At December 31,
1998, our remaining tax effected net operating loss carryforward was $444,000.
Net income (loss). For the foregoing reasons, our net loss was $2.1 million
for the year ended December 31, 1998, as compared to net income of $42,000 for
the year ended December 31, 1997.
22
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenue. We recognized $8.9 million in revenue for the year ended December
31, 1997, as compared to $14.5 million for the year ended December 31, 1996, a
decrease of $5.6 million, or 38.6%. This decrease in revenue was primarily due
to a decrease in product sales to one of our largest customers, AT&T, which had
purchased a significant amount of equipment from us in the last half of 1996.
Direct costs. Direct costs were $7.4 million for the year ended December 31,
1997, as compared to $12.1 million for the year ended December 31, 1996, a
decrease of $4.7 million, or 38.8%, resulting from the decline in product
sales.
Network service costs. Network service costs were $2,000 for the year ended
December 31, 1997. There were no network service costs for the year ended
December 31, 1996. The network service costs in 1997 were attributable to
expenses incurred in connection with the introduction and development of our
CuNet network and other network solutions.
Gross profit. Gross profit was $1.5 million and 17.1% of revenue for the
year ended December 31, 1997, as compared to $2.4 million and 16.7% of revenue
for the year ended December 31, 1996, a decrease of $0.9 million, or 37.5%, as
a result of the decrease in product sales.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $1.4 million and 16.1% of revenue for the year
ended December 31, 1997, as compared to $2.3 million and 15.6% of revenue for
the year ended December 31, 1996, a decrease of $0.9 million, or 39.1%. This
decrease was primarily due to decreased bonus and commissions compensation in
1997 attributable to lower revenue.
Depreciation and amortization expense. Depreciation and amortization expense
was $12,000 and less than 1% of revenue for the year ended December 31, 1997,
as compared to $7,000 and less than 1% of revenue for the year ended December
31, 1996, an increase of $5,000, or 71.4%. This increase was primarily due to
investments in computer equipment and software, office furnishings and
leasehold improvements.
Income (loss) from operations. Our income from operations was $83,000 for
the year ended December 31, 1997, as compared to an income from operations of
$154,000 for the year ended December 31, 1996, a decrease of $71,000, or 46.1%.
This decrease was primarily due to the decline in products sales from 1996 to
1997, offset in part by lower bonus and commission payments in 1997.
Interest income (expense), net. For the year ended December 31, 1997, we
recorded net interest expense of $5,000 as compared to $1,000 for the year
ended December 31, 1996. The increase in interest expense was substantially due
to a higher average balance on a bank line of credit during 1997. We terminated
this bank line of credit in 1998.
Provision (benefit) for income taxes. We had a provision for income taxes of
$36,000 for the year ended December 31, 1997, as compared to $63,000 for the
year ended December 31, 1996, a decrease of $27,000, or 42.8%, giving us an
effective tax rate above the aggregate statutory federal and state income tax
rates due to certain non-deductible business expenses such as business meals
and entertainment.
Net income (loss). For the foregoing reasons, our net income was $42,000 for
the year ended December 31, 1997, as compared to net income of $90,000 for the
year ended December 31, 1996, a decrease of $48,000, or 53.3%.
Liquidity and Capital Resources
The development and expansion of our business requires significant capital
expenditures. The principal capital expenditures which we expect to incur
during our CuNet rollout include the build out of our collocations and the
deployment of DSL-based equipment in Bell Atlantic central offices and node
sites.
23
<PAGE>
Capital expenditures were $1.2 million for 1998. We expect our capital
expenditures to be substantially higher in future periods, primarily due to
continued collocation construction and the purchase of infrastructure equipment
for expansion of our network.
We have financed our operations to date primarily through a private
placement of preferred and common stock totaling $10.0 million, the use of
capital equipment leases totaling $1.5 million and borrowings of $1.0 million
from Ascend Communications. Ascend has provided us with a $30 million facility
to fund purchases of certain Ascend equipment, under which $1.4 million was
outstanding as of December 31, 1998 and a $10 million facility, under which
$1.0 million was outstanding as of December 31, 1998, which may, subject to
certain conditions (including minimum purchases of Ascend equipment), be used
for general corporate purposes. Any outstanding balance under the $10.0 million
Ascend facility is required to be repaid upon the closing of this offering. In
addition, we have an arrangement with Paradyne Corporation to lease up to $4.0
million of equipment, subject to vender approval. As of December 31, 1998, we
had an accumulated deficit of $1.6 million, and cash and cash equivalents of
$5.5 million.
During 1998, net cash used in our operating activities was $2.8 million.
This cash was used for a variety of operating purposes, including salaries,
consulting and legal expenses, network operations and overhead expense. Net
cash provided by financing activities for 1998 was $9.0 million and was
primarily the result of the private equity placement.
We believe that the net proceeds from this offering, our existing cash and
cash equivalents, existing and anticipated equipment lease financings and
future revenue generated from operations, will be sufficient to fund our
operating losses, capital expenditures, lease payments and working capital
requirements through . We expect our operating losses and capital
expenditures to increase substantially primarily due to our network expansion.
We expect that additional financing would be required in the future if we were
to expand beyond the service territory contemplated in this offering. We may
attempt to finance such an expansion of our operations through a combination of
commercial bank borrowings, leasing, vendor financing or the private or public
sale of equity or debt securities. While we would probably not have sufficient
capital to complete our CuNet rollout if we do not complete this offering, we
would be able to continue our existing enterprise networking solutions
business.
Our capital requirements may vary based upon the timing and success of our
CuNet rollout, as a result of regulatory, technological and competitive
developments or if:
.demand for our services or cash flow from operations is more or less than
expected;
.our development plans or projections change or prove to be inaccurate;
.we engage in any acquisitions; or
. we accelerate deployment of our network services or otherwise alter the
schedule or targets of our CuNet rollout plan.
Equity or debt financing may not be available to us on favorable terms or at
all. See "Risk Factors--We may need significant additional funds."
Impact of the Year 2000 Issue
Many computer programs have been written using two digits rather than four
to define the applicable year. This poses a problem at the end of the century
because these computer programs would not properly recognize a year that begins
with "20" instead of "19." This, in turn, could result in major system failures
or miscalculations, and is generally referred to as the "Year 2000 issue." We
have formulated and, to a large extent, effected a plan to address our Year
2000 issues.
Our Year 2000 plan applies to two areas: internal business systems and
compliance by external providers. We have completed our Year 2000 compliance
testing for all of our internal systems and believe that our internal business
systems are Year 2000 compliant. Because we are a young company, we believe we
have been able to build or acquire our business systems with the Year 2000
issue in mind in a more effective manner
24
<PAGE>
than many older companies. Therefore, there have been few Year 2000 changes
required to our existing systems and applications.
We have substantially completed a compliance check of our significant
external providers, except for Bell Atlantic. Based on responses from these
third parties other than Bell Atlantic, we believe that they will not
experience Year 2000 problems that would materially adversely affect our
business. We have not been able to conduct a compliance check of Bell Atlantic
nor assess its Year 2000 compliance. To the extent that Bell Atlantic or other
third parties experience Year 2000 problems, our network and services could be
adversely affected. Furthermore, the purchasing patterns of our customers may
be affected by Year 2000 issues as companies expend significant resources to
correct their current systems for Year 2000 compliance. These expenditures may
result in reduced funds available for our services. Any of these developments
could have a material and adverse effect on our business, prospects, operating
results and financial condition.
Except for our uncertainties regarding Bell Atlantic's Year 2000 compliance,
we do not believe the risks from Year 2000 are significant. We expect to have
contingency plans in place to deal with potential Year 2000 disruptions by July
1999, but we have not formulated a contingency plan to address the worst-case
Year 2000 scenario.
Financial Information
The preceding discussion and analysis is based on our financial statements
and the related notes and should be read in conjunction with the financial
statements and the related notes included in this prospectus.
Forward-looking Statements
This prospectus includes forward-looking statements. These forward-looking
statements address, among other things:
.our CuNet rollout plans and strategies;
.development and management of our business;
.our ability to attract, retain and motivate qualified personnel;
.our ability to attract and retain customers;
.the extent of acceptance of our services;
.the market opportunity and trends in the markets for our services;
.our ability to upgrade our technologies;
.prices of telecommunication services;
.the nature of regulatory requirements that apply to us;
.our ability to obtain and maintain any required governmental
authorizations;
.our future capital expenditures and needs;
.our ability to obtain and maintain financing on commercially reasonable
terms;
.our ability to implement a Year 2000 readiness program; and
.the extent and nature of competition.
These statements may be found in this section, in the sections of this
prospectus entitled "Summary," "Risk Factors," "Use of Proceeds" and "Business"
and in this prospectus generally.
We have based these forward-looking statements on our current expectations
and projections about future events. However, our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of risks facing us, including risks stated in "Risk Factors," or faulty
assumptions on our part. For example, assumptions that could cause actual
results to vary materially from future results include, but are not limited to:
.our ability to successfully market our services to current and new
customers;
.our ability to generate customer demand for our services in our target
markets;
25
<PAGE>
.market pricing for our services and for competing services;
.the extent of increasing competition;
.our ability to acquire funds to expand our network;
.the ability of our equipment and service suppliers to meet our needs;
.trends in regulatory, legislative and judicial developments; and
.our ability to manage growth of our operations.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
26
<PAGE>
BUSINESS
We are a regionally-focused data communications and enterprise networking
solutions company. Through our CuNet branded service, we offer our customers
high speed connectivity in our target markets using DSL technology. As a
complement to CuNet, we offer our customers a complete suite of value-added
enterprise networking solutions, including network integration, network
management, network security and professional services. While many of our
competitors offer only packet-based communications, we are able, through our
network design, to deliver both the channelized connectivity necessary to
support many legacy telecommunications infrastructures, including traditional
voice, and the packet-based communications more suited for newer, more
efficient protocols such as Asynchronous Transfer Mode, Frame Relay and
Internet Protocol (IP). We plan to take advantage of the growth in the
Internet, the expansion of local, metropolitan and wide area networking, the
increase in telecommuting professionals and the introduction of advanced
applications, such as video conferencing, multi-media and e-commerce, all of
which are contributing to the explosion in the data communications requirements
of businesses of all sizes. We believe that CuNet, which provides our customers
with dedicated, "always on" connections to local, metropolitan and wide area
networks, and our value-added enterprise networking solutions address the needs
of those businesses.
We believe that we have formed a closer day-to-day working relationship with
Bell Atlantic than our competitors, and, that we will be able to offer a more
responsive, consistent and higher quality service in our target markets. In
April 1997, we entered into our first interconnection agreement with Bell
Atlantic and began CuNet service trials in November 1997. CuNet offers our
customers both symmetrical and asymmetrical DSL connections at speeds ranging
incrementally from 128 Kbps to as high as 7 Mbps, approximately two to 120
times the speed available through a standard 56 Kbps modem. CuNet currently
provides speeds comparable to or higher than traditional T1 and Frame Relay
services at 30% to 70% of the cost of those technologies.
We currently offer CuNet in Boston, New York, Philadelphia, Baltimore,
Washington, D.C. and Richmond and have collocated our equipment in 44 central
offices. In these markets, we own and operate a series of hybrid, ATM/Frame
Relay, metropolitan area networks connected by our own private high speed fiber
backbone. This enables us to deliver a wide area, virtual private network with
the capacity, speed, reliability and level of service that our customers
require. We expect to extend our network coverage to include Norfolk,
Pittsburgh and Wilmington, Delaware by the end of 1999, and to raise the number
of central offices in which we have collocated equipment to 340 by the end of
this year. As opportunities present themselves, we may decide to expand our
network beyond our initial target markets and into adjacent regions which may
be served by ILECs other than Bell Atlantic.
In 1995, we began operations by providing integrated products and services
for wide area networks, serving as a premier partner for Paradyne, Ascend and
Cisco. Shortly thereafter, we began offering a complete suite of value-added
enterprise networking solutions, including network integration, network
management, network security and professional services. We have over 400
customers for our enterprise networking solutions business, including business
customers and network service providers. We seek to provide bundled,
comprehensive solutions to our customers. We sell our services directly and
indirectly to small, medium and large businesses. We sell our services through
a direct sales force, which we expect to grow to more than 140 people by the
end of 1999, and through our wholesale and channel partners, including Internet
service providers, inter-exchange carriers, other CLECs and systems
integrators.
Our senior management has extensive experience in network integration,
network management and network security and in providing professional services.
Our President and Chief Executive Officer, Jonathan P. Aust, while with AT&T,
was one of the principal architects of the data network created to handle
monetary transfers for the Federal Reserve System. Other members of our senior
management team have worked for well-known telecommunications companies,
including Level 3 Communications, MCI WorldCom, AT&T and Cable and Wireless
USA. Our principal equity sponsor, Spectrum Equity Investors, has invested $8.4
million in our company and has invested more than $300 million in
telecommunications companies.
27
<PAGE>
Industry Overview
We believe that a substantial business opportunity has been created by the
concurrence of several factors: the growing demand for high speed data
communications and enterprise solutions; the increasing network congestion; the
commercial availability of low cost DSL technology; and the passage of the 1996
Telecom Act.
Growing demand for high speed data communications and enterprise
solutions. Businesses and other organizations are finding it extremely
expensive and time-consuming to manage the complex elements of their networks.
Enterprises are implementing intranets and remote local area networks to enable
employees to work from remote locations and home, and to create private
networks that connect corporate networks in multiple locations. Gartner Group,
a leading industry analyst, estimates that the U.S. market for packet-based,
virtual private network and Internet Protocol data services will grow from $3.4
billion in 1997 to $18.5 billion in 2002, a compounded annual growth rate of
40.3%. Business demand for Internet access, e-mail, video and audio services,
Web hosting and e-commerce, is also increasing.
This demand in turn drives the need for high speed, high capacity
communications to support these applications. As enterprises grow to take
advantage of the extended power presented by their networks and the Internet,
they will need extensive network management and security solutions designed to
protect their internal data. International Data Corporation (IDC) estimates
that the U.S. market for network operations outsourcing services will more than
double from $4.0 billion in 1997 to $9.1 billion in 2002, a compounded annual
growth rate of 17.6%.
High speed connectivity has become important to enterprises in part due to
the dramatic increase in Internet usage. According to IDC, the number of
Internet users worldwide reached approximately 69 million in 1997 and is
forecasted to grow to approximately 320 million by 2002. IDC also estimates
that the value of goods and services sold worldwide through the Internet will
increase from $12 billion in 1997 to over $400 billion in 2002. To remain
competitive, businesses increasingly need high speed connections to maintain
complex Web sites, access critical business information and communicate more
efficiently with employees, customers and business partners.
Data communications is the fastest growing segment of the telecommunications
industry. Industry sources believe that data traffic is growing seven times
faster than voice traffic, and that by the end of the year 2000, data
communications will represent nearly 77% of enterprise network traffic.
Industry analysts also estimate that the number of remote access lines in the
United States will grow from approximately ten million in 1996 to approximately
30 million in 2000, a compound annual growth rate in excess of 30%.
Increasing network congestion. The growing use of capacity intensive
applications is creating a number of challenges for the existing copper lines
of the public telephone network, and for public data networks and private
networks. These challenges affect the entire architecture of the existing
network and limit the ability of businesses to optimally leverage the benefits
of new information technologies. Networks are becoming increasingly congested
due to the rapid growth in data traffic and the imbalance in capacity between
local and wide area networks. While high speed local access technologies such
as DSL will be deployed to help solve the local access bottleneck, expertise
and networking solutions will be needed to remedy the other bottlenecks
throughout the existing networks.
The "last mile" is defined as that part of the network that runs from an end
user's location to the first central office or nearest service entry point into
the network. Since the break-up of AT&T, substantially all data services have
been configured with a local exchange carrier, typically a regional Bell
operating company like Bell Atlantic, providing the last mile local access, and
an inter-exchange carrier like AT&T, MCI WorldCom or Sprint providing the long
distance portion. While competition in the long distance market has evolved
quickly
28
<PAGE>
and caused price reductions, the local access markets have not similarly
developed. As a result, the local access market remains technologically behind
the long distance market, with last mile access to major public networks like
the Internet and data networks remaining either very slow or very expensive.
Commercial availability of low cost DSL technology. The full potential of
Internet and remote LAN applications cannot be realized without removing the
performance bottlenecks of the local telephone networks. DSL technology removes
this performance bottleneck by increasing the data carrying capacity of copper
telephone lines from analog modem speeds of 56 Kbps and ISDN speeds of 128 Kbps
to DSL speeds of up to 7 Mbps. Because DSL technology reuses the existing
copper telephone lines, this technology requires a lower initial fixed
investment than that needed for existing alternative technologies, such as
cable modems, fiber, wireless and satellite communications systems. The
subsequent variable investments in DSL technology are directly related to the
number of paying customers.
Impact of the 1996 Telecom Act. The 1996 Telecom Act allows CLECs, like
Network Access Solutions, to leverage the existing ILEC copper line
infrastructure rather than constructing a competing infrastructure at
significant cost. The 1996 Telecom Act requires ILECs (1) to allow CLECs to
lease copper lines on a line by line basis, (2) to permit CLECs to collocate
their equipment, including DSL equipment, in ILECs' central offices, which
enables CLECs to access end users through existing telephone line connections
and (3) to provide CLECs with the operations support services necessary for
CLECs to provide competitive telecommunications service. The 1996 Telecom Act
creates an incentive for some ILECs, including Bell Atlantic, to cooperate with
CLECs because the ILECs cannot provide long distance service in the regions
where they provide local exchange service until the FCC determines that the
ILEC has satisfied specific statutory criteria for opening its local markets to
competition.
The NAS Solution
We offer high speed channelized and packetized data communications services
using a combination of DSL, Frame Relay and ATM technologies and a complete
package of value-added enterprise networking solutions including network
integration, network management and network security. Our services are offered
either on a stand-alone or on a turn-key basis, where we manage all facets of
the service. We market our services both directly to enterprises through our
direct sales force and indirectly through network service providers and channel
partners.
High Speed, "Last Mile" Connectivity. CuNet solves the last mile challenge
using DSL technology to convert standard copper telephone lines into high speed
data conduits. Our network is capable of delivering data at speeds ranging
incrementally from 128 Kbps to 2 Mbps symmetrically, and up to 7 Mbps,
asymmetrically. The highest CuNet speeds allow our customers to transfer data
at rates faster than standard T1 and Frame Relay circuits. We provide packet-
based "last mile" connectivity like other DSL providers. Since many of today's
existing networks use a channelized, time division multiplexing architecture,
we also provide channelized "last mile" connectivity, which we believe no other
major DSL provider currently offers. Thus, CuNet addresses both channelized
legacy communications infrastructure requirements, such as traditional voice,
and the packet-based communications better suited for newer, more efficient
protocols such as ATM, Frame Relay and Internet Protocol.
Adaptable Network Architecture. Our architecture supports today's bandwidth-
intensive business requirements, such as corporate networks, virtual private
networks, office-to-office connectivity, telecommuting solutions, collaborative
computing, Internet/intranet access, legacy voice, PBX emulation, video
conferencing and multimedia, e-mail, video and audio transmission, web hosting
and e-commerce. We have designed our network so that we can individually
configure a customer's features and speeds from our network operations center,
eliminating the need for customers to upgrade their hardware or for us to visit
their premises in order to enhance or upgrade services.
Metropolitan Area Network Solutions. We recognize that businesses with city-
wide locations, as well as remote users who telecommute, need to communicate
and share confidential information. We are leveraging our extensive
metropolitan area networks to provide high capacity, secure, direct
connectivity between these
29
<PAGE>
remote locations and to provide cost effective private network solutions to our
customers with the capacity, speed, reliability and level of service that they
require.
Wide Area Network Solutions. We recognize that many organizations have
offices and employees in multiple cities. We provide high capacity, secure and
reliable connectivity between these geographically dispersed locations. Because
our wide area network customers, like our metropolitan area network customers,
are served end-to-end on our CuNet infrastructure, we are able to deliver a
wide area, private network to our customers with the capacity, speed,
reliability and level of service that they require. For example, we provide
virtual points of presence, or VPOPs, for our network service provider
customers using wide area network solutions.
Single Source Networking Solutions. We provide comprehensive networking
solutions to businesses that are increasingly outsourcing their information
systems and network integration, network management and network security. Our
engineers consult with our customers to design, install and integrate all
aspects of their local, metropolitan and wide area networks. We provide remote
online control, monitoring and management. We also develop and implement
sophisticated network security solutions to protect our customers' networks and
vital data, including virtual private networks, encryption and access
authentication, risk assessment and audits, network security architecture
consulting, controlled penetrations and incident forensics and response. We
maintain and manage our customers' networks and security systems 24 hours a
day, seven days a week from our network operations center in Sterling,
Virginia.
The NAS Strategy
Our goal is to become the premier provider of data communications and
enterprise networking solutions in markets in which we focus. The following are
key elements of our strategy:
. Rapidly provide depth of coverage in our markets. Because DSL is a
localized technology tied to the proximity of end users to central
offices, we must collocate our equipment in many central offices in order
to provide depth of coverage. Thus, we are pursuing a blanket coverage
strategy of providing both channelized and packet-based services in a
substantial majority of the central offices in each target market that we
enter. Our initial focus on the Bell Atlantic region will enable us to
deploy our network with speed and depth. When deployed, we believe our
pervasive coverage of these markets will enable us to better serve our
end user business customers and network service providers which are
increasingly seeking a single service provider in multiple metropolitan
areas. Our depth of service will enable us to provide our customers with
a total business solution by providing them with access for substantially
all of their end users within our target markets. As opportunities
present themselves, we may decide to expand our network beyond our
initial target markets and into adjacent regions which may be served by
other ILECs.
. Capitalize on core competency in direct sales and engineering support to
businesses. Through our direct sales force, we have been marketing,
selling and supporting comprehensive value-added enterprise networking
solutions since early 1995 and have provided networking solutions to over
475 customers. Our experienced direct sales force has been supported by
engineers who are trained, certified experts in all our vendor-partners'
products and technologies, including Ascend, Paradyne, Lucent
Technologies, Inc. and Cisco. We intend to market CuNet to our existing
base of value-added network integration, network management and network
security customers and to market our value-added network integration,
network management, network security services to new CuNet customers. In
working with our existing customer base, we have found that we can sell a
customer an initial product or service, and, based on the insights gained
and relationships built from the initial sale, expand the relationship to
provide comprehensive solutions to the customer's networking needs,
thereby improving the likelihood that we will retain these customers.
30
<PAGE>
. Quickly provision reliable services by building relationships with
service providers. Because we have developed strong operational
relationships with our service providers, including Bell Atlantic, Level
3 Communications and MCI WorldCom, we believe we can proactively manage
these service providers to deliver the highest quality provisioning to
our customers in the shortest possible time. In February 1997, we began a
joint operational relationship with Bell Atlantic and have developed
technical standards specifying the provisioning and loop qualifications
necessary to deliver dependable, high quality DSL circuits within the
Bell Atlantic region. We believe we have gained a competitive advantage
through our close operational relationships with Bell Atlantic, the
dominant ILEC in our target markets, and our other service providers. We
believe these relationships will enable us to continue to enhance and
maintain our network and provide high quality solutions on a timely
basis.
. Provide superior customer care. We emphasize a one-stop total service
solution for our customers by developing a complete project
implementation plan for each installation and for the on-going
maintenance of their service. This is to ensure that each customer
receives the service for which they have contracted according to our
service level commitments. We manage all aspects of our customers'
connections to our network, including the provisioning and installation
of the end-user's connection, equipment configuration and network
monitoring on a 24 hour a day, seven days a week basis. By providing our
customers regular reports on the performance of their services, we are
able to demonstrate to our customers our performance relative to our
commitments and how customers may benefit by acquiring additional
networking services from us.
. Deliver our products and services through multiple sales channels. We
market our products and services directly and indirectly to small, medium
and large business customers using multiple sales channels. CuNet's
adaptability enables us to deploy services for all market segments,
including end users and wholesale customers. We will continue to leverage
our existing customer base through our direct sales force, which we
expect to grow to more than 140 people by the end of 1999. We also sell
our services indirectly through our wholesale and channel partners,
including Internet service providers, inter-exchange carriers, other
CLECs and systems integrators.
. Enhance and expand our network to meet the broadest array of business
requirements. Our network architecture and technology is designed to
provide our customers with adaptable, hybrid networking solutions. Our
network supports a broad array of business requirements, such as
corporate networks, virtual private networks, office-to-office
connectivity, telecommuting solutions, collaborative computing,
Internet/intranet access, PBX emulation, video conferencing and
multimedia, e-mail, video and audio transmission, Web hosting and e-
commerce. Our network provides a robust networking solution that can be
adapted to meet the needs of our customers and integrate technological
innovations as they are developed.
. Capitalize on compelling economics of DSL. DSL technology requires a
lower initial fixed investment than that needed for existing alternative
technologies because DSL utilizes existing copper telephone lines. Thus,
we are able to offer businesses services comparable to traditional wide
area networking technologies, such as T1 and Frame Relay, at
approximately 30% to 70% of the cost of such services. Our subsequent
investments in DSL technology are directly related to the number of
paying customers, making a significant portion of our capital
expenditures success-based. We estimate that approximately two-thirds of
our cumulative capital expenditures over the next five years will be for
DSL equipment that is directly related to our end user subscription rate.
Product and Service Offerings
We offer our customers CuNet service in our target markets and value-added
enterprise networking solutions. These networking solutions include network
management services -- which we have branded ROC, for remote online control,
and SOC, for secure online control -- network security services and
professional services supporting our single-source networking solutions.
31
<PAGE>
CuNet Services
CuNet. Our CuNet services use DSL technology to provide high speed, "always
on" channelized and packet-based communications services. CuNet connects
business users to our metropolitan area networks and wide area network using
ATM, Frame Relay and DSL technologies over traditional copper telephone lines.
CuNet customers are able to connect to our regional wide area network either
within a city or between our cities, to obtain high capacity, secure and
reliable connectivity between geographically dispersed locations. Because our
customers are served end-to-end on our CuNet infrastructure, we are able to
deliver a true wide area, virtual private network with the capacity, speed,
reliability and level of service that they require.
The chart below shows the service, speed, retail price (which includes
customer premise equipment), range and performance of our CuNet services, as of
March 1999:
<TABLE>
<CAPTION>
Retail List Range from
Speed Retail List Price Central
Speed to From End Price for for Monthly Office
Service End user user Activation(1) Service(1) (feet) Market/Usage
- ---------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <S>
Symmetrical:
CuNet 128 128 Kbps 128 Kbps $270 $129 18,000 ISDN replacement for telecommuters.
CuNet 256 256 Kbps 256 Kbps $270 $146 18,000 Small businesses with standard e-mail and web usage.
CuNet 384 384 Kbps 384 Kbps $270 $162 18,000 Higher bandwidth solution for small to medium sized
businesses running moderately-visited web sites.
CuNet 512 512 Kbps 512 Kbps $270 $185 18,000 Allows small and medium businesses to meet most
MAN/WAN/video and Internet needs.
CuNet 768 768 Kbps 768 Kbps $270 $217 18,000 Supports high bandwidth intensive applications such
as e-commerce, video conferencing, Frame Relay and
voice over Frame Relay.
CuNet 1.0 1.0 Mbps 1.0 Mbps $270 $239 18,000 Close to full T1 for medium to large sized
businesses.
CuNet 1.5 1.5 Mbps 1.5 Mbps $270 $294 18,000 Standard for large organizations that require high
capacity connections. Applications include the
ability to integrate voice, data and Internet
services over a single connection.
CuNet 2.0 2.0 Mbps 2.0 Mbps $270 $348 18,000 Full motion video and multimedia applications for
large businesses.
<CAPTION>
Asymmetrical:
<C> <C> <C> <C> <C> <C> <S>
CuNet 1.5 1.5 Mbps 384 Kbps $270 $239 18,000 High speed web access, e-mail and file distribution.
CuNet 4.0 4.0 Mbps 1.0 Mbps $270 $429 18,000 Very high speed web access, e-mail and file
distribution.
CuNet 7.0 7.0 Mbps 2.0 Mbps $270 $729 18,000 Bandwidth and throughput sufficient to meet most
asymmetrical data communication requirements.
</TABLE>
- ---------------------
(1) Wholesale and volume discount prices are available for network service
providers.
CuNet Frame. CuNet Frame provides access to a seamless local and long
distance network using ATM and DSL technologies to deliver a flexible suite of
Frame Relay services. The benefit to CuNet Frame customers is the low cost and
simplicity of use when contrasted against traditional ILEC or inter-exchange
carrier Frame Relay services.
VPOP. We offer a virtual point of presence (VPOP) service that provides
network service providers access to our entire CuNet network. With VPOP, a
network service provider can offer services throughout the entire CuNet network
without additional investment in network communications infrastructure. This
service offers wholesale customers the opportunity to sell DSL circuits in
cities outside of the local serving area in which they physically connect to
the CuNet network. Wholesale and volume discount prices are available for
network service providers.
32
<PAGE>
Value-Added Enterprise Networking Solutions
Network Management Services.
We provide our customers the opportunity to outsource network management
services that are difficult or costly for them to manage internally. For
example, we provide a single point of contact for vendor
management/coordination, including customer premises equipment vendors,
interexchange carriers and regional Bell operating companies, a help desk for
network administrators, monitoring and coordinated maintenance of network
services, WAN performance analysis and capacity planning, network monitoring
and enterprise network analysis.
We provide a wide variety of network management solutions customizable to
any requirement in order to meet our customers' unique management requirements
arising from their network configuration. We believe our strategy of providing
these services will allow us to address a larger market opportunity than that
represented by CuNet alone.
ROC Services. We offer remote online control (ROC) services to meet our
customers' outsourced network requirements. From our network operations center
in Sterling, Virginia, we continuously monitor the integrity of our customers'
metropolitan and wide area networks, evaluate their network utilization,
implement robust trouble ticketing systems, provide network health and status
monitoring and other customized management offerings. We proactively monitor
the performance of our customers' network devices and perform trouble
resolution to address network problems, often before our customer's end users
become aware of them.
SOC Services. We offer secure online control (SOC) services to meet our
customers' outsourced network security requirements. We provide proactive
network monitoring, intrusion detection and management of these network
security solutions on a 24 hour a day, seven days a week basis. We provide a
variety of security solutions including firewall packages, virtual private
network service, encryption and access authentication solutions for customers
looking for the highest level of security on any network on which data is
transported.
Network Security Services.
We provide customers with network security services including:
. Risk assessments and audits. We work in conjunction with a customer's
engineering staff to determine if a network's critical components work
together, provide for redundant protection and adequate perimeter
security. We also determine whether an optimal "defense in-depth"
strategy exists and if it is adhered to. We assess the effectiveness of a
customer's reporting and response mechanisms and determine
vulnerabilities and other critical issues.
. Network security architecture consulting. We provide expertise in
designing, implementing, migrating and protecting data networks of all
sizes.
33
<PAGE>
. Controlled penetrations. We will conduct organized attacks with original
software tools and techniques designed to expose information security
breaches. These controlled penetrations are tailored to customer
requirements. Following a penetration, our engineers will interpret the
outcome and present results to both senior executives and lead engineers.
We also take steps to ensure that knowledge gained from a controlled
penetration is not lost during subsequent implementation and maintenance
phases.
. Incident forensics and response. Our engineers have rigorous training in
post-incident forensics and are well versed in the rules of evidence
necessary for judicial proceedings.
Professional Services.
We provide professional consulting and systems integration services to
complement our CuNet, ROC, SOC and network security services. We provide
network design, network evaluation, project and program management, staging,
installation, maintenance and warranty services.
Customers
We have over 400 customers for our enterprise networking solutions business,
including business customers and network service providers. We currently have
over 45 CuNet customers. Some of our customers include the following:
<TABLE>
<S> <C>
American International
Group, Inc. Manugistics Group, Inc.
Ascend Communications,
Inc. National Rural Telecommunications Cooperative
AT&T Corp. Network Solutions, Inc.
Cisco Systems, Inc. Paradyne Corporation
Lockheed Martin
Corporation University of Virginia
Lucent Technologies Inc. Zeneca Pharmaceuticals, a division of Zeneca, Inc.
</TABLE>
Sales and Marketing
We market our products and services directly and indirectly to small, medium
and large business customers using multiple sales channels. We leverage our
existing customer base through our direct sales force. We also sell our
services indirectly through our wholesale and channel partners, including
Internet service providers, inter-exchange carriers, other CLECs and systems
integrators.
Direct Sales. We market our full complement of products and services through
a direct sales force of 35 people which we expect to grow to over 140 people by
the end of 1999. Our direct sales force is supported by sales engineers who
also seek to sell our value-added enterprise networking services. Our sales
representatives focus on selling connectivity to small and medium businesses
while our account executives focus on selling connectivity and value-added
enterprise networking solutions to medium and large businesses. We target
enterprises that have at least one of the following requirements: Internet
connectivity, remote local area network access, legacy voice and data
applications and metropolitan or wide area network Frame Relay. We also
generate lead referrals for our direct sales forces through telemarketing
efforts. Our sales force seeks to deal directly with the chief information
officer or telecommunications manager responsible for access in the target
account. Our sales force is located in each of our target markets. We intend to
increase the size of our sales and technical support force to sell and support
these services as we expand our business. We also seek to coordinate our direct
sales and marketing efforts with our vendor partners, including Ascend,
Paradyne and Cisco.
Indirect Sales. We sell our services to network service providers, including
Internet service providers, inter-exchange carriers and other CLECs. These
providers combine one or more of our services with their own Internet, Frame
Relay and voice services and resell those bundled services to their existing
and new customers. We address these markets through sales and marketing
personnel dedicated to this channel. We intend to augment our CuNet sales
through partnerships with other service providers which offer complementary
services and can offer CuNet as part of a complete business solution. For
example, we have recently entered into an
34
<PAGE>
agreement with an Internet service provider to provide for the purchase,
marketing and resale of our network security services, primarily to the
Internet service provider's small business and enterprise customers. We also
leverage our equipment vendors' partnerships as sources for sales opportunities
by offering joint technology seminars, implementing marketing campaigns and
sharing cross-selling opportunities.
Customer Service
Network service providers and enterprise communications managers typically
have to assemble their digital communications networks using multiple vendors.
This leads to additional work and cost as well as complex coordination issues.
We work with each customer to develop a project implementation plan. This plan
includes qualifying the customer (e.g. for DSL-based services, determining the
availability of an appropriate copper loop for the customer) for our service
offerings, placing orders for connection facilities, coordinating the delivery
of the connection, turn up and final installation. We emphasize a one-stop
total service solution for our customers. We provide our service according to a
predetermined service level commitment with each customer. Our comprehensive
solution includes:
. Customer to NAS Node Site Installation. We work with each customer to
establish all connectivity and configuration requirements for the
connection from our network to the customer's main location. We order the
circuit for our customer, manage the installation process, test the
circuit once installed, assist the customer in configuring the router or
switch that terminates the circuit, and monitor the circuit from our
network operations center.
. End User Line Installation. We order all end user connections from the
ILECs according to pre-determined technical line specifications. We
manage the ILEC's performance, test the installed line, and monitor the
end user line from our network operations center.
. End User Premises Wiring and Modem Configuration. We use both our own and
contracted installation crews to install any required inside wiring at
each end user site. We configure and install end user equipment with
information specific to each customer.
. Network Monitoring. We monitor our network from our network operations
center on a continuous end-to-end basis, which often enables us to
correct potential network problems before service to a customer or end
user is affected. We also provide direct monitoring access of end users
to our network service providers and enterprise customers.
. Customer Reporting. We communicate regularly with our customers about the
status of their service. We provide web-based tools to allow individual
network service providers and enterprise communications managers to
monitor their end users directly, to place orders for new end users, to
enter trouble tickets on end user lines and to communicate with us on an
ongoing basis.
. Customer Service and Technical Support. We provide service and technical
support 24 hours a day, seven days a week to all our customers. The
network service provider and communications managers serve as the initial
contact for end users and we provide the second level of support. We have
developed and will continue to expand a database containing the questions
we have addressed and the answers we have provided in response to past
network issues. In this way, we are able to better respond to future
customer questions.
. Operating Support Systems. We have designed an integrated group of
customized applications around our current and planned business
processes. By customizing and integrating products from vendors such as
Daleen Technologies, Inc. for billing, Eftia OSS Solutions Inc. for
operating support systems and Hewlett-Packard Company for network
management, we have designed a systems architecture that will facilitate
rapid service responsiveness and reduce the cost of customer support. Our
"NAS Total System Solution" seamlessly integrates all of our business
functions, including sales, ordering, provisioning, customer support,
maintenance and repair, billing, accounting and decision support,
ensuring that every function has accurate, up-to-date information and the
tools necessary to efficiently complete their work.
35
<PAGE>
Network Architecture and Technology
Overview. We own and operate a series of hybrid, ATM/Frame Relay,
metropolitan area networks connected by our private high speed fiber backbone.
Our network employs architecture designed to deliver superior end-to-end
capabilities, high speed "last mile" connectivity and intelligent data traffic
management. Our technologically advanced network architecture design has
positioned us to deliver the high level of data communications services,
including Internet access, virtual private networks, video conferencing and a
broad array of multimedia services, increasingly demanded by businesses. We
have planned for growth by ensuring that our network is scalable, intelligent
and secure.
. Scalable. Our adaptable, hierarchical network architecture allows us to
provide both channelized and packetized services reliably and
incrementally, which enables us to match investment with demand. As new
CuNet end users are added to our network, capacity is automatically added
so that the same reliable performance is achieved for all users as our
network grows.
. Intelligent. From our network operations center, we are able to
constantly monitor our network, the network service providers' networks
and our customers' connections, as well as perform network diagnostics
and equipment surveillance, and initialize our end users' connections.
Because our network is centrally managed, we can identify and dynamically
enhance network quality, service and performance and address network
problems promptly, often without our end users becoming aware of the
repairs. This capability also allows us to control costs associated with
on-site network configuration and repair.
. Secure. With dedicated, direct access to our private network, our end
users and enterprises experience fewer network security risks than users
of dial-up modems, ISDN lines or dedicated access to the Internet because
there is less capability for unauthorized access. Our network is designed
to provide enhanced security to ensure secure availability of all
internal applications and information for all end users, whether they are
within the corporate headquarters or telecommuting from remote locations.
Our network architecture connects end users at fixed locations to a
single enterprise, which reduces the possibility of unauthorized access
and allows our customers to safely perform all of their required tasks.
[Graphic: Diagram of network]
36
<PAGE>
Components. The primary components of our network are the customer
endpoints, copper telephone lines, central office collocation spaces,
metropolitan area backbone, node sites, wide area backbone and network
operations center. These components are integrated into local, metropolitan and
wide area networks that combine speed and balanced capacity in a manner
designed to deliver a high performance networking experience for our customers.
. Customer Endpoint. We currently offer packetized and channelized DSL
access connections in our network. For DSL access, we offer to provide
the customer endpoint device, the DSL modem, as part of our complete
service offering. We configure and install these modems with the end
user's computer, local area network or enterprise router along with any
required on-site wiring needed to connect the modem and the telephone
line.
. Copper Telephone Lines. We lease unbundled network elements, or UNEs,
which run from our network access points in central offices to the
customer endpoint under terms specified in telecommunications regulations
and our interconnection agreements. We have worked closely with Bell
Atlantic to define UNE specifications that ensure the quality of the
copper telephone lines we receive, thereby ensuring the transmission
speed of end user connections.
. Central Office Collocation Spaces. Through FCC and state public utility
commission regulatory policies as well as our interconnection agreements
with Bell Atlantic, we secure collocation space in central offices from
which we desire to offer CuNet. These collocation spaces are designed to
offer the same high reliability and availability standards as Bell
Atlantic's other central office space. At present, our collocation spaces
are either physical, virtual or SCOPE, which is secured collocation in an
open physical environment. With physical collocation, we install and
maintain our equipment in Bell Atlantic's central offices and have
complete access to the space. With SCOPE collocation, we install and
maintain our equipment in Bell Atlantic's central offices, but our access
to the space is non-exclusive. With virtual collocation, Bell Atlantic
installs and maintains the equipment on our behalf, but we have no access
to the space.
. Metropolitan Area Backbone. Our metropolitan area backbone connects our
network access points in central offices to our node sites and our node
sites to our customer locations. To date, we have leased DS-1 and DS-3
fiber optic circuits from Bell Atlantic, MCI WorldCom and Level 3
Communications for metropolitan area backbone services, but we continue
to review alternative providers in an effort to reduce costs.
. Node Sites. A node site is a physical point of presence that connects all
of our central offices within a particular metropolitan area network to
businesses and network service providers. The node site houses our
equipment to switch and interconnect customer traffic from central
offices within a region or across our entire network. Our node sites are
housed in a secured, fully-redundant, facility in each metropolitan area.
We currently have a node site in Boston, New York, Philadelphia,
Baltimore, Washington, D.C. and Richmond. We expect to establish node
sites in Pittsburgh, Norfolk and Wilmington, Delaware by the end of
September 1999.
. Wide Area Backbone. Our wide area backbone interconnects our node sites
in various cities. To date, we have leased DS-3 and OC-3 fiber optic
circuits from Level 3 Communications, MCI WorldCom and Virginia Electric
and Power Company. We intend to upgrade our wide area backbone to higher
capacities as necessary to deliver the quality of service that our
customers demand. We continue to evaluate alternative providers of
capacity in order to reduce costs.
. Network Operations Center. We proactively manage our network from our
network operations center. We provide end-to-end network management to
our customers using advanced network management tools on a 24 hour a day,
seven days a week basis. This enhances our ability to address performance
or connectivity issues before they affect the end user experience. From
our network operations center, we can monitor our network, including the
equipment and circuits in our metropolitan area networks and
37
<PAGE>
central offices, and our customers' networks, including individual end
user lines and DSL modems. Our network operations center is located in our
corporate headquarters in Sterling, Virginia. See "--Network Management
Services."
CuNet Rollout. We currently offer CuNet in Boston, New York, Philadelphia,
Baltimore, Washington, D.C. and Richmond and have collocation spaces in 44
central offices. We intend to build networks and offer services in Pittsburgh,
Norfolk and Wilmington, Delaware by the end of September 1999. We plan to offer
services in these nine target markets through 340 central offices by the end of
1999. To the extent opportunities present themselves, we may decide to expand
our network beyond our initial target markets and into adjacent regions which
may be served by ILECs other than Bell Atlantic.
Research and Development. We are also pursuing a program of ongoing network
development. Our engineering efforts focus on the design and development of new
technologies and services to increase the speed, efficiency, reliability and
security of our network and to facilitate the development of network
applications by third parties that will increase the use of our network.
Competition
We face competition from many companies with significantly greater financial
resources, well-established brand names and large, existing installed customer
bases. We expect the level of competition to intensify in the future. The
principal basis of competition in our service region include transmission
speed, reliability of service, breadth of service, price/performance, network
security, ease of access and use, content bundling, customer support, strategic
relationships and operating experience. We believe that our most direct
competition will come from Bell Atlantic and other ILECs operating in our
target markets and other major DSL providers. However, we also anticipate
competition from service providers using other technologies.
Bell Atlantic and Other Incumbent Local Exchange Carriers. Bell Atlantic and
the other ILECs present in our target markets are conducting technical and/or
market trials or have entered into commercial deployment of DSL-based services.
We recognize that each ILEC has the potential to quickly overcome many of the
obstacles that we believe have delayed widespread deployment of DSL services by
ILECs in the past. The ILECs currently represent and will in the future
increasingly represent strong competition in all of our target markets. The
ILECs have an established brand name, a large number of existing customers and
a reputation for high quality in their service areas, possess sufficient
capital to deploy DSL equipment rapidly, have their own copper lines and can
bundle digital data services with their existing analog voice services to
achieve economies of scale in serving customers. In the absence of strong
oversight by the FCC and state public utility commissions, ILECs also have an
economic incentive to discriminate against their DSL service competitors by
providing themselves with the copper telephone lines, collocation, operational
support services and other essential DSL service inputs on more favorable terms
than they provide to their DSL competitors, like us. These factors give the
ILECs a potential competitive advantage compared with us. Accordingly, we may
be unable to compete successfully against Bell Atlantic or the other ILECs, and
any failure to do so would materially and adversely affect our business,
operating results and financial condition.
Major DSL Providers. Other companies plan to offer or have begun offering
DSL-based access services in our targeted markets, and others are likely to do
so in the future. CLECs who provide DSL service include Covad Communications,
Rhythms NetConnections and NorthPoint Communications.
Other Service Providers. Many of our competitors are offering, or may soon
offer, technologies and services that will compete with some or all of our high
speed DSL offerings. These technologies include T1, ISDN, satellite, cable
modems and analog modems and could be provided by the following:
. Cable Modem Service Providers. Cable modem service providers, like
MediaOne Group, Inc., At Home, through its @Home service offering, and
their cable partners, are offering or preparing to offer high speed
Internet access over hybrid fiber coaxial cable networks to consumers. At
Home, through its
38
<PAGE>
@ Work service offering, has positioned itself to do the same for
businesses. Where deployed, these networks provide local access services,
in some cases at higher speeds than our CuNet. They typically offer these
services at lower prices than our services, in part by sharing the
capacity available on their cable networks among multiple end users.
. Traditional Inter-Exchange Carriers. Many of the leading traditional
inter-exchange carriers, like AT&T, Sprint and MCI WorldCom, are
expanding their capabilities to support high speed, end-to-end networking
services. Increasingly, their bundled services include high speed local
access combined with metropolitan and wide are networks, and a full range
of Internet services and applications. We expect them to offer combined
data, voice and video services over these networks. These carriers have
deployed large scale networks, have large numbers of existing business
and residential customers and enjoy strong brand recognition, and, as a
result, represent significant competition. For instance, they have
extensive fiber networks in many metropolitan areas that primarily
provide high speed data and voice communications to large companies. They
could deploy DSL services in combination with their current fiber
networks. They also have interconnection agreements with many of the
ILECs and have secured collocation spaces from which they could begin to
offer competitive DSL services.
. New Inter-Exchange Carriers. Inter-exchange carriers, such as Williams,
Qwest Communications and Level 3 Communications are building and managing
high bandwidth, nationwide packet-based technology networks for the wide
area network. These same providers are acquiring or partnering with
Internet service providers to offer services directly to business
customers. These companies could extend their existing networks to
include fiber metropolitan area networks and high speed, off-net services
using DSL, either alone, or in partnership with others.
. Internet Service Providers. Internet service providers provide Internet
access to business and residential customers. These companies generally
provide Internet access over the ILEC's circuit switched networks at ISDN
speeds or below. Some Internet service providers have begun offering DSL-
based access using DSL services offered by the ILEC or other DSL-based
CLECs. Some Internet service providers such as Concentric Network
Corporation, Mindspring Enterprises, Inc., PSINet and Verio Inc. have
significant and even nationwide marketing presences and combine these
with strategic or commercial alliances with DSL-based CLECs.
. Wireless and Satellite Data Service Providers. Several new companies are
emerging as wireless and satellite-based data service providers over a
variety of frequency bands. Companies such as Teligent, Inc., Advanced
Radio Telecom Corp. and WinStar Communications, Inc., hold point-to-point
microwave licenses to provide fixed wireless services such as voice, data
and videoconferencing. We also may face competition from satellite-based
systems such as Motorola Satellite Systems, Inc., Hughes Space
Communications, Iridium World Communications, Ltd., Globalstar and others
which are planning or are in the process of building global satellite
networks which can be used to provide broadband voice and data services.
Interconnection Agreements with Bell Atlantic
Our interconnection agreements with Bell Atlantic are critical to our
business. We have signed interconnection agreements with Bell Atlantic in each
of the states covering our nine target markets. These agreements cover a number
of aspects including: (1) the price and terms to lease access to Bell
Atlantic's copper lines; (2) the special conditioning Bell Atlantic provides to
enable the transmission of DSL signals on these lines; (3) the price and terms
for collocation of our equipment in Bell Atlantic's central offices; (4) the
price and terms to access Bell Atlantic's transport facilities; (5) the terms
to access conduits and other rights of way Bell Atlantic has constructed for
its own network facilities; (6) the operational support systems and interfaces
that we use to place orders and trouble reports and monitor Bell Atlantic's
response to our requests; (7) the dispute resolution process we and Bell
Atlantic use to resolve disagreements on the terms of the interconnection
agreement; and (8) the term of the interconnection agreement, its
transferability to successors, its liability limits and other general aspects
of our relationship with Bell Atlantic.
39
<PAGE>
Our interconnection agreements have an initial term that expires in March
2000, in the case of Baltimore, Philadelphia, Pittsburgh, Norfolk, Richmond,
Wilmington, Delaware and Washington, D.C., and January 2001 in the case of
Boston and New York. Thereafter, the agreements will continue until terminated
by either party upon ninety days prior notice. If an agreement is terminated,
our service arrangements will continue without interruption under (1) terms of
a new agreement, (2) terms imposed by a state commission, (3) tariff terms
generally applicable to CLECs and other carriers or (4) if none of these are
available, on a month-to-month basis under the terms of the initial agreement.
Thus, we may be required to renegotiate our agreements in the future. Although
we expect to renew our interconnection agreements, there can be no assurance
that we can extend or renegotiate agreements on favorable terms.
Additionally, our interconnection agreements are subject to interpretation
by both parties and there may arise differences in interpretation that cannot
be resolved on terms favorable to us. Finally, our interconnection agreements
are subject to state commission, FCC and judicial oversight. There can be no
assurance that these bodies will interpret the terms or prices of our
interconnection agreements in ways that adversely affects our business,
operating results and financial condition. The rates at which ILECs must make
their network elements available to us presently are subject to court
challenge, and the rule governing what network elements must be made available
has been returned to the FCC for review by the U.S. Supreme Court. The outcome
of these proceedings and challenges could have an effect on our future
negotiation of interconnection agreements.
If we expand into adjacent regions which are served by ILECs other than Bell
Atlantic, we will need to enter into interconnection agreements with those
ILECs.
Government Regulation
The following summary of regulatory developments and legislation does not
purport to describe all present or proposed federal, state and local
regulations and legislation affecting the telecommunications industry. Other
existing federal, state and local regulations and legislation are currently the
subject of judicial proceedings, legislative hearings and administrative
proposals which could change, in varying degrees, the manner in which this
industry operates. Neither the outcome of these proceedings, hearings or
proposals, nor their impact upon the telecommunications industry or us, can be
predicted at this time.
The facilities and services that we obtain from Bell Atlantic in order to
provide CuNet are regulated extensively by the FCC, the state public utility
commissions or similar state regulatory agencies of states where we provide
services. To a lesser extent, the FCC and the state public utility commissions
exercise direct regulatory control over the terms under which we provide CuNet
to the public. Municipalities also regulate limited aspects of our
telecommunications business by imposing zoning requirements, permit or right-
of-way procedures or fees, among other regulations. The FCC and state
regulatory agencies generally have the authority to condition, modify, cancel,
terminate or revoke operating authority for failure to comply with applicable
laws or rules, regulations or policies. Fines or other penalties also may be
imposed for such violations. We cannot assure that regulators or third parties
would not raise issues regarding our compliance or non-compliance with
applicable laws and regulations. We believe that we operate our business in
compliance with applicable laws and regulations of the various jurisdictions in
which we operate and that we possess the approvals necessary to conduct our
current operations. We may be required to obtain prior approvals from state
public utility commissions or similar state regulatory agencies in connection
with this offering. We may not obtain these approvals on a timely basis or at
all.
Federal Regulation. The 1996 Telecom Act substantially departs from prior
legislation in the telecommunications industry by establishing competition as a
national policy in all telecommunications markets. This Act removes many state
regulatory barriers to competition in telecommunications markets dominated by
ILECs and preempts, after notice and an opportunity to comment, laws
restricting competition in those markets. Among other things, the Act also
greatly expands the interconnection requirements applicable to ILECs. It
requires the ILECs to (1) provide physical collocation, which allows CLECs to
install and maintain their own network termination equipment in ILEC central
offices, and virtual collocation only if required or if physical collocation is
demonstrated to be technically unfeasible; (2) unbundle and provide access to
components of their local service networks to other providers of local service;
(3) establish "wholesale" rates
40
<PAGE>
for the services they offer at retail to promote resale by CLECs and other
competitors; and requires ILECs and CLECs, such as us, to not prohibit, or
impose unreasonable restrictions or limitations on the resale of their
services; and (4) provide nondiscriminatory access to telephone poles, ducts
conducts and rights of way.
ILECs are required to negotiate in good faith with carriers requesting any
or all of the above arrangements. If a requesting carrier cannot reach an
agreement within the prescribed time, either carrier may request binding
arbitration by the state commission. Where an agreement cannot be reached,
carriers remain subject to the interconnection obligations established by the
FCC and state telecommunications regulatory commissions.
The FCC and state public utility commissions are instructed by the 1996
Telecom Act to perform certain duties to implement the regulatory policy
changes prescribed by the 1996 Telecom Act. The outcome of various ongoing
proceedings to carry out these responsibilities, or judicial appeals of these
proceedings, could materially affect our business, operating results and
financial condition.
In October 1996, the United States Court of Appeals for the Eighth Circuit
overruled some of the rules initially adopted by the FCC to implement the 1996
Telecom Act, including rules (1) providing the detailed standard that state
public utility commissions must use in prescribing the price that ILECs charge
for collocation and for the copper telephone lines and other network elements
that CLECs must obtain from ILECs in order to provide service and (2) giving
CLECs the right to "pick-and-choose" interconnection provisions by requiring
that an ILEC enter into an interconnection agreement with the CLEC that
combines provisions from a variety of interconnection agreements between that
ILEC and other CLECs. The FCC and others appealed this decision to the U.S.
Supreme Court.
In January 1999, the U.S. Supreme Court reversed much of the Eighth
Circuit's decision, finding that the FCC has broad authority to interpret the
1996 Telecom Act and issue rules for its implementation, specifically including
authority over the methodology that state public utility commissions must use
in setting the price that ILECs charge CLECs for collocation, for copper
telephone lines and other network elements. The Supreme Court also reversed the
Eighth Circuit's holding invalidating the FCC's "pick-and-choose" rule.
However, the Supreme Court found that the FCC had violated the 1996 Telecom Act
in defining the individual network elements ILECs must make available to CLECs,
and required the FCC to reconsider its delineation of these elements.
The Supreme Court's order is potentially beneficial to us in several
important respects. For example, the Supreme Court's decision to require
reinstatement of the FCC's "pick-and-choose" rule could help us obtain the
benefit of specific provisions from interconnection agreements between Bell
Atlantic and other CLECs who had more bargaining leverage than we had at the
time we negotiated our interconnection agreements. The Supreme Court's
determination that the FCC rather than state public utility commissions has
jurisdiction to determine pricing methodology also could be beneficial to us
since the FCC has adopted a pricing standard that appears to be more beneficial
to CLECs in some respects than the pricing standards that some state public
utility commissions have employed. However, it remains unclear whether the
particular pricing methodology prescribed by the FCC will go into effect
because some parties have challenged the lawfulness of that methodology in the
U.S. Court of Appeals for the Eighth Circuit, and that litigation is still
pending.
Although the Supreme Court's decision is potentially beneficial to us in
several respects, it also has created uncertainty by mandating that the FCC
commence a new and potentially lengthy rulemaking proceeding to determine which
network components the ILECs must make available to competitors. We are
reasonably confident that the FCC will not change, in a way that would be
materially adverse to our business, the requirement that ILECs make available
the specific components we need in order to provide CuNet, but we cannot
guarantee this outcome.
The FCC is presently considering whether to adopt several other regulations
that could have a significant impact on our ability to provide DSL service on
economical terms. If adopted, some pending proposals could help our ability to
provide services, while others could hurt us. For example, we could be helped
by adoption
41
<PAGE>
of a proposal that would require ILECs to provide a specific means by which we
could provide DSL service over telephone wires that ILECs provision through
remote digital loop carrier systems. In the absence of this rule, it may not be
possible to offer DSL service over copper telephone wires that are provisioned
in this manner. We also could benefit if the FCC implements collocation
proposals that it has under consideration which would (1) require ILECs to
provision collocation arrangements more quickly and in a manner that
potentially would be less costly than the manner in which such arrangements are
provisioned at present and (2) make it more difficult for ILECs to reject
collocation applications on the ground that space is lacking. We could be hurt
by adoption of a proposal that would exempt ILECs from some existing FCC
regulations designed to help ensure that the price ILECs charge for their own
DSL service offering recovers the actual costs they incur in providing that
service. We also could be hurt by a proposal to let ILECs provide DSL services
through an affiliate of the ILEC unless the FCC requires that the ILEC provide
copper telephone lines, collocation and back-office support services on terms
that are no more favorable than the terms available to CLECs like us.
The 1996 Telecom Act authorizes the FCC to forbear from regulating the terms
under which carriers classified as "non-dominant" provide interstate
telecommunications service. The FCC has exercised its forbearance authority by
issuing rulings that exempt non-dominant domestic carriers like us from
obtaining a certificate from the FCC prior to providing any interstate service
or from filing a tariff setting forth the terms under which we provide any
interstate access service. Because we believe that CuNet does not constitute
interstate special access services, we do not need an FCC certificate to
provide these services, and we provide CuNet to these customers pursuant to
contract rather than tariff.
On May 8, 1997, in compliance with the requirements of the 1996 Telecom Act,
the FCC released an order establishing a new federal universal service support
fund, which provides subsidies to carriers that provide service to under-served
individuals and customers in high-cost or low-income areas, and to companies
that provide telecommunications services for schools and libraries and to rural
health care providers. We are required to contribute to the universal service
fund and are also required to contribute to state universal service funds. The
new universal service rules are administered jointly by the FCC, the fund
administrator, and state regulatory authorities, many of which are still in the
process of establishing their administrative rules. We cannot determine the net
revenue effect of these regulations at this time.
State Regulation. While it is clear from the January 1999 Supreme Court
decision that the FCC has broad authority to implement provisions in the 1996
Telecom Act that are intended to open all telecommunications markets to
competition, state public utility commissions also have substantial authority
in this area. For example, although the Supreme Court's decision validated the
FCC rule prescribing the methodology ILECs must use in setting the price of
local telephone wires and other network elements, that same rule gives state
public utility commissions authority to apply that rule in order to determine
actual prices. Many states have set only temporary prices for some network
elements that are critical to the provision of DSL services because they have
not yet completed the regulatory proceedings necessary to determine permanent
prices. The results of these proceedings will determine the price we pay for,
and whether it is economically attractive for us to use, these network elements
and services.
The 1996 Telecom Act also gives state public utility commissions broad
authority to approve or reject interconnection agreements that CLECs enter with
ILECs and broad authority to resolve disputes that arise under these
interconnection agreements. Under the 1996 Telecom Act, if we request, ILECs
have a statutory duty to negotiate in good faith with us for agreements for
interconnection and access to unbundled network elements. A separate agreement
is signed for each of the states in which we operate. During these negotiations
either the ILEC or we may submit disputes to the state regulatory commissions
for mediation and, after the expiration of the statutory negotiation period
provided in the 1996 Telecom Act, we may submit outstanding disputes to the
states for arbitration. The 1996 Telecom Act also allows state public utility
commissions to supplement FCC regulations as long as the state regulations are
not inconsistent with FCC requirements.
42
<PAGE>
In addition, CuNet may, as to some future customers, be classified as
intrastate services subject to state regulation. All of the states where we
operate, or will operate, require some degree of state regulatory commission
approval to provide certain intrastate services. We have obtained state
authorizations to provide all types of intrastate services in seven of our
initial nine target markets, and our applications for certificates to provide
service in the remaining two markets are pending. In most states, intrastate
tariffs are also required for various intrastate services, although we are not
typically subject to price or rate of return regulation for tariffed intrastate
services. Actions by state public utility commissions could cause us to incur
substantial legal and administrative expenses.
It is possible that laws and regulations could be adopted which address
matters that affect our business. We are unable to predict what laws or
regulations may be adopted in the future, to what extent existing laws and
regulations may be found applicable to our business, or the impact such new or
existing laws or regulations may have on our business. In addition, laws or
regulations could be adopted in the future that may decrease the growth and
expansion of the Internet's use, thereby decreasing demand for our services.
Local Government Regulation. In certain instances, we may be required to
obtain various permits and authorizations from municipalities in which it
operates its own facilities. Whether various actions of local governments over
the activities of telecommunications carriers such as us, including requiring
payment of franchise fees or other surcharges, pose barriers to entry for CLECs
which may be preempted by the FCC is the subject of litigation. Although we
rely primarily on the unbundled units of the ILECs, in certain instances we may
deploy our own facilities and therefore may need to obtain certain municipal
permits or other authorizations. The actions of municipal governments in
imposing conditions on the grant of permits or other authorizations or their
failure to act in granting such permits or other authorizations could have a
material adverse effect on our business, operating results and financial
condition.
Intellectual Property
We regard our products, services and technology as proprietary and attempt
to protect it with copyrights, trademarks, trade secret laws, restrictions on
disclosure and other methods. There can be no assurance these methods will be
sufficient to protect our technology and intellectual property. We also
generally enter into confidentiality agreements with our employees and
consultants, and generally control access to and distribution of our
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
products, services or technology without authorization, or to develop similar
technology independently. Currently, we are the owner of three trademark
registration applications, but have not filed to register any copyrights. We
expect to seek registration of our copyrights in software and other
intellectual property to the extent possible. There is no assurance that we
will obtain any significant copyright protection for our systems which would
protect our intellectual property from competition. Currently, we have not
filed any patent applications. We intend to prepare applications and to seek
patent protection for our systems and services to the extent possible. There is
no assurance that we will obtain any patents or that any such patents would
protect our intellectual property from competition which could seek to design
around or invalidate such patents. In addition, effective patent, copyright,
trademark and trade secret protection may be unavailable or limited in certain
foreign countries, and the global nature of the Internet makes it virtually
impossible to control the ultimate destination of our proprietary information.
There can be no assurance that the steps we have taken will prevent
misappropriation or infringement of our technology. In addition, litigation may
be necessary in the future to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on our
business, operating results and financial condition. In addition, some of our
information, including our CLEC status in individual states and our
interconnection agreements, is a matter of public record and can be readily
obtained by our competitors and potential competitors, possibly to our
detriment.
43
<PAGE>
Employees
As of March 15, 1999, we employed 91 individuals in engineering, sales,
marketing, customer support and related activities and general and
administrative functions. None of these employees is represented by a labor
union, and we consider our relations with our employees to be satisfactory. We
are not a party to any collective bargaining agreement. Our ability to achieve
our financial and operational objectives depends in large part upon the
continued service of our senior management and key technical, sales, marketing
and managerial personnel, and our continuing ability to attract and retain
highly qualified technical, sales, marketing and managerial personnel.
Competition for such qualified personnel is intense, particularly in software
development, network engineering and product management, and we may be unable
to identify, attract and retain such personnel in the future.
Properties
Our headquarters are in Sterling, Virginia in facilities consisting of
approximately 15,000 square feet under a lease that will expire in August 2001.
We are actively acquiring additional space near our headquarters building and
have entered into a letter of intent for a new lease for approximately 62,000
square feet that will expire in 2004. We have established branch offices in
Philadelphia and Richmond and plan to establish additional branch offices in
Boston and New York to cover our nine initial target markets.
We also lease collocation space in central offices from Bell Atlantic where
we operate or plan to operate under the terms of our interconnection agreements
with Bell Atlantic and regulations imposed by state public utility commissions
and the FCC. While the terms of these leases are perpetual, the productive use
of our collocation facilities is subject to the terms of our interconnection
agreements which have initial terms that expire in 2000 and 2001. See "--
Interconnection Agreements with Bell Atlantic." We will increase our
collocation space as we expand our network.
Legal Proceedings
We are not currently involved in any legal proceedings that we believe could
have a material adverse effect on our business, financial position, results of
operations or cash flows. We are, however, subject to state public utility
commission, FCC and court decisions as they relate to the interpretation and
implementation of the 1996 Telecom Act, the Federal Communications Act of 1934,
as amended, various state telecommunications statutes and regulations, the
interpretation of CLEC interconnection agreements in general and our
interconnection agreements in particular. In some cases, we may be deemed to be
bound by the results of ongoing proceedings of these bodies or the legal
outcomes of other contested interconnection agreements that are similar to our
agreements. The results of any of these proceedings could have a material
adverse effect on our business, operating results and financial condition.
44
<PAGE>
MANAGEMENT
Our Directors and Executive Officers
The following table shows information about our directors and executive
officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jonathan P. Aust........ 41 President, Chief Executive Officer and Chairman of the Board of Directors
Christopher J. Melnick.. 33 Chief Operating Officer and Director
Scott G. Yancey, Jr. ... 46 Chief Financial Officer and Director
James A. Aust........... 37 Vice President, Engineering
John J. Hackett......... 45 Vice President, Sales and Marketing
Brion B. Applegate...... 45 Director
</TABLE>
Jonathan P. Aust has been our Chief Executive Officer since founding Network
Access Solutions, with his wife Longma, in December 1994. In August 1998, Mr.
Aust also became our President and Chairman of the Board of Directors. Mr. Aust
was the National Account Manager for AT&T Paradyne responsible for the Federal
Reserve System from October 1987 to December 1994. From June 1982 to October
1987, Mr. Aust held numerous engineer and sales positions at Paradyne
Corporation, a manufacturer of data communications equipment.
Christopher J. Melnick has been our Chief Operating Officer since joining us
in July 1998 and a Director since August 1998. Mr. Melnick was the Vice
President and General Manager for the Southeast Region of Level 3
Communications from March 1998 to July 1998. Mr. Melnick was the Vice President
of Telcom Access Sales for the Washington, Baltimore and Richmond markets of
WorldCom from December 1996 to March 1998. Mr. Melnick was the Vice President
of Sales for MFS Telcom from September 1995 to December 1996 and Sales manager
for Washington, D.C. and Baltimore MFS Telcom from June 1994 to September 1995.
Mr. Melnick was a Senior Account Executive for MFS Telcom from April 1992 to
June 1994.
Scott G. Yancey, Jr. has been our Chief Financial Officer since joining us
in July 1998 and a Director since August 1998. Mr. Yancey was the Chief
Financial Officer and General Manager of the data division of Cable & Wireless
USA, a telecommunications service provider, from July 1982 to May 1998.
James A. Aust has been our Vice President of Engineering since joining us in
July 1995. Mr. Aust was a Consultant Systems Engineer for AT&T from May 1990 to
July 1994. In this role, Mr. Aust was responsible for network design and
implementation issues for key accounts and worked closely with hardware and
software developers at Bell Laboratories, defining products and feature sets to
fulfill customer networking requirements. Mr. Aust also served on the AT&T
Engineering Council which was responsible for formulating methods and
procedures for AT&T's System Engineering from August 1988 to May 1990.
John J. Hackett has been our Vice President, Sales and Marketing since
joining us in February 1999. Mr. Hackett was the Division President of MCI
WorldCom and MFS Telcom from September 1993 to February 1999 responsible for
Sales and Customer Support.
Brion B. Applegate has been a Director of Network Access Solutions since
August 1998. Mr. Applegate is a co-founder and has been a Managing General
Partner of Spectrum Equity Investors since March 1993. Mr. Applegate is a
director of Tut Systems, Inc.
Our board of directors will consist of between three and 15 directors and
will be divided into three classes, as nearly equal in number as possible. At
each annual meeting of stockholders, the successors to the class of directors
whose term expires at that meeting will be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year after
their year of election. Our executive officers are chosen by our board of
directors and serve at its discretion.
45
<PAGE>
Board Committees
Our board of directors intends to establish a compensation committee to
consist solely of independent directors. The compensation committee will
determine the compensation of our President and Chief Executive Officer and
administer our stock plans and generally review our compensation plans to
ensure that they meet our objectives. Our board of directors also intends to
establish an audit committee to consist solely of independent directors. The
responsibilities of the audit committee will include:
. recommending to our board of directors the independent public
accountants to conduct the annual audit of our books and records;
. reviewing the proposed scope of the audit;
. approving the audit fees to be paid;
. reviewing accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
. reviewing and approving transactions between us and our directors,
officers and affiliates.
Directors' Compensation
Our directors have received no compensation for serving as directors. We
reimburse our directors for reasonable expenses they incur to attend board and
committee meetings. Our non-employee directors are eligible to receive grants
of options to acquire our common stock under our stock incentive plan. See "--
1998 Stock Incentive Plan."
Executive Compensation
The following table summarizes the compensation paid to our chief executive
officer and executive officers whose total salary and bonus exceeded $100,000
during 1998, whom we identify as "named executive officers":
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Securities
----------------------- Underlying
Name and Principal Position Salary Bonus Other Options
<S> <C> <C> <C> <C>
Jonathan P. Aust........................... $120,606 $135,000 -- --
President and Chief Executive Officer
Christopher J. Melnick..................... 101,308 -- -- 1,400,000
Chief Operating Officer
James A. Aust.............................. 97,417 25,000 -- 130,000
Vice President, Engineering
</TABLE>
The salary paid to Mr. Melnick is from July 1998, the date of his
employment.
46
<PAGE>
Options Grants in 1998
The following table shows information about our grants of options to
purchase our common stock made to the named executive officers during 1998:
<TABLE>
<CAPTION>
Potential Realizable
Value
at Assumed Annual
Rates
Of Stock Price
Appreciation for
Individual Grants Option Term (4)
------------------------------------------------ ----------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees Base Price Expiration
Name Granted (1) in 1998 (2) ($/share) Date (3) 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C>
Jonathan P. Aust........ -- --% $ -- -- $ -- $ -- $ --
Christopher J. Melnick.. 1,400,000 44.4 0.20 7/23/08 420,000 860,226 1,535,620
James A. Aust........... 130,000 4.1 0.20 11/1/08 585,000 969,255 1,558,777
</TABLE>
- ---------------------
(1) All options were granted under our 1998 stock incentive plan. All options
were incentive stock options which vest over time. Generally, these options
vest in quarterly installments over 36 to 42 months.
(2) Based on options to purchase 3,151,500 shares of our common stock granted
to employees in 1998.
(3) The options have ten year terms, subject to earlier termination upon death,
disability or termination of employment.
(4) We recommend caution in interpreting the financial significance of the
figures representing the potential realizable value of the stock options.
They are calculated by multiplying the number of options granted by the
difference between a future hypothetical stock price and the option
exercise price and are shown pursuant to rules of the Securities and
Exchange Commission. They assume the fair value of common stock, which was
$0.50 in July 1998 and $4.70 in November 1998, appreciates 5% or 10% each
year, compounded annually, for ten years (the term of each option). They
are not intended to forecast possible future appreciation, if any, of our
stock price or to establish a present value of options. Also, if
appreciation does occur at the 5% or 10% per year rate, the amounts shown
would not be realized by the recipients until the year 2008. Depending on
inflation rates, these amounts may be worth significantly less in 2008, in
real terms, than their value today.
None of the executive officers named above exercised any stock options
during 1998.
Year-End Option Values
The following table shows information about unexercised options held by the
named executive officers at December 31, 1998:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying in-the-Money
Unexercised Options at Options at
December 31, 1998 December 31, 1998(1)
---------------------------- ----------------------------
Exercisable Unexercisable(2) Exercisable Unexercisable(2)
<S> <C> <C> <C> <C>
Jonathan P. Aust........ -- -- -- --
Christopher J. Melnick.. 116,666 1,283,334
James A. Aust........... -- 130,000
</TABLE>
- ---------------------
(1) Calculated on the basis of $ per share, the fair market value of our
common stock at December 31, 1998, as determined by our board of directors,
less the exercise price payable for those shares, multiplied by the number
of shares underlying the option.
(2) Such options are exercisable in full into restricted stock which is subject
to vesting and forfeiture.
47
<PAGE>
No compensation intended to serve as incentive for performance to occur over
a period longer than one year was paid pursuant to a long-term incentive plan
during the last year to any of the executive officers named above.
Employment Arrangements
We have entered into an employment agreement with each of our executive
officers. Each agreement has an initial term of four years, subject to earlier
termination upon 30 days prior notice. The term of each agreement is
automatically extended for additional one year terms unless we or the executive
elects to terminate the agreement within 30 days before the end of the current
term. Under these agreements, these executives receive an initial annual base
salary that will be increased by at least 5% each year, based upon performance
objectives set by our board of directors. These executives also receive an
annual bonus of up to 20% of the executive's then current salary. The bonus is
payable in cash, stock or a combination of both at the election of our board of
directors. The executives have received options to acquire shares of our common
stock which vest in quarterly installments over either three or four years from
the date of grant. The following table shows information about the compensation
arrangements we have with our executive officers:
<TABLE>
<CAPTION>
Options Granted
Current Annual Base Salary Maximum Annual Bonus (Shares)
<S> <C> <C> <C>
Jonathan P. Aust........ $240,000 20% --
Christopher J. Melnick.. 200,000 20 1,400,000
Scott G. Yancey, Jr..... 200,000 20 1,000,000
John J. Hackett......... 175,000 20 600,000
James A. Aust........... 125,000 20 130,000
</TABLE>
If, during the term of one of these employment agreements, we terminate the
executive's employment without cause or the executive terminates his employment
for good reason, then the executive will be entitled to receive his base
salary, bonus and all employee benefits for a period of one year from the date
of the termination of employment.
Under the terms of these agreements, these executives have agreed to
preserve the confidentiality and the proprietary nature of all information
relating to our business during the term of the agreement and after the
agreement ends indefinitely. In addition, each of these executives has agreed
to non-competition and non-solicitation provisions that will be in effect
during the term of his agreement and for one year after the agreement ends.
We require all of our other employees to sign agreements which prohibit the
employee from directly or indirectly competing with us while they are employed
by us and generally for a period of one year. We require all of our employees
to sign agreements which prohibit the disclosure of our confidential or
proprietary information.
1998 Stock Incentive Plan
Our stock incentive plan authorizes the grant of:
. stock options;
. stock appreciation rights;
. stock awards;
. phantom stock; and
. performance awards.
48
<PAGE>
The compensation committee of our board of directors will administer our
stock incentive plan. The committee will have sole power and authority,
consistent with the provisions of our stock incentive plan, to determine which
eligible participants will receive awards, the form of the awards and the
number of shares of our common stock covered by each award. The committee may
impose terms, limits, restrictions and conditions upon awards, and may modify,
amend, extend or renew awards, to accelerate or change the exercise timing of
awards or to waive any restrictions or conditions to an award.
The maximum number of shares available for issuance under our stock
incentive plan is 4,500,000. As of December 31, 1998, we had issued no shares
of our common stock in connection with awards granted, we had granted awards
with respect to 3,151,500 shares of our common stock and 1,348,500 shares
remained available for us to grant under our stock incentive plan.
Stock Options. Our stock incentive plan permits the granting of options to
purchase shares of our common stock intended to qualify as incentive stock
options under the Internal Revenue Code and stock options that do not qualify
as incentive options. The option exercise price of each option will be
determined by the committee. The term of each option will be fixed by the
committee. The committee will determine at what time or times each option may
be exercised and, the period of time, if any, after retirement, death,
disability or termination of employment during which options may be exercised.
Stock Appreciation Rights. The committee may grant a right to receive a
number of shares or, in the discretion of the committee, an amount in cash or a
combination of shares and cash, based on the increase in the fair market value
of the shares underlying the right during a stated period specified by the
committee.
Stock Awards. The committee may award shares of our common stock to
participants at no cost or for a purchase price. These stock awards may be
subject to restrictions or may be free from any restrictions under our stock
incentive plan. The committee shall determine the applicable restrictions. The
purchase price the shares of our common stock will be determined by the
committee.
Phantom Stock. The committee may grant stock equivalent rights, or phantom
stock, which entitle the recipient to receive credits which are ultimately
payable in the form of cash, shares of our common stock or a combination of
both. Phantom stock does not entitle the holder to any rights as a stockholder.
Performance Awards. The committee may grant performance awards to
participants entitling the participants to receive cash, shares of our common
stock, or a combination of both, upon the achievement of performance goals and
other conditions determined by the committee. The performance goals may be
based on our operating income, or on one or more other business criteria
selected by the committee.
49
<PAGE>
RELATED TRANSACTIONS AND RELATIONSHIPS
In August 1998 we entered into a Series A Preferred Stock Purchase Agreement
with Spectrum Equity Investors II, L.P., FBR Technology Venture Partners, LLC
and other investors. Pursuant to this agreement, we issued to Spectrum Equity
Investors II, L.P. and its affiliates 8,470,000 shares of our Series A
Preferred Stock and 8,300,600 shares of our common stock in exchange for an
aggregate purchase price of $8,474,150. Spectrum now beneficially owns 51.9% of
our common stock. Brion B. Applegate, a Managing General Partner of Spectrum,
is a member of our board of directors. We also issued to FBR Technology Venture
Partners, LLC 1,500,000 shares of our Series A Preferred Stock and 1,470,000
shares of our common stock in exchange for an aggregate purchase price of
$1,500,735. FBR now owns 9.2% of our common stock. These investors have
registration rights for the shares of common stock they hold. See "Description
of our Capital Stock."
On March 18, 1999, our certificate of incorporation was amended to modify
the terms of our Series A Preferred Stock. In the event of an initial public
offering in which we receive a market valuation in excess of $200,000,000, the
terms of our Series A Preferred Stock provide that (1) 50% of our Series A
Preferred Stock outstanding will be cancelled and cease to exist without
compensation or recourse, (2) the remaining shares of Series A Preferred Stock
will be automatically converted into common stock based on the Series A
Preferred Stock aggregate per share stated value of $5,000,000 divided by the
per share public offering price and (3) no dividends on the Series A Preferred
Stock whether accrued or unaccrued through the date of the offering will be
payable.
Following the sale of our Series A Preferred Stock in August 1998, we
repurchased some of the shares of our common stock held by James A. Aust,
Jonathan P. Aust, Longma M. and Stephen C. Aust, all of whom owned more than 5%
of our common stock as of March 15, 1999. We purchased 600,000 shares of our
common stock for an aggregate purchase price of $300,000 from James A. Aust. We
purchased 868,422 shares of our common stock for an aggregate purchase price of
$434,211 from Jonathan P. Aust. We purchased 1,771,578 shares of our common
stock for an aggregate purchase price of $885,789 from Longma M. Aust. We
purchased 560,000 shares of our common stock for an aggregate purchase price of
$280,000 from Stephen C. Aust. Jonathan P. Aust and Longma M. Aust are husband
and wife. James A. Aust, Jonathan P. Aust and Stephen C. Aust are brothers.
We have entered into employment agreements with each of our senior executive
officers. For details of these agreements, See "Management--Employment
Arrangements."
We believe that the transactions discussed above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
We have adopted a policy that requires all future transactions between us and
our officers, directors and affiliates to be on terms no less favorable than
could be obtained from unrelated third parties. These transactions must be
approved by a majority of the disinterested members of our board of directors.
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following shows the number and percentage of outstanding shares of our
common stock that were owned as of March 15, 1999 and that will be owned after
this offering by:
. all persons known to us to beneficially own more that 5% of our common
stock;
. each director and named executive officer; and
. all directors and executive officers as a group.
An asterisk indicates ownership of less than 1%.
As of March 15, 1999 there were 16,000,000 shares of our common stock
outstanding. After this offering, shares of our common stock will be
outstanding if the underwriters do not exercise their over-allotment option or
shares if the underwriters exercise their over-allotment option in full.
<TABLE>
<CAPTION>
Percent of Total
------------------------------
Shares Percent Percent
Beneficially Before After
Name of Beneficial Owner Owned (1) Offering Offering
<S> <C> <C> <C>
Jonathan P. Aust (2)............................. 4,172,000 26.1% %
Christopher J. Melnick (3)....................... 350,000 2.1
James A. Aust (4)................................ 816,250 5.1
Brion B. Applegate (5) .......................... 8,300,600 51.9
245 Lytton Avenue
Palo Alto, California 94301
Spectrum Equity Investors II, L.P. (5) .......... 8,300,600 51.9
245 Lytton Avenue
Palo Alto, California 94301
FBR Technology Venture Partners, LP.............. 1,470,000 9.2
1001 19th Street
Arlington, Virginia 22209
Stephen C. Aust ................................. 868,000 5.4
All executive officers and directors as a
group (6 persons) (6)........................... 13,888,850 83.6
</TABLE>
- ---------------------
(1) The number of shares beneficially owned includes outstanding shares of our
common stock held by that person and shares of our common stock issuable
upon exercise of stock options exercisable within 60 days of March 15,
1999. The address of Messrs. Jonathan P. Aust, James A. Aust, Stephen C.
Aust and Melnick is 100 Carpenter Drive, Sterling, Virginia 20164.
(2) Includes 2,816,738 shares held by Longma M. Aust, Mr. Aust's wife.
(3) Includes 350,000 shares issuable upon exercise of options to acquire our
common stock.
(4) Includes 16,250 shares issuable upon exercise of options to acquire our
common stock.
(5) Spectrum Equity Investors II, L.P. is under common control with SEA 1998
II, L.P. and, therefore, beneficial ownership of the shares of our common
stock owned by SEA is attributed to Spectrum. Mr. Applegate is a Managing
General Partner of Spectrum and, therefore, beneficial ownership of the
shares of our common stock owned by Spectrum is attributed to Mr.
Applegate.
(6) Includes 616,250 shares issuable or issued upon exercise of options to
acquire our common stock that are held by Messrs. James A. Aust, Melnick
and Yancey.
51
<PAGE>
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 50,000,000 shares of common stock,
par value $0.001 per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share. As of December 31, 1998, there were 16,000,000 shares of our
common stock outstanding, held by 13 holders of record. As of December 31,
1998, there were 10,000,000 shares of our Series A Preferred Stock, stated
value $1.00, outstanding, held of record by four holders of record. After this
offering, we will not have any outstanding shares of preferred stock.
After this offering, we will have outstanding shares of common stock if
the underwriters do not exercise their over-allotment option, or shares of
common stock if the underwriters exercise their over-allotment option in full.
The following is a description of our capital stock.
Common Stock
We are authorized to issue 50,000,000 shares of common stock. Each
stockholder of record will be entitled to one vote for each outstanding share
of our common stock owned by that stockholder on every matter properly
submitted to the stockholders for their vote. After satisfaction of the
dividend rights of holders of preferred stock, holders of common stock are
entitled to any dividend declared by the board of directors out of funds
legally available for this purpose. After the payment of liquidation
preferences to holders of any outstanding preferred stock, holders of our
common stock are entitled to receive, on a pro rata basis, all our remaining
assets available for distribution to the stockholders in the event of our
liquidation, dissolution, or winding up. Holders of our common stock do not
have any preemptive right to become subscribers or purchasers of additional
shares of any class of our capital stock. The outstanding shares of our common
stock are, and the shares of common stock offered in this offering will be,
when issued and paid for, fully paid and nonassessable. The rights, preferences
and privileges of holders of our common stock are subject to, and may be
adversely affected by, the rights of the holders of shares of any series of
preferred stock that we may designate and issue in the future.
Preferred Stock
At March 15, 1999, we had outstanding 10,000,000 shares of our Series A
Preferred Stock, stated value $1.00. The holders of our Series A Preferred
Stock are entitled to receive dividends at a rate of 8% of the stated value per
year. Upon the closing of our public offering, $5.0 million of our Series A
Preferred Stock will be converted into shares of our common stock at the
public offering price with the remaining shares of Series A Preferred Stock and
all accrued dividends cancelled without additional payment to the holders of
the Series A Preferred Stock.
Our certificate of incorporation will allow us to issue without stockholder
approval preferred stock having rights senior to those of our common stock.
After this offering, no shares of preferred stock will be outstanding. Our
board of directors will be authorized, without further stockholder approval, to
issue up to 5,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption and
liquidation preferences, and to fix the number of shares constituting any
series and the designations of these series.
Our issuance of preferred stock may have the effect of delaying or
preventing a change in control. Our issuance of preferred stock could decrease
the amount of earnings and assets available for distribution to the holders of
our common stock or could adversely affect the rights and powers, including
voting rights, of the holders of our common stock. The issuance of preferred
stock could have the effect of decreasing the market price of our common stock.
52
<PAGE>
Registration Rights
Holders of an aggregate of 9,800,000 shares of our common stock can require
us to register the sale of their shares under the Securities Act. Subject to
limitations and the lock-up agreements with the underwriters, we must register
the sale of these shares if at any time after six months following this
offering, the holders of at least 1,960,000 of these shares request
registration. We are not required to effect more than three of these requested
registrations. Subject to limitations, these holders may require us to file an
unlimited number of registration statements on Form S-3 when we are eligible to
use Form S-3, generally one year after this offering. If we propose to register
our securities under the Securities Act after this offering, these stockholders
will be entitled to notice of the registration and to include their shares in
the registration provided that the underwriters for the proposed offering will
have the right to limit the number of shares included in the registration. We
must pay all expenses in connection with these registrations, other than
underwriters' discounts and commissions.
Limitation Of Liability
As permitted by the Delaware General Corporation Law, our certificate of
incorporation provides that our directors shall not be personally liable to us
or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of the director's duty of loyalty to us or our
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption
of stock; or
. for any transaction from which the director derives an improper personal
benefit.
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and bylaws provide for the indemnification
of our directors and officers to the fullest extent authorized by the Delaware
General Corporation Law, except that we will indemnify a director or officer in
connection with an action initiated by that person only if the action was
authorized by our board of directors. The indemnification provided under our
certificate of incorporation and bylaws includes the right to be paid expenses
in advance of any proceeding for which indemnification may be had, provided
that the payment of these expenses incurred by a director or officer in advance
of the final disposition of a proceeding may be made only upon delivery to us
of an undertaking by or on behalf of the director or officer to repay all
amounts so paid in advance if it is ultimately determined that the director or
officer is not entitled to be indemnified. If we do not pay a claim for
indemnification within 60 days after we have received a written claim, the
claimant may at any time thereafter bring an action to recover the unpaid
amount of the claim and, if successful the director or officer will be entitled
to be paid the expense of prosecuting the action to recover these unpaid
amounts.
Under our bylaws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against the person or incurred by the
person in any of these capacities, or arising out of the person's fulfilling
one of these capacities, and related expenses, whether or not we would have the
power to indemnify the person against the claim under the provisions of the
Delaware General Corporation Law. We intend to purchase director and officer
liability insurance on behalf of our directors and officers.
53
<PAGE>
Possible Anti-Takeover Effects
Our certificate of incorporation and bylaws will contain provisions that are
intended to enhance the likelihood of continuity and stability in the
composition of our board of directors and in the policies formulated by our
board of directors. In addition, provisions of Delaware law may hinder or delay
an attempted takeover of our company other than through negotiation with our
board of directors. These provisions could have the effect of discouraging
attempts to acquire us or remove incumbent management even if some or a
majority of our stockholders believe this action to be in their best interest,
including attempts that might result in the stockholders' receiving a premium
over the market price for the shares of our common stock held by the
stockholders.
Classified Board of Directors; Removal, Vacancies. Our certificate of
incorporation will provide that our board of directors will be divided into
three classes of directors serving staggered three-year terms. The
classification of directors has the effect of making it more difficult for
stockholders to change the composition of the board of directors in a
relatively short period of time. Our certificate of incorporation will provide
that directors may be removed only for cause. In addition, vacancies and newly
created directorships resulting from any increase in the size of our board of
directors may be filled only by the affirmative vote of a majority of the
directors then in office, a quorum, or by a sole remaining director. These
provisions would prevent stockholders from removing incumbent directors without
cause and filling the resulting vacancies with their own nominees.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our bylaws will establish an advance notice procedure
with regard to the nomination, other than by the board of directors, of
candidates for election to our board of directors and with regard to certain
matters to be brought before an annual meeting of our stockholders. For
nominations and other business to be brought properly before an annual meeting
by a stockholder, the stockholder must deliver notice to us not less than 60
days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting. Separate provisions based on public notice by us specify
how this advance notice requirement operates if the date of the annual meeting
is advanced by more than 30 days or delayed by more than 60 days from the
anniversary date. The stockholder's notice must set forth specified information
regarding the stockholder and its holdings, as well as certain background
information regarding any director nominee, together with the person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected, and a brief description of any business desired to be
brought before the meeting, the reasons for conducting the business at the
meeting and any material interest of the stockholder in the business proposed.
In the case of a special meeting of stockholders called for the purpose of
electing directors, nominations by a stockholder may be made only by delivery
to us, no later than 10 days after the day on which public announcement of the
special meeting is made, of a notice that complies with the above requirements.
Although our bylaws do not give our board of directors any power to approve or
disapprove stockholder nominations for the election of directors or any other
business desired by stockholders to be conducted at an annual meeting, our
bylaws:
. may have the effect of precluding a nomination for the election of
directors or precluding the conduct of certain business at a particular
annual meeting if the proper procedures are not followed; or
. may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of Network Access Solutions, even if the conduct of this
solicitation or such attempt might be beneficial to Network Access
Solutions and our stockholders.
Special Stockholders' Meetings. Our certificate of incorporation and bylaws
will provide that, special meetings of stockholders, unless otherwise
prescribed by statute, may be called only:
. by the board of directors or by our chairman or president; or
. by the holders of at least majority of our securities outstanding and
entitled to vote generally in the election of directors.
54
<PAGE>
Section 203 of Delaware Law. In addition to these provisions of our
certificate of incorporation and bylaws, we are subject to the provisions of
Section 203 of the Delaware General Corporation Law. Section 203 prohibits
publicly held Delaware corporations from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in
a financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock. These
provisions could have the effect of delaying, deferring or preventing a change
in control of our company or reducing the price that certain investors might be
willing to pay in the future for shares of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have shares of common stock outstanding.
If the underwriters exercise their over-allotment option in full, we will have
shares of common stock outstanding. All of the shares we sell in this
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by our affiliates,
as that term is defined in Rule 144, may generally only be sold in compliance
with the limitations of Rule 144 described below.
The remaining shares of common stock outstanding after this offering, will
be restricted shares under the terms of the Securities Act. Of the restricted
shares to be outstanding after this offering, transfer of shares will be
limited by lock-up agreements as described below.
Before this offering, there has been no public market for our common stock,
and we cannot predict what effect, if any, that market sales of shares of our
common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time.
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices and could impair our future ability
to raise capital through the sale of our equity securities.
Rule 144
In general, under Rule 144, a stockholder who owns restricted shares that
have been outstanding for at least one year is entitled to sell, within any
three-month period, a number of these restricted shares that does not exceed
the greater of:
. one percent of the then outstanding shares of our common stock, or
approximately shares immediately after this offering; or
. the average weekly trading volume in our common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
to sell shares of common stock which are not restricted securities.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours who owns
restricted shares that have been outstanding for at least two years may resell
these restricted shares without compliance with the above requirements. The
one- and two-year holding periods described above do not begin to run until the
full purchase price is paid by the person acquiring the restricted shares from
us or an affiliate of ours.
55
<PAGE>
Registration Rights
We have entered into an investor rights agreement with some of our
stockholders, who own an aggregate of 9,800,000 shares of our common stock.
These stockholders have certain registration rights. See "Description of our
Capital Stock--Registration Rights."
Common Stock and Options Issuable under our Stock Incentive Plan
We intend to file one or more registration statements under the Securities
Act within 180 days after this offering to register up to 4,500,000 shares of
our common stock underlying outstanding stock options or reserved for issuance
under our 1998 stock incentive plan. We expect these registration statements
will become effective upon filing, and shares covered by these registration
statements will be eligible for sale in the public market immediately after the
effective dates of these registration statements, subject to the lock-up
agreements with the underwriters.
Lock-up Agreements
Our officers and directors and some of our other stockholders, who will hold
an aggregate of shares of common stock after this offering, have agreed that
they will not, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, offer, sell, pledge or otherwise dispose of
any shares of our capital stock or any securities convertible into or
exercisable or exchangeable for, or any rights to acquire or purchase, any of
our capital stock or publicly announce an intention to effect any of these
transactions, for a period of 180 days after the date of the underwriting
agreement, other than shares of common stock transferred in connection with a
pledge agreement or disposed of as bona fide gifts approved by Donaldson,
Lufkin & Jenrette Securities Corporation.
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement,
dated 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc.
and J.P. Morgan Securities Inc. have severally agreed to purchase the number of
shares of our common stock shown opposite their names below:
<TABLE>
<CAPTION>
Number of
Shares
<S> <C>
Underwriters:
Donaldson, Lufkin & Jenrette Securities Corporation...........
Bear, Stearns & Co. Inc. .....................................
J.P. Morgan Securities Inc. ..................................
---
Total.........................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statement, the continuing correctness of our representations, the receipt of a
"comfort letter" from our accountants, the listing of our common stock on the
Nasdaq National Market and no occurrence of an event that would have a material
adverse effect on us. The underwriters are obligated to purchase and accept
delivery of all the shares, other than those covered by the over-allotment
option described below, if they purchase any of our shares.
The underwriters propose to initially offer some of our shares directly to
the public at the initial public offering price shown on the cover page of this
prospectus and some of the shares to dealers at the initial public offering
price less a concession not in excess of $ per share. The underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share on sales to other dealers. After the initial offering of the shares to
the public, the representatives of the underwriters may change the public
offering price and such concessions. The underwriters do not intend to confirm
sales to any accounts over which they exercise discretionary authority.
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in the offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJdirect Inc. for sale to its
brokerage account holders.
The following table shows the underwriting fees we will pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of our common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
<S> <C> <C>
Per share....................................... $ $
Total........................................... $ $
</TABLE>
We will pay the offering expenses, estimated to be $ .
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares at the initial
public offering price less the underwriting fees. The underwriters may exercise
their option solely to cover over-allotments, if any, made in connection with
this offering. To the extent that the underwriters exercise their option, each
underwriter will become obligated, subject to conditions, to purchase a number
of additional shares approximately proportionate to that underwriter's initial
purchase commitment.
57
<PAGE>
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act or to contribute to
payments that the underwriters may be required to make in respect of those
liabilities.
Network Access Solutions, our executive officers, directors and stockholders
have agreed that, for a period of 180 days from the date of this prospectus, we
and they will not, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation do either of the following:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock; or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of our common
stock.
Either of the foregoing transaction restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or such other securities, in cash or otherwise.
At our request, the underwriters have reserved up to percent of the
shares offered by this prospectus for sale at the initial public offering price
to our employees, officers, directors and other individuals associated with us
and members of their families. The number of shares of common stock available
for sale to the general public will be reduced to the extent these individuals
purchase or confirm for purchase, orally or in writing, such reserved shares.
Any reserved shares not purchased or confirmed for purchase will be offered by
the underwriters to the general public on the same basis as the other shares
offered by this prospectus.
Application has been made to list the common stock on the Nasdaq National
Market under the symbol "NASC." In order to meet the requirements for listing
the common stock on the Nasdaq National Market, the underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 400 beneficial
owners.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rules and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus is
not an offer to sell or a solicitation of an offer to buy any shares of common
stock included in this offering in any jurisdiction where that would not be
permitted or legal.
Stabilization
In connection with this offering, any of the underwriters may decide to
engage in transactions that stabilize, maintain or otherwise affect the price
of our common stock. Specifically, the underwriters may overallot this
offering, creating a syndicate short position. In addition, the underwriters
may bid for and purchase shares of our common stock in the open market to cover
syndicate short positions or to stabilize the price of our common stock. These
activities may stabilize or maintain the market price of our common stock above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
58
<PAGE>
Pricing of this Offering
Prior to this offering, there has been no established public market for our
common stock. The initial public offering price for the shares of our common
stock offered by this prospectus will be determined by negotiation between us
and the representatives of the underwriters. The factors to be considered in
determining the initial public offering price include:
. our history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable
companies; and
. the general conditions of the securities market at the time of the
offering.
VALIDITY OF THE SHARES
Piper & Marbury L.L.P., Washington, D.C., will pass upon the validity of the
shares of common stock on our behalf. Paul, Hastings, Janofsky & Walker LLP,
New York, New York, will pass upon legal matters for the underwriters.
EXPERTS
Our financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, including exhibits,
schedules and amendments. This prospectus is a part of the registration
statement and includes all of the information which we believe is material to
an investor considering whether to make an investment in our common stock. We
refer you to the registration statement for additional information about
Network Access Solutions, our common stock and this offering, including the
full texts of the exhibits, some of which have been summarized in this
prospectus. The registration statement is available for inspection and copying
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information about the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet site that contains the registration statement. The address of the
SEC's Internet site is "http://www.sec.gov."
We intend to furnish our stockholders annual reports containing financial
statements audited by our independent accountants.
59
<PAGE>
GLOSSARY OF TERMS
ATM Asynchronous Transfer Mode. A protocol that
segments digital information into 53-byte cells
that are switched throughout a network over
virtual circuits. ATM can accommodate multiple
types of media, including voice, video and
data.
Backbone An element of the network infrastructure that
provides high speed, high capacity connections
among the network's physical points of
presence, i.e., connection points and node
sites. The backbone is used to transport end
user traffic across the metropolitan area and
across the United States.
Bandwidth Refers to the maximum amount of data that can
be transferred through a computer's backbone or
communication channel in a given time. It is
usually measured in bits per second for digital
communications.
Central Office ILEC facility where end user lines are
terminated.
CLEC Competitive Local Exchange Carrier. Category of
telephone service provider, or carrier, that
offers services similar to and in competition
with those of an ILEC, as allowed by recent
changes in telecommunications law and
regulation.
Collocation A location serving as the interface point for a
CLEC network's interconnection to that of an
ILEC. Collocation can be (1) physical, in which
the CLEC places and directly maintains
equipment in the ILEC central office, (2)
virtual, in which the CLEC leases space in the
ILEC central office but the equipment is owned
and maintained by the ILEC or (3) secured
collocation open physical environment, or
SCOPE, in which the CLEC places and maintains
its equipment in the ILEC central office but
shares the space with the ILEC or other CLECs.
Copper Line or Loop A pair of traditional copper telephone lines
using electric current to carry signals.
Digital Describes a method of storing, processing and
transmitting information through the use of
distinct electronic or optical pulses that
represent the binary digits 0 and 1. Digital
transmission and switching technologies employ
a sequence of these pulses to convey
information, as opposed to the continuously
variable analog signal. The precise digital
numbers preclude distortion, such as graininess
or "snow," in the case of video transmission,
or static or other background distortion in the
case of audio transmission.
Downstream Refers to the transmission speed of a
connection between our connection point and the
end user.
DS-1 Digital Service 1. In the digital hierarchy,
this signaling standard defines a transmission
speed of 1.544 Mbps. This term is often used
interchangeably with T1.
DS-3 Digital Service 3. In the digital hierarchy,
this signaling standard defines a transmission
speed of 44.736 Mbps, equivalent to 28 T1
channels. This term is often used
interchangeably with T3.
A-1
<PAGE>
DSL Digital Subscriber Line. A transmission
technology enabling high speed access on the
local copper loop, often referred to as the
"last mile" between the network service
provider and end user.
DSLAM Digital Subscriber Line Access Multiplexer. A
platform that provides for high speed data
transmission over copper loops.
E-Commerce Electronic commerce. An Internet service that
supports electronic transactions between
customers and vendors to purchase goods and
services.
Encryption Applying a specific algorithm to data so as to
alter the data's appearance and prevent other
devices from reading the information.
Decryption applies the algorithm in reverse to
restore the data to its original form.
Firewall A computer device that separates a local area
network from a wide area network and prevents
unauthorized access to the local area network
through the use of electronic security
mechanisms.
Frame Relay A form of packet switching with variable length
frames that may be used with a variety of
communications protocols.
ILEC Incumbent local exchange carrier. The local
exchange carrier that was the monopoly carrier
in a region, prior to the opening of local
exchange services to competition with the
enactment of the 1996 Telecom Act. In our
markets, Bell Atlantic is the dominant ILEC.
Interconnection agreement A contract between an ILEC and a CLEC for the
connection of a CLEC network to the public
switched telephone network, as well as CLEC
access to the ILEC's unbundled network
elements, e.g., copper loops. This agreement
sets out some of the financial agreement and
operational aspects of such interconnection and
access.
Internet Protocol A standard for software that keeps track of the
inter-network addresses for different nodes,
routes outgoing messages and recognizes
incoming messages.
ISDN Integrated Service Digital Network. A
transmission method that uses digital
transmission and switching technology to
provide voice, data and video transmission at
speeds of 64 to 128 Kbps.
Internet service provider A vendor that provides end users access to the
Internet.
Inter-exchange carrier Usually referred to as a long-distance service
provider. There are many interexchange
carriers, including AT&T, MCI WorldCom, Sprint
and Qwest.
Kbps Kilobits per second. 1,000 bits per second.
Mbps Megabits per second. Millions of bits per
second.
Multiplexing An electronic or optical process that combines
several lower speed transmission signals into
one higher speed signal.
A-2
<PAGE>
OC-3 Optical Carrier 3. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of
binary digits transmitted per second. OC-3
service has a bit rate of 155.5 Mbps.
OC-12 Optical Carrier 12. Standard telecommunications
industry digital single format, which is
distinguishable by bit rate -- the number of
binary digits transmitted per second. OC-12
service has a bit rate of 622.8 Mbps.
Packets Information represented as bytes grouped
together through a communication node with a
common destination address and other attribute
information.
Router A device that accepts the Internet Protocol
from a local area network or another wide area
network device and switches/routes Internet
Protocol packets across a network backbone.
Routers also provide protocol conversion
services to transfer Internet Protocol packets
over Frame Relay, ATM, and other backbone
network services.
T1 A digital transmission link with a capacity of
1.544 Mbps.
TDM Time division multiplexing. A technique for
combining multiple traffic streams by
allocating a fixed amount of bandwidth for each
traffic stream.
Upstream Refers to the transmission speed of a
connection between the end user and our
connection point.
A-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants......................................... F-2
Balance Sheets as of December 31, 1997 and 1998........................... F-3
Statements of Operations for the years ended December 31, 1996, 1997 and
1998..................................................................... F-4
Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1997 and for 1998..................................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998..................................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
Network Access Solutions Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity and cash flows present fairly, in
all material respects, the financial position of Network Access Solutions
Corporation (the Company) at December 31, 1997 and 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.
McLean, Virginia
March 18, 1999
F-2
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
BALANCE SHEETS
as of December 31, 1997 and 1998
---------------------
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 713,246 $ 5,518,117
Accounts receivable, net of allowance for doubtful
accounts............................................. 765,325 1,806,791
Prepaid and other current assets...................... -- 105,693
Inventory............................................. 47,547 59,233
---------- -----------
Total current assets................................ 1,526,118 7,489,834
Property and equipment, net............................ 140,177 5,030,793
Deposit................................................ -- 185,000
Income tax receivable.................................. -- 100,865
Deferred tax asset..................................... 198,732 121,586
---------- -----------
Total assets........................................ $1,865,027 $12,928,078
========== ===========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 796,945 $ 2,525,102
Accrued expenses...................................... 92,502 750,308
Current portion of deferred compensation liability.... -- 333,333
Current portion of capital lease obligations.......... -- 328,982
Note payable.......................................... 93,348 --
Income tax payable.................................... 132,064 --
Other current liabilities............................. -- 67,201
---------- -----------
Total current liabilities........................... 1,114,859 4,004,926
Long term portion of capital lease obligations........ -- 1,184,156
Note payable.......................................... -- 1,000,000
Long term portion of deferred compensation
liability............................................ 500,000 166,667
---------- -----------
Total liabilities................................... 1,614,859 6,355,749
---------- -----------
Commitments and contingencies
Series A mandatorily redeemable preferred stock, $.001
par value,
10,000,000 shares authorized, issued and outstanding
(liquidation
preference $10,322,192), as of December 31, 1998.... -- 5,640,651
---------- -----------
Stockholders' equity:
Common stock, $.001 par value, 50,000,000 shares au-
thorized,
9,740,000 and 19,800,000 shares issued as of Decem-
ber 31, 1997
and December 31, 1998, respectively.................. 9,740 19,800
Additional paid-in capital............................ 5,751 8,115,892
Deferred compensation................................. -- (3,462,753)
Retained earnings (deficit)........................... 234,677 (1,841,261)
Less treasury stock, at cost, 3,800,000 shares as of
December 31, 1998.................................... -- (1,900,000)
---------- -----------
Total stockholders' equity ......................... 250,168 931,678
---------- -----------
Total liabilities, mandatorily redeemable preferred
stock, and
stockholders' equity............................... $1,865,027 $12,928,078
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
STATEMENTS OF OPERATIONS
for the years ended December 31, 1996, 1997 and 1998
---------------------
<TABLE>
<CAPTION>
1996 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
Revenue................................. $14,482,383 $8,944,816 $11,639,075
----------- ---------- -----------
Cost of revenue:
Direct costs.......................... 12,066,385 7,410,629 9,400,652
Network services...................... -- 2,406 40,738
----------- ---------- -----------
12,066,385 7,413,035 9,441,390
----------- ---------- -----------
Gross profit............................ 2,415,998 1,531,781 2,197,685
Operating expenses:
Selling, general and administrative .. 2,255,231 1,436,513 4,017,057
Amortization of deferred
compensation......................... -- -- 218,997
Depreciation and amortization......... 7,256 12,298 130,004
----------- ---------- -----------
Income (loss) from operations........... 153,511 82,970 (2,168,373)
Interest income......................... -- -- 145,468
Interest expense........................ (868) (5,144) (81,006)
----------- ---------- -----------
Income (loss) before income taxes....... 152,643 77,826 (2,103,911)
Provision (benefit) for income taxes.... 62,460 35,674 (27,973)
----------- ---------- -----------
Net income (loss)....................... 90,183 42,152 (2,075,938)
Preferred stock dividends............... -- -- 322,192
Preferred stock accretion............... -- -- 244,417
----------- ---------- -----------
Net income (loss) applicable to common
stockholders........................... $ 90,183 $ 42,152 $(2,642,547)
=========== ========== ===========
Net income (loss) per common share
(basic and diluted):
Net income (loss)..................... $ 0.01 $ 0.00 $ (0.17)
Preferred stock dividends and
accretion............................ -- -- (0.05)
----------- ---------- -----------
Net income (loss) applicable to common
stockholders......................... $ 0.01 $ 0.00 $ (0.22)
----------- ---------- -----------
Weighted average common shares
outstanding (basic and diluted)........ 9,740,000 9,740,000 12,134,286
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1997 and 1998
---------------------
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
------------------ Paid- Deferred Earnings ---------------------
Shares Amount in Capital Compensation (Deficit) Shares Amount Total
---------- ------- ---------- ------------ ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... 9,740,000 $ 9,740 $ 5,751 $ -- $ 102,342 -- $ -- $ 117,833
Net income.............. -- -- -- -- 90,183 -- -- 90,183
---------- ------- ---------- ----------- ----------- --------- ----------- ----------
Balance, December 31,
1996................... 9,740,000 9,740 5,751 -- 192,525 -- -- 208,016
Net income.............. -- -- -- -- 42,152 -- -- 42,152
---------- ------- ---------- ----------- ----------- --------- ----------- ----------
Balance, December 31,
1997................... 9,740,000 9,740 5,751 -- 234,677 -- -- 250,168
Sale of common stock,
net of direct issuance
costs of $27,341....... 9,800,000 9,800 4,865,260 -- -- -- -- 4,875,060
Purchase of treasury
stock at cost.......... -- -- -- -- -- 3,800,000 (1,900,000) (1,900,000)
Shares issued to
employee for service... 260,000 260 129,740 -- -- -- -- 130,000
Accrual of preferred
stock dividends........ -- -- (322,192) -- -- -- -- (322,192)
Accretion of preferred
stock.................. -- -- (244,417) -- -- -- -- (244,417)
Deferred compensation... -- -- 3,681,750 (3,681,750) -- -- -- --
Amortization of deferred
compensation........... -- -- -- 218,997 -- -- -- 218,997
Net loss................ -- -- -- -- (2,075,938) -- -- (2,075,938)
---------- ------- ---------- ----------- ----------- --------- ----------- ----------
Balance, December 31,
1998................... 19,800,000 $19,800 $8,115,892 $(3,462,753) $(1,841,261) 3,800,000 $(1,900,000) $ 931,678
========== ======= ========== =========== =========== ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1997 and 1998
---------------------
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 90,183 $ 42,152 $(2,075,938)
Adjustment to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization
expense............................ 7,256 12,298 130,004
Provision for doubtful accounts
receivable......................... -- 23,826 28,133
Benefit (provision) for deferred
income taxes....................... (62,337) (118,274) 77,146
Shares issued to employee for
services........................... -- -- 130,000
Amortization of deferred
compensation....................... -- -- 218,997
Net changes in assets and
liabilities:
Accounts receivable............... (4,435,883) 4,072,345 (1,069,599)
Inventory......................... (347,870) 300,678 (11,686)
Income tax receivable............. -- -- (100,865)
Prepaid and other current assets.. (10,000) 10,000 (105,693)
Accounts payable.................. 4,138,912 (3,612,797) (139,113)
Accrued expenses.................. 241,254 (148,752) 173,795
Deferred compensation liability... 208,333 291,667 --
Income tax payable................ -- -- (132,064)
Other current liabilities......... 142,948 (68,195) 67,201
----------- ----------- -----------
Net cash (used in) provided by
operating
activities...................... (27,204) 804,948 (2,809,682)
----------- ----------- -----------
Cash flows from investing activities:
Expenditures for network under
development.......................... -- -- (640,511)
Purchases of property and equipment... (29,792) (121,915) (515,690)
Deposit for software and services .... -- -- (185,000)
----------- ----------- -----------
Net cash used in investing
activities...................... (29,792) (121,915) (1,341,201)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings on notes payable........... 1,500,000 1,500,000 2,406,652
Repayments of notes payable........... (1,445,458) (1,491,291) (1,500,000)
Issuance of common stock.............. -- -- 4,902,401
Issuance of redeemable preferred
stock................................ -- -- 5,102,499
Issuance costs related to preferred
and common stock offering............ -- -- (55,798)
Treasury stock acquired............... -- -- (1,900,000)
----------- ----------- -----------
Net cash provided by financing
activities...................... 54,542 8,709 8,955,754
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... (2,454) 691,742 4,804,871
Cash and cash equivalents at the
beginning of period................... 23,958 21,504 713,246
----------- ----------- -----------
Cash and cash equivalents at the end of
period................................ $ 21,504 $ 713,246 $ 5,518,117
=========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest............................ $ 868 $ 5,142 $ 27,948
Income taxes........................ $ -- $ 222,143 $ 153,343
Non-cash investing and financing
activities:
Capital leases...................... $ -- $ -- $ 1,513,138
Preferred stock dividends........... $ -- $ -- $ 322,192
Preferred stock accretion........... $ -- $ -- $ 244,417
Shares issued to employee for
service............................ $ -- $ -- $ 130,000
Expenditures for network under
development included in accounts
payable and accrued expenses....... $ -- $ -- $ 2,351,281
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Business
The Company
Network Access Solutions Corporation (the Company), was originally
incorporated in the Commonwealth of Virginia on December 19, 1994. On August 3,
1998, the Company reincorporated in the State of Delaware. Prior to the
reincorporation, the Company had authorized 10,000 shares of common stock, of
which 7,803 shares were issued and outstanding. As of August 3, 1998, the
Company was recapitalized with authorized capital stock of 15,000,000 shares of
common stock, $.001 par value per share and 10,000,000 shares of preferred
stock, $.001 par value per share. On March 18, 1999, the Company increased the
authorized common stock to 50,000,000 shares with a par value of $.001 per
share. In conjunction with this reincorporation and recapitalization, the
Company changed from a July 31 year-end to a calendar year-end. On March 18,
1999, the Company and its Board of Directors declared a two for one stock
split, effected as a stock dividend, of its common stock. All share information
has been retroactively adjusted for all periods presented to reflect the new
capital structure and stock split.
The Company is a regionally-focused data communications and enterprise
networking company. Through its CuNet branded service, the Company will offer
its customers high speed connectivity in the Bell Atlantic region using DSL
technology. As a complement to the Company's CuNet service, the Company also
offers its customers a complete suite of value-added enterprise networking
solutions, including network integration, network management, network security
and professional services. In 1999, the Company began offering CuNet in Boston,
New York, Philadelphia, Baltimore, Washington, D.C. and Richmond. The Company
will sell its services directly and indirectly to small, medium and large
businesses. The Company sells its services to its existing customer base
through a direct sales force. The Company also sells its services indirectly
through its wholesale and channel partners, including internet service
providers, inter-exchange carriers, other CLECs and systems integrators.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The estimates involve judgments with
respect to, among other things, various future factors which are difficult to
predict and are beyond the control of the Company. Therefore, actual amounts
could differ from these estimates.
Revenue Recognition
The Company's revenue is derived from the sale of products, network services
and consulting services. The Company recognizes revenue from the sale of
products as they are shipped to customers. The Company provides network and
consulting services under both service and time-and-material type contracts and
recognizes revenue as services are performed and as costs are incurred over the
related contract period. As of December 31, 1998, the Company has completed the
development of DSL networks in several of its target markets and began
providing services to customers in early 1999.
F-7
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are held in a money market account at a
national financial institution. The Company has not experienced any losses on
its cash and cash equivalents.
The Company grants uncollateralized credit in the form of accounts
receivable to its customers. As of December 31, 1998, AT&T, Corp. (AT&T)
comprised 47% of accounts receivable. The customers with concentrations of
revenue greater than 10% of total revenue for the years ended December 31,
1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
Customer 1996 1997 1998
------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
AT&T....................................... $9,978,104 $3,421,878 $5,869,901
Zeneca, Inc................................ -- 921,356 1,119,856
Network Monitoring and Repair, Inc......... -- 1,301,440 --
---------- ---------- ----------
$9,978,104 $5,644,674 $6,989,757
========== ========== ==========
</TABLE>
Cash Equivalents
The Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Inventory
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted-average method. Inventories consist primarily of components,
subassemblies and finished products held for sale.
Property and Equipment
Property and equipment, consists of network costs associated with the
development and implementation of the DSL networks, office and computer
equipment, and furniture and fixtures. The costs associated with the DSL
network under development are comprised of collocation fees, equipment,
equipment held under capital leases, and equipment installation. These assets
are stated at cost. The Company leases certain of its equipment under capital
lease agreements. The capital lease assets are stated at the lower of the
present value of the net minimum lease payments or the fair value at the
inception of the lease, and are depreciated over the shorter of the estimated
useful life or the lease term. Depreciation of office and computer equipment
and furniture and fixtures is computed using the straight-line method,
generally over three to five years, based upon estimated useful lives,
commencing when the assets are placed in service. The depreciation of the DSL
network costs will commence as individual network components are placed in
service and will be depreciated over two to five years. Expenditures for
maintenance and repairs are expensed as incurred. When assets are retired or
disposed, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is recognized in operations for the
period.
F-8
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
Income Taxes
The Company accounts for income taxes by utilizing the liability method.
Under this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end, based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce net deferred tax assets to the amount
expected to be realized. The provision for income taxes consists of the
Company's current provision (benefit) for federal and state income taxes and
the change in net deferred tax assets and liabilities during the period.
Fair Value Information
The carrying amount of current assets and current liabilities approximates
fair value because of the short maturity of these instruments. The fair value
of redeemable preferred stock is estimated by discounting the remaining cash
flows at the current interest rates. As of December 31, 1998, the carrying
amount of these financial instruments approximates fair value.
Impairment of Long-Lived Assets
The Company periodically evaluates the recoverability of its long-lived
assets. This valuation consists of a comparison of the carrying value of the
assets with the assets' expected future cash flow undiscounted and without
interest costs. If the carrying value of an asset exceeds the expected future
cash flows, an impairment exists. An impairment loss is measured by the amount
by which the carrying value of the asset exceeds future discounted cash flows.
No impairment losses have been recognized to date.
Net Income (Loss) Per Share
The Company presents basic and diluted net income (loss) per share. Basic
net income (loss) per share is computed based on the weighted average number of
outstanding shares of common stock. Diluted net income (loss) per share adjusts
the weighted average for the potential dilution that could occur if stock
options, warrants or other convertible securities were exercised or converted
into common stock. Diluted loss per share for the year ended December 31, 1998,
is the same as basic loss per share because the effects of such items were
anti-dilutive.
Stock-Based Compensation
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic value method and provides pro forma
disclosures of net loss as if the fair value method had been applied in
measuring compensation expense. Under the intrinsic value method of accounting
for stock-based compensation, when the exercise price of options granted to
employees is less than the estimated fair value of the underlying stock on the
date of grant, deferred compensation is recognized and is amortized to
compensation expense over the applicable vesting period.
Segment Reporting
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131 (SFAS 131), Disclosures About Segments of an Enterprise and Related
Information. SFAS 131 requires companies to
F-9
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
disclose information about their segments. The Company has determined that its
network product, service and consulting business activities are not organized
on the basis of differences in related products and services and therefore,
operates on an enterprise-wide or single reportable segment. The Company
provides its enterprise and carrier customers a full selection of data
networking solutions, including, in the future, DSL technology. The Company's
revenues for the year ended December 31, 1998, were principally derived from
the sale of products and services to customers in the Bell Atlantic region. The
Company entered into its first interconnection agreement with Bell Atlantic in
April 1997 and began constructing a high-speed data communications network and
related services using DSL technology. The Company expects to derive future
revenues from the operation of its network in the eastern United States.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for fiscal years
beginning after June 15, 1999 (January 1, 2000 for the Company). SFAS 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Currently the Company does not utilize derivative
instruments, therefore the adoption of SFAS 133 is not expected to have a
significant effect on the Company's results of operations or its financial
position. The Company will adopt SFAS 133 for the year ending December 31, 2000.
3. Property and Equipment
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
DSL network development in process..................... $ -- $4,657,975
Office and computer equipment.......................... 133,419 355,962
Furniture and fixtures................................. 19,626 159,728
Less accumulated depreciation.......................... (12,868) (142,872)
-------- ----------
Property and equipment, net............................ $140,177 $5,030,793
======== ==========
</TABLE>
The DSL network development in process includes the acquisition of equipment
under capital leases, equipment, installation, and collocation fees.
Collocation fees represent nonrecurring fees paid to obtain central office
space for location of certain Company equipment. As of December 31, 1998, the
recorded cost of the network equipment under capital leases was $1,513,138.
Accumulated amortization for this equipment under capital leases was $20,739.
For the years December 31, 1996, 1997 and 1998, depreciation expense charged
to operations amounted to $7,256, $12,298, and $130,004, respectively.
F-10
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
4. Notes Payable
On October 16, 1998, the Company entered into a $10,000,000 line of credit
agreement with Ascend Communications, Inc. (Ascend). Under the terms of the
line of credit, the Company can draw on the line of credit in $1,000,000
increments up to a maximum of $5,000,000. The Company may draw down the
remaining $5,000,000, also in $1,000,000 increments, upon (i) completing the
purchase or lease of equipment in excess of $15,000,000 from the supplier and
(ii) demonstrating that at least 70% of such equipment is being used by the
Company to generate revenue. The Company is required to make interest only
payments at an annual rate of 8.25% on the amounts advanced for the first nine
months from the date of the advance. For the next thirty-three months the
Company is required to make principal and interest payments in accordance with
a sixty month amortization schedule using an interest rate of 8.25% for the
first eighteen months and a rate equal to the prevailing high yield bond index
for the next fifteen months. The remaining unpaid interest is due forty-two
months after the related advance. The credit agreement requires immediate
repayment in the event of an initial public offering or debt offering in excess
of $40,000,000 or a change in control, as defined. At December 31, 1998,
$1,000,000 was outstanding under this agreement.
The Company had a $1,500,000 line of credit agreement with a bank which
matured on November 30, 1998, was repaid and not renewed. Interest on
outstanding borrowings accrued at the bank's prime rate of interest plus three-
quarters of a percent (9.25% during 1998). At December 31, 1997, there was
$93,348, of outstanding borrowings under this agreement.
5. Deferred Compensation
The Company has an unfunded deferred compensation plan for certain key
executives. Under the plan, executives deferred a portion of their compensation
by electing future payments in three equal installments in
June 1999, December 1999 and June 2000. At December 31, 1997 and 1998, the
deferred compensation liability was $500,000, respectively. Interest accrues on
deferred amounts on a quarterly basis at a rate
determined by management which is currently 6% based on the rate of interest
for 3-year Federal treasury notes. Accrued interest related to these amounts
was $17,500 and $47,500 at December 31, 1997 and 1998, respectively.
6. Commitments and Contingencies
Leases
The Company leases and subleases office space in Virginia and Pennsylvania
and collocation space in central offices under the terms of the interconnection
agreements with Bell Atlantic and other vendors. Commitments for minimum rental
payments under noncancelable leases and subleases at December 31, 1998 are as
follows: $329,311 in 1999, and $331,382 in 2000, $255,853 in 2001, and $9,212
in 2002.
Rent expense for the years ended December 31, 1996, 1997 and 1998, was
$46,742, $80,103 and $113,600, respectively.
F-11
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
During 1998, the Company entered into capital leases related to the
acquisition of equipment for the development of the DSL network. The present
value of future minimum capital lease payments as of December 31, 1998, is as
follows:
<TABLE>
<CAPTION>
Year ending December 31, Amount
----------------------------------------------------------------- ----------
<S> <C>
1999............................................................. $ 461,370
2000............................................................. 501,064
2001............................................................. 500,521
2002............................................................. 330,892
2003............................................................. 21,875
----------
1,815,722
Less amounts representing interest............................... 302,584
----------
Present value of net minimum lease payments...................... 1,513,138
Less current portion of capital lease obligations................ 328,982
----------
Long term portion of capital lease obligations................... $1,184,156
==========
</TABLE>
The Company has entered into a master lease agreement with Ascend to finance
purchases of up to $30,000,000 through capital lease agreements. The Company
has an arrangement with Paradyne Corporation whereby the Company can finance
DSL equipment purchases of up to $4,000,000 subject to vendor approval.
Purchase commitments
On November 24, 1998 the Company entered into an agreement with a software
and service provider to support its DSL services. The Company's majority
shareholder is also a shareholder of this software and service provider. Under
the terms of the agreement, software licensing and service fees will
approximate $1,023,700 which are payable through a $185,000 deposit which was
made upon signing the agreement, $402,700 due upon project completion, and
$436,000 payable within twenty-four months of project completion. Amounts not
paid within 30 days of project completion accrue interest at a rate of 10%. The
agreement requires immediate payment if the Company obtains $40,000,000 in
funding and requires accelerated payment, based on a formula, if the Company
receives funding in excess of $10,000,000. The Company commenced implementing
the software and support service in 1999.
Employment agreements
The Company has entered into an employment agreement with each of its
executive officers. Each agreement has an initial term of four years, subject
to earlier termination upon 30 days prior notice. These agreements are
automatically extended for additional one year terms unless the Company or the
employee elects to terminate the agreement within 30 days before the end of the
current term. Under these agreements, these employees will receive an initial
annual base salary that will be increased by at least 5% each year, based upon
performance objectives set by the Board of Directors. The employees will also
receive an annual bonus of up to 20% of the executives' then current salary.
The bonus is payable in cash, stock or a combination of both at the election of
the board of directors.
F-12
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
Other Matter
The Company is not currently involved in any legal proceedings that it
believes could have a material adverse effect on its business, financial
position, results of operation or cash flow.
7. Income Taxes
The provision (benefit) for income taxes consists of the following for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Current tax (benefit) provision.............. $142,918 $153,948 $(105,119)
Deferred tax provision (benefit)............. (80,458) (118,274) 77,146
-------- -------- ---------
Total (benefit) provision for income taxes... $ 62,460 $ 35,674 $ (27,973)
======== ======== =========
</TABLE>
Deferred tax assets are comprised of the following as of December 31:
<TABLE>
<CAPTION>
1997 1998
-------- ---------
<S> <C> <C>
Deferred compensation................................... $193,100 $ 349,956
Accrued interest........................................ 5,632 19,149
Bad debt expense........................................ -- 20,066
Depreciation expense.................................... -- (2,083)
Net operating loss...................................... -- 444,160
Valuation allowance..................................... -- (709,662)
-------- ---------
Net deferred tax asset.................................. $198,732 $ 121,586
======== =========
</TABLE>
As of December 31, 1998, a valuation allowance was established to reduce
total deferred tax assets to an amount that management believes will more
likely than not be realized, based on income taxes paid in the loss carryback
period net of refundable taxes.
A reconciliation between income taxes from operations computed using the
federal statutory income tax rate and the Company's effective tax rate for the
years ended December 31, is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ---- -----
<S> <C> <C> <C>
Federal statutory rate................................ 34.0% 34.0% (34.0)%
State income taxes, net of federal provision
(benefit)............................................ 4.9 5.4 (2.7)
Increase to valuation allowance....................... -- -- 33.7
Business meals, entertainment, penalties and other.... 2.0 6.4 1.5
----- ---- -----
40.9% 45.8% (1.5)%
===== ==== =====
</TABLE>
8. Mandatorily Redeemable Preferred Stock and Stockholders' Equity
Mandatorily Redeemable Preferred Stock
On August 6, 1998, the Company issued 10,000,000 shares of Series A
mandatorily redeemable preferred stock (Preferred Stock) and 9,800,000 shares
of common stock for total proceeds of $10,004,900, excluding
F-13
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
direct issuance costs of $55,798. The Company has allocated $5,074,642 and
$4,875,000 of the net proceeds to the Preferred Stock and common stock,
respectively, based on the Company's estimate of fair value of the Preferred
Stock and common stock. The Preferred Stock has a par value of $.001 per share,
a stated value of $1.00 per share (Stated Value) and a cumulative dividend of
8% of the Stated Value per annum, compounded annually. The Company may not
declare or pay any distributions by dividend or otherwise, payable other than
in common stock, until the holders of the Preferred Stock first receive a
distribution equal to the cumulative dividend due for each outstanding share of
Preferred Stock. Dividends continue to accrue until redemption. The Preferred
Stock is redeemable, at the option of the holder, at the earlier of the closing
of a public offering or the sixth anniversary of the initial Preferred Stock
issuance at a redemption price equal to $1.00 per share plus any accrued and
unpaid dividends. For the year ended December 31, 1998, the Company has accrued
preferred stock dividends of $322,192 and increased the preferred stock
carrying value by $244,417 for accretion to the redemption price.
In the event of a liquidation, dissolution, or winding up of the Company,
the holders of the Preferred Stock are entitled to a liquidation preference
equal to $1.00 per share plus any accrued and unpaid dividends. No dividends
have been declared through December 31, 1998. The Preferred Stock does not
provide its holders with voting rights, however, the Company must receive
approval from the holders of two-thirds of Preferred Stock to (i) authorize,
create or issue, or increase the authorized or issued amount of any class of
equity which is senior or equal to the Preferred Stock, (ii) reclassify or
modify any class of equity such that it ranks senior or equal to the Preferred
Stock, or (iii) amend, alter or repeal any of the provisions applicable to the
Preferred Stock so as to adversely change the dividend, liquidation and
redemption terms.
On March 18, 1999, the Company's certificate of incorporation was amended to
modify the terms of the Preferred Stock. In the event of an initial public
offering in which the Company receives a market valuation in excess of
$200,000,000, the terms of the Preferred Stock provide that (i) 50% of the
Preferred Stock outstanding will be cancelled and cease to exist without
compensation or recourse, (ii) the remaining shares of Preferred Stock will be
automatically converted into common stock based on the Preferred Stock
aggregate per share stated value of $5,000,000 divided by the per share public
offering price and (iii) no dividends on the Preferred Stock whether accrued or
unaccrued through the date of the offering will be payable.
The Preferred Stock activity for the year ended December 31, 1998 is
summarized as follows:
<TABLE>
<CAPTION>
Shares Amount
---------- ----------
<S> <C> <C>
Balance, December 31, 1997............................ -- $ --
Issuance of shares.................................... 10,000,000 5,102,499
Issuance costs........................................ -- (28,457)
Accrued dividends..................................... -- 322,192
Accretion to redemption price......................... -- 244,417
---------- ----------
Balance, December 31, 1998............................ 10,000,000 $5,640,651
========== ==========
</TABLE>
Stock Repurchase
On August 6, 1998, the Company repurchased 3,800,000 shares of common stock
for $1,900,000 from certain founders of the Company. This repurchase was
accounted for at cost.
F-14
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
9. Stock-Based Compensation
On July 23, 1998, the Company adopted the 1998 Incentive Stock Plan (the
Plan), under which incentive stock options, non-qualified stock options, stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards or any combination thereof may be granted to the Company's
employees and certain other persons in accordance with the Plan. The Board of
Directors, which administers the Plan, determines the number of options
granted, the vesting period and the exercise price. The Board of Directors may
terminate the Plan at any time. Options granted under the Plan are fully
exercisable into restricted shares of the Company's common stock upon award and
expire ten years after the date of grant. The restricted common stock generally
vests over a three or four year period. Subsequent to exercise, unvested shares
of restricted stock cannot be transferred while vested shares are subject to a
right of first refusal by the Company to repurchase the shares at fair value.
Upon voluntary termination unvested shares of restricted stock can be
repurchased at the lower of fair value or the exercise price. At December 31,
1998, 4,000,000 shares were reserved for issuance under the Plan. Effective
March 18, 1999, the Company increased the number of shares of common stock
reserved for issuance under the employee stock option plan from 4,000,000 to
4,500,000.
As of December 31, 1998, a total of 3,151,500 incentive stock options had
been granted at an exercise price of $.20 per share. All of the options issued
were exercisable at December 31, 1998. Stock option activity for the year ended
December 31, 1998, was as follows:
<TABLE>
<CAPTION>
Weighted
Incentive Average
Stock Exercise Exercise
Options Price Price
--------- -------- --------
<S> <C> <C> <C>
Options outstanding, December 31, 1997........... -- $-- $--
Options granted, July 1998....................... 2,400,000 .20 .20
Options granted, August 1998..................... 100,000 .20 .20
Options granted, November 1998................... 651,500 .20 .20
Options exercised................................ -- -- --
Options cancelled................................ -- -- --
--------- ---- ----
Options outstanding, December 31, 1998........... 3,151,500 $.20 $.20
========= ==== ====
</TABLE>
The Company has estimated the fair value of the underlying common stock on
the date of grant was in excess of the exercise price of the options. As a
result, the Company recorded deferred compensation of $3,681,750 for the year
ended December 31, 1998. This amount was recorded as a reduction to
stockholders' equity and is being amortized as a charge to operations over the
vesting periods. For the year ended December 31, 1998, the Company recognized
$218,997 of stock compensation expense related to these options.
F-15
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
SFAS No. 123, Accounting for Stock-Based Compensation, encourages adoption
of a fair value-based method for valuing the cost of stock-based compensation.
However, it allows companies to continue to use the intrinsic value method for
options granted to employees and disclose pro forma net loss and loss per
share. Had compensation cost for the Company's stock-based compensation plans
been determined consistent with SFAS No. 123, the Company's net loss and loss
per share would have been as follows:
<TABLE>
<S> <C>
Net loss as reported.............................................. $(2,075,938)
Pro forma net loss................................................ (2,088,416)
Net loss per share as reported, basic and diluted................. (0.17)
Pro forma net loss per share, basic and diluted................... (0.17)
</TABLE>
The weighted-average fair value of options granted during the year ended
December 31, 1998 was approximately $2.34 based on the Black-Scholes option
pricing model. Upon termination, unvested shares of restricted stock are
repurchased by the Company at the lower of the exercise price or fair market
value.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants during the year ended December 31, 1998: Dividend
yield of 0%; expected volatility of 0%; risk-free interest rate of 5.21%; and,
expected term of 5 years.
As of December 31, 1998, the weighted average remaining contractual life of
the options is 9.8 years.
10. Employee Benefit Plan
On September 16, 1998, the Company adopted the Network Access Solution, Inc.
401(k) Profit Sharing Plan and Trust (the Plan). As allowed under Section
401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary
deductions for eligible employees. Participants must be at least 21 years of
age and may make voluntary contributions to the Plan of up to 15% of their
compensation not to exceed the federally determined maximum allowable
contribution. The Company is not obligated to make contributions or to match
participant contributions. Participants vest in Company contributions' until
after 3 years of employment. The Company did not make contributions to the Plan
during 1998.
11. Subsequent Events
The Company intends to file a Registration Statement with the Securities and
Exchange Commission for an initial public offering of its common stock.
On January 14, 1999, the Company granted to certain employees options to
purchase an aggregate of 848,700 shares of common stock at an exercise price of
$.20 per share. Deferred compensation and compensation charges will be recorded
in connection with these grants.
F-16
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, 1999
[LOGO OF NAS]
Shares of Common Stock
-------------------
P R O S P E C T U S
-------------------
Donaldson, Lufkin & Jenrette
Bear, Stearns & Co. Inc.
J.P. Morgan & Co.
---------------------
DLJdirect Inc.
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as
to matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where
that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an
implication that the contained herein or the affairs of the Company have not
changed since the date hereof.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that effect transactions in these securities may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities
offered hereby, other than underwriting discounts and commissions. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the National Association Securities Dealers, Inc. filing fee
and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $27,800
National Association of Securities Dealers, Inc. filing fee...... 12,000
Nasdaq National Market listing fee............................... *
Transfer agent's and registrar's fees............................ *
Printing expenses................................................ *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky filing fees and expenses................................ *
Miscellaneous expenses........................................... *
-------
Total.......................................................... *
=======
</TABLE>
- ---------------------
* To be filed by amendment.
14. Indemnification of Officers and Directors
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. The
Registrant's Bylaws include provisions to require the Registrant to indemnify
its directors and officers to the fullest extent permitted by Section 145,
including circumstances in which indemnification is otherwise discretionary.
Section 145 also empowers the Registrant to purchase and maintain insurance
that protects its officers, directors, employees and agents against any
liabilities incurred in connection with their service in such positions.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant
and its directors and officers, and by the Registrant of the Underwriters, for
certain liabilities arising under the Securities Act.
II-1
<PAGE>
15. Recent Sales of Unregistered Securities
The following information relates to securities issued or sold by the
Registrant within the last three years. During that time, the Registrant has
issued unregistered securities in the transactions described below. Securities
issued in such transactions were offered and sold in reliance upon the
exemption from registration under Section 4(2) of the Securities Act, relating
to sales by an issuer not involving any public offering, or under Rule 701
under the Securities Act. The sales of securities were made without the use of
an underwriter and the certificates evidencing the shares bear a restrictive
legend permitting the transfer thereof only upon registration of the shares or
an exemption under the Act.
(1) On August 6, 1998, the Registrant issued 10,000,000 shares of Series A
Preferred Stock to a group of four accredited investors, at a purchase
price of $1.00 per share for an aggregate price of $10,000,000.
(2) On August 6, 1998, the Registrant issued 9,800,000 shares of Common Stock
to a group of four accredited investors at a purchase price of $0.0005 per
share for an aggregate price of $4,900.
16. Exhibits and Financial Statement Schedules
(a)Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen stock certificate for shares of Common Stock of the
Company
5.1* Opinion of Piper & Marbury L.L.P., regarding legality of
securities being registered
10.1* Master Equipment Lease Agreement dated November 17, 1998, by and
between the Company and Paradyne Credit Corporation
10.2* Purchase and Sale Agreement dated as of October 16, 1998, by and
between the Company and Ascend Communications, Inc.
10.3* Master Lease Agreement dated October 9, 1998, by and between the
Company and Ascend Credit Corporation
10.4* Promissory Note dated October 16, 1998, by and between the Company
and Ascend Communications, Inc.
10.5 Commercial Lease dated February 24, 1997, by and between the
Company, Sterling/Gunston Limited Partnership and Bernstein
Management Corporation
10.5.1 First Lease Amendment dated June 26, 1998, by and between the
Company and Sterling/Gunston LLC
10.5.2 Third Lease Amendment dated February 1, 1999, by and between the
Company and Sterling/Gunston LLC
10.6 Sublease dated August 31, 1998, by and between the Company and
U.S. Interactive, Inc.
10.7 Letter of Intent dated March 2, 1999 by and between the Company
and Trans Dulles Center, Inc.
10.8 Employment Agreement dated as of August 16, 1998, by and between
the Company and
Jonathan P. Aust
10.9 Employment Agreement dated as of July 13, 1998, by and between the
Company and
Christopher J. Melnick
10.10 Employment Agreement dated as of July 13, 1998, by and between the
Company and Scott G. Yancey, Jr.
10.11 Employment Agreement dated as of August 18, 1998, by and between
the Company and James A. Aust
10.12 Employment Agreement dated as of March 1, 1999, by and between the
Company and John J. Hackett
10.13 1998 Stock Incentive Plan, as amended
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.14 Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Scott G. Yancey, Jr., as amended
10.15 Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Christopher J. Melnick, as amended
10.16 Incentive Stock Option Grant Agreement dated November 1, 1998, by
and between the Company and James A. Aust
10.17* Incentive Stock Option Grant Agreement dated March 1, 1999, by and
between the Company and John J. Hackett
10.18 Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and
Jonathan P. Aust
10.19 Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and
James A. Aust
10.20 Repurchase Agreement dated August 6, 1998, by and between the
Company and Longma M. Aust, Jonathan P. Aust, James A. Aust and
Stephen L. Aust
10.21 Investor Rights Agreement dated August 6, 1998, by and between the
Company, Spectrum Equity Investors II, L.P., SEA 1998 II, L.P.,
FBR Technology Venture Partners L.P. and W2 Venture Partners, LLC,
as amended
11.1 Statement of computation of loss per share
23.1 Consent of PricewaterhouseCoopers, LLP
23.2* Consent of Piper & Marbury L.L.P. (included as part of Exhibit
5.1)
24.1 Power of Attorney (included in signature pages)
27 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules:
Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.
17. Undertakings
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Charter or Bylaws or the Delaware
General Corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted form the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sterling, Virginia, on
the 19th day of March, 1999.
NETWORK ACCESS SOLUTIONS CORPORATION
/s/ Jonathan P. Aust
By: _________________________________
Jonathan P. Aust
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
in so signing also makes, constitutes and appointed Jonathan P. Aust, Scott G.
Yancey, Jr. and Nancy A. Spangler, and each of them acting alone, his true and
lawful attorney-in-fact, with full power of substitution, for him in any and
all capacities, to execute and cause to be filed with the Securities and
Exchange Commission any and all amendments and post-effective amendments to
this Registration Statement, with exhibits thereto and other documents in
connection therewith, and hereby ratifies and confirms all that said attorney-
in-fact or his substitute or substitutes may do or cause to be done by virtue
hereof.
Name Title Date
/s/ Jonathan P. Aust President, Chief March 19,
- ------------------------------------- Executive Officer 1999
Jonathan P. Aust and Chairman of the
Board of Directors
(Principal Executive
Officer)
/s/ Scott G. Yancey, Jr. Chief Financial March 19,
- ------------------------------------- Officer and Director 1999
Scott G. Yancey, Jr. (Principal Financial
Officer)
/s/ Christopher J. Melnick Chief Operating March 19,
- ------------------------------------- Officer and Director 1999
Christopher J. Melnick
/s/ Brion B. Applegate Director March 19,
- ------------------------------------- 1999
Brion B. Applegate
II-5
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Specimen stock certificate for shares of Common Stock of the
Company
5.1* Opinion of Piper & Marbury L.L.P., regarding legality of
securities being registered
10.1* Master Equipment Lease Agreement dated November 17, 1998, by and
between the Company and Paradyne Credit Corporation
10.2* Purchase and Sale Agreement dated as of October 16, 1998, by and
between the Company and Ascend Communications, Inc.
10.3* Master Lease Agreement dated October 9, 1998, by and between the
Company and Ascend Credit Corporation
10.4* Promissory Note dated October 16, 1998, by and between the Company
and Ascend Communications, Inc.
10.5 Commercial Lease dated February 24, 1997, by and between the
Company, Sterling/Gunston Limited Partnership and Bernstein
Management Corporation
10.5.1 First Lease Amendment dated June 26, 1998, by and between the
Company and
Sterling/Gunston LLC
10.5.2 Third Lease Amendment dated February 1, 1999, by and between the
Company and Sterling/Gunston LLC
10.6 Sublease dated August 31, 1998, by and between the Company and
U.S. Interactive, Inc.
10.7 Letter of Intent dated March 2, 1999 by and between the Company
and Trans Dulles Center, Inc.
10.8 Employment Agreement dated as of August 16, 1998, by and between
the Company and
Jonathan P. Aust
10.9 Employment Agreement dated as of July 13, 1998, by and between the
Company and
Christopher J. Melnick
10.10 Employment Agreement dated as of July 13, 1998, by and between the
Company and Scott G. Yancey, Jr.
10.11 Employment Agreement dated as of August 18, 1998, by and between
the Company and James A. Aust
10.12 Employment Agreement dated as of March 1, 1999, by and between the
Company and
John J. Hackett
10.13 1998 Stock Incentive Plan, as amended
10.14 Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Scott G. Yancey, Jr., as amended
10.15 Incentive Stock Option Grant Agreement dated July 23, 1998, by and
between the Company and Christopher J. Melnick, as amended
10.16 Incentive Stock Option Grant Agreement dated November 1, 1998, by
and between the Company and James A. Aust
10.17* Incentive Stock Option Grant Agreement dated March 1, 1999, by and
between the Company and John J. Hackett
10.18 Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and
Jonathan P. Aust
10.19 Deferred Compensation Agreement dated June 1, 1997, by and between
the Company and
James A. Aust
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.20 Repurchase Agreement dated August 6, 1998, by and between the
Company and Longma M. Aust, Jonathan P. Aust, James A. Aust and
Stephen C. Aust
10.21 Investor Rights Agreement dated August 6, 1998, by and between the
Company, Spectrum Equity Investors II, L.P., SEA 1998 II, L.P.,
FBR Technology Venture Partners L.P. and W2 Venture Partners, LLC,
as amended
11.1 Statement of computation of loss per share
23.1 Consent of PricewaterhouseCoopers, LLP
23.2* Consent of Piper & Marbury L.L.P. (included as part of Exhibit 5.1
hereto)
24.1 Power of Attorney (included in signature pages)
27 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
II-7
<PAGE>
EXHIBIT 3.2
NETWORK ACCESS SOLUTIONS, INC.
(A DELAWARE CORPORATION)
B Y L A W S
-----------
ARTICLE I
OFFICES
Section 1.1 The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 1.2 The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 All meetings of the stockholders shall be held at such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2 A meeting of stockholders shall be held in each year for
the election of directors at such time and place as the board of directors shall
determine. Any other proper business, notice of which was given in the notice
of the meeting or in a duly executed waiver of notice thereof, may be transacted
at the annual meeting. Elections of directors shall be by written ballot or
unanimous written consent, unless otherwise provided in the certificate of
incorporation.
Section 2.3 Unless otherwise provided by law, written notice of the
annual meeting shall be given to each stockholder entitled to vote thereat not
less than ten nor more than sixty days before the date of the meeting.
Section 2.4 The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder during ordinary
business hours, for a period of at least ten days prior to the election,
- 1 -
<PAGE>
either at a place within the city, town or village where the election is to be
held and which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of election during the whole time
thereof, and subject to the inspection of any stockholder who may be present.
Section 2.5 Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called at any time by the Board of Directors or the
president and shall be called by the president or secretary at the request in
writing of stockholders owning a majority in amount of the entire capital stock
of the corporation issued and outstanding and entitled to vote. Such request
shall state the purpose or purposes of the proposed meeting.
Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and before the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 2.6 Unless otherwise provided by law, written notice of a
special meeting of stockholders, stating the time, place and object thereof,
shall be given to each stockholder entitled to vote thereat, not less than ten
nor more than sixty days before the date fixed for the meeting.
Section 2.7 Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 2.8 The holders of record of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy at the commencement of such meeting, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If, however, such
quorum shall not be present or represented at any meeting of the stockholders, a
majority of the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified. The withdrawal of any
shareholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
- 2 -
<PAGE>
Section 2.9 When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 2.10 Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no share of stock shall be voted on at any
election for directors which has been transferred on the books of the
corporation within twenty days next preceding such election of directors. Such
proxy shall be exhibited to the Secretary at the meeting and shall be filed with
the records of the Corporation.
Section 2.11 Any action required to be taken at any annual or special
meeting of stockholders, or any action which may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 3.1 The number of directors which shall constitute the board
of directors shall be one, unless and until otherwise determined by such sole
director. Except as hereinafter provided in Section 3.2 of this Article, the
directors, other than the first director, shall be elected by the stockholders,
and each director shall hold office until his successor is elected and qualified
or until his earlier resignation or removal. Directors need not be
stockholders.
Section 3.2 Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director.
- 3 -
<PAGE>
Section 3.3 The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4 The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 3.5 Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board; provided, however, that in case the board shall fix or
-------- -------
change the time or place of any regular meeting, notice of such action shall be
given to each director who shall not have been present at the meeting at which
such action was taken within the time limited, and in the manner set forth in
Section 3.6 of this Article III, with respect to special meetings, unless such
notice shall be waived in the manner set forth in Section 3.8 of this Article
III.
Section 3.6 Special meetings of the board may be called by the
president on two days notice to each director; special meetings shall be called
by the president or secretary in like manner and on like notice on the written
request of any director.
Section 3.7 At all meetings of the board a majority of directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 3.8 Notice of any meeting shall not be required to be given
to any director who shall attend such meeting without protesting prior thereto
or a its commencement, the lack of notice to him, or who submits a signed waiver
of notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 3.9 Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or of such committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.
- 4 -
<PAGE>
COMMITTEES OF DIRECTORS
Section 3.10 The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution or amending the by-laws of the corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
Section 3.11 Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 3.12 The board of directors shall have the authority to fix
the compensation of directors.
PARTICIPATION IN MEETING BY TELEPHONE
Section 3.13 Members of the board of directors or any committee
designated by such board may participate in a meeting of the board or of a
committee of the board by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
ARTICLE IV
NOTICES
Section 4.1 Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the corporation. Notice by mail shall
be deemed to be given at
- 5 -
<PAGE>
the time when the same shall be mailed. Notice to directors may also be given by
telegram.
Section 4.2 Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or by these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular, or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE V
OFFICERS
Section 5.1 The officers of the corporation shall be chosen by the
board of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
otherwise provides.
Section 5.2 The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, one or more vice-
presidents, a secretary and a treasurer.
Section 5.3 The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 5.4 The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5.5 The officers of the corporation shall hold office until
their successors are chosen and qualified. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
- 6 -
<PAGE>
THE PRESIDENT
Section 5.6 The president shall be the chief executive officer of the
corporation, shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
Section 5.7 He shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 5.8 The vice-president, or if there shall be more than one,
the vice-presidents in the order determined by the board of directors, shall, in
the absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.9 The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the board of directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the board of directors, and shall
perform such other duties as may be prescribed by the board of directors or
president, under whose supervision he shall be. He shall have custody of the
corporate seal of the corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
Section 5.10 The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
- 7 -
<PAGE>
THE TREASURER AND ASSISTANT TREASURERS
Section 5.11 The treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 5.12 He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors at
its regular meetings or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 5.13 If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 5.14 The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1 Every holder of stock in the corporation shall be
entitled to have a certificate signed by, or in the name of the corporation by,
the chairman or vice-chairman of the board of directors, or president or a vice-
president and the treasurer or an assistant treasurer, or the secretary or an
assistant secretary of the corporation, certifying the number of shares owned by
him in the corporation.
LOST CERTIFICATES
Section 6.2 The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
new certificate or certificates, the board of directors may, in its
- 8 -
<PAGE>
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed upon the
issuance of such new certificate.
FIXING RECORD DATE
Section 6.3 (a) In order that the corporation may determine the
stockholders entitled to notice or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action.
(b) If no record date is fixed:
(1) The record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held.
(2) The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the board of directors is necessary, shall be the day on
which the first written consent is expressed.
(3) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
(c) A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6.4 Prior to due presentment for transfer of any share or
shares, the corporation shall treat the registered owner thereof as the person
exclusively entitled to vote, to receive notifications and to all other benefits
of ownership with respect to such share or shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall
- 9 -
<PAGE>
have express or other notice thereof, except as otherwise provided by the laws
of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1 Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 7.2 Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 7.3 The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
Section 7.4 All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 7.5 The fiscal year of the corporation shall be the calendar
year.
- 10 -
<PAGE>
ARTICLE VIII
AMENDMENTS
Section 8.1 These by-laws may be altered or repealed at any regular
meeting of the stockholders or of the board of directors or at any special
meeting of the stockholders or of the board of directors if notice of such
alteration or repeal be contained in the notice of such special meeting.
ARTICLE IX
INDEMNIFICATION
Section 9.1 The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 9.2 The corporation shall indemnify any person who was or is
a party, or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in
- 11 -
<PAGE>
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 9.3 To the extent that a director, officer, employee or agent
of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in sections 9.1 or 9.2 of this
Article, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 9.4 Any indemnification under sections 9.1 or 9.2 of this
Article (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such section. Such
determination shall be made:
1. By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or
2. If such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or
3. By the stockholders.
Section 9.5 Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
Section 9.6 The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Section 9.7 The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other
- 12 -
<PAGE>
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article.
Section 9.8 The indemnification and advancement of expenses provided
by or granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
- 13 -
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
NUMBER [NAS LOGO] SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
NETWORK ACCESS SOLUTIONS CORPORATION
CUSIP _____________
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
NETWORK ACCESS SOLUTIONS CORPORATION
(hereinafter called the Corporation), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.
This certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[NETWORK ACCESS SOLUTIONS CORPORATION
DELAWARE
1999 SEAL]
/s/ JONATHON AUST /s/
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
NETWORK ACCESS SOLUTIONS CORPORATION
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<PAGE>
<TABLE>
<S> <C>
TEN COM- as tenants in common UNIF GIFT MIN ACT-
Custodian
- ------------------- -----------------
TEN ENT- as tenants by the entireties
(Cust) (Minor)
JT TEN- as joint tenants with
right of survivorship and
under Uniform Gifts to Minors Act
not as tenants in common
- ---------------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value received, ____________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- --------------------------------------------------------------------------------
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocable constitute and appoint _______________________________ Attorney to
transfer the said stock on the books of the within-named Corporation with full
power of substitution in the premises.
Dated, _________________________ x______________________________________________
x______________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE, IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT,
OR ANY CHANGE WHATSOEVER.
SIGNATURE GUARANTEED:___________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.5
BERNSTEIN MANAGEMENT CORPORATION
5301 Wisconsin Avenue, N.W., Suite 600, Washington, D.C. 20015
COMMERICAL LEASE
THIS LEASE AGREEMENT made this 27th day of February, 1997, by and between
Sterling/Gunston Limited Partnership, hereinafter referred to as "Landlord," and
Network Access Solutions, hereinafter referred to as "Tenant," and Bernstein
Management Corporation, hereinafter referred to as "Agent."
WITNESSETH, that for and in consideration of the rent hereafter reserved, and
the covenants contained herein, the parties hereby agree as follows:
1. LEASE PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord for
the term, at the rental and upon the conditions set forth herein, that certain
real property with premises thereon known as 100 Carpenter Drive, Suite 206,
Sterling, Virginia, 20164, hereinafter referred to as the "Premises," and as
indicated on Exhibit A attached hereto. The Premises do not include exterior
faces or exterior walls and exterior window glass; anything beyond the interior
face of demising walls; and pipes, ducts, conduits, wires and fixtures serving
other parts of the Building. Tenant may use the Common Areas in common with
other tenants. The Common Areas include the Building's common lobbies,
corridors, stairways, and elevators, the common walkways and driveways necessary
for access to the Building, the common toilets, corridors and elevator lobbies
of any multi-tenant floor, and the parking area for the Building. All use of
the Common Areas shall be only upon the terms set forth at any time by Landlord.
2. TERM AND POSSESSION.
2.1 Term. The term of this Lease shall be for three (3) years,
commencing on the sooner of occupancy or the 1st day of March, 1997, and ending
on the 28th day of February, 2000.
2.2 Possession. Landlord shall reasonably attempt to have Premises ready
for occupancy on the date of commencement. If Landlord should be unable to give
possession of Premises on the date of commencement of the term hereof for any
reason, Landlord shall not be subject to any liability for failure to give
possession on said date. Under such circumstances, the rent reserved and
covenanted to be paid herein shall not commence until the possession of the
Premises is tendered by Landlord with Landlord's notice to Tenant that the same
is ready for occupancy. Should tender of possession of the premises be later or
earlier than the beginning date named, then, and in that event, the term shall
not be adjusted and the ending date of this Lease shall remain as stated in
paragraph 2.1. If permission is given to the Tenant to enter into
<PAGE>
possession of the Premises, or to occupy space other than the Premises prior to
the date specified as the commencement of the term of this Lease, Tenant
covenants and agrees that such occupancy shall be deemed to be under all the
terms, covenants and conditions of the provisions of this Lease. Notwithstanding
the foregoing, the rent obligation shall commence even if Premises are not ready
for occupation if due to the action, inaction or delay of Tenant, its agents or
employees.
2.3 Early Possession for Tenant Fit-Up. Tenant shall be given access to
the Premises seven (7) days prior to the lease commencement date for the purpose
of installing special equipment, furniture, telephone equipment, etc. Tenant
shall indemnify landlord for delays and damage to the Building and shall present
Landlord with satisfactory certificates of insurance.
3. RENT.
3.1 Basic Monthly Rent. Upon Tenant's execution of the Lease, tenant
shall prepay the first months rent in an amount equal to one full month of rent.
Therefore, Tenant shall pay to Landlord for the Premises the Basic Monthly rent
without deduction or demand or setoff whatsoever, in advance on the first day of
each calendar month during the term hereof, to and at the office of Bernstein
Management Corporation, 5301 Wisconsin Avenue, N.W, Suite 600, Washington, D.C.,
20015, or at such other place as Landlord may from time to time designate to
Tenant in writing. In addition the basic Monthly Rental, Tenant shall pay all
Additional Rent and Rental Adjustments provided herein. Except as specified
elsewhere in this Lease, Additional Rent shall be paid by Tenant with the next
monthly installment of Basic Monthly Rent falling due. Rent checks shall be
made payable to Bernstein Management Corporation. Should the term of this Lease
commence on a day other than the first of a calendar month, the parties agree
that rental for the first month in which rent is due shall be pro-rated and rent
for the remaining months shall be due and payable on the first of the month as
provided above. The total of the Basic Monthly Rents is payable monthly as
follows:
March 1, 1997 - February 28, 1998: $5,046.75 per month
March 1, 1998 - February 28, 1999: $5,198.15 per month
March 1, 1999 - February 29, 2000: $5,354.10 per month
3.2 Additional Rent.
(a) Tenant shall pay Landlord, as Additional Rent, Tenant's Share (as
hereinafter defined) of any increase in Landlord's Costs (as hereinafter
defined) above the Base Costs (as hereinafter defined).
(b) For purposes of this Lease:
(i) "Tenant's Share" shall consist of Tenant's Separate Services and
Tenant's Pro Rata Share of Landlord's Costs in excess of Base Costs.
-2-
<PAGE>
(ii) "Tenants' Separate Services" shall mean all Operating Expenses
which are attributable solely to Tenant's use and occupancy of the Demised
Premises, such as the cost of electricity consumed in the Demised Premises as
measured by memorandum or sub-meters, special janitorial services or other
services provided by Landlord at Tenant's request. Normal electric consumption
shall be included in Base Costs (as hereinafter defined).
(iii) "Tenant's Pro Rata Share" shall mean ten and 21/100 percent
(10.21%), representing the ratio that the rentable area of the Demised Premises
(4,486 square feet) bears to the total rentable area in the Property (43,942
square feet).
(iv) "Landlord's Costs" shall mean Taxes and Assessments and
Operating Expenses.
(v) "Taxes and Assessments" shall mean all taxes and assessments and
governmental charges (including personal property and real estate taxes),
whether federal, state, county or municipal, and whether they be by taxing
districts or authorities presently taxing the Property or by others subsequently
created, and any other taxes and assessments (including franchise taxes)
attributable to the Property or its operation, whether or not directly paid by
Landlord, excluding, however, federal and state taxes on income, unless such
income taxes replace real estate taxes. The Tenant shall be responsible for ad
valorem taxes on its personal property.
(vi) "Operating Expenses" shall mean all of the costs and expenses
incurred in operating and maintaining the Property, as determined by Landlord in
accordance with standard accounting practices, whether paid to employees of
Landlord or independent contractors engaged by Landlord, and shall include the
following costs by way of illustration, but not limitation: water and sewer
charges, insurance premiums, utilities, janitorial services, labor, including
direct labor overhead, air conditioning and heating, landscaping, elevator
maintenance, supplies, costs and upkeep of all parking and common areas, supply
and cleaning of uniforms and work clothes, security of the Building, fees
incurred for the management of the Building including legal, inspection,
consultation and accounting fees, and a property management fee equal to the
generally prevailing rate consistent with the type of occupancy and the services
rendered, but not less than three percent (3%) nor more than five percent (5%)
of the total rent collected from tenants of the Property. Operating Expenses
shall not include depreciation of the buildings of which the Demised Premises
are a part or equipment therein, loan payments, executive salaries and any
brokerage commissions but shall include amortization, with reasonable interest,
of capital items which reduce Operating Expenses or are required by governmental
authority.
(vii) "Base Costs" shall mean Landlord's costs incurred for 1997
calendar year.
(viii) "Beginning January 1, 1998, and continuing for each subsequent
calendar year or portion thereof during the Term, Costs shall be passed through
to Tenant based on the actual increase over Base Costs.
-3-
<PAGE>
(c) Landlord shall endeavor to give to Tenant on or before the first (1st)
day of April of each year a statement of the increase in the Additional Rent
payable by Tenant hereunder, but failure by Landlord to give such statement by
said date shall not constitute a waiver by Landlord of its right to require an
increase in the Additional Rent. Upon receipt of the statement Tenant shall pay
the total amount of the increase in full. In addition, for the then current
year, an amount equal to one hundred five percent (105%) of any such increase
shall be used as an estimate for said current year and this amount shall be
divided into twelve (12) equal monthly installments and Tenant shall pay to
Landlord concurrently with the regular minimum Rent payment next due following
the receipt of such statement, an amount equal to one (1) monthly installment
multiplied by the number of months form January in the calendar year which said
statement is submitted to the month of such payment, both months inclusive.
Subsequent installments shall be payable concurrently with the regular minimum
Rent payments for the balance of that calendar year and shall continue until the
next year's statement is rendered. If the next or any succeeding year results
in a greater increase in Landlord's Costs, then upon receipt of a statement for
Landlord, Tenant shall pay a lump sum equal to such total increase over the Base
Costs, less the total of the monthly installments of estimated increases paid in
the previous calendar year for which comparison is then being made; and the
estimated monthly installments to be paid for the next year, following said
comparison year, shall be adjusted to reflect one hundred five percent (105%) of
such increase in the manner set forth above. If in any year Tenant's Share
shall be less than the preceding year, then upon receipt of Landlord's
statement, any other payments made by Tenant on the monthly installment basis
provided above shall be credited toward the next installment of Minimum Rent
falling due and the estimated monthly installments of Landlord's Costs to be
paid shall be adjusted to reflect such lower Taxes and Assessments and Operating
Expenses for the most recent comparison year, but not less than the Base Costs,
Upon termination of this Lease, any money owed by one party to the other shall
be promptly paid.
(d) Should this Lease commence or terminate at any time other than the
first (1st) day of a calendar year, the cost adjustment referred to in Sections
3.2(a), 3.2(b) and 3.2(c) shall be calculated for the commencement or
termination year on a pro rata basis, based upon the number of calendar days
during which Tenant leases the Demised Premises.
(e) Each statement provided by Landlord pursuant to this Section shall be
conclusive and binding upon Tenant unless fifteen (15) days after receipt of the
statement, Tenant shall notify Landlord that it disputes the correctness of the
statement, specifying the respects in which the statement is claimed to be
incorrect. If Landlord and Tenant are unable to resolve the dispute, Tenant
shall then have the right to request that Landlord provide, at tenant's expense,
an audit of its books and records relating to the statement. Pending
determination of the dispute, Tenant shall pay within ten (10) days from notice
any amounts due Tenant in accordance with the statement, but such payment shall
be without prejudice to tenant's position.
(f) Notwithstanding any other provisions herein to the contrary: (a) in
the event the Property is not fully occupied during the year, an adjustment
shall be made in computing the Landlord's Costs for such year so that the cots
shall be computed for such year as though the Building had been fully occupied
during such a year; and (b) the Landlord shall generally have
-4-
<PAGE>
the right, in its reasonable judgment (and upon reasonable substantiation of
such allocation to the Tenant), to allocate Landlord's Costs to the Tenant, or
to other tenants of the Building in a manner which deviates from the exact
Tenant's Pro Rata Share, or those of such other tenants, as may be necessary to
more accurately reflect accountability for unusual or extra costs resulting form
excessive usage, the manner of layout or finishes requiring special maintenance,
or the like. The terms of this Section shall be solely for the benefit of the
Landlord and may not be relied upon nor construed for the benefit of the Tenant,
other tenants in the building, or any other person.
3.3 Late Charge. Tenant hereby recognizes and acknowledges that if rental
payments are not received within ten (10) days of when due, Landlord will suffer
damages and additional expenses thereby and Tenant therefore agrees that a late
charge equal to five percent (5%) of the basic Monthly Rent (including
additional rent as hereinafter provided) may be assessed by landlord or Agent as
additional rental. Furthermore, Landlord or Agent shall have the right to
require that rental payments be made by certified or cashier's check, in the
event Tenant monetarily defaults two or more times.
4. SECURITY DEPOSIT.
Tenant shall deposit with Landlord, upon execution hereof, Five Thousand Forty-
Six and 75/100 ($5,046.75) as security for the faithful performance of Tenant's
obligation hereunder. During the Term of this Lease, Landlord shall also have
the right to proceed with any other legal or equitable remedies available to it.
5. USE.
The Premises shall used and occupied by the Tenant only for office use
under the business name of Network Access Solutions.
5.1 Prohibited Uses. Tenant shall not use, or permit the use of, all or
any part of the Leased Premises for any disorderly, illegal or hazardous purpose
and will not manufacture any commodity therein other than computer software.
Tenant shall not use, or permit the use of, all or any part of the Leased
Premises for any purpose that interferes with the use or enjoyment by other
tenants of any portion of the Building, nor which, in Landlord's opinion,
impairs, or might impair, the reputation of the Project. Tenant shall not sue
utility services in excess of amounts reasonable determined by Landlord to be
within the normal range of demand for general office use. Tenant shall not
obstruct any of the Common Areas or any portion of the Property outside the
Premises, and shall not place or permit any signs, curtains, blinds, shades,
awnings, aerials or flagpoles, or the like, visible from outside the Premises.
5.2 Floor Load; Prevention of Vibration and Noise. Tenant shall not place
a load upon the floor of the Premises exceeding the 100 pounds per square foot
such floor was designed to carry, as determined by Landlord or its structural
engineer. Partitions shall be considered as part of the load. Landlord may
prescribe the weight and position of all safes, files and heavy equipment that
Tenant desires to place in the Premises, so as properly to distribute their
weight.
-5-
<PAGE>
Tenant's business machines and mechanical equipment shall be installed and
maintained so as not to transmit noise or vibration to the Building structure or
to any other space in the Building. Tenant shall be responsible for the cost of
all structural engineering required to determine structural load and all
acoustical engineering required to address any noise or vibration caused by
Tenant.
6. SERVICES FURNISHED BY LANDLORD.
Landlord shall furnish services, utilities, facilities and supplies as
shown on the Landlord Services list attached as Exhibit B. If Landlord
furnishes any additional services at Tenant's request, such services shall be
charged at reasonable rates established by Landlord, which shall be considered
additional rent.
6.1 Repairs and Maintenance. Landlord shall repair and maintain the
Common Areas and structural portions of the Building and the basic plumbing,
electrical, mechanical and heating, ventilating, and air-conditioning systems
therein, including the roof and windows.
6.2 Quiet Enjoyment. Upon Tenant's paying the rent and performing its
other obligations, Landlord shall permit Tenant to peacefully and quietly hold
and enjoy Premises, subject to the provisions hereof.
6.3 Insurance. Landlord shall insure the Property, including the Building
(with limits no less than eighty percent of the actual replacement cost of same)
against damage by fire and standard extended coverage perils, and shall carry
public liability insurance, all in such reasonable amounts with such reasonable
deductibles as would be carried by a prudent owner of a similar building in the
area. Landlord may carry any other forms of insurance as it or its mortgagee
may deem advisable. Tenant shall have no right to any proceeds from such
policies except in the event of Landlord's gross negligence. Landlord shall not
carry any insurance on any of Tenant's property, and shall not be obligated to
repair or replace any of it.
6.4 Changes by Landlord. Landlord may at any time make any changes,
additions, improvements, repairs or replacements to the Property, including the
Common Areas, that it considers desirable. In so doing, Landlord may use or
temporarily close any of the Common Areas, or permanently change their
configuration. Landlord shall use reasonable efforts to minimize interference
with Tenant's normal activities, but no such interference shall constitute
constructive eviction or give rise to any abatement or rent or liability of
Landlord to Tenant. If these changes impact Tenant's business, Landlord must
obtain Tenant's approval, such approval not to be unreasonably withheld.
6.5 Access to Premises; Utility Suspension. Landlord shall have
reasonable access to the Premises to inspect Tenant's performance hereunder and-
- -subject to reasonable advance notice--(except in an emergency situation) to
perform any acts required of or permitted to Landlord herein, and may
temporarily stop any service or utility system in conjunction therewith.
Landlord shall use best efforts to minimize interference with Tenant's normal
activities, but no
-6-
<PAGE>
such interference shall constitute constructive eviction or give rise to any
abatement of rent or liability of Landlord to Tenant.
6.6 Failure to Provide Services and Repairs. Landlord shall not be liable
for any failure to perform any act or provide any service required hereunder
unless Tenant shall have given notice of such failure, and such failure
continues for at lest thirty days thereafter. If any such failure is caused by
factors beyond Landlord's reasonable control, then Landlord shall not be liable
to tenant in any event, and such failure shall not constitute constructive
eviction or give rise to any rental abatement or reduction. Tenant hereby
waives any right to make repairs or provide maintenance at Landlord's expense
under any law or ordinance. If Premises remain untenantable for reasons other
than force majeure for a period of more than ten (10) business days, rent shall
abate during the period of untenantability. If Premises remain untenantable for
reasons other than force majeure for more than thirty (30) days, Tenant may at
Tenant's option be released from all obligations under the Lease.
7. ALTERATIONS.
Tenant shall not make any alterations, additions, modifications or
improvements to the Premises without the prior written consent of Landlord,
which consent will not be unreasonably withheld, provided that such alterations,
additions, modifications or improvements are not structural or involve building
systems. If Tenant desires to make any such alterations, etc., plans for same
shall first be submitted to and approved by landlord, and same shall be done by
Tenant, at its own expense, and Tenant agrees that all such work shall be done
in a good and workmanlike manner (Landlord having the right to approve all
contractors), that the structural integrity of the building shall not be
impaired, that no liens shall attach to the Premises by reason therefor, and
that Tenant will secure all necessary permits pertaining to the aforementioned
alterations, etc. All alterations, additions, improvements and fixtures (other
than Tenant's Personal Property, provided the same are installed at no cost or
expense to Landlord) which may be made or installed by either party upon the
Leased Premises shall be and remain the property of Landlord and shall remain
upon and be surrendered with the Leased Premises, unless Landlord requests their
removal, in which event Tenant shall remove the same and restore the Lease
Premises to its original condition, taking into account normal wear and tear, at
tenant's sole cost and expense and Tenant shall pay the entire cost of such
removal to Landlord upon Tenant's receipt of Landlord's written demand
therefore. If Tenant fails to remove such property and restores the Leased
Premises as aforesaid, Landlord may do so and tenant shall pay the entire cost
thereof to Landlord within 10 days after Tenant's receipt of Landlord's written
demand therefore.
8. HAZARDOUS STORAGE.
Tenant agrees that it will not store gasoline or other explosive, flammable
or toxic material in the Premises or do anything which may cause Landlord's
insurance company to void the policy covering the Premises or to increase the
premium thereon, and that Tenant will immediately conform to all rules and
regulations form time to time made or established by the Landlord's insurance
company or insurance rating bureau.
-7-
<PAGE>
9. INSURANCE.
9.1 Fire Insurance. Tenant agrees, in addition to the provisions of
paragraph 8, that it will not do anything that will cause Landlord's insurance
against loss by fire or other hazards, as well as public liability insurance, to
be canceled or that will prevent Landlord from procuring same in acceptable
companies and at standard rates. Tenant will further do everything reasonably
possible and consistent with the conduct of Tenant's business to obtain the
lowest possible rates for insurance on the Premises. If, however, the cost to
Landlord of obtaining insurance on the Premises (or the building in which the
Premises are located) is increased due to the Tenant's occupancy thereof, Tenant
agrees to pay, promptly upon demand, as additional rental, any such increase.
9.2 Liability Insurance and Indemnification of Landlord. Landlord shall
not be liable to Tenant for any injury, loss or damages to the Tenant or to any
other person or property occurring upon the Premises or the approaches thereto
or the parking facilities in or adjacent thereto from any cause other than the
negligence of Landlord. Tenant agrees to indemnify and save the Landlord
harmless against and form any and all liability, damages, expenses, including
reasonable attorneys fees, claims and demands of every kind that may be brought
against it, for or on account of any damage, loss or injury to persons or
property in or about the Premises during the term of this Lease, or during any
occupancy by Tenant prior to the liability insurance, in a form and with a
company satisfactory to Landlord, with limits of (1) at least FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00) for injury, including death, to any one person
and (2) at least ONE MILLION DOLLARS ($1,000,000.00), for injury, including
death, in any one casualty, and (3) with property damage coverage of at least
ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00), or in such greater amounts as
Landlord may from time to time reasonably require. All such policies shall name
the Tenant, the Landlord, and BERNSTEIN MANAGEMENT CORPORATION (as Agent) as
parties insured and shall contain a provision that the same may not be canceled
without giving the Landlord and the Agent at least twenty (20) days prior
written notice. In addition, such policies or certificates evidencing that such
policies are in effect, shall be delivered to Landlord and Agent at the
commencement of the term hereof and renewals shall be delivered at least twenty
(20) days prior to the expiration or cancellation of any such policy. The Agent
is, however, expressly relieved of any obligation to see that Tenant obtains and
carries such insurance.
10. PERMITS - COMPLIANCE WITH LAWS.
10.1 Permits. Tenant shall, at its own expense, promptly obtain from the
appropriate governmental authorities any and all permits, licenses and the like
required to permit Tenant to occupy the Premises for the purposes herein stated.
This requirement shall not relieve the Tenant of its liability for rent from the
commencement date hereinabove set forth.
10.2 Compliance with Laws. Tenant shall thereafter promptly comply with
all statutes, laws ordinances, orders, rules, regulations and requirements of
the Federal, State and local governments and of the Board of Fire Underwriters
applicable to Tenant's use of the Premises,
-8-
<PAGE>
for the correction, prevention and abatement of nuisances or violations in, upon
or connected with the Premises during the term of this Lease.
11. ASSIGNMENT AND SUBLETTING.
Tenant agrees that it will not transfer assign or sublet the Premises, in
whole or in art, without Landlord's prior written consent, which will be based
upon the credit-worthiness, use, and reputation of assignees or sublessees.
Landlord agrees that it will not arbitrarily withhold its consent, and if such
consent is given, Tenant shall not be relieved from any liability under this
Lease. Tenant further agrees that if it intends to assign or sublet the entire
premises, it will first notify Landlord in writing and Landlord shall have
fifteen (15) days to notify Tenant that Landlord, at its option may accept a
surrender of the Premises, in which event Landlord shall release Tenant from any
further liability under this Lease.
12. SUBORDINATION.
Tenant accepts this Lease, and the tenancy created hereunder, subject and
subordinate to any leases, mortgages, deeds of trust, leasehold mortgage or
other security interests now or hereafter a lien upon or affecting the building
or the Real Property or any part thereof. Tenant shall, at any time hereafter,
on reasonable request, execute any instruments, leases or other documents that
may be required by any mortgage, mortgagee, deed of trust, trustee or underlying
owner or Landlord hereunder to subordinate Tenant's interest hereunder to the
lien of any such mortgage or mortgages, deed or deeds of trust or underlying
lease, and the failure of Tenant to execute any such instruments, leases or
documents shall constitute a default hereunder.
13. ATTORNMENT.
Tenant agrees that upon any termination of Landlord's interest in the
Leased Premises, Tenant will, upon request, attorn to the person or organization
then holding title to the reversion of the Leased Premises (the "Successor") and
to all subsequent Successors, and shall pay to the Successor all rents and other
monies required to be paid by the Tenant hereunder and perform all of the other
terms, covenants, conditions and obligations contained in this Lease.
14. NON-DISTURBANCE.
Landlord agrees, at Tenant's request, to use commercially reasonable
efforts in obtaining a non-disturbance agreement from Landlord's Lender on that
Lender's standard form.
15. PROPERTY LOSS OR DAMAGE.
15.1 Tenant hereby expressly agrees that Landlord shall not be responsible
in any manner for any damage or injury to the person or property of Tenant or
any other person or business directly or indirectly caused by (i) dampness or
water, whether due to a break or leak in any part of the roof, heating, or
plumbing within the Premises, or in the building in which the
-9-
<PAGE>
Premises are located, no matter how caused; (ii) theft; (iii) fire or other
casualty; (iv) any other cause whatsoever.
15.2 Subject to the provisions of paragraph 16, Landlord shall not be
liable for damage or injury to person or property of Tenant or of any other
person or business unless notice in writing of any defect (a) which Landlord has
under the terms of this Lease the duty to correct and (b) which has caused such
damage or injury, shall have been given insufficient time before the occurrence
of such damage or injury reasonably to have enabled Landlord to correct such
defect, and even then only is such damage or injury due to Landlord's gross
negligence.
16. TENANT'S FAILURE TO PERFORM.
In the event that Tenant fails, after fifteen (15) days' written notice
form Landlord, to do any act or make any payment or perform any term or covenant
on tenant's part required under this Lease or otherwise fails to comply
wherewith, Landlord may (at its option, but without being required to do so)
immediately, or at any time thereafter and without notice, perform the same on
the account that Tenant has failed to do so, and if Landlord makes any
expenditures, or incurs any obligations for the payment of money in connection
therewith, including, but not limited to, attorney's fees in instituting
prosecuting or defending any action or proceeding, such sums paid or obligations
incurred, with interest at the rate of twelve percent (12%) per annum and costs,
shall be deemed to be additional rent hereunder and shall be paid by Tenant to
Landlord within five (5) days of rendition of any bill or statement to tenant
therefor. All rights given to Landlord in this section shall be in addition to
any other right or remedy of Landlord herein contained.
17. LANDLORD'S RIGHT TO SHOW PREMISES.
Tenant agrees that Landlord may, within the last four (4) months of the
Lease term, display a "For Lease" or "For Sale" sign on the Premises and show
prospects through the Premises at any reasonable time, with twenty-four (24)
hours' prior notice to allow Tenant to arrange for escorted tours.
18. SURRENDER AT END OF TERM.
Except as otherwise provided, Tenant shall vacate the Premises at the
expiration or other termination of this Lease and shall remove all goods and
effects not belonging to Landlord and shall surrender possession of the Premises
and all fixtures and systems thereof in good repair, reasonable wear, tear and
damage by fire or other unavoidable casualty excepted. If Tenant shall fail to
perform any of the foregoing obligations, Landlord is hereby expressly
authorized to do so on Tenant's behalf and Landlord may sell such articles on
the Premises as Landlord in its sole discretion deems saleable, and may dispose
of others in any manner which it chooses. The proceeds of any such sale shall
be applied toward the expenses thus incurred and Tenant will receive net
proceeds if any and agrees to pay any remaining balance promptly.
-10-
<PAGE>
19. HOLDING OVER.
If Tenant shall not immediately surrender possession of the Premises at the
termination of this Lease, Tenant shall become a month-to-month Tenant, at twice
the monthly rental just prior to termination of this Lease, said rental to be
payable in advance; but unless Landlord elects to accept such rental from
Tenant, the Landlord shall continue to be entitled to re-take possession of the
Premises. Immediately upon the expiration of the term hereof, and the Tenant
hereby agrees that all of the obligations of the Tenant and all rights of the
Landlord applicable during the term of this Lease shall be equally applicable
during such period of subsequent occupancy, whether or not a month-to-month
tenancy shall have been created as aforesaid. Tenant further agrees that it
shall be liable for any reasonable damages suffered by Landlord by reason of
Tenant's failure to immediately surrender the Premises.
20. DESTRUCTION - FIRE OR OTHER CASUALTY.
In case of partial damage to the Premises by fire or other casualty,
insured against by Landlord, Tenant shall give immediate notice thereof to
Landlord, and Landlord, to the extent that insurance proceeds respecting such
damage and subject to and, in fact, are under the control and use of Landlord,
shall thereupon cause such damage to all property owned by Landlord to be
repaired with reasonable speed at the expense of Landlord, due allowance being
made for reasonable delay which may arise by reason of adjustment of loss under
insurance policies on the party of Landlord and/or Tenant, and for reasonable
delay on account of "labor troubles" or any other cause beyond Landlord's
control, and to the extent that the Leased Premises are rendered untenantable,
the rent shall proportionately abate, unless Tenant cannot materially conduct
business, in which case the Premises shall be deemed untenantable provided the
damage above mentioned occurred without the fault or neglect of Tenant, those
employing or retaining the services of Tenant, Tenant's servants, employees,
agents, licensees, invitees or visitors. But if such partial damage is due to
the fault or neglect of Tenant or any of other said persons, or to the extent
that insurance proceeds respecting such damage are not subject to and, in fact,
are not under the control and use of Landlord, the damage shall be repaired by
Landlord at Tenant's expenses and there shall be no apportionment or abatement
of rent. In the event the damage shall be so extensive to the whole building as
to render it uneconomical, in Landlord's opinion, to restore for the use of
Tenant, as specified in paragraph 5 hereof, or Landlord shall decide not to
repair or rebuild the building, this Lease shall expire by lapse of time upon
the third day after such notice is mailed, and Tenant shall thereupon vacate the
Premises and surrender the same to Landlord, but such termination shall not
release Tenant from any liability to Landlord arising from such damage or from
any breach of the obligations imposed on Tenant hereunder.
21. EMINENT DOMAIN.
If the entire Premises shall be substantially taken (either temporarily or
permanently) for public purposes, or in the event Landlord shall convey or lease
the property to any public authority in settlement of a threat or condemnation
or taking, the rent shall be adjusted to the date of such taking or leasing or
conveyance, and this Lease shall thereupon terminate. If only a portion of the
Premises shall be so taken, leased or condemned as a result of such partial
taking,
-11-
<PAGE>
and Tenant is reasonably able to use the remainder of the Premises for the
purposes intended hereunder then this Lease shall not terminate, but, effective
as of the date of such taking, leasing or condemnation, the rent hereunder shall
be abated in any amount thereof proportionate to the area of the Premises so
taken, leased or condemned. If, following such partial taking, tenant shall not
be reasonably able to use the remainder of the Premises for the purposes
intended hereunder, then this Lease shall terminate as if the entire Premises
had been taken, leased or condemned. In the event of a taking, lease or
condemnation as described in this Paragraph, whether or not there is a
termination hereunder, Tenant shall have no claim against Landlord other than an
adjustment of rent, to the date of taking lease or condemnation, and Tenant
shall not be entitled to any portion of any amount that may be awarded as
damages or paid as a result or in settlement of such proceedings or threat.
22. DEFAULTS - REMEDIES.
The occurrence of any one or more of the following events shall constitute a
material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant for more than
sixty (60) days.
(b) The failure by Tenant to make any payment of rent or any other payment
required to be made by Tenant hereunder, as and when due.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
other than described in Paragraph 22(b) hereinabove, where such failure shall
continue for a period of ten (10) days after written notice thereof from
Landlord to Tenant; provided, however, that if the nature of the Tenant's
default if Tenant commences such cure within said ten (10) day period and
thereafter, diligently prosecutes such cure to completion.
(d) The making by Tenant of any general assignment or general arrangement
for the benefit of creditors, filing by or against Tenant of petition to have
Tenant adjudged a bankrupt or a petition for reorganization or arrangement under
any law relating to bankruptcy (unless in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days), the appointment of a
Trustee or receiver to take possession of substantially all of the Tenant's
assets located in the Premises or the Tenant's interest in this Lease where
possession is not restored to Tenant within thirty (30) days or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or Tenant's interest in this Lease, where such seizure
is not discharged within thirty (30) days.
In the event of such material default or breach by Tenant, Landlord may, at
any time hereunder, with or without notice or demand, without limiting Landlord
in the exercise of any right or remedy which Landlord may have by reason of such
default or breach, proceed in the following manner:
-12-
<PAGE>
(i) Terminate Tenant's right to possession of the Premises by any lawful
means, in which case Tenant's possession shall be terminated and Tenant shall
immediately surrender possession of the Premises to the Landlord. In such
event, Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including necessary renovation or
alteration of the Premises; reasonable attorney's fees; any real estate
commission actually paid; that portion of the Lease and commission paid by
Landlord pursuant to Agency agreement hereinafter stated applicable to the
unexpired term of this Lease; and such other out-of-pocket expenses as the
Landlord might incur. Unpaid installments of rent or other sums shall bear
interest from date due at the rate of twelve percent (12%) per annum, after the
Tenant's right to possession has been terminated.
(ii) Maintain Tenant's right to possession in which case this Lease shall
continue in effect whether or not Tenant shall have abandoned the Premises. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(iii) Pursue any other remedy now or hereafter available to Landlord under
the laws or jurisdictional decisions of the state in which the Premises is
located.
(iv) Landlord shall not be in default unless Landlord fails to perform
obligations required of landlord within a reasonable time, but in no event,
sooner than ten (10) days after written notice by Tenant to Landlord specifying
wherein Landlord has failed to perform such obligations; provided, however, that
if the nature of the Landlord's obligations such that more than ten (10) days is
required for performance, then Landlord shall not be in default if Landlord
commences performance within such ten (10) days and thereafter diligently
prosecutes the same to completion.
(v) While BERNSTEIN MANAGEMENT CORPORATION shall be collecting the
rentals due from the tenant, it is hereby authorized by the Landlord to expend
such sums as may be reasonably necessary in connection with the enforcement of
payment of rental and the securing or possession of the Premises in case of
Tenant's default and to reimburse itself from said rentals to the extent that
may be available therefore. The Landlord agrees to pay BERNSTEIN MANAGEMENT
CORPORATION any of such expenses not so reimbursed promptly upon demand.
23. SEVERAL LIABILITY.
If the Tenant shall be one or more individuals, corporations or other
entities, whether or not operating as a partnership or joint venture, then each
such individual corporation, entity, joint venture or partner shall be deemed to
be both jointly and severely liable for the payment of the entire rent and other
payments specified herein and all other duties and obligations hereunder.
-13-
<PAGE>
24. ACCEPTANCE OF PREMISES.
Tenant's occupancy of the Premises shall constitute acceptance thereof as
complying with all requirements of Tenant and Landlord with respect to the
condition, order and repair thereof.
25. ESTOPPEL CERTIFICATES.
Tenant agrees at any time and from time upon not less than five (5) days
prior notice by Landlord to execute, acknowledge and deliver to Landlord a
statement in writing certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications) and the dates to which the
rent and other charges have been paid in advance, if any, and stating whether or
not, to the best knowledge of the signer of such certificate, Landlord is in
default in performance of any covenant, agreement or condition contained in this
Lease and, if so, specifying each such default of which the signer may have
knowledge, if being intended that any such statement delivered hereunder may be
relied upon by any third party to this Lease.
26. NOTICES.
All notices, demands and requests required under this Lease shall be in
writing. All such notices shall be deemed to have been properly given if sent
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed to the Landlord at:
Bernstein Management Corporation
5301 Wisconsin Avenue, N.W., Suite 600
Washington, D.C. 20015
and to the Tenant at: Premises. Either party may designate a change of address
by written notice to the other party.
Notices, demands and requests which shall be served by registered or
certified mail in the manner aforesaid shall be deemed sufficiently served or
given for all purposes hereunder at the time such notice, demand or request
shall e mailed by United States registered or certified mail as aforesaid in any
Post Office or Branch Post Office regularly maintained by the United States
Governments.
27. SEPARABILITY.
If any term or provision of this Lease or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable, the
remainder of this Lease or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term and provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
-14-
<PAGE>
28. CAPTIONS.
All headings in this Lease are intended for convenience of reference only
and are not to be deemed or taken as a summary of the provisions to which they
pertain or as construction thereof.
29. SUCCESSORS AND ASSIGNS.
The covenants, conditions and agreements contained in this Lease shall bind
and insure to the benefit of Landlord and Tenant, and their respective heirs,
distributees, executors, administrators, successors and, except as otherwise
provided in this Lease, their assigns.
30. GOVERNING LAW.
This Lease was made in the State of Virginia and shall be governed by and
construed in all respects in accordance with the laws of the State of Virginia
and Loudoun County.
31. INCORPORATION OF PRIOR AGREEMENTS.
This Lease contains all agreements of the parties with respect to any
matters contained herein. No prior agreement or understanding pertaining to any
such matter shall be affected. This Lease may be modified only in writing and
signed by the parties in interest at the time of the modification.
32. CUMULATIVE REMEDY.
No remedy or election hereunder shall be deemed exclusive but shall,
wherever possible, be cumulative with all other remedies at law or in equity.
33. SIGNAGE.
Tenant agrees that no signage on doors, windows or elsewhere about the
leased Premises, is to be displayed without the same being first approved in
writing by the Landlord. Any signs which have been placed without approval may
be removed by Landlord at Tenant's expense.
34. CONTINGENCY.
This Lease Agreement is contingent upon Landlord obtaining a termination
from MTI Technology, Inc. for their existing lease for suite 202 (to be renamed
suite 206 for Network Access Solutions). Upon the termination of the MTI lease
and upon commencement of this Lease, Network Access Solutions shall have no
further obligation for their current lease for 2,067 square feet and that lease
dated October 20, 1995 shall become null and void.
-15-
<PAGE>
35. MISCELLANEOUS.
(a) As used in this Lease, and where the context requires: (1) the
masculine shall be deemed to include the feminine and neuter and vice versa; and
(2) the singular shall be deemed to include the plural and vice versa.
(b) Landlord and Tenant do hereby waive trial by jury in any action,
proceeding or counterclaims brought by either of the parties hereto against the
other on any matters what soever arising out of or in any way connected with
this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy
of the Premises, and/or any claim of injury or damage, and any emergency
statutory or any other statutory remedy.
(c) Tenant covenants and agrees that it shall not inscribe, affix, or
otherwise display signs, advertisements or notices in, on, upon, or behind any
windows or on any door, partition or other part of the interior or exterior of
the building without the prior written consent of the Landlord. If such consent
is given by Landlord, but the cost of same shall be charged to and be paid by
Tenant, Tenant agrees to pay same promptly and on demand.
(d) Tenant covenants and agrees that it shall not attached or place
awnings, antennas or other projections to the outside walls or any exterior
portion of the building. No curtains, blinds, shades or screens shall be
attached to or hung in, or used in connection with any window or door of the
Premises without the prior written consent of the Landlord.
(e) Tenant further covenants and agrees that it shall not pile or place or
permit to be placed any goods on the sidewalks or parking lots in the front,
rear or sides of the building, or to block said sidewalks, parking lots and
loading areas and not to do anything that directly or indirectly will take away
any of the rights of ingress or egress or of light from any other tenant of the
Landlord.
(f) Tenant, Tenant's servants, its agent's invitees, employees and
licensees shall not park or store on, or otherwise utilize any parking or
loading areas on the Real Property, except as provided in writing by Landlord.
(g) Tenant waives statutory notice to quit prior to commencement of an
action for summary possession for non-payment of rent.
(h) In the event of a default of any of the provisions of this Lease by
either Landlord or Tenant, the defaulting party shall reimburse the other for
any attorneys' fees and court costs incurred, provided a binding judgment has
been entered in a court of law.
-16-
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this Lease as of the day an year first above written.
WITNESS OR ATTEST: LANDLORD:
Sterling/Gunston Limited Partnership
By: Bernstein Development Corporation,
General Partner
BY: /s/ Robert S. Sandler
___________________________ ---------------------------
Robert S. Sandler
Vice President
TENANT:
Network Access Solutions
BY: /s/ Longma M. Aust
___________________________ ---------------------------
Agency Acceptance:
BERNSTEIN MANAGEMENT CORPORATION, AGENT, in the above captioned Lease,
hereby agrees to act as Agent as set forth in the Lease Agreement.
BERNSTEIN MANAGEMENT CORPORATION
BY: /s/ Robert S. Sandler (SEAL)
---------------------------
-17-
<PAGE>
GUARANTY
The undersigned, Guarantors, hereby guarantee to Sterling/Gunston
Limited Partnership (Landlord), its legal representatives, successors, and
assigns, the full and faithful performance and observance by Tenant, its
successors and assigns, of all terms, covenants, conditions, agreements,
restrictions, and limitations of the Lease, including without limitation the
payment of all rent and compliance with any rules and regulations prescribed by
Landlord, together with the payment of all costs, attorney's fees, and other
expenses incurred by Landlord in enforcing such performance and observation.
Guarantors further covenant that (1) the liability of the Guarantors is
primary, shall not be subject to deduction for any claim of offset, counterclaim
or defense which Tenant may have against Landlord, and Landlord may proceed
against Guarantors separately or jointly, before, after or simultaneously with
any proceeding against Tenant for default; (2) this Guaranty shall not be
terminated or impaired in any manner whatsoever by reason of the assertion by
Landlord against Tenant of any of the rights or remedies reserved to Landlord
pursuant to the provisions of such Lease, by reason of summary or other
proceedings against Tenant, by the omission of Landlord to enforce any of its
rights against Tenant, or by reason of any extension of time or indulgence
granted by Landlord to Tenant; (3) Guarantors expressly waive any requirement of
notice of non-payment, non-performance or non-observance, or proof of notice or
demand; (4) this Guaranty shall be absolute and unconditional and shall remain
and continue in full force and effect as to any renewal, extension, amendment,
additions, assignments, sublease, transfer or other modification of the Lease;
and (5) in any action or proceeding brought by Landlord against Guarantors on
account of this Guaranty all obligations and liabilities of Guarantors pursuant
to this Guaranty shall be binding upon the heirs, personal representatives and
assigns of the Guarantors. This Guaranty shall be governed by and construed in
accordance with the laws of Virginia.
In witness whereof, the undersigned has executed this Guaranty this
27th day of February, 1997.
Witness: Guarantor:
/s/ Longma M. Aust
______________________
Guarantor:
/s/ Jonathon Aust
-18-
<PAGE>
Exhibit B
- ---------
100 Carpenter Drive
Building Services
ACCESS: Building will be accessible twenty-four (24) hours per
days, seven (7) days per week. Electronic card access
system will be provided at the main entrance with
monitoring of first floor fire exits. Up to five (5)
access cares will be provided for Tenant's use at no
charge. Additional or lost card replacements will be
provided at Twenty-Five Dollars ($25.00) per card.
CLEANING SERVICES: Building cleaning services will be provided five (5)
days per week.
HVAC SERVICES: Heating, ventilation and air conditioning will be
provided from 8:00 a.m. to 6:00 p.m. Monday through
Friday and 9:00 a.m. to 1:00 p.m. on Saturday.
Additional service can be provided with at least one
business day's notice at a rate of Twenty-Five Dollars
($25.00) per hour (such additional service charge is
subject to change by Landlord from time to time).
PARKING: Free surface, unreserved parking will be provided at a
ration of 3.3 spaces per 1,000 square feet leased.
MANAGEMENT: Management of the building will be provided by
Bernstein Management Corporation.
-19-
<PAGE>
EXHIBIT 10.5.1
FIRST LEASE AMENDMENT
---------------------
This First Lease Amendment, made this 26th day of June, 1998 by and between
Sterling/Gunston LLC, successor to Sterling/Gunston Limited Partnership
("Landlord"), and Network Access Solutions ("Tenant"), is an integral part of
that lease dated February 27, 1997 for 100 Carpenter Drive, Suite 206, Sterling,
Virginia.
Whereas Landlord and Tenant wish to modify the terms of the Lease,
Landlord and Tenant hereby agree that the Lease shall be amended as
follows:
1.) Lease Premises. The Tenant currently occupies 4,486 rentable square
--------------
feet of office space known as 100 Carpenter Drive, Suite 206, Sterling,
Virginia. Effective September 1, 1998, the Premises shall be amended to include
Suite 205 (2,305 sf.) which shall be a total of 6,791 rentable square feet (the
"Premises") as shown on Exhibit A-1.
2.) Term. The term of the lease shall be extended to August 31, 2001.
----
3.) Rent. Effective September 1, 1998, the Base Rent shall be $8,175.45
----
per month and shall escalate by 3% upon each anniversary of the commencement
date.
4.) Additional Rent. Tenant shall be responsible for its proportionate
---------------
share of common area maintenance operating expenses above Base Year 1997 which
were approximately $6.40 per square foot.
5.) Tenant Improvements. Landlord shall paint and recarpet Suite 205 and
-------------------
connect both suites as shown on the attached Exhibit A-1.
5.) Brokerage. Tenant warrants and represents that no broker or agent was
---------
instrumental in consummating this Lease Amendment and that no prior negotiations
were had by Tenant with any broker or agent concerning this Lease Amendment.
6.) All other terms and conditions of the Lease not addressed in this
Fourth Lease Amendment shall remain in full force and effect.
<PAGE>
LANDLORD
Sterling/Gunston LLC
By: Rock Creek Realty LLC
Authorized Member
By: Bernstein Development Corporation
Its Manager
Date: 6/26/98 By: /s/ Robert S. Sandler
Robert S. Sandler, Vice President
TENANT
Network Access Solutions
Date: 6/24/98 By: /s/ Jon Aust
-2-
<PAGE>
EXHIBIT 10.5.2
THIRD LEASE AMENDMENT
---------------------
This Third Lease Amendment, made this 1st day of February, 1999 by and
between Sterling/Gunston LLC, ("Landlord"), and Network Access Solutions
("Tenant"), is an integral part of that lease dated February 27, 1997 and as
amended on June 26, 1998 and November 1, 1998 for 100 Carpenter Drive, Suite
206, Sterling, Virginia 20164 (together known as the "Lease").
Whereas Landlord and Tenant wish to modify the terms of the Lease,
Landlord and Tenant hereby agree that the Lease shall be amended as
follows:
1.) Lease Premises. The Tenant currently occupies 8,811 rentable square
--------------
feet of office space known as 100 Carpenter Drive, Suite 202 (2,020 sf.) and
Suite 206 (6,791 sf.), Sterling, Virginia. Effective February 1, 1999, the
Premises shall be amended to include Suite 201 (2,546 sf.) and 204 (2,020 sf.)
for a total of 13,377 rentable square feet as shown on Exhibit.
3.) Rent. Effective February 1, 1999, the Monthly Base Rent shall be as
----
follows:
<TABLE>
<CAPTION>
Suite 206 Suite 202 Suite 201 & 204 TOTAL
--------- --------- --------------- -----
<S> <C> <C> <C> <C>
February 1, 1999-August 31, 1999 $8,175.45 $2,609.17 $7,039.25 $17,823.87
September 1, 1999-August 31, 2000 $8,420.71 $2,687.44 $7,250.43 $18,358.58
September 1, 2000-August 31, 2001 $8,673.34 $2,768.07 $7,467.94 $18,909.35
</TABLE>
4.) Additional Rent. Tenant shall be responsible for its proportionate
---------------
share of common area maintenance operating expenses above Base Year 1997.
Tenant's proportionate share shall be amended to 30.5% (13,377 sf./43,895 sf.)
5.) Tenant Improvement Allowance. Tenant will accept Suite 201 and 204 in
----------------------------
"as-is" condition except that Landlord shall provide Tenant with a tenant
improvement allowance of $11,415.00 (representing $2.50 per square foot) on the
Suites 201 & 204. Landlord shall pay this allowance to Tenant within 30 days of
Tenant providing actual invoices for the tenant improvements completed in Suites
201 & 204.
6.) Brokerage. Tenant warrants and represents that no broker or agent was
---------
instrumental in consummating this Lease Amendment and that no prior negotiations
were had by Tenant with any broker or agent concerning this Lease Amendment.
7.) Cancellation of Sublease. Upon execution of this Third Lease
------------------------
Amendment, Tenant's sublease with Fortner Research LLC for Suite 204 will become
null and void.
<PAGE>
8.) All other terms and conditions of the Lease not addressed in this
Third Lease Amendment shall remain in full force and effect.
LANDLORD
Sterling/Gunston LLC
By: Rock Creek Realty LLC
Authorized Member
By: Bernstein Development Corporation
Its Manager
Date: _________________________ By: __________________________________
Robert S. Sandler, Vice President
TENANT
Network Access Solutions
Date: 2/1/99 By: /s/ Scott G. Yancey
<PAGE>
EXHIBIT 10.6
SUBLEASE
1. PARTIES.
The Sublease, dated August 31, 1998 is made between US Interactive, Inc.
--------------- --------------------
("Sublessor") and Network Access Solutions, Inc. ("Sublessee").
-----------------------------
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated March 4, 1998 wherein
-------------
Morehall Associates, L.P. ("Lessor") leased the real property located in
-------------------------
the building commonly known as 7 Great Valley Parkway, Malvern, PA., in
-------------------------------------
township of East Whiteland County of Chester, State of Pennsylvania,
-------------- ------- ------------
("Master Premises"). Said lease has been amended by the following amendment
dated 12/18/97; said lease and amendments are herein collectively referred
--------
to as the "Master Lease" and are attached hereto as Exhibit "A." Terms not
otherwise defined herein shall have the meanings ascribed to such terms in
the Master Lease.
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): 3,514 square feet, as more particularly depicted on the plan
-----------------
attached hereto as Exhibit "B."
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as the commencement of the Term hereof will not
be, in default or breach of any of the
<PAGE>
provisions of the Master Lease, and that Sublessor has no knowledge of any
claim by Lessor that Sublessor is in default or breach of any of the
provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on December 15, 1998
----------- ----
("Commencement Date"), or when Lessor consents to this Sublease (if such
consent is required under the Master Lease), whichever shall last occur and
end on February 28, 2002 ("Termination Date"), unless otherwise sooner
----------- ----
terminated in accordance with the provisions of the Sublease. In the event
the Term commences on a date other than the Commencement Date, Sublessor
and Sublessee shall execute a memorandum setting forth the actual date of
commencement of the Term. Possession of the Premises ("Possession") shall
be delivered to Sublessee on the commencement of the Term. If for any
reason Sublessor does not deliver Possesison to Sublessee on the
commencement of the Term, Sublessor shall not be subject to any liability
for such failure, the Termination Date shall not be extended by the delay,
and the validity of this Sublease shall not be impaired, but rent shall
abate until delivery of Possession. Notwithstanding the foregoing, if
Sublessor has not delivered Possession to Sublessee within fifteen (15)
days after the Commencement Date, upon possession Subleasee shall receive
one (1) day free rent for each day of delayed occupancy beyond 1/1/99. If
Sublessor permits Sublessee to take possession prior to the commencement of
the Term, such early Possession shall not advance the Termination Date and
shall be subject to the provisions of this Sublease, including without
limitation the payment of rent.
<PAGE>
6. RENT
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent,
without deduction, set off notice or demand, at Sublessor's office - 2012
-------------------------
Renaissance Drive (prior to occupancy - security deposit and advance rent
-------------------------------------------------------------------------
sent to 7 Great Valley Parkway) or at such other place as Sublessor shall
------------------------------
designate from time to time by notice to Sublessee the sum of Four thousand
-------------
six hundred six dollars ($4,606) per month, in advance on the date which is
-----------------------
five (5) business days prior to the date when Sublessee must pay its
monthly installment of Minimum Annual Rent under the Master Lease, each
month of the Term. Sublessee shall pay to Sublessor upon execution of this
Sublease the sum of Six thousand nine hundred nine dollars ($6,909) as rent
--------------------------------------
for 1/2 December 1998 and January 1999. If the Term begins or ends on a
----------------------------------
day other than the first or last day of a month, the rent for the partial
month shall be prorated on a per diem basis.
6.2 Operating Expenses. If the Master Lease requires Sublessor to pay
Lessor all or a portion of the expenses of operating the building and/or
project of which the Premises are a part ("Operating Expenses"), including
but not limited to taxes, utilities, or insurance, then Sublessee shall pay
to Sublessor as additional rent an amount equal to the product of (a) the
Operating Expenses and (b) a fraction (i) the numerator of which shall be
the area (in square feet) of the Premises, and (ii) the denominator of
which shall be the area (in square feet) of the Master Premises for
Operating Expenses incurred during the Term. Such additional rent shall be
payable five (5) business days prior to the date when Operating Expenses
are payable by Sublessor to Lessor. By way of example, the Operating
Expenses for 1998 are $2,518 per month. If the Master Lease provides for
the payment by Sublessor of Operating Expenses on the basis of an estimate
thereof, then as
<PAGE>
and when adjustments between estimated and actual Operating Expenses are
made under the Master Lease, the obligations of Sublessor and Sublessee
hereunder shall be adjusted in a like manner; and if any such adjustment
shall occur after the expiration or earlier termination of the Term, then
the obligations of Sublessor and Sublessee under this Subsection 6.2 shall
survive such expiration of termination. Sublessor shall, upon request by
Sublessee, furnish Sublessee with copies of all statements submitted by
Lessor of actual or estimated Operating Expenses during the Term.
7. SECURITY DEPOSIT
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Four thousand six hundred six dollars ($4,606) as security for
-------------------------------------
Sublessee's faithful performance of Sublessee's obligations hereunder
("Security Deposit). Security shall be placed in an interest bearing
account with proceeds enuring to the Sublessee. If Sublessee fails to pay
rent or other charges when due under this Sublease, or fails to perform any
of its other obligations hereunder, Sublessor may use or apply all or any
portion of the Security Deposit for the payment of any rent or other amount
then due hereunder and unpaid, for the payment of any other sum for which
Sublessor may become obligated by reason of Sublessee's default or breach,
or for any loss or damage sustained by Sublessor as a result of Sublessee's
default or breach. If Sublessor so uses any portion of the Security
Deposit, Sublessee shall, within ten (10) days after written demand by
Sublessor, restore the Security Deposit to the full amount originally
deposited, and Sublessee's failure to do so shall constitute a default
under this Sublease. In the event Sublessor assigns its interest in this
Sublease, Sublessor shall deliver to its assignee so much of the Security
Deposit as is then held by Sublessor. Within ten (10) days after the Term
has expired, or
<PAGE>
Sublessee has vacated the Premises, or any final adjustment pursuant to
Subsection 6.2 hereof has been made, whichever shall last occur, and
provided Sublessee is not then in default of any of its obligations
hereunder, the Security Deposit, or so much thereof as had not theretofore
been applied by Sublessor, shall be returned to Sublessee or to the last
assignee, if any, of Sublessee's interest hereunder.
8. USE OF PREMISES.
The Premises shall be used and occupied only for such use(s) as permitted
under the Master Lease and for no other use or purpose.
9. OTHER PROVISIONS OF SUBLEASE.
Except to the extent made inapplicable (pursuant to section 16(b) below) or
otherwise modified by the terms of this Sublease, all terms and conditions
of the Master Lease are incorporated into and made a part of this Sublease
as if Sublessor were the lessor thereunder (it being understood that
Sublessor's obligation and ability to perform obligations of the Lessor
incorporated herein under the Master Lease may be dependent upon the
approval of and/or performance by Lessor, over which Sublessor has no
control). Sublessor and Subleasee assume and agree to perform their
respective obligations under the Master Lease during the Term to the extent
that such obligations are applicable to the Premises except that the
obligation to pay rent to Lessor under the Master Lease shall be considered
performed by Sublessee to the extent and in the amount rent is paid to
Sublessor in accordance with Section 6 of this Sublease. Sublessee shall
to commit or suffer any act or omission that will violate any of the
provisions of the Master Lease. Sublessor shall use reasonable efforts in
attempting to cause Lessor to perform its obligations under the Master
Lease for the benefit of Sublessee; provided however, that
<PAGE>
Sublessor shall not be liable to Sublessee for any failure of Lessor to
perform its obligations under the Master Lease. If the Master Lease
terminates, this Sublease shall terminate and the parties shall be relieved
of any further liability or obligation under this Sublease provided
however, that if the Master Lease terminates as a result of a default or
breach by Sublessor or Sublessee under this Sublease and/or the Master
Lease, then the defaulting party shall be liable to the nondefaulting party
for all damages suffered as a result of such termination. Notwithstanding
the foregoing, if the Master Lease gives Sublessor any right to terminate
the Master Lease in the event of the partial or total damage, destruction,
or condemnation of the Master Premises or the building or project of which
the Master Premises are a part, the exercise of such right by Sublessor
shall to constitute a default or breach hereunder.
10. BROKER PARTICIPATION.
Sublessor and Sublessee warrant and represent that they have dealt with no
real estate broker in connection with this Sublease other than Smith Mack &
Co., Inc. ("Broker") and CB Richard Ellis and that no other broker is
----------------
entitled to any commission on account of this Sublease. Sublessor and
Sublessee shall each indemnify, hold harmless and defend the other form any
and all claims, actual or threatened, for compensation by any such third
person, by reason of Sublessor's or Sublessee's breach of its
representations contained in this paragraph.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee or Broker shall commence an action against the
other arising out of or in connection with this Sublease the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorneys' fees.
<PAGE>
12. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER
THE TERMS OF THE MASTER LEASE.
Date: 10/8/98 Date: 9/24/98
Sublessor: US Interactive, Inc. Sublessee: Network Access Solutions, Inc.
--------------------- -------------------------------
By: /s/ Stephen Zarrilli By: /s/ Scott Yancey
--------------------- -----------------
Title: Chief Financial Officer Title: Chief Financial Officer
---------------------------- ------------------------
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease hereby consents to the
following Sublease without waiver of any restriction in the Master Lease
concerning further assignment of subletting. Lessor certifies that as of the
date of Lessor's execution hereof Sublessor is not in default of breach of any
of the provisions of the Master Lease and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Date:____________________________________
Lessor: Morehall Associates, L.P.
----------------------------------
By:______________________________________
Title:___________________________________
<PAGE>
EXHIBIT 10.7
THE MARK WINKLER COMPANY
Reston International Center
11800 Sunrise Valley Drive, Reston Virginia 20191
Telephone 703 758 4900
Mr. Daniel Gonzalez March 2, 1999
Ms. Theresa Ward
The Staubach Company
8000 Towers Crescent Drive
Suite 1100
Vienna, VA 22182
RE: LETTER OF INTENT BETWEEN NETWORK ACCESS SOLUTIONS, INC. AND TRANSDULLES
CENTER INC. TO LEASE THE ENTIRE BUILDING AT 22601 DAVIS DRIVE, STERLING
VIRGINIA.
Dear Dan and Theresa:
This constitutes a good faith, but expressly non-binding, Letter Of Intent
offer submitted to Network Access Solutions, Inc. (the "Tenant") to lease the
entire building located at 22601 Davis Drive, Sterling, Virginia, (the
"Building").
Subject to our mutual agreement on all relevant lease provisions, including
the matters set forth below, Tenant intends to enter into a written lease
agreement with the landlord, TransDulles Center, Inc., (the "Landlord"), for all
of the rentable space in the Building. Tenant shall, upon acceptance of this
Letter of Intent, enter immediately into good faith negotiations with the goal
of finalizing and executing a written lease agreement at the earliest possible
opportunity.
Before entering into formal lease negotiations, Tenant hereby agrees to the
following basic terms and conditions.
______________________________________________
1. THE DEMISED PREMISES:
- -------------------------
The premises to be leased by Tenant shall consist of the entire Building
comprising approximately 61,500 rentable square feet of contiguous office and
warehouse space (the "Demised Premises")
2. LEASE COMMENCEMENT DATE:
- ----------------------------
The lease term for the Demised Premises shall commence on or about the
later of i) April 1, 1999 or ii) within approximately thirty (30) days of lease
execution by Tenant.
Page 1 of 4
<PAGE>
3. RENT COMMENCEMENT DATE:
- ---------------------------
The Rent Commencement Date shall be the same date as the Lease Commencement
Date. Notwithstanding the foregoing, Tenant will have the right to access the
Demised Premises during the fifteen (15) day period which immediately precedes
the Lease Commencement Date for the sole purpose of installing
telecommunications equipment, specialty equipment, and related Tenant
personality without incurring the obligation to pay rent or other consideration.
4. LEASE TERM:
- ---------------
The Lease Term shall be for a period of five (5) years from the Lease
Commencement Date (the "Lease Term").
5. BASE RENT FOR THE DEMISED PREMISES:
- ---------------------------------------
The Base Rent for the Demised Premises delivered in its existing "as is"
condition shall be at the initial annual rate of Seven Dollars and Fifty Nine
Cents ($7.59) per each rentable square foot of space leased on a Triple Net
basis (hereafter referred to as the "Base Rent").
6. BASE RENTAL RATE ESCALATIONS:
- ---------------------------------
Commencing on the first day of the second (2nd) lease year and continuing
on each anniversary thereof, the triple net portion of the Base Rent only will
be increased by three percent (3.0%).
7. CONDITION OF DEMISED PREMISES:
- ----------------------------------
Landlord shall deliver the Demised Premises to Tenant in its existing "as
is" condition.
8. RENEWAL OPTION FOR DEMISED PREMISES:
- ----------------------------------------
Tenant shall have the right to renew the lease for the Demised Premises for
one (1) additional three (3) year renewal term (the "Renewal Option"), at a
rental rate equal to the then prevailing market rental as determined by
Landlord. Tenant will provide written notice to Landlord of its intent to
exercise such Renewal Option, not less than nine (9) months' prior to the
scheduled expiration of the Lease Term. Such Renewal Option will apply to the
entire Demised Premises only.
9. REAL ESTATE TAXES & OPERATING EXPENSES:
- -------------------------------------------
Tenant shall pay its proportionate share of pass-throughs of real estate
taxes, insurance, landscaping services, snow removal, common area charges,
building repairs and maintenance and management charges. Landlord estimates
said costs to be approximately $1.90 per square foot. Landlord will continue to
maintain the building exterior, roof and down spouts. Tenant shall be
responsible for the direct payment of janitorial services, trash removal and all
utility bills to the utility company providing such service to the Building
(e.g., electric and gas).
Page 2 of 4
<PAGE>
10. LANDLORD'S OBLIGATION TO PAY FEES TO THE STAUBACH COMPANY:
- ---------------------------------------------------------------
Landlord shall pay brokerage commissions to the Staubach Company as the
representative of Tenant in the amount of three percent (3.0%) of the aggregate
lease value exclusive of all scheduled lease escalators per paragraph 6 above,
Such commissions shall be paid in accordance with a separate agreement between
The Staubach Company and Landlord. Tenant hereby represents that it has dealt
with no brokers or agents in connection with this Letter of Intent other than
The Mark Winkler Company and the Staubach Company. As part of its preparation
of this Letter of Intent, Landlord has made no allowance or provision for the
payment of brokerage commissions or fees to anyone other than the Mark Winkler
Company and The Staubach Company. Tenant agrees to indemnify and hold harmless
Landlord from any claims for a commission or fee arising from this Letter of
Intent.
11. DEPOSIT:
- -------------
Upon lease execution, Tenant will deliver to Landlord a security deposit
equal to one (1) months' Base Rent, to be held by Landlord over the full Lease
Term and any extensions thereof. Such security deposit will be returned to
Tenant at the end of the Lease Term less all or that portion properly retained
by Landlord as reimbursement for an uncured Tenant default under the Lease.
12. ASSIGNMENT/SUBLETTING:
- ---------------------------
i.) At all times during the Lease Term and during all renewal periods, Tenant
shall have the right to sublease all or any portion of the Demised Premises, or
to assign all of its leasehold rights, to any subsidiary or affiliate of Tenant,
without Landlord's approval and Tenant shall be entitled to retain 100% of
profits, if any, resulting therefrom. In such event, Tenant shall remain fully
liable for the performance of all terms and conditions under the lease.
ii.) Tenant shall not sublet any portion of the Demised Premises to any other
entity without the express prior written permission of Landlord, which shall not
be unreasonably withheld, conditioned, or delayed. Tenant shall be entitled to
retain 50% of any net sublease profits after first deducting the straight-line
amortization of the sublease term of all direct and actual costs incurred by
Tenant related to such subleasing. Notwithstanding the foregoing, in the event
of approval of such subleasing by Landlord, Tenant shall remain fully liable for
the performance of all terms and conditions under the lease.
13. ANTENNA AND GENERATORS RIGHTS
- ----------------------------------
At all times during the Lease Term and during subsequent renewal terms,
Tenant shall have the right to place up to three (3) antennas on the roof of the
Building and one (1) back-up generator on the Property without additional charge
or cost, subject to the approval of a.) Landlord for issues related to
structural integrity of the Building and avoiding an unsightly installation and
appearance, and b.) any and all required governmental authorities. All costs
Page 3 of 4
<PAGE>
expenses associated the installation, maintenance and removal of the antenna(s)
and generator shall be the sole responsibility of the Tenant.
14. SIGNAGE RIGHTS OF TENANTS
- ------------------------------
Tenant, at its sole cost and expense, will have the right to have one (1)
sign or logo placed on the top portion of the Building facade. All such signage
shall be designed and installed in accordance with all local laws and ordinances
and shall be subject to Landlord's approval.
15. AGREEMENT ON THE CESSATION OF NEGOTIATIONS WITH THIRD PARTIES:
- -------------------------------------------------------------------
Upon the mutual execution of this Letter to Intent, Tenant shall deposit
with Landlord the sum of $25,000 as a good faith deposit that Tenant shall cease
negotiations with other properties and proceed expeditiously towards the
execution of a lease. By accepting the good faith deposit, Landlord shall cease
negotiations with all current and potential interested third parties for a
period of thirty (30) days from the date this Letter of Intent is fully
executed, other than Tenant. Such deposit, upon full execution of a lease,
shall be applied to the mutually agreed upon security deposit or first months
rent. If Tenant terminates negotiations with Landlord, the good faith deposit
shall become the property of Landlord.
**************************************************
In closing, we look forward to completing this transaction with you as
expediently as possible.
Very truly yours,
/s/ Scott D. Rabin
Scott D. Rabin
Director
AGREED & ACCEPTED:
NETWORK ACCESS SOLUTIONS, INC. TRANSDULLES CENTER, INC.
BY: /s/ Scott Yancey BY: _________________________
TITLE: CHIEF FINANCIAL OFFICER TITLE: ______________________
DATE: March 2, 1999 DATE: _______________________
Page 4 of 4
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of August 16, 1998, by and between NETWORK ACCESS
SOLUTIONS, Inc. a Delaware corporation ("NAS" or the "Company"), and Jonathon
Aust (the "Executive").
In consideration of the mutual covenants herein contained and of the mutual
benefits herein provided, the Company and the Executive agree as follows:
1. REPRESENTATIONS AND WARRANTIES. The Executive represents and warrants
to the Company that Executive is not bound by any restrictive covenants and has
no prior or other obligations or commitments of any kind that would in any way
prevent, restrict, hinder or interfere with Executive's acceptance of continued
employment or the performance of all duties and services hereunder to the
fullest extent of the Executive's ability and knowledge. The Executive agrees
to indemnify and hold harmless the Company for any liability which the Company
may incur as the result of the existence of any such covenants, obligations or
commitments.
2. TERM OF EMPLOYMENT. The Company will continue to employ the Executive
and the Executive accepts continued employment by the Company on the terms and
conditions herein contained for a period (the "Employment Period") provided in
paragraph 5.
3. DUTIES AND FUNCTIONS.
(a) (1) The Executive shall be employed as Chief Executive Officer of the
Company and shall oversee and direct strategic and key operational issues
of the Company. The Executive shall report directly to the Board of
Directors (the "Board").
(2) The Executive agrees to undertake the duties and responsibilities
inherent in the position of Chief Executive Officer, which may encompass
different or additional duties as may, from time to time, be assigned by
the Board. The Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any
change thereof which may be adopted at any time by the Company.
(b) During the Employment Period, the Executive will devote his full time
and efforts to the business of the Company and will not engage in
consulting work or any trade or business for his own account or for or on
behalf of any other person, firm or corporation which competes, conflicts
or interferes with the performance of his duties hereunder in any way. The
Executive may engage in non-competitive business or charitable activities
for reasonable periods of time each month so long as such activities do not
interfere with the Executive's responsibilities under this Employment
Agreement.
<PAGE>
4. COMPENSATION.
(a) Base Salary: As compensation for his services hereunder, during the
-----------
Executive's employment, the Company agrees to pay the Executive a base
salary at the rate of $240,000 per annum, payable in accordance with the
Company's normal payroll schedule, or on such other periodic basis as may
be mutually agreed upon. Such salary shall be subject to annual review,
based on corporate policy and contributions made by Executive to the
enterprise. As a result of each annual review, the Executive's salary will
increase by a minimum of five percent (5%). Said annual salary increase
will commence, effective July 31, 1999, and continue annually on July 31st
thereafter. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Bonus: Executive shall be eligible to receive an annual cash and/or
-----
stock bonus award with a target bonus of 20% of the Executive's then
current salary. Said bonus is contingent upon the Executive achieving
deliverables or goals agreed to by the Executive and the Board or
Compensation Committee. Said bonus shall be determined by the Board or
Compensation Committee and paid annually in December. The Executive's
bonus for calendar year 1998 shall be prorated to take into account the
partial year of the Executive's employment contract period.
(c) Other Expenses: In addition to the compensation provided for above,
--------------
the Company agrees to pay or to reimburse the Executive during his
employment for all reasonable, ordinary and necessary, properly vouchered,
client-related business or entertainment expenses incurred in the
performance of his services hereunder in accordance with Company policy in
effect from time to time, provided, however, that the amount available to
the Executive for such travel, entertainment and other expenses may require
advance approval by the Chief Executive Officer (or senior most position of
the Company). The Executive shall submit vouchers and receipts for all
expenses for which reimbursement is sought.
(d) Vacation: The Executive shall be allowed 3 weeks of paid vacation
--------
during each calendar year.
(e) Car Allowance: The Company shall provide the Executive with an
-------------
automobile expense allowance of $800 per month, regardless of the
Executive's ownership of an automobile.
(f) Fringe Benefits: In addition to his compensation provided by the
---------------
foregoing, the Executive shall be entitled to the benefits available
generally to Company employees
- 2 -
<PAGE>
pursuant to Company programs, including, by way of illustration, personal
leave, paid holidays, sick leave, profit-sharing, retirement, disability,
dental, vision, group sickness, accident or health insurance programs of
the Company which may now or, if not terminated, shall hereafter be in
effect, or in any other or additional such programs which may be
established by the Company, as and to the extent any such programs are or
may from time to time be in effect, as determined by the Company and the
terms hereof.
5. EMPLOYMENT PERIOD; TERMINATION.
(a) The Executive's employment shall continue unabated until terminated by
either party pursuant to the terms of this Agreement.
(b) The Executive's employment with the Company under this Agreement shall
be effective as of the date of this Agreement and shall continue until
terminated upon the earlier to occur of the following events: (i) the
close of business on the fourth anniversary of this Agreement or (ii) the
death or permanent disability (as defined in Paragraph 5 (f)) of the
Executive, provided, however, that, on the fourth anniversary of the date
of this Agreement, and on every subsequent annual anniversary, and unless
either party has given the other party written notice at least thirty (30)
days prior to the such anniversary date, the term of this Agreement and the
Employment Period shall be renewed for a term ending one (1) year
subsequent to such date, unless sooner terminated as provided herein.
(c) Notwithstanding the provisions of paragraphs 5 (a) and (b) above, the
Executive may terminate the employment relationship at any time for any
reason by giving the Company written notice at least thirty (30) days prior
to the effective date of termination. Unless otherwise provided by this
Section, all compensation and benefits paid by the Company to the Executive
shall cease upon his last day of employment. However, if the Executive
terminates his employment due to a material breach of this Employment
Agreement by the Company or due to a material reduction in the
responsibilities or reporting relationship of the Executive, the Company
will continue to pay the Executive's base salary, bonus compensation and
medical benefits for up to twelve (12) months. The Executive acknowledges
and agrees that the non-compete restrictions set forth in Section 7 of this
Employment Agreement will remain in full force and effect for the twelve
(12) month period after the termination of his employment. At its sole
election and discretion, the Company may release the Executive from the
non-compete restrictions of this Agreement. If said election is made, the
Company will continue to pay the Executive's base salary, a pro-rated bonus
and medical benefits for a six (6) month period.
(d) If the Executive's employment is terminated "for cause," the Executive
will not be entitled to and shall not receive any compensation or benefits
of any type following the
- 3 -
<PAGE>
effective date of termination. As used in this Agreement, the term "for
cause" shall include a termination for conviction of a felony, a willful
unauthorized disclosure of material confidential information, a violation
of any material Company rule, regulation or policy which has a material
adverse impact to the Company, or a breach of any material obligation under
this Agreement, including, without limitation, willful refusal to perform
the Executive's duties hereunder, except in the event that the Executive
becomes permanently disabled as set forth in paragraph 5 (f). Anything
herein to the contrary notwithstanding, the Company shall give the
Executive written notice prior to terminating this Agreement of the
Executive's material breach of this Agreement, setting forth the exact
nature of any alleged breach and the conduct required to cure such breach.
The Executive shall have thirty (30) days from the giving of such notice
within which to cure, and shall be entitled to appear before the Board to
discuss such written notice of material breach. Notwithstanding the
forgoing, actions or inactions on the part of the Executive which were
taken or not taken in good faith shall not constitute a material breach of
this agreement.
(e) Upon sixty (60) days written notice, the Company shall retain the right
to terminate the Executive without cause. If the Executive's employment is
terminated by the Company without cause, the Executive shall continue to
receive his base salary, bonus and medical benefits for a period of twelve
(12) months. The Executive acknowledges and agrees that the non-compete
restrictions set forth in Section 7 of this Employment Agreement will
remain in full force and effect for the twelve (12) month period subsequent
to his termination. At its sole election and discretion, the Company may
release the Executive from the non-compete restrictions of this Agreement.
If said election is made, the Company will continue to pay the Executive's
base salary, a pro-rated bonus and medical benefits for a six (6) month
period.
(f) In the event the Executive becomes permanently disabled during
employment with the Company, the Company may terminate this Agreement by
giving thirty (30) days notice to the Executive of its intent to terminate,
and unless the Executive resumes performance of the duties set forth in
Paragraph 3 within five (5) days of the date of the notice and continues
performance for the remainder of the notice period, this Agreement shall
terminate at the end of the thirty (30) day period. The Executive will not
be entitled to and shall not receive any compensation or benefits of any
type following the effective date of termination. "Permanently disabled"
for the purposes of this Agreement means the inability, due to physical or
mental ill health, to perform the Executive's duties for one hundred eighty
(180) days during any one employment year irrespective of whether such days
are consecutive.
- 4 -
<PAGE>
(g) This Agreement will terminate immediately upon the Executive's death
and no further compensation or benefits of any type will be paid to the
Executive or his heirs thirty (30) days following the date of the
Executive's death, except that bonuses earned but not paid prior to the
Executive's death will be paid.
6. COMPANY PROPERTY. All correspondence, records, documents, software,
promotional materials, and other Company property, including all copies, which
come into the Executive's possession by, through or in the course of his
employment, regardless of the source and whether created by the Executive, are
the sole and exclusive property of the Company, and immediately upon the
termination of the Executive's employment, the Executive shall return to the
Company all such property of the Company.
7. NON-COMPETITION.
(a) The Executive agrees that while he is in the employ of the Company and
for a one year period after the termination of his employment, he shall
not, either on his own behalf or on behalf of any third party, except on
behalf of the Company, directly or indirectly:
(1) Other than through his ownership of stock of the Company, as an
individual proprietor, partner, stockholder, officer, employee, director,
joint venturer, investor, lender, or in any other capacity whatsoever
(other than as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly held company), engage directly in any
substantial business in markets where NAS has a physical office that
competes against NAS for its existing customer base at the time of
departure; or
(2) Attempt in any manner to solicit from a current client or customer
of the Company at the time of his termination, business of the type
performed by the Company or to persuade any client of the Company to cease
to do business or to reduce the amount of business which any such client
has customarily done or actively contemplates doing with the Company; or
(3) Recruit, solicit or induce, or attempt to induce, any employee or
employees of the Company or its affiliates to terminate their employment
with, or otherwise cease their relationship with the Company or its
affiliates.
(b) The parties agree that the relevant public policy aspects of covenants
not to compete have been discussed, and that every effort has been made to
limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in Section 7 are found by any court of
competent jurisdiction to be unenforceable because it extends for too long
a period of time or over
- 5 -
<PAGE>
too great a range of activities or geographic area, it shall be interpreted
to extend over the maximum period of time, range of activities or
geographic areas as to which it may be enforceable.
(d) The restrictions contained in Section 7 are necessary for the
protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of Section 7 will
cause the Company and/or its affiliates substantial and irrevocable damage
and therefore, in the event of any such breach, in addition to such other
remedies which may be available, the Company shall have the right to seek
specific performance and injunctive relief. The Executive acknowledges
that he will receive compensation for the terms of Section 7 pursuant to
various stock option agreements which will be executed between the
Executive and the Company.
(e) The provisions of Section 7 shall survive termination of this
Agreement.
8. PROTECTION OF CONFIDENTIAL INFORMATION. The Executive agrees that all
information, whether or not in writing, relating to the business, technical or
financial affairs of the Company and that it is generally understood in the
industry as being confidential and/or proprietary information, is the exclusive
property of the Company. The Executive agrees to hold in a fiduciary capacity
for the sole benefit of the Company all secret, confidential or proprietary
information, knowledge, data, or trade secret ("Confidential Information")
relating to the Company or any of its affiliates or their respective clients,
which Confidential Information shall have been obtained during his employment
with the Company. The Executive agrees that he will not at any time, either
during the Term of this Agreement or after its termination, disclose to anyone
any Confidential Information, or utilize such Confidential Information for his
own benefit, or for the benefit of third parties without written approval by an
officer of the Company. Executive further agrees that all memoranda, notes,
records, data, schematics, sketches, computer programs, prototypes, or written,
photographic, magnetic or other documents or tangible objects compiled by him or
made available to him during the Term of his employment concerning the business
of the Company and/or its clients shall be the property of the Company and shall
be delivered to the Company on the termination of his employment, or at any
other time upon request of the Company.
9. INTELLECTUAL PROPERTY. During the Term of this Agreement, the
Executive will disclose to the Company all ideas, concepts, inventions, product
ideas, new products, discoveries, methods, software, business plans and business
opportunities developed by him during working time through the use of Company
resources, which relate directly or indirectly to the Company's business or the
business of any of its affiliates or their respective clients, including without
limitation, any process, product or product improvement, product ideas, new
products, discoveries, methods or software which may or may not be patentable or
copyrightable,
- 6 -
<PAGE>
any trade names, trademarks or slogans. The Executive agrees that such will be
the property of the Company and that he will at the Company's request and cost
do whatever is necessary to secure for the Company the rights thereto by patent,
copyright or otherwise.
10. PUBLICITY. Neither party shall issue without consent of the other
party any press release or make any public announcement with respect to this
Agreement or the employment relationship between them.
11. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, personal representatives,
successors and assigns. In the event the Company is acquired, is a non
surviving party in a merger, or transfers substantially all of its assets, this
Agreement shall not be terminated and the transferee or surviving company shall
be bound by the provisions of this Agreement. The parties understand that the
obligations of the Executive are personal and may not be assigned by him.
12. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the Executive and the Company with respect to employment of the Executive and
supersedes any and all prior understandings, written or oral. This Agreement
may not be amended, waived, discharged or terminated orally, but only by an
instrument in writing. By entering into this Agreement, the Executive certifies
and acknowledges that he has carefully read all of the provisions of this
Agreement and that he voluntarily and knowingly enters into said Agreement.
13. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be deemed
severable from the remainder of this Agreement, and the remaining provisions
contained in this Agreement shall be construed to preserve to the maximum
permissible extent the intent and purposes of this Agreement. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. GOVERNING LAW AND SUBMISSION TO JURISDICTION. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
Commonwealth of Virginia, without giving effect to the principles of conflicts
of law thereof.
15. NOTICES. Any notice provided for in this Agreement shall be provided
in writing. Notices shall be effective from the date of service, if served
personally on the party to whom notice is to be given, or on the second day
after mailing, if mailed by first class mail, postage prepaid. Notices shall be
properly addressed to the parties at their respective addresses or to such other
address as either party may later specify by notice to the other.
16. ARBITRATION. The parties agree that any controversy, claim or dispute
arising out of or relating to this Agreement, or the breach thereof, or arising
out of or relating to the
- 7 -
<PAGE>
employment of the Executive, or the termination thereof, including any statutory
or common law claims under federal, state, or local law, but excluding actions
to enforce provisions of Sections 7 and 8 hereof, shall be resolved by
arbitration in Fairfax, Virginia in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The parties agree
that any award rendered by the arbitrator shall be final and binding, and that
judgment upon the award may be entered in any court having jurisdiction thereof.
17. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Executive for any liability incurred by reason of any act or omission performed
by the Executive while acting in good faith on behalf of the Company and within
the scope of the authority of the Executive pursuant to this Agreement and under
the rules and policies of the Company, except that the Executive must have in
good faith believed that such action was in the best interest of the Company and
such course of action or inaction must not have constituted gross negligence,
fraud, willful misconduct, or breach of a fiduciary duty.
18. MISCELLANEOUS.
(a) No delay or omission by the Company in exercising any right under this
Agreement shall operate as a waiver of that or any other right. A waiver
or consent given by the Company on any one occasion shall be effective only
in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
(b) The captions of the sections of this Agreement are for convenience of
reference only and in no way define, limit or affect the scope or substance
of any section of this Agreement.
- 8 -
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered under seal, by its authorized officers or
individually, on the 13-th day of August, 1998.
NETWORK ACCESS SOLUTIONS
/s/ Brion B. Applegate
--------------------------------------
Brion B. Applegate, Director (on behalf of the Board)
/s/ Jonathon Aust
--------------------------------------
Jonathon Aust
- 9 -
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 13, 1998, by and between NETWORK ACCESS
SOLUTIONS, a Virginia corporation ("NAS" or the "Company"), and Christopher
Melnick (the "Executive").
In consideration of the mutual covenants herein contained and of the mutual
benefits herein provided, the Company and the Executive agree as follows:
1. REPRESENTATIONS AND WARRANTIES. The Executive represents and warrants
to the Company that Executive is not bound by any restrictive covenants and has
no prior or other obligations or commitments of any kind that would in any way
prevent, restrict, hinder or interfere with Executive's acceptance of continued
employment or the performance of all duties and services hereunder to the
fullest extent of the Executive's ability and knowledge. The Executive agrees
to indemnify and hold harmless the Company for any liability which the Company
may incur as the result of the existence of any such covenants, obligations or
commitments.
2. TERM OF EMPLOYMENT. The Company will continue to employ the Executive
and the Executive accepts continued employment by the Company on the terms and
conditions herein contained for a period (the "Employment Period") provided in
paragraph 5.
3. DUTIES AND FUNCTIONS.
(a) (1) The Executive shall be employed as Chief Operating Officer of the
Company and shall oversee, direct and manage operational issues of the
Company. The Executive shall report directly to the Chief Executive
Officer (or the senior most position of the Company) or the Board of
Directors (the "Board").
(2) The Executive agrees to undertake the duties and responsibilities
inherent in the position of Chief Operating Officer, which may encompass
different or additional duties as may, from time to time, be assigned by
the Chief Executive Officer (or senior most position of the Company) or the
Board. The Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any
change thereof which may be adopted at any time by the Company.
(b) During the Employment Period, the Executive will devote his full time
and efforts to the business of the Company and will not engage in
consulting work or any trade or business for his own account or for or on
behalf of any other person, firm or corporation which competes, conflicts
or interferes with the performance of his duties hereunder in any way. The
Executive may engage in non-competitive business or charitable activities
for reasonable periods of time each month so long as such activities do not
interfere with the Executive's responsibilities under this Employment
Agreement.
<PAGE>
4. COMPENSATION.
(a) Base Salary: As compensation for his services hereunder, during the
-----------
Executive's employment, the Company agrees to pay the Executive a base
salary at the rate of $200,000 per annum, payable in accordance with the
Company's normal payroll schedule, or on such other periodic basis as may
be mutually agreed upon. Such salary shall be subject to annual review,
based on corporate policy and contributions made by Executive to the
enterprise. As a result of each annual review, the Executive's salary will
increase by a minimum of five percent (5%). Said annual salary increase
will commence, effective July 31, 1999, and continue annually on July 31st
thereafter. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Bonus: Executive shall be eligible to receive an annual cash and/or
-----
stock bonus award with a target bonus of 20% of the Executive's then
current salary. Said bonus is contingent upon the Executive achieving
deliverables or goals agreed to by the Executive and the Board or
Compensation Committee. Said bonus shall be determined by the Board or
Compensation Committee and paid annually in December. The Executive's
bonus for calendar year 1998 shall be prorated to take into account the
partial year of the Executive's employment with the Company.
(c) Stock Options: The Executive shall be entitled to participate in the
-------------
Company's stock option plan and shall receive options equal to seven
percent (7%) of the fully diluted equity of the Company after the first
round of funding of the Company by outside investors, inclusive of all
shares allocated to the option plan or otherwise exercisable by all parties
at the time the stock option plan is adopted. The specific terms and
conditions of these options are set out in the stock option agreement
between the Executive and the Company attached hereto as Attachment A.
-------------
(d) Other Expenses: In addition to the compensation provided for above,
--------------
the Company agrees to pay or to reimburse the Executive during his
employment for all reasonable, ordinary and necessary, properly vouchered,
client-related business or entertainment expenses incurred in the
performance of his services hereunder in accordance with Company policy in
effect from time to time, provided, however, that the amount available to
the Executive for such travel, entertainment and other expenses may require
advance approval by the Chief Executive Officer (or senior most position of
the Company). The Executive shall submit vouchers and receipts for all
expenses for which reimbursement is sought.
(e) Vacation: The Executive shall be allowed 3 weeks of paid vacation
--------
during each calendar year.
(f) Car Allowance: The Company shall provide the Executive with an
-------------
automobile expense allowance of $800 per month, regardless of the
Executive's ownership of an automobile.
-2-
<PAGE>
(g) Fringe Benefits: In addition to his compensation provided by the
---------------
foregoing, the Executive shall be entitled to the benefits available
generally to Company employees pursuant to Company programs, including, by
way of illustration, personal leave, paid holidays, sick leave, profit-
sharing, retirement, disability, dental, vision, group sickness, accident
or health insurance programs of the Company which may now or, if not
terminated, shall hereafter be in effect, or in any other or additional
such programs which may be established by the Company, as and to the extent
any such programs are or may from time to time be in effect, as determined
by the Company and the terms hereof.
5. EMPLOYMENT PERIOD; TERMINATION.
(a) The Executive's employment shall commence on July 7, 1998, and shall
continue thereafter unabated until terminated by either party pursuant to
the terms of this Agreement.
(b) The Employment Period shall commence on the date of this Agreement and
shall continue until terminated upon the earlier to occur of the following
events: (i) the close of business on the fourth anniversary of this
Agreement or (ii) the death or permanent disability (as defined in
Paragraph 5 (f)) of the Executive, provided, however, that, on the fourth
anniversary of the date of this Agreement, and on every subsequent annual
anniversary, and unless either party has given the other party written
notice at least thirty (30) days prior to the such anniversary date, the
term of this Agreement and the Employment Period shall be renewed for a
term ending one (1) year subsequent to such date, unless sooner terminated
as provided herein.
(c) Notwithstanding the provisions of paragraphs 5 (a) and (b) above, the
Executive may terminate the employment relationship at any time for any
reason by giving the Company written notice at least thirty (30) days prior
to the effective date of termination. Unless otherwise provided by this
Section, all compensation and benefits paid by the Company to the Executive
shall cease upon his last day of employment. However, if the Executive
terminates his employment due to a material breach of this Employment
Agreement by the Company or due to a material reduction in the
responsibilities or reporting relationship of the Executive, the Company
will continue to pay the Executive's base salary, bonus compensation and
medical benefits for up to twelve (12) months. The Executive acknowledges
and agrees that the non-compete restrictions set forth in Section 7 of this
Employment Agreement will remain in full force and effect for the twelve
(12) month period after the termination of his employment. At its sole
election and discretion, the Company may release the Executive from the
non-compete restrictions of this Agreement. If said election is made, the
Company will continue to pay the Executive's base salary, a pro-rated bonus
and medical benefits for a six (6) month period.
(d) If the Executive's employment is terminated "for cause," the Executive
will not be entitled to and shall not receive any compensation or benefits
of any type following the effective date of termination. As used in this
Agreement, the term "for cause" shall include a termination for conviction
of a felony, a willful unauthorized disclosure of
-3-
<PAGE>
material confidential information, a violation of any material Company
rule, regulation or policy which has a material adverse impact to the
Company, or a breach of any material obligation under this Agreement,
including, without limitation, willful refusal to perform the Executive's
duties hereunder, except in the event that the Executive becomes
permanently disabled as set forth in paragraph 5 (f). Anything herein to
the contrary notwithstanding, the Company shall give the Executive written
notice prior to terminating this Agreement of the Executive's material
breach of this Agreement, setting forth the exact nature of any alleged
breach and the conduct required to cure such breach. The Executive shall
have thirty (30) days from the giving of such notice within which to cure,
and shall be entitled to appear before the Board to discuss such written
notice of material breach. Notwithstanding the forgoing, actions or
inactions on the part of the Executive which were taken or not taken in
good faith shall not constitute a material breach of this agreement.
(e) Upon sixty (60) days written notice, the Company shall retain the
right to terminate the Executive without cause. If the Executive's
employment is terminated by the Company without cause, the Executive shall
continue to receive his base salary, bonus and medical benefits for a
period of twelve (12) months. The Executive acknowledges and agrees that
the non-compete restrictions set forth in Section 7 of this Employment
Agreement will remain in full force and effect for the twelve (12) month
period subsequent to his termination. At its sole election and discretion,
the Company may release the Executive from the non-compete restrictions of
this Agreement. If said election is made, the Company will continue to pay
the Executive's base salary, a pro-rated bonus and medical benefits for a
six (6) month period.
(f) In the event the Executive becomes permanently disabled during
employment with the Company, the Company may terminate this Agreement by
giving thirty (30) days notice to the Executive of its intent to terminate,
and unless the Executive resumes performance of the duties set forth in
Paragraph 3 within five (5) days of the date of the notice and continues
performance for the remainder of the notice period, this Agreement shall
terminate at the end of the thirty (30) day period. The Executive will not
be entitled to and shall not receive any compensation or benefits of any
type following the effective date of termination. "Permanently disabled"
for the purposes of this Agreement means the inability, due to physical or
mental ill health, to perform the Executive's duties for one hundred eighty
(180) days during any one employment year irrespective of whether such days
are consecutive.
(g) This Agreement will terminate immediately upon the Executive's death
and no further compensation or benefits of any type will be paid to the
Executive or his heirs thirty (30) days following the date of the
Executive's death, except that bonuses earned but not paid prior to the
Executive's death will be paid.
6. COMPANY PROPERTY. All correspondence, records, documents, software,
promotional materials, and other Company property, including all copies, which
come into the Executive's possession by, through or in the course of his
employment, regardless of the source
-4-
<PAGE>
and whether created by the Executive, are the sole and exclusive property of the
Company, and immediately upon the termination of the Executive's employment, the
Executive shall return to the Company all such property of the Company.
7. NON-COMPETITION.
(a) The Executive agrees that while he is in the employ of the Company and
for a one year period after the termination of his employment, he shall
not, either on his own behalf or on behalf of any third party, except on
behalf of the Company, directly or indirectly:
(1) Other than through his ownership of stock of the Company, as an
individual proprietor, partner, stockholder, officer, employee, director,
joint venturer, investor, lender, or in any other capacity whatsoever
(other than as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly held company), engage directly in any
substantial business in markets where NAS has a physical office that
competes against NAS for its existing customer base at the time of
departure; or
(2) Attempt in any manner to solicit from a current client or
customer of the Company at the time of his termination, business of the
type performed by the Company or to persuade any client of the Company to
cease to do business or to reduce the amount of business which any such
client has customarily done or actively contemplates doing with the
Company; or
(3) Recruit, solicit or induce, or attempt to induce, any employee or
employees of the Company or its affiliates to terminate their employment
with, or otherwise cease their relationship with the Company or its
affiliates.
(b) The parties agree that the relevant public policy aspects of covenants
not to compete have been discussed, and that every effort has been made to
limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in Section 7 are found by any court of
competent jurisdiction to be unenforceable because it extends for too long
a period of time or over too great a range of activities or geographic
area, it shall be interpreted to extend over the maximum period of time,
range of activities or geographic areas as to which it may be enforceable.
(d) The restrictions contained in Section 7 are necessary for the
protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of Section 7 will
cause the Company and/or its affiliates substantial and irrevocable damage
and therefore, in the event of any such breach, in addition to such other
remedies which may be available, the Company shall have the right to seek
specific performance and injunctive relief. The Executive acknowledges
that he will receive
-5-
<PAGE>
compensation for the terms of Section 7 pursuant to various stock option
agreements which will be executed between the Executive and the Company.
(e) The provisions of Section 7 shall survive termination of this
Agreement.
8. PROTECTION OF CONFIDENTIAL INFORMATION. The Executive agrees that all
information, whether or not in writing, relating to the business, technical or
financial affairs of the Company and that it is generally understood in the
industry as being confidential and/or proprietary information, is the exclusive
property of the Company. The Executive agrees to hold in a fiduciary capacity
for the sole benefit of the Company all secret, confidential or proprietary
information, knowledge, data, or trade secret ("Confidential Information")
relating to the Company or any of its affiliates or their respective clients,
which Confidential Information shall have been obtained during his employment
with the Company. The Executive agrees that he will not at any time, either
during the Term of this Agreement or after its termination, disclose to anyone
any Confidential Information, or utilize such Confidential Information for his
own benefit, or for the benefit of third parties without written approval by an
officer of the Company. Executive further agrees that all memoranda, notes,
records, data, schematics, sketches, computer programs, prototypes, or written,
photographic, magnetic or other documents or tangible objects compiled by him or
made available to him during the Term of his employment concerning the business
of the Company and/or its clients shall be the property of the Company and shall
be delivered to the Company on the termination of his employment, or at any
other time upon request of the Company.
9. INTELLECTUAL PROPERTY. During the Term of this Agreement, the
Executive will disclose to the Company all ideas, concepts, inventions, product
ideas, new products, discoveries, methods, software, business plans and business
opportunities developed by him during working time through the use of Company
resources, which relate directly or indirectly to the Company's business or the
business of any of its affiliates or their respective clients, including without
limitation, any process, product or product improvement, product ideas, new
products, discoveries, methods or software which may or may not be patentable or
copyrightable, any trade names, trademarks or slogans. The Executive agrees
that such will be the property of the Company and that he will at the Company's
request and cost do whatever is necessary to secure for the Company the rights
thereto by patent, copyright or otherwise.
10. PUBLICITY. Neither party shall issue without consent of the other
party any press release or make any public announcement with respect to this
Agreement or the employment relationship between them.
11. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, personal representatives,
successors and assigns. In the event the Company is acquired, is a non
surviving party in a merger, or transfers substantially all of its assets, this
Agreement shall not be terminated and the transferee or surviving company shall
be bound by the provisions of this Agreement. The parties understand that the
obligations of the Executive are personal and may not be assigned by him.
-6-
<PAGE>
12. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the Executive and the Company with respect to employment of the Executive and
supersedes any and all prior understandings, written or oral. This Agreement
may not be amended, waived, discharged or terminated orally, but only by an
instrument in writing. By entering into this Agreement, the Executive certifies
and acknowledges that he has carefully read all of the provisions of this
Agreement and that he voluntarily and knowingly enters into said Agreement.
13. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be deemed
severable from the remainder of this Agreement, and the remaining provisions
contained in this Agreement shall be construed to preserve to the maximum
permissible extent the intent and purposes of this Agreement. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. GOVERNING LAW AND SUBMISSION TO JURISDICTION. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
Commonwealth of Virginia, without giving effect to the principles of conflicts
of law thereof.
15. NOTICES. Any notice provided for in this Agreement shall be provided
in writing. Notices shall be effective from the date of service, if served
personally on the party to whom notice is to be given, or on the second day
after mailing, if mailed by first class mail, postage prepaid. Notices shall be
properly addressed to the parties at their respective addresses or to such other
address as either party may later specify by notice to the other.
16. ARBITRATION. The parties agree that any controversy, claim or dispute
arising out of or relating to this Agreement, or the breach thereof, or arising
out of or relating to the employment of the Executive, or the termination
thereof, including any statutory or common law claims under federal, state, or
local law, but excluding actions to enforce provisions of Sections 7 and 8
hereof, shall be resolved by arbitration in Fairfax, Virginia in accordance with
the Employment Dispute Resolution Rules of the American Arbitration Association.
The parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
17. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Executive for any liability incurred by reason of any act or omission performed
by the Executive while acting in good faith on behalf of the Company and within
the scope of the authority of the Executive pursuant to this Agreement and under
the rules and policies of the Company, except that the Executive must have in
good faith believed that such action was in the best interest of the Company and
such course of action or inaction must not have constituted gross negligence,
fraud, willful misconduct, or breach of a fiduciary duty.
18. MISCELLANEOUS.
(a) No delay or omission by the Company in exercising any right under this
Agreement shall operate as a waiver of that or any other right. A waiver
or consent given
-7-
<PAGE>
by the Company on any one occasion shall be effective only in that instance
and shall not be construed as a bar or waiver of any right on any other
occasion.
(b) The captions of the sections of this Agreement are for convenience of
reference only and in no way define, limit or affect the scope or substance
of any section of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered under seal, by its authorized officers or
individually, on the 13-th day of July, 1998.
NETWORK ACCESS SOLUTIONS
/s/ Jon Aust
---------------------------------
Chief Executive Officer
/s/ Christopher Melnick
---------------------------------
Christopher Melnick
-8-
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
AGREEMENT dated as of July 13, 1998, by and between NETWORK ACCESS
SOLUTIONS, a Virginia corporation ("NAS" or the "Company"), and SCOTT YANCEY
(the "Executive").
In consideration of the mutual covenants herein contained and of the mutual
benefits herein provided, the Company and the Executive agree as follows:
1. REPRESENTATIONS AND WARRANTIES. The Executive represents and warrants
to the Company that Executive is not bound by any restrictive covenants and has
no prior or other obligations or commitments of any kind that would in any way
prevent, restrict, hinder or interfere with Executive's acceptance of continued
employment or the performance of all duties and services hereunder to the
fullest extent of the Executive's ability and knowledge. The Executive agrees
to indemnify and hold harmless the Company for any liability which the Company
may incur as the result of the existence of any such covenants, obligations or
commitments.
2. TERM OF EMPLOYMENT. The Company will continue to employ the Executive
and the Executive accepts continued employment by the Company on the terms and
conditions herein contained for a period (the "Employment Period") provided in
paragraph 5.
3. DUTIES AND FUNCTIONS.
(a) (1) The Executive shall be employed as Chief Financial Officer of the
Company and shall oversee, direct and manage all financial operations of
the Company. The Executive shall report directly to the Chief Executive
Officer (or the senior most position of the Company) or the Board of
Directors (the "Board").
(2) The Executive agrees to undertake the duties and responsibilities
inherent in the position of Chief Financial Officer, which may encompass
different or additional duties as may, from time to time, be assigned by
the Chief Executive Officer (or senior most position of the Company) or the
Board. The Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any
change thereof which may be adopted at any time by the Company.
(b) During the Employment Period, the Executive will devote his full time
and efforts to the business of the Company and will not engage in
consulting work or any trade or business for his own account or for or on
behalf of any other person, firm or corporation which competes, conflicts
or interferes with the performance of his duties hereunder in any way. The
Executive may engage in non-competitive business or charitable activities
-1-
<PAGE>
for reasonable periods of time each month so long as such activities do not
interfere with the Executive's responsibilities under this Employment
Agreement.
4. COMPENSATION.
(a) Base Salary: As compensation for his services hereunder, during the
-----------
Executive's employment as Chief Financial Officer, the Company agrees to
pay the Executive a base salary at the rate of $150,000 per annum, payable
in accordance with the Company's normal payroll schedule, or on such other
periodic basis as may be mutually agreed upon. Such salary shall be
subject to annual review, based on corporate policy and contributions made
by Executive to the enterprise. As a result of each annual review, the
Executive's salary will increase by a minimum of five percent (5%). Said
annual salary increase will commence, effective July 31, 1999, and continue
annually on July 31st thereafter. The Company may withhold from any
amounts payable under this Agreement such federal, state or local taxes as
shall be required to be withheld pursuant to any applicable law or
regulation.
(b) Bonus: Executive shall be eligible to receive an annual cash and/or
-----
stock bonus award with a target bonus of 20% of the Executive's then
current salary. Said bonus is contingent upon the Executive achieving
deliverables or goals agreed to by the Executive and the Board or
Compensation Committee. Said bonus shall be determined by the Board or
Compensation Committee and paid annually in December. The Executive's
bonus for calendar year 1998 shall be prorated to take into account the
partial year of the Executive's employment with the Company.
(c) Stock Options: The Executive shall be entitled to participate in the
-------------
Company's stock option plan and shall receive options equal to five percent
(5%) of the fully diluted equity of the Company after the first round of
funding of the Company by outside investors, inclusive of all shares
allocated to the option plan or otherwise exercisable by all parties at the
time the stock option plan is adopted. The specific terms and conditions
of these options are set out in the stock option agreement between the
Executive and the Company attached hereto as Attachment A.
------------
(d) Other Expenses: In addition to the compensation provided for above,
--------------
the Company agrees to pay or to reimburse the Executive during his
employment for all reasonable, ordinary and necessary, properly vouchered,
client-related business or entertainment expenses incurred in the
performance of his services hereunder in accordance with Company policy in
effect from time to time, provided, however, that the amount available to
the Executive for such travel, entertainment and other expenses may require
advance approval by the Chief Executive Officer (or senior most position of
the Company). The Executive shall submit vouchers and receipts for all
expenses for which reimbursement is sought.
-2-
<PAGE>
(e) Vacation: The Executive shall be allowed 3 weeks of paid vacation
--------
during each calendar year.
(f) Car Allowance: The Company shall provide the Executive with an
-------------
automobile expense allowance of $800 per month, regardless of the
Executive's ownership of an automobile.
(g) Fringe Benefits: In addition to his compensation provided by the
---------------
foregoing, the Executive shall be entitled to the benefits available
generally to Company employees pursuant to Company programs, including, by
way of illustration, personal leave, paid holidays, sick leave, profit-
sharing, retirement, disability, dental, vision, group sickness, accident
or health insurance programs of the Company which may now or, if not
terminated, shall hereafter be in effect, or in any other or additional
such programs which may be established by the Company, as and to the extent
any such programs are or may from time to time be in effect, as determined
by the Company and the terms hereof.
5. EMPLOYMENT PERIOD; TERMINATION.
(a) The Executive's employment shall commence on July 7, 1998, and shall
continue thereafter unabated until terminated by either party pursuant to
the terms of this Agreement.
(b) The Employment Period shall commence on the date of this Agreement and
shall continue until terminated upon the earlier to occur of the following
events: (i) the close of business on the fourth anniversary of this
Agreement or (ii) the death or permanent disability (as defined in
Paragraph 5 (f)) of the Executive, provided, however, that, on the fourth
anniversary of the date of this Agreement, and on every subsequent annual
anniversary, and unless either party has given the other party written
notice at least thirty (30) days prior to the such anniversary date, the
term of this Agreement and the Employment Period shall be renewed for a
term ending one (1) year subsequent to such date, unless sooner terminated
as provided herein.
(c) Notwithstanding the provisions of paragraphs 5 (a) and (b) above, the
Executive may terminate the employment relationship at any time for any
reason by giving the Company written notice at least thirty (30) days prior
to the effective date of termination. Unless otherwise provided by this
Section, all compensation and benefits paid by the Company to the Executive
shall cease upon his last day of employment. However, if the Executive
terminates his employment due to a material breach of this Employment
Agreement by the Company or due to a material reduction in the
responsibilities or reporting relationship of the Executive, the Company
will continue to pay the Executive's base salary, bonus compensation and
medical benefits for up to twelve (12) months. The Executive acknowledges
and agrees that the non-compete restrictions set forth in Section 7 of this
Employment Agreement will remain in full force and effect for the twelve
(12) month period after the termination of his employment. At its sole
election and discretion,
-3-
<PAGE>
the Company may release the Executive from the non-compete restrictions of
this Agreement. If said election is made, the Company will continue to pay
the Executive's base salary, a pro-rated bonus and medical benefits for a
six (6) month period.
(d) If the Executive's employment is terminated "for cause," the Executive
will not be entitled to and shall not receive any compensation or benefits
of any type following the effective date of termination. As used in this
Agreement, the term "for cause" shall include a termination for conviction
of a felony, a willful unauthorized disclosure of material confidential
information, a violation of any material Company rule, regulation or policy
which has a material adverse impact to the Company, or a breach of any
material obligation under this Agreement, including, without limitation,
willful refusal to perform the Executive's duties hereunder, except in the
event that the Executive becomes permanently disabled as set forth in
paragraph 5 (f). Anything herein to the contrary notwithstanding, the
Company shall give the Executive written notice prior to terminating this
Agreement of the Executive's material breach of this Agreement, setting
forth the exact nature of any alleged breach and the conduct required to
cure such breach. The Executive shall have thirty (30) days from the
giving of such notice within which to cure, and shall be entitled to appear
before the Board to discuss such written notice of material breach.
Notwithstanding the forgoing, actions or inactions on the part of the
Executive which were taken or not taken in good faith shall not constitute
a material breach of this agreement.
(e) Upon sixty (60) days written notice, the Company shall retain the right
to terminate the Executive without cause. If the Executive's employment is
terminated by the Company without cause, the Executive shall continue to
receive his base salary, bonus and medical benefits for a period of twelve
(12) months. The Executive acknowledges and agrees that the non-compete
restrictions set forth in Section 7 of this Employment Agreement will
remain in full force and effect for the twelve (12) month period subsequent
to his termination. At its sole election and discretion, the Company may
release the Executive from the non-compete restrictions of this Agreement.
If said election is made, the Company will continue to pay the Executive's
base salary, a pro-rated bonus and medical benefits for a six (6) month
period.
(f) In the event the Executive becomes permanently disabled during
employment with the Company, the Company may terminate this Agreement by
giving thirty (30) days notice to the Executive of its intent to terminate,
and unless the Executive resumes performance of the duties set forth in
Paragraph 3 within five (5) days of the date of the notice and continues
performance for the remainder of the notice period, this Agreement shall
terminate at the end of the thirty (30) day period. The Executive will not
be entitled to and shall not receive any compensation or benefits of any
type following the effective date of termination. "Permanently disabled"
for the purposes of this Agreement means the inability, due to physical or
mental ill health, to perform the Executive's duties for one
-4-
<PAGE>
hundred eighty (180) days during any one employment year irrespective of
whether such days are consecutive.
(g) This Agreement will terminate immediately upon the Executive's death
and no further compensation or benefits of any type will be paid to the
Executive or his heirs thirty (30) days following the date of the
Executive's death, except that bonuses earned but not paid prior to the
Executive's death will be paid.
6. COMPANY PROPERTY. All correspondence, records, documents, software,
promotional materials, and other Company property, including all copies, which
come into the Executive's possession by, through or in the course of his
employment, regardless of the source and whether created by the Executive, are
the sole and exclusive property of the Company, and immediately upon the
termination of the Executive's employment, the Executive shall return to the
Company all such property of the Company.
7. NON-COMPETITION.
(a) The Executive agrees that while he is in the employ of the Company and
for a one year period after the termination of his employment, he shall
not, either on his own behalf or on behalf of any third party, except on
behalf of the Company, directly or indirectly:
(1) Other than through his ownership of stock of the Company, as an
individual proprietor, partner, stockholder, officer, employee, director,
joint venturer, investor, lender, or in any other capacity whatsoever
(other than as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly held company), engage directly in any
substantial business in markets where NAS has a physical office that
competes against NAS for its existing customer base at the time of
departure; or
(2) Attempt in any manner to solicit from a current client or customer
of the Company at the time of his termination, business of the type
performed by the Company or to persuade any client of the Company to cease
to do business or to reduce the amount of business which any such client
has customarily done or actively contemplates doing with the Company; or
(3) Recruit, solicit or induce, or attempt to induce, any employee or
employees of the Company or its affiliates to terminate their employment
with, or otherwise cease their relationship with the Company or its
affiliates.
(b) The parties agree that the relevant public policy aspects of covenants
not to compete have been discussed, and that every effort has been made to
limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
-5-
<PAGE>
(c) If any restriction set forth in Section 7 are found by any court of
competent jurisdiction to be unenforceable because it extends for too long
a period of time or over too great a range of activities or geographic
area, it shall be interpreted to extend over the maximum period of time,
range of activities or geographic areas as to which it may be enforceable.
(d) The restrictions contained in Section 7 are necessary for the
protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of Section 7 will
cause the Company and/or its affiliates substantial and irrevocable damage
and therefore, in the event of any such breach, in addition to such other
remedies which may be available, the Company shall have the right to seek
specific performance and injunctive relief. The Executive acknowledges that
he will receive compensation for the terms of Section 7 pursuant to various
stock option agreements which will be executed between the Executive and
the Company.
(e) The provisions of Section 7 shall survive termination of this
Agreement.
8. PROTECTION OF CONFIDENTIAL INFORMATION. The Executive agrees that all
information, whether or not in writing, relating to the business, technical or
financial affairs of the Company and that it is generally understood in the
industry as being confidential and/or proprietary information, is the exclusive
property of the Company. The Executive agrees to hold in a fiduciary capacity
for the sole benefit of the Company all secret, confidential or proprietary
information, knowledge, data, or trade secret ("Confidential Information")
relating to the Company or any of its affiliates or their respective clients,
which Confidential Information shall have been obtained during his employment
with the Company. The Executive agrees that he will not at any time, either
during the Term of this Agreement or after its termination, disclose to anyone
any Confidential Information, or utilize such Confidential Information for his
own benefit, or for the benefit of third parties without written approval by an
officer of the Company. Executive further agrees that all memoranda, notes,
records, data, schematics, sketches, computer programs, prototypes, or written,
photographic, magnetic or other documents or tangible objects compiled by him or
made available to him during the Term of his employment concerning the business
of the Company and/or its clients shall be the property of the Company and shall
be delivered to the Company on the termination of his employment, or at any
other time upon request of the Company.
9. INTELLECTUAL PROPERTY. During the Term of this Agreement, the
Executive will disclose to the Company all ideas, concepts, inventions, product
ideas, new products, discoveries, methods, software, business plans and business
opportunities developed by him during working time through the use of Company
resources, which relate directly or indirectly to the Company's business or the
business of any of its affiliates or their respective clients, including without
limitation, any process, product or product improvement, product ideas, new
products, discoveries, methods or software which may or may not be patentable or
copyrightable, any trade names, trademarks or slogans. The Executive agrees
that such will be the property of
-6-
<PAGE>
the Company and that he will at the Company's request and cost do whatever is
necessary to secure for the Company the rights thereto by patent, copyright or
otherwise.
10. PUBLICITY. Neither party shall issue without consent of the other
party any press release or make any public announcement with respect to this
Agreement or the employment relationship between them.
11. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, personal representatives,
successors and assigns. In the event the Company is acquired, is a non
surviving party in a merger, or transfers substantially all of its assets, this
Agreement shall not be terminated and the transferee or surviving company shall
be bound by the provisions of this Agreement. The parties understand that the
obligations of the Executive are personal and may not be assigned by him.
12. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the Executive and the Company with respect to employment of the Executive and
supersedes any and all prior understandings, written or oral. This Agreement
may not be amended, waived, discharged or terminated orally, but only by an
instrument in writing. By entering into this Agreement, the Executive certifies
and acknowledges that he has carefully read all of the provisions of this
Agreement and that he voluntarily and knowingly enters into said Agreement.
13. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be deemed
severable from the remainder of this Agreement, and the remaining provisions
contained in this Agreement shall be construed to preserve to the maximum
permissible extent the intent and purposes of this Agreement. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. GOVERNING LAW AND SUBMISSION TO JURISDICTION. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
Commonwealth of Virginia, without giving effect to the principles of conflicts
of law thereof.
15. NOTICES. Any notice provided for in this Agreement shall be provided
in writing. Notices shall be effective from the date of service, if served
personally on the party to whom notice is to be given, or on the second day
after mailing, if mailed by first class mail, postage prepaid. Notices shall be
properly addressed to the parties at their respective addresses or to such other
address as either party may later specify by notice to the other.
16. ARBITRATION. The parties agree that any controversy, claim or dispute
arising out of or relating to this Agreement, or the breach thereof, or arising
out of or relating to the employment of the Executive, or the termination
thereof, including any statutory or common law claims under federal, state, or
local law, but excluding actions to enforce the provisions of Sections 7 and 8
hereof, shall be resolved by arbitration in Fairfax, Virginia in accordance with
the Employment Dispute Resolution Rules of the American Arbitration Association.
The parties
-7-
<PAGE>
agree that any award rendered by the arbitrator shall be final and binding, and
that judgment upon the award may be entered in any court having jurisdiction
thereof.
17. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Executive for any liability incurred by reason of any act or omission performed
by the Executive while acting in good faith on behalf of the Company and within
the scope of the authority of the Executive pursuant to this Agreement and under
the rules and policies of the Company, except that the Executive must have in
good faith believed that such action was in the best interest of the Company and
such course of action or inaction must not have constituted gross negligence,
fraud, willful misconduct, or breach of a fiduciary duty.
18. MISCELLANEOUS.
(a) No delay or omission by the Company in exercising any right under this
Agreement shall operate as a waiver of that or any other right. A waiver
or consent given by the Company on any one occasion shall be effective only
in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
(b) The captions of the sections of this Agreement are for convenience of
reference only and in no way define, limit or affect the scope or substance
of any section of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered under seal, by its authorized officers or
individually, on the 13-th day of July, 1998.
NETWORK ACCESS SOLUTIONS
/s/ Jonathon Aust
---------------------------------------
Chief Executive Officer
/s/ Scott Yancey
---------------------------------------
Scott Yancey
-8-
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
AGREEMENT dated as of August 18, 1998, by and between NETWORK ACCESS
SOLUTIONS, INC., a Virginia corporation ("NAS" or the "Company"), and JIM AUST
(the "Executive").
In consideration of the mutual covenants herein contained and of the mutual
benefits herein provided, the Company and the Executive agree as follows:
1. REPRESENTATIONS AND WARRANTIES. The Executive represents and warrants
to the Company that Executive is not bound by any restrictive covenants and has
no prior or other obligations or commitments of any kind that would in any way
prevent, restrict, hinder or interfere with Executive's acceptance of continued
employment or the performance of all duties and services hereunder to the
fullest extent of the Executive's ability and knowledge. The Executive agrees
to indemnify and hold harmless the Company for any liability which the Company
may incur as the result of the existence of any such covenants, obligations or
commitments.
2. TERM OF EMPLOYMENT. The Company will continue to employ the Executive
and the Executive accepts continued employment by the Company on the terms and
conditions herein contained for a period (the "Employment Period") provided in
paragraph 5.
3. DUTIES AND FUNCTIONS.
(a) (1) The Executive shall be employed as Vice President, Operations
and Engineering of the Company and shall oversee and direct activities within
those departments of the Company. The Executive shall report directly to the
Chief Operating Officer ("COO").
(2) The Executive agrees to undertake the duties and
responsibilities inherent in the position of Vice President, Operations and
Engineering, which may encompass different or additional duties as may, from
time to time, be assigned by the Board. The Executive agrees to abide by the
rules, regulations, instructions, personnel practices and policies of the
Company and any change thereof which may be adopted at any time by the Company.
(b) During the Employment Period, the Executive will devote his full
time and efforts to the business of the Company and will not engage in
consulting work or any trade or business for his own account or for or on behalf
of any other person, firm or corporation which competes, conflicts or interferes
with the performance of his duties hereunder in any way. The Executive may
engage in non-competitive business or charitable activities for reasonable
periods of time each month so long as such activities do not interfere with the
Executive's responsibilities under this Employment Agreement.
<PAGE>
4. COMPENSATION.
(a) Base Salary: As compensation for his services hereunder, during
-----------
the Executive's employment, the Company agrees to pay the Executive a base
salary at the rate of $125,000 per annum, payable in accordance with the
Company's normal payroll schedule, or on such other periodic basis as may be
mutually agreed upon. Such salary shall be subject to annual review, based on
corporate policy and contributions made by Executive to the enterprise. As a
result of each annual review, the Executive's salary will increase by a minimum
of five percent (5%). Said annual salary increase will commence, effective July
31, 1999, and continue annually on July 31st thereafter. The Company may
withhold from any amounts payable under this Agreement such federal, state or
local taxes as shall be required to be withheld pursuant to any applicable law
or regulation.
(b) Bonus: Executive shall be eligible to receive an annual cash
-----
and/or stock bonus award with a target bonus of 20% of the Executive's then
current salary. Said bonus is contingent upon the Executive achieving
deliverables or goals agreed to by the Executive and the Board or Compensation
Committee. Said bonus shall be determined by the Board or Compensation
Committee and paid annually in December. The Executive's bonus for calendar
year 1998 shall be prorated to take into account the partial year of the
Executive's employment with the Company.
(c) Other Expenses: In addition to the compensation provided for
--------------
above, the Company agrees to pay or to reimburse the Executive during his
employment for all reasonable, ordinary and necessary, properly vouchered,
client-related business or entertainment expenses incurred in the performance of
his services hereunder in accordance with Company policy in effect from time to
time, provided, however, that the amount available to the Executive for such
travel, entertainment and other expenses may require advance approval by the
Chief Operating Officer (or senior most position of the Company). The Executive
shall submit vouchers and receipts for all expenses for which reimbursement is
sought.
(d) Vacation: The Executive shall be allowed three (3) weeks of paid
--------
vacation during each calendar year.
(e) Car Allowance: The Company shall provide the Executive with an
-------------
automobile expense allowance of $500 per month, regardless of the Executive's
ownership of an automobile.
(f) Fringe Benefits: In addition to his compensation provided by the
---------------
foregoing, the Executive shall be entitled to the benefits available generally
to Company employees pursuant to Company programs, including, by way of
illustration, personal leave, paid holidays, sick leave, profit-sharing,
retirement, disability, dental, vision, group sickness, accident or health
insurance programs of the Company which may now or, if not terminated, shall
hereafter be in effect, or in any other or additional such programs which may be
established by the Company, as and to the extent any such programs are or may
from time to time be in effect, as determined by the Company and the terms
hereof.
<PAGE>
5. EMPLOYMENT PERIOD; TERMINATION.
(a) The Executive's employment shall continue unabated until
terminated by either party pursuant to the terms of this Agreement.
(b) The Executive's employment under this Agreement shall be effective
as of the date of this Agreement and shall continue until terminated upon the
earlier to occur of the following events: (i) the close of business on the
fourth anniversary of this Agreement or (ii) the death or permanent disability
(as defined in Paragraph 5 (f)) of the Executive, provided, however, that, on
the fourth anniversary of the date of this Agreement, and on every subsequent
annual anniversary, and unless either party has given the other party written
notice at least thirty (30) days prior to the such anniversary date, the term of
this Agreement and the Employment Period shall be renewed for a term ending one
(1) year subsequent to such date, unless sooner terminated as provided herein.
(c) Notwithstanding the provisions of paragraphs 5 (a) and (b) above,
the Executive may terminate the employment relationship at any time for any
reason by giving the Company written notice at least thirty (30) days prior to
the effective date of termination. Unless otherwise provided by this Section,
all compensation and benefits paid by the Company to the Executive shall cease
upon his last day of employment. However, if the Executive terminates his
employment due to a material breach of this Employment Agreement by the Company
or due to a material reduction in the responsibilities or reporting relationship
of the Executive, the Company will continue to pay the Executive's base salary,
bonus compensation and medical benefits for up to twelve (12) months. The
Executive acknowledges and agrees that the non-compete restrictions set forth in
Section 7 of this Employment Agreement will remain in full force and effect for
the twelve (12) month period after the termination of his employment. At its
sole election and discretion, the Company may release the Executive from the
non-compete restrictions of this Agreement. If said election is made, the
Company will continue to pay the Executive's base salary, a pro-rated bonus and
medical benefits for a six (6) month period.
(d) If the Executive's employment is terminated "for cause," the
Executive will not be entitled to and shall not receive any compensation or
benefits of any type following the effective date of termination. As used in
this Agreement, the term "for cause" shall include a termination for
insubordination, dishonesty, conviction of a felony, a willful unauthorized
disclosure of confidential information, a violation of any material Company
rule, regulation or policy, which has a materially adverse impact to the
Company, or a breach of any material obligation under this Agreement, including,
without limitation, willful refusal to perform the Executive's duties hereunder,
except in the event that the Executive becomes permanently disabled as set forth
in paragraph 5 (f). Anything herein to the contrary notwithstanding, the
Company shall give the Executive written notice prior to terminating this
Agreement of the Executive's material breach of this Agreement, setting forth
the exact nature of any alleged breach and the conduct required to cure such
breach. The Executive shall have thirty (30) days from the giving of such
notice within which to cure, and shall be entitled to appear before the Board to
discuss such written notice of material breach. Notwithstanding the foregoing,
actions or inactions on the part of the Executive which were taken or not taken
in good faith shall not constitute a material breach of this agreement.
<PAGE>
(e) Upon sixty (60) days written notice, the Company shall retain the
right to terminate the Executive without cause. If the Executive's employment
is terminated by the Company without cause, the Executive shall continue to
receive his base salary, bonus and medical benefits for a period of twelve (12)
months. The Executive acknowledges and agrees that the non-compete restrictions
set forth in Section 7 of this Employment Agreement will remain in full force
and effect for the twelve (12) month period subsequent to his termination. At
its sole election and discretion, the Company may release the Executive from the
non-compete restrictions of this Agreement. If said election is made, the
Company will continue to pay the Executive's base salary, a pro-rated bonus and
medical benefits for a six (6) month period.
(f) In the event the Executive becomes permanently disabled during
employment with the Company, the Company may terminate this Agreement by giving
thirty (30) days notice to the Executive of its intent to terminate, and unless
the Executive resumes performance of the duties set forth in Paragraph 3 within
five (5) days of the date of the notice and continues performance for the
remainder of the notice period, this Agreement shall terminate at the end of the
thirty (30) day period. The Executive will not be entitled to and shall not
receive any compensation or benefits of any type following the effective date of
termination. "Permanently disabled" for the purposes of this Agreement means
the inability, due to physical or mental ill health, to perform the Executive's
duties for one hundred eighty (180) days during any one employment year
irrespective of whether such days are consecutive.
(g) This Agreement will terminate immediately upon the Executive's
death and no further compensation or benefits of any type will be paid to the
Executive or his heirs thirty (30) days following the date of the Executive's
death, except that bonuses earned but not paid prior to the Executive's death
will be paid.
6. COMPANY PROPERTY. All correspondence, records, documents, software,
promotional materials, and other Company property, including all copies, which
come into the Executive's possession by, through or in the course of his
employment, regardless of the source and whether created by the Executive, are
the sole and exclusive property of the Company, and immediately upon the
termination of the Executive's employment, the Executive shall return to the
Company all such property of the Company.
7. NON-COMPETITION.
(a) The Executive agrees that while he is in the employ of the Company
and for a one year period after the termination of his employment, he shall not,
either on his own behalf or on behalf of any third party, except on behalf of
the Company, directly or indirectly:
(1) Other than through his ownership of stock of the Company, as
an individual proprietor, partner, stockholder, officer, employee,
director, joint venturer, investor, lender, or in any other capacity
whatsoever (other than as the holder of not more than one percent (1%) of
the total outstanding stock of a publicly held company), engage directly in
any business in markets where NAS has a physical office that competes
against NAS for its existing or potential customer base at the time of
departure; or
(2) Attempt in any manner to solicit from a current client or
customer of the Company at the time of his termination, business of the
type performed by the
<PAGE>
Company or to persuade any client of the Company to cease to do business or
to reduce the amount of business which any such client has customarily done
or actively contemplates doing with the Company; or
(3) Recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company or its affiliates to terminate their
employment with, or otherwise cease their relationship with the Company or
its affiliates.
(b) The parties agree that the relevant public policy aspects of
covenants not to compete have been discussed, and that every effort has been
made to limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in Section 7 are found by any court
of competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities or geographic area, it
shall be interpreted to extend over the maximum period of time, range of
activities or geographic areas as to which it may be enforceable.
(d) The restrictions contained in Section 7 are necessary for the
protection of the business and goodwill of the Company and/or its affiliates and
are considered by the Executive to be reasonable for such purposes. The
Executive agrees that any material breach of Section 7 will cause the Company
and/or its affiliates substantial and irrevocable damage and therefore, in the
event of any such breach, in addition to such other remedies which may be
available, the Company shall have the right to seek specific performance and
injunctive relief. The Executive acknowledges that he will receive compensation
for the terms of Section 7 pursuant to various stock option agreements which
will be executed between the Executive and the Company.
(e) The provisions of Section 7 shall survive termination of this
Agreement.
8. PROTECTION OF CONFIDENTIAL INFORMATION. The Executive agrees that all
information, whether or not in writing, relating to the business, technical or
financial affairs of the Company and that it is generally understood in the
industry as being confidential and/or proprietary information, is the exclusive
property of the Company. The Executive agrees to hold in a fiduciary capacity
for the sole benefit of the Company all secret, confidential or proprietary
information, knowledge, data, or trade secret ("Confidential Information")
relating to the Company or any of its affiliates or their respective clients,
which Confidential Information shall have been obtained during his employment
with the Company. The Executive agrees that he will not at any time, either
during the Term of this Agreement or after its termination, disclose to anyone
any Confidential Information, or utilize such Confidential Information for his
own benefit, or for the benefit of third parties without written approval by an
officer of the Company. Executive further agrees that all memoranda, notes,
records, data, schematics, sketches, computer programs, prototypes, or written,
photographic, magnetic or other documents or tangible objects compiled by him or
made available to him during the Term of his employment concerning the business
of the Company and/or its clients shall be the property of the Company and shall
be delivered to the Company on the termination of his employment, or at any
other time upon request of the Company.
<PAGE>
9. INTELLECTUAL PROPERTY. During the Term of this Agreement, the
Executive will disclose to the Company all ideas, concepts, inventions, product
ideas, new products, discoveries, methods, software, business plans and business
opportunities developed by him during working time through the use of Company
resources, which relate directly or indirectly to the Company's business or the
business of any of its affiliates or their respective clients, including without
limitation, any process, product or product improvement, product ideas, new
products, discoveries, methods or software which may or may not be patentable or
copyrightable, any trade names, trademarks or slogans. The Executive agrees
that such will be the property of the Company and that he will at the Company's
request and cost do whatever is necessary to secure for the Company the rights
thereto by patent, copyright or otherwise.
10. PUBLICITY. Neither party shall issue without consent of the other
party any press release or make any public announcement with respect to this
Agreement or the employment relationship between them.
11. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, personal representatives,
successors and assigns. In the event the Company is acquired, is a non
surviving party in a merger, or transfers substantially all of its assets, this
Agreement shall not be terminated and the transferee or surviving company shall
be bound by the provisions of this Agreement. The parties understand that the
obligations of the Executive ware personal and may not be assigned by him.
12. ENTIRE AGREEMENT. This Agreement contains the entire understanding of
the Executive and the Company with respect to employment of the Executive and
supersedes any and all prior understandings, written or oral. This Agreement
may not be amended, waived, discharged or terminated orally, but only by an
instrument in writing. By entering into this Agreement, the Executive certifies
and acknowledges that he has carefully read all of the provisions of this
Agreement and that he voluntarily and knowingly enters into said Agreement.
13. SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be deemed
severable from the remainder of this Agreement, and the remaining provisions
contained in this Agreement shall be construed to preserve to the maximum
permissible extent the intent and purposes of this Agreement. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. GOVERNING LAW AND SUBMISSION TO JURISDICTION. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
Commonwealth of Virginia, without giving effect to the principles of conflicts
of law thereof.
15. NOTICES. Any notice provided for in this Agreement shall be provided
in writing. Notices shall be effective from the date of service, if served
personally on the party to whom notice is to be given, or on the second day
after mailing, if mailed by first class mail, postage prepaid. Notices shall be
properly addressed to the parties at their respective addresses or to such other
address as either party may later specify by notice to the other.
16. ARBITRATION. The parties agree that any controversy, claim or dispute
arising out of or relating to this Agreement, or the breach thereof, or arising
out of or relating to the
<PAGE>
employment of the Executive, or the termination thereof, including any statutory
or common law claims under federal, state, or local law, shall be resolved by
arbitration in Fairfax, Virginia in accordance with the Employment Dispute
Resolution Rules of the American Arbitration Association. The parties agree that
any award rendered by the arbitrator shall be final and binding, and that
judgment upon the award may be entered in any court having jurisdiction thereof.
17. INDEMNIFICATION. The Company shall indemnify and hold harmless the
Executive for any liability incurred by reason of any act or omission performed
by the Executive while acting in good faith on behalf of the Company and within
the scope of the authority of the Executive pursuant to this Agreement and under
the rules and policies of the Company, except that the Executive must have in
good faith believed that such action was in the best interest of the Company and
such course of action or inaction must not have constituted gross negligence,
fraud, willful misconduct, or breach of a fiduciary duty.
18. MISCELLANEOUS.
(a) No delay or omission by the Company in exercising any right under
this Agreement shall operate as a waiver of that or any other right. A waiver
or consent given by the Company on any one occasion shall be effective only in
that instance and shall not be construed as a bar or waiver of any right on any
other occasion.
(b) The captions of the sections of this Agreement are for convenience
of reference only and in no way define, limit or affect the scope or substance
of any section of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered under seal, by its authorized officers or
individually, on the 18th day of August, 1998.
NETWORK ACCESS SOLUTIONS, INC.
/s/ Jonathon Aust
-------------------------------
Jonathon Aust
-------------------------------
/s/ Jim Aust
-------------------------------
Jim Aust (Executive)
-------------------------------
<PAGE>
EXHIBIT 10.12
AGREEMENT dated as of March 1, 1999, by and between NETWORK ACCESS
SOLUTIONS, Inc. a Delaware corporation ("NAS" or the "Company"), and John
Hackett (the "Executive").
In consideration of the mutual covenants herein contained and of the mutual
benefits herein provided, the Company and the Executive agree as follows:
1. Representations and Warranties. The Executive represents and warrants
to the Company that Executive is not bound by any restrictive covenants and has
no prior or other obligations or commitments of any kind that would in any way
prevent, restrict, hinder or interfere with Executive's acceptance of continued
employment or the performance of all duties and services hereunder to the
fullest extent of the Executive's ability and knowledge. The Executive agrees
to indemnify and hold harmless the Company for any liability which the Company
may incur as the result of the existence of any such covenants, obligations or
commitments.
2. Term of Employment. The Company will continue to employ the Executive
and the Executive accepts continued employment by the Company on the terms and
conditions herein contained for a period (the "Employment Period") provided in
paragraph 5.
3. Duties and Functions.
(a) (1) The Executive shall be employed as Vice President of Sales and
Marketing of the Company and shall oversee and direct all sales and
marketing strategies and activities of the Company. The Executive shall
report directly to the Chief Operating Officer
(2) The Executive agrees to undertake the duties and responsibilities
inherent in the position of Vice President of Sales an Marketing, which may
encompass different or additional duties as may, from time to time, be
assigned by the Board. The Executive agrees to abide by the rules,
regulations, instructions, personnel practices and policies of the Company
and any change thereof which may be adopted at any time by the Company.
(b) During the Employment Period, the Executive will devote his full time
and efforts to the business of the Company and will not engage in
consulting work or any trade or business for his own account or for or on
behalf of any other person, firm or corporation which competes, conflicts
or interferes with the performance of his duties hereunder in any way. The
Executive may engage in non-competitive business or charitable activities
for reasonable periods of time each month so long as such activities do not
interfere with the Executive's responsibilities under this Employment
Agreement.
-1-
<PAGE>
4. Compensation.
(a) Base Salary: As compensation for his services hereunder, during the
-----------
Executive's employment, the Company agrees to pay the Executive a base
salary at the rate of $175,000 per annum, payable in accordance with the
Company's normal payroll schedule, or on such other periodic basis as may
be mutually agreed upon. Such salary shall be subject to annual review,
based on corporate policy and contributions made by Executive to the
enterprise. As a result of each annual review, the Executive's salary will
increase by a minimum of five percent (5%). Said annual salary increase
will commence, effective July 31, 2000, and continue annually on July 31st
thereafter. The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(b) Bonus: Executive shall be eligible to receive an annual cash and/or
-----
stock bonus award with a target bonus of 20% of the Executive's then
current salary. Said bonus is contingent upon the Executive achieving
deliverables or goals agreed to by the Executive and the Board or
Compensation Committee. Said bonus shall be determined by the Board or
Compensation Committee and paid annually in December. The Executive's
bonus for calendar year 1999 shall be prorated to take into account the
partial year of the Executive's employment contract period.
(c) Other Expenses: In addition to the compensation provided for above,
--------------
the Company agrees to pay or to reimburse the Executive during his
employment for all reasonable, ordinary and necessary, properly vouchered,
client-related business or entertainment expenses incurred in the
performance of his services hereunder in accordance with Company policy in
effect from time to time, provided, however, that the amount available to
the Executive for such travel, entertainment and other expenses may require
advance approval by the Chief Operating Officer. The Executive shall
submit vouchers and receipts for all expenses for which reimbursement is
sought.
(d) Vacation: The Executive shall be allowed 3 weeks of paid vacation
--------
during each calendar year.
(e) Car Allowance: The Company shall provide the Executive with an
-------------
automobile expense allowance of $700 per month, regardless of the
Executive's ownership of an automobile.
(f) Fringe Benefits: In addition to his compensation provided by the
---------------
foregoing, the Executive shall be entitled to the benefits available
generally to Company employees pursuant to Company programs, including, by
way of illustration, personal leave, paid holidays, sick leave, profit-
sharing, retirement, disability, dental, vision, group sickness, accident
or health insurance programs of the Company which may now or, if not
-2-
<PAGE>
terminated, shall hereafter be in effect, or in any other or additional
such programs which may be established by the Company, as and to the extent
any such programs are or may from time to time be in effect, as determined
by the Company and the terms hereof.
5. Employment Period; Termination.
(a) The Executive's employment shall continue unabated until terminated by
either party pursuant to the terms of this Agreement.
(b) The Executive's employment with the Company under this Agreement shall
be effective as of the date of this Agreement and shall continue until
terminated upon the earlier to occur of the following events: (i) the
close of business on the fourth anniversary of this Agreement or (ii) the
death or permanent disability (as defined in Paragraph 5 (f)) of the
Executive, provided, however, that, on the fourth anniversary of the date
of this Agreement, and on every subsequent annual anniversary, and unless
either party has given the other party written notice at least thirty (30)
days prior to the such anniversary date, the term of this Agreement and the
Employment Period shall be renewed for a term ending one (1) year
subsequent to such date, unless sooner terminated as provided herein.
(c) Notwithstanding the provisions of paragraphs 5 (a) and (b) above, the
Executive may terminate the employment relationship at any time for any
reason by giving the Company written notice at least thirty (30) days prior
to the effective date of termination. Unless otherwise provided by this
Section, all compensation and benefits paid by the Company to the Executive
shall cease upon his last day of employment. However, if the Executive
terminates his employment due to a material breach of this Employment
Agreement by the Company or due to a material reduction in the
responsibilities or reporting relationship of the Executive, the Company
will continue to pay the Executive's base salary, bonus compensation and
medical benefits for up to twelve (12) months. The Executive acknowledges
and agrees that the non-compete restrictions set forth in Section 7 of this
Employment Agreement will remain in full force and effect for the twelve
(12) month period after the termination of his employment. At its sole
election and discretion, the Company may release the Executive from the
non-compete restrictions of this Agreement. If said election is made, the
Company will continue to pay the Executive's base salary, a pro-rated bonus
and medical benefits for a six (6) month period.
(d) If the Executive's employment is terminated "for cause," the Executive
will not be entitled to and shall not receive any compensation or benefits
of any type following the effective date of termination. As used in this
Agreement, the term "for cause" shall include a termination for conviction
of a felony, a willful unauthorized disclosure of material confidential
information, a violation of any material Company rule, regulation or policy
which has a material adverse impact to the Company, or a breach of any
material obligation under this Agreement, including, without limitation,
willful refusal to perform
-3-
<PAGE>
the Executive's duties hereunder, except in the event that the Executive
becomes permanently disabled as set forth in paragraph 5 (f). Anything
herein to the contrary notwithstanding, the Company shall give the
Executive written notice prior to terminating this Agreement of the
Executive's material breach of this Agreement, setting forth the exact
nature of any alleged breach and the conduct required to cure such breach.
The Executive shall have thirty (30) days from the giving of such notice
within which to cure, and shall be entitled to appear before the Board to
discuss such written notice of material breach. Notwithstanding the
forgoing, actions or inactions on the part of the Executive which were
taken or not taken in good faith shall not constitute a material breach of
this agreement.
(e) Upon sixty (60) days written notice, the Company shall retain the right
to terminate the Executive without cause. If the Executive's employment is
terminated by the Company without cause, the Executive shall continue to
receive his base salary, bonus and medical benefits for a period of twelve
(12) months. The Executive acknowledges and agrees that the non-compete
restrictions set forth in Section 7 of this Employment Agreement will
remain in full force and effect for the twelve (12) month period subsequent
to his termination. At its sole election and discretion, the Company may
release the Executive from the non-compete restrictions of this Agreement.
If said election is made, the Company will continue to pay the Executive's
base salary, a pro-rated bonus and medical benefits for a six (6) month
period.
(f) In the event the Executive becomes permanently disabled during
employment with the Company, the Company may terminate this Agreement by
giving thirty (30) days notice to the Executive of its intent to terminate,
and unless the Executive resumes performance of the duties set forth in
Paragraph 3 within five (5) days of the date of the notice and continues
performance for the remainder of the notice period, this Agreement shall
terminate at the end of the thirty (30) day period. The Executive will not
be entitled to and shall not receive any compensation or benefits of any
type following the effective date of termination. "Permanently disabled"
for the purposes of this Agreement means the inability, due to physical or
mental ill health, to perform the Executive's duties for one hundred eighty
(180) days during any one employment year irrespective of whether such days
are consecutive.
(g) This Agreement will terminate immediately upon the Executive's death
and no further compensation or benefits of any type will be paid to the
Executive or his heirs thirty (30) days following the date of the
Executive's death, except that bonuses earned but not paid prior to the
Executive's death will be paid.
6. Company Property. All correspondence, records, documents, software,
promotional materials, and other Company property, including all
copies, which come into the Executive's possession by, through or in
the course of his
-4-
<PAGE>
employment, regardless of the source and whether created by the
Executive, are the sole and exclusive property of the Company, and
immediately upon the termination of the Executive's employment, the
Executive shall return to the Company all such property of the
Company.
7. Non-Competition.
(a) The Executive agrees that while he is in the employ of the Company and
for a one year period after the termination of his employment, he shall
not, either on his own behalf or on behalf of any third party, except on
behalf of the Company, directly or indirectly:
(1) Other than through his ownership of stock of the Company, as an
individual proprietor, partner, stockholder, officer, employee, director,
joint venturer, investor, lender, or in any other capacity whatsoever
(other than as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly held company), engage directly in any
substantial business in markets where NAS has a physical office that
competes against NAS for its existing customer base at the time of
departure; or
(2) Attempt in any manner to solicit from a current client or customer
of the Company at the time of his termination, business of the type
performed by the Company or to persuade any client of the Company to cease
to do business or to reduce the amount of business which any such client
has customarily done or actively contemplates doing with the Company; or
(3) Recruit, solicit or induce, or attempt to induce, any employee or
employees of the Company or its affiliates to terminate their employment
with, or otherwise cease their relationship with the Company or its
affiliates.
(b) The parties agree that the relevant public policy aspects of covenants
not to compete have been discussed, and that every effort has been made to
limit the restrictions placed upon the Executive to those that are
reasonable and necessary to protect the Company's legitimate interests.
(c) If any restriction set forth in Section 7 are found by any court of
competent jurisdiction to be unenforceable because it extends for too long
a period of time or over too great a range of activities or geographic
area, it shall be interpreted to extend over the maximum period of time,
range of activities or geographic areas as to which it may be enforceable.
(d) The restrictions contained in Section 7 are necessary for the
protection of the business and goodwill of the Company and/or its
affiliates and are considered by the Executive to be reasonable for such
purposes. The Executive agrees that any material breach of Section 7 will
cause the Company and/or its affiliates substantial
-5-
<PAGE>
and irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company shall
have the right to seek specific performance and injunctive relief. The
Executive acknowledges that he will receive compensation for the terms of
Section 7 pursuant to various stock option agreements which will be
executed between the Executive and the Company.
(e) The provisions of Section 7 shall survive termination of this
Agreement.
8. Protection of Confidential Information. The Executive agrees that all
information, whether or not in writing, relating to the business, technical or
financial affairs of the Company and that it is generally understood in the
industry as being confidential and/or proprietary information, is the exclusive
property of the Company. The Executive agrees to hold in a fiduciary capacity
for the sole benefit of the Company all secret, confidential or proprietary
information, knowledge, data, or trade secret ("Confidential Information")
relating to the Company or any of its affiliates or their respective clients,
which Confidential Information shall have been obtained during his employment
with the Company. The Executive agrees that he will not at any time, either
during the Term of this Agreement or after its termination, disclose to anyone
any Confidential Information, or utilize such Confidential Information for his
own benefit, or for the benefit of third parties without written approval by an
officer of the Company. Executive further agrees that all memoranda, notes,
records, data, schematics, sketches, computer programs, prototypes, or written,
photographic, magnetic or other documents or tangible objects compiled by him or
made available to him during the Term of his employment concerning the business
of the Company and/or its clients shall be the property of the Company and shall
be delivered to the Company on the termination of his employment, or at any
other time upon request of the Company.
9. Intellectual Property. During the Term of this Agreement, the
Executive will disclose to the Company all ideas, concepts, inventions, product
ideas, new products, discoveries, methods, software, business plans and business
opportunities developed by him during working time through the use of Company
resources, which relate directly or indirectly to the Company's business or the
business of any of its affiliates or their respective clients, including without
limitation, any process, product or product improvement, product ideas, new
products, discoveries, methods or software which may or may not be patentable or
copyrightable, any trade names, trademarks or slogans. The Executive agrees
that such will be the property of the Company and that he will at the Company's
request and cost do whatever is necessary to secure for the Company the rights
thereto by patent, copyright or otherwise.
10. Publicity. Neither party shall issue without consent of the other
party any press release or make any public announcement with respect to this
Agreement or the employment relationship between them.
11. Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their heirs, personal representatives,
successors and assigns. In the
-6-
<PAGE>
event the Company is acquired, is a non surviving party in a merger, or
transfers substantially all of its assets, this Agreement shall not be
terminated and the transferee or surviving company shall be bound by the
provisions of this Agreement. The parties understand that the obligations of the
Executive are personal and may not be assigned by him.
12. Entire Agreement. This Agreement contains the entire understanding of
the Executive and the Company with respect to employment of the Executive and
supersedes any and all prior understandings, written or oral. This Agreement
may not be amended, waived, discharged or terminated orally, but only by an
instrument in writing. By entering into this Agreement, the Executive certifies
and acknowledges that he has carefully read all of the provisions of this
Agreement and that he voluntarily and knowingly enters into said Agreement.
13. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be deemed
severable from the remainder of this Agreement, and the remaining provisions
contained in this Agreement shall be construed to preserve to the maximum
permissible extent the intent and purposes of this Agreement. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14. Governing Law and Submission to Jurisdiction. This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
Commonwealth of Virginia, without giving effect to the principles of conflicts
of law thereof.
15. Notices. Any notice provided for in this Agreement shall be provided
in writing. Notices shall be effective from the date of service, if served
personally on the party to whom notice is to be given, or on the second day
after mailing, if mailed by first class mail, postage prepaid. Notices shall be
properly addressed to the parties at their respective addresses or to such other
address as either party may later specify by notice to the other.
16. Arbitration. The parties agree that any controversy, claim or dispute
arising out of or relating to this Agreement, or the breach thereof, or arising
out of or relating to the employment of the Executive, or the termination
thereof, including any statutory or common law claims under federal, state, or
local law, but excluding actions to enforce provisions of Sections 7 and 8
hereof, shall be resolved by arbitration in Fairfax, Virginia in accordance with
the Employment Dispute Resolution Rules of the American Arbitration Association.
The parties agree that any award rendered by the arbitrator shall be final and
binding, and that judgment upon the award may be entered in any court having
jurisdiction thereof.
17. Indemnification. The Company shall indemnify and hold harmless the
Executive for any liability incurred by reason of any act or omission performed
by the Executive while acting in good faith on behalf of the Company and within
the scope of the authority of the Executive pursuant to this Agreement and under
the rules and policies of the Company, except that the Executive must have in
good faith believed that such action was in the best interest of the
-7-
<PAGE>
Company and such course of action or inaction must not have constituted gross
negligence, fraud, willful misconduct, or breach of a fiduciary duty.
18. Miscellaneous.
(a) No delay or omission by the Company in exercising any right under this
Agreement shall operate as a waiver of that or any other right. A waiver
or consent given by the Company on any one occasion shall be effective only
in that instance and shall not be construed as a bar or waiver of any right
on any other occasion.
(b) The captions of the sections of this Agreement are for convenience of
reference only and in no way define, limit or affect the scope or substance
of any section of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered under seal, by its authorized officers or
individually, on the 13-th day of August, 1998.
/s/ John Hackett
-------------------------------------------
John Hackett
NETWORK ACCESS SOLUTIONS
By: /s/ Chris Melnick
-------------------------------------------
Chris Melnick, Chief Operating Officer
-8-
<PAGE>
EXHIBIT 10.13
NETWORK ACCESS SOLUTIONS, INC.
1998 STOCK INCENTIVE PLAN
(AMENDED THROUGH MARCH 1, 1999)
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
Network Access Solutions, Inc. hereby establishes the NETWORK ACCESS
SOLUTIONS, INC. 1998 STOCK INCENTIVE PLAN (the "Plan"). The purpose of the Plan
is to promote the long-term growth and profitability of Network Access
Solutions, Inc., a Delaware Corporation (the "Corporation") by (i) providing key
people with incentives to improve stockholder value and to contribute to the
growth and financial success of the Corporation, and (ii) enabling the
Corporation to attract, retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options), stock
appreciation rights, restricted or unrestricted stock awards, phantom stock,
performance awards, or any combination of the foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.
(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, or performance award.
(c) "Board" shall mean the Board of Directors of the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
(e) "Common Stock" shall mean shares of common stock of the Corporation,
par value of $0.001 per share.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Fair Market Value" of a share of the Corporation's Common Stock for
any purpose on a particular date shall be determined in a manner such as the
Administrator shall in good faith determine to be appropriate; provided that in
the event the Common Stock shall become registered under Section 12 of the
Exchange Act, then thereafter the Fair Market Value of the Corporation's Common
Stock for any purpose on a particular date shall mean the last reported sale
price per share of Common Stock, regular
<PAGE>
way, on such date or, in case no such sale takes place on such date, the average
of the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq-National Market, or if the Common Stock is
not so listed or admitted to trading or included for quotation, the last quoted
price, or if the Common Stock is not so quoted, the average of the high bid and
low asked prices, regular way, in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
or, if such system is no longer in use, the principal other automated quotations
system that may then be in use or, if the Common Stock is not quoted by any such
organization, the average of the closing bid and asked prices, regular way, as
furnished by a professional market maker making a market in the Common Stock as
selected in good faith by the Administrator or by such other source or sources
as shall be selected in good faith by the Administrator. If, as the case may be,
the relevant date is not a trading day, the determination shall be made as of
the next preceding trading day. As used herein, the term "trading day" shall
mean a day on which public trading of securities occurs and is reported in the
principal consolidated reporting system referred to above, or if the Common
Stock is not listed or admitted to trading on a national securities exchange or
included for quotation on the Nasdaq-National Market, any business day. In the
event that the Administrator determines the Fair Market Value at a time when the
Common Stock is not registered under Section 12 of the Exchange Act, in making
such determination: (i) "Fair Market Value" shall mean the price which a willing
buyer would pay a willing seller for the shares of Common Stock, neither being
under any compulsion to buy or sell and both having reasonable knowledge of the
relevant facts, and (ii) the Administrator may take into account any valuation
factors it deems appropriate or advisable in its sole discretion, including
without limitation profitability, financial position, asset value or other
factor relating to the value of the Corporation, as well as discounts to account
for minority interests and lack of marketability.
(h) "Grant Agreement" shall mean a written document memorializing the terms
and conditions of an Award granted pursuant to the Plan and shall incorporate
the terms of the Plan.
(i) "Parent" shall mean a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in Code
section 424(e), or any successor thereto.
(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto.
3. ADMINISTRATION
(a) Administration of the Plan. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) Powers of the Administrator. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the
-2-
<PAGE>
eligible persons to whom, and the time or times at which Awards shall be
granted; (ii) determine the types of Awards to be granted; (iii) determine the
number of shares to be covered by or used for reference purposes for each Award;
(iv) impose such terms, limitations, restrictions and conditions upon any such
Award as the Administrator shall deem appropriate; (v) modify, amend, extend or
renew outstanding Awards, or accept the surrender of outstanding Awards and
substitute new Awards (provided however, that, except as provided in Section
7(d) of the Plan, any modification that would materially adversely affect any
outstanding Award shall not be made without the consent of the holder); (vi)
accelerate or otherwise change the time in which an Award may be exercised or
becomes payable and to waive or accelerate the lapse, in whole or in part, of
any restriction or condition with respect to such Award, including, but not
limited to, any restriction or condition with respect to the vesting or
exercisability of an Award following termination of any grantee's employment;
and (vii) establish objectives and conditions, if any, for earning Awards and
determining whether Awards will be paid after the end of a performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) Non-Uniform Determinations. The Administrator's determinations under
the Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the Grant Agreements evidencing such Awards) need not be uniform
and may be made by the Administrator selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
(d) Limited Liability. To the maximum extent permitted by law, no member
of the Administrator shall be liable for any action taken or decision made in
good faith relating to the Plan or any Award thereunder.
(e) Indemnification. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.
(f) Effect of Administrator's Decision. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Corporation, its stockholders, any participants in the
Plan and any other employee of the Corporation, and their respective successors
in interest.
4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS
Subject to adjustments as provided in Section 7(d) of the Plan, the shares
of Common Stock that may be issued with respect to Awards granted under the Plan
shall not exceed an aggregate of 4,500,000 shares of Common Stock. The
Corporation shall reserve such number of shares for Awards under the Plan,
subject to adjustments as provided in Section 7(d) of the Plan. If any Award,
or portion of an Award, under the Plan expires or terminates unexercised,
becomes unexercisable or is forfeited or otherwise terminated, surrendered or
canceled as to any shares, or if any shares of Common Stock are surrendered to
the Corporation in connection with any Award (whether or not such surrendered
shares
-3-
<PAGE>
were acquired pursuant to any Award), the shares subject to such Award and the
surrendered shares shall thereafter be available for further Awards under the
Plan; provided, however, that any such shares that are surrendered to the
Corporation in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock options
intended to qualify under Code section 422.
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers,
directors, and consultants of the Corporation, or of any Affiliate of the
Corporation, as may be selected by the Administrator from time to time.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) Stock Options. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the
Corporation or of any Parent or Subsidiary of the Corporation. Options intended
to qualify as incentive stock options under Code section 422 must have an
exercise price at least equal to Fair Market Value on the date of grant, but
nonqualified stock options may be granted with an exercise price less than Fair
Market Value. No stock option shall be an incentive stock option unless so
designated by the Administrator at the time of grant or in the Grant Agreement
evidencing such stock option.
(b) Stock Appreciation Rights. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Corporation of the amount receivable upon any
exercise of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be
used for such payment and the Administrator shall determine whether cash shall
be given in lieu of such fractional shares or whether such fractional shares
shall be eliminated.
(c) Stock Awards. The Administrator may from time to time grant restricted
or unrestricted stock Awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine. A
stock Award may be paid in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock") in
such amounts and on such terms
-4-
<PAGE>
and conditions as it shall determine. Phantom stock units granted to a
participant shall be credited to a bookkeeping reserve account solely for
accounting purposes and shall not require a segregation of any of the
Corporation's assets. An Award of phantom stock may be settled in Common Stock,
in cash, or in a combination of Common Stock and cash, as determined in the sole
discretion of the Administrator. Except as otherwise provided in the applicable
Grant Agreement, the grantee shall not have the rights of a stockholder with
respect to any shares of Common Stock represented by a phantom stock unit solely
as a result of the grant of a phantom stock unit to the grantee.
(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator.
Performance goals established by the Administrator may be based on the
Corporation's or an Affiliate's operating income or one or more other business
criteria selected by the Administrator that apply to an individual or group of
individuals, a business unit, or the Corporation or an Affiliate as a whole,
over such performance period as the Administrator may designate.
7. MISCELLANEOUS
(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Corporation, or make provision satisfactory to the Administrator for payment of,
any taxes required to be withheld in respect of Awards under the Plan no later
than the date of the event creating the tax liability. The Corporation may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to the grantee or holder of an Award. In the event that
payment to the Corporation of such tax obligations is made in shares of Common
Stock, such shares shall be valued at Fair Market Value on the applicable date
for such purposes.
(b) Loans. The Corporation may make or guarantee loans to grantees to
assist grantees in exercising Awards and satisfying any withholding tax
obligations.
(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by will
or the laws of descent and distribution. Unless otherwise determined by the
Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) Adjustments; Business Combinations. In the event of changes in the
Common Stock of the Corporation by reason of any stock dividend, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator shall, in its discretion, make
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by outstanding Awards, and shall, in its discretion and without the
consent of holders of Awards, make any other adjustments in outstanding Awards,
including but not limited to reducing the number of shares subject to Awards or
providing or mandating alternative settlement methods such as settlement of the
Awards in cash or in shares of Common Stock or other securities of the
Corporation or of any other entity, or in any other matters which relate to
Awards as the Administrator shall, in its sole discretion, determine to be
necessary or appropriate.
-5-
<PAGE>
Notwithstanding anything in the Plan to the contrary and without the
consent of holders of Awards, the Administrator, in its sole discretion, may
make any modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested status of the Award, in order to facilitate any
business combination that is authorized by the Board to comply with requirements
for treatment as a pooling of interests transaction for accounting purposes
under generally accepted accounting principles.
The Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the Corporation
or any Subsidiary, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees or directors of entities who become or are about to become employees
or directors of the Corporation or an Affiliate as the result of a merger or
consolidation of the employing entity with the Corporation or an Affiliate, or
the acquisition by the Corporation or an Affiliate of the assets or stock of the
employing entity. The terms and conditions of any substitute Awards so granted
may vary from the terms and conditions set forth herein to the extent that the
Administrator deems appropriate at the time of grant to conform the substitute
Awards to the provisions of the awards for which they are substituted.
(f) Stock Restriction Agreement. As a condition precedent to the grant of
any Award under the Plan or the exercise pursuant to such an Award or to the
delivery of certificates for shares issued pursuant to any Award, the
Administrator may require the grantee or the grantee's successor or permitted
transferee, as the case may be, to become a party to a Stock Restriction
Agreement of the Corporation in such form as the Administrator may determine
from time to time.
(g) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(h) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Corporation or shall interfere in any way with the right
of the Corporation to terminate such service at any time.
(i) Compliance with Securities Laws; Listing and Registration. Common
Stock shall not be issued with respect to an Award granted under the Plan unless
the exercise of such Award and the issuance and delivery of stock certificates
for such Common Stock pursuant thereto shall comply with all relevant provisions
of law, including, without limitation, the Securities Act of 1933 and the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any national securities exchange or any listing or quotation
system established by the National Association of Securities Dealers, Inc.
("Nasdaq System") upon which the Common Stock may then be listed or quoted, and
shall be further subject to the approval of counsel for the Corporation with
respect to such compliance to the extent such approval is sought by the
Committee. The Corporation may require that a grantee, as a condition to
exercise of an Award, and as a condition to the delivery of any share
certificate, provide to the Corporation, at the time of each such exercise and
each such delivery, a written representation that the shares of Common Stock
being acquired shall be acquired by the grantee solely for investment and will
not be sold or transferred without registration or the availability of an
exemption from registration under
-6-
<PAGE>
the Securities Act and applicable state securities laws. The stock certificates
for any shares of Common Stock issued pursuant to this Plan may bear a legend
restricting transferability of the shares of Common Stock unless such shares are
registered or an exemption from registration is available under the Securities
Act and applicable state securities laws.
(j) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Corporation and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Corporation pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Corporation.
(k) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the
Commonwealth of Virginia, without regard to its conflict of laws principles.
(l) Effective Date; Termination Date. The Plan is effective as of the date
on which the Plan was adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan. Subject to
other applicable provisions of the Plan, all Awards made under the Plan prior to
such termination of the Plan shall remain in effect until such Awards have been
satisfied or terminated in accordance with the Plan and the terms of such
Awards.
-7-
<PAGE>
EXHIBIT 10.14
NETWORK ACCESS SOLUTIONS, INC. 1998 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION GRANT AGREEMENT
(AMENDED THROUGH MARCH 16, 1999)
This Grant Agreement (the "Agreement") is entered into this 23rd day of
July, 1998, by and between NETWORK ACCESS SOLUTIONS, INC., a Virginia
corporation (the "Corporation"), and Scott Yancey ("Grantee"), effective as of
the Grant Date as defined in Article 1 hereof.
In consideration of the premises, mutual covenants and agreements herein,
the Corporation and the Grantee agree as follows:
ARTICLE 1
GRANT OF OPTION
SECTION 1.1 GRANT OF OPTION. The Corporation hereby grants to the
----------------------------
Grantee, pursuant to the provisions of the Network Access Solutions, Inc. 1998
Stock Incentive Plan (the "Plan"), an incentive stock option to purchase shares
of Common Stock, par value of $0.01 per share, of the Corporation ("Stock"),
subject to the provisions of this Agreement (the "Option"). Unless stated
otherwise herein, capitalized terms in this Agreement shall have the same
meaning as defined in the Plan. Schedule A, attached hereto and incorporated
herein, sets forth the following terms of the Option:
(i) the date the Administrator approved the Option (the "Grant Date");
(ii) the number of shares of Stock which the Grantee may purchase under
the Option;
(iii) the exercise price per share (the "Exercise Price"); and
(iv) the date as of which the Option shall expire (the "Expiration Date"),
at 5:00 p.m. Eastern Time, unless terminated earlier pursuant to
other provisions of this Agreement.
SECTION 1.2 LIMITATION ON TERM OF OPTION. Notwithstanding the foregoing,
-----------------------------------------
in no event shall the Option expire later than 5:00 p.m. Eastern Time on the day
prior to the tenth (10th) anniversary of its Grant Date (or on the day prior to
the fifth (5th) anniversary of its Grant Date if the Grantee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Corporation or of any of its subsidiaries on the Grant Date).
ARTICLE 2
VESTING
SECTION 2.1 VESTING SCHEDULE. Unless the Option has earlier terminated
-----------------------------
pursuant to the provisions of the Agreement, the Grantee shall become vested in
the shares of Stock subject to the Option over a three (3) year period as
follows: the Grantee shall become vested in 8.33% of the total shares of Stock
subject to the Option on the date that is three months from the Grant
<PAGE>
Date (the "Initial Vesting Date") and shall become vested in 8.33% of the total
shares of Stock subject to the Option every third (3rd) month after the Initial
Vesting Date, on the date in each such month that corresponds with the Initial
Vesting Date (each referred to as a "Vesting Date"), during the thirty-six (36)
month period immediately following the Initial Vesting Date, so that the Grantee
shall be vested in 100% of the shares of Stock subject to the Option on the
third (3rd) anniversary of the Grant Date; provided, however, that the Grantee
must be in the continuous employ or service of the Corporation or an Affiliate
at all times from the Grant Date through the specified Vesting Date or Initial
Vesting Date, as applicable, for such vesting to occur.
SECTION 2.2 ACCELERATION OF VESTING. Unless the Option has earlier
------------------------------------
terminated pursuant to the provisions of the Agreement, vesting of the Option
shall be accelerated so that all unvested shares of Stock subject to the Option
shall become one hundred percent (100%) vested in the Grantee upon a Change of
Control. For purposes of this Agreement, the term "Change of Control" shall
mean (i) the sale of all or substantially all of the assets of the Corporation,
(ii) the sale of more than fifty percent (50%) of the outstanding common stock
of the Corporation in a non-public sale, (iii) the dissolution or liquidation of
the Corporation, or (iv) any merger, share exchange, consolidation or other
reorganization or business combination of the Corporation if immediately after
such transaction either (A) persons who were directors of the Corporation
immediately prior to such transaction do not constitute at least a majority of
the directors of the surviving entity, or (B) persons who hold a majority of the
voting capital stock of the surviving entity are not persons who held a majority
of the voting capital stock of the Corporation immediately prior to such
transaction. Notwithstanding anything contained herein to the contrary, a Change
in Control shall not be deemed to occur upon the closing of the sale of up to
4,900,000 shares of the Corporation's Series A Preferred Stock and up to
10,000,000 shares of the Corporation's Common Stock on or about August 6, 1998.
ARTICLE 3
EXERCISE OF OPTION
SECTION 3.1 EXERCISABILITY OF OPTION. Pursuant to the terms of the
-------------------------------------
Agreement, the Option may be exercised at any time, and from time to time, with
respect to the number of shares subject to the Option.
SECTION 3.2 STOCK RESTRICTION AGREEMENT. The Administrator in its sole
----------------------------------------
discretion may require as a condition precedent to the exercise of the Option
granted pursuant to Section 1.1, that the Grantee or such other person
exercising the Option be, or shall execute and become, a party to a Stock
Restriction Agreement in substantially the form attached to this Agreement as
Exhibit A.
SECTION 3.3 MANNER OF EXERCISE. The Option may be exercised, in whole or
------------------------------
in part, by delivering written notice to the Administrator in such form as the
Administrator may require from time to time; provided, however, that the Option
may not be exercised at any one time as to fewer than one hundred (100) shares
(or such number of shares as to which the Option is then exercisable if such
number of shares then exercisable is less than one hundred (100)). Such notice
shall specify the number of shares of Stock subject to the Option as to which
the Option is being exercised, and shall be accompanied by full payment of the
Exercise Price for such shares.
Payment of the Exercise Price shall be made (a) in cash (or cash
equivalents acceptable to the Administrator in the Administrator's discretion);
(b) in the Administrator's discretion at the time of exercise, by tender to the
Corporation of shares of the Corporation's common stock owned by the Grantee,
having a Fair Market Value on the date of tender not less than the Exercise
Price, which either have been owned by the Grantee at least six (6) months or
were not
-2-
<PAGE>
acquired, directly or indirectly, from the Corporation; (c) in the
Administrator's discretion at the time of exercise, by the Grantee's full
recourse promissory note in a form approved by the Administrator; (d) by a
broker-assisted cashless exercise in accordance with Regulation T of the Board
of Governors of the Federal Reserve System and the provisions of the next
paragraph; or (e) by any combination of the foregoing. In the Administrator's
sole and absolute discretion, the Administrator may authorize payment of the
Exercise Price to be made, in whole or in part, by such other means as the
Administrator may prescribe. The Option may be exercised only in multiples of
whole shares and no fractional shares shall be issued.
If the Stock is registered under Section 12(b) of the Securities Exchange
Act of 1934, as amended, payment of the exercise price may be made, in whole or
in part, subject to such limitations as the Administrator may determine, by
delivery of a properly executed exercise notice, together with irrevocable
instructions: (i) to a brokerage firm approved by the Administrator to deliver
promptly to the Corporation the aggregate amount of sale or loan proceeds to pay
the exercise price and any withholding tax obligations that may arise in
connection with the exercise, and (ii) to the Corporation to deliver the
certificates for such purchased shares directly to such brokerage firm.
SECTION 3.4 ISSUANCE OF SHARES AND PAYMENT OF CASH UPON EXERCISE. Upon
-----------------------------------------------------------------
exercise of the Option, in whole or in part, in accordance with the terms of the
Agreement and upon payment of the Exercise Price for the shares of Stock as to
which the Option is exercised and delivery of such executed Stock Restriction
Agreement as may be required by the Administrator pursuant to Section 3.2, the
Corporation shall issue to the Grantee or such other person exercising the
Option, as the case may be, the number of shares of Stock so paid for, in the
form of fully paid and nonassessable Stock and, except as otherwise provided in
the Stock Restriction Agreement, shall deliver certificates therefor as soon as
practicable thereafter. The stock certificates for any shares of Stock issued
hereunder shall, unless such shares are registered or an exemption from
registration is available under applicable federal and state law, bear a legend
restricting transferability of such shares and referencing the Stock Restriction
Agreement, if applicable.
ARTICLE 4
TERMINATION OF OPTION
SECTION 4.1 TERMINATION, IN GENERAL. The Option granted hereby shall
------------------------------------
terminate and be of no force or effect after the Expiration Date set forth on
Schedule A, unless terminated prior to such time as provided below.
SECTION 4.2 TERMINATION OF EMPLOYMENT OR SERVICE FOR REASON OTHER THAN
-----------------------------------------------------------------------
DEATH OR DISABILITY. Unless the Option has earlier terminated pursuant to the
- -------------------
provisions of the Agreement, the Option shall terminate in its entirety,
regardless of whether the Option is vested in whole or in part, thirty (30) days
after the date the Grantee is no longer employed by, nor in the service of, the
Corporation and its Affiliates for any reason other than the Grantee's death or
Disability. Notwithstanding the foregoing, the Option shall terminate in its
entirety, regardless of whether the Option is vested in whole or in part, upon
termination of the employment or service of the Grantee by the Corporation or an
Affiliate for "Cause" as defined in the Grantee's employment agreement with the
Company, and, whether such Grantee is terminated for "Cause" pursuant to this
Section 4.2 shall be determined according to the terms of and in a manner
-3-
<PAGE>
consistent with the provisions of such written agreement. The good faith
determination by the Administrator of whether the Grantee's employment or
service was terminated by the Corporation for "Cause" shall be final and binding
for all purposes hereunder.
SECTION 4.3 UPON GRANTEE'S DEATH. Unless the Option has earlier
---------------------------------
terminated pursuant to the provisions of the Agreement, upon the Grantee's death
the Grantee's executor, personal representative, or the person(s) to whom the
Option shall have been transferred by will or the laws of descent and
distribution, may exercise all or any part of the outstanding Option with
respect to the shares of Stock as to which the Option is vested as of the
Grantee's date of death, provided such exercise occurs within twelve (12) months
after the date of the Grantee's death, but not later than the Expiration Date of
the Option. Unless sooner terminated, the Option shall terminate upon the
expiration of such twelve- (12-) month period.
SECTION 4.4 TERMINATION OF EMPLOYMENT OR SERVICE BY REASON OF DISABILITY.
-------------------------------------------------------------------------
Unless the Option has earlier terminated pursuant to the provisions of the
Agreement, in the event that the Grantee ceases, by reason of Disability, to be
an employee of or in the service of the Corporation or an Affiliate, the
outstanding Option may be exercised in whole or in part with respect to the
shares of Stock as to which the Option is vested as of the date of the Grantee's
termination of employment or service due to Disability at any time within twelve
(12) months after the date of such termination, but not later than the
Expiration Date of the Option. Unless sooner terminated, the Option shall
terminate upon the expiration of such twelve- (12-) month period.
For purposes of this Agreement, Disability shall mean the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Administrator may require such proof of
Disability as the Administrator in its sole discretion deems appropriate and the
Administrator's determination as to whether the Grantee is Disabled shall be
final and binding on all parties concerned.
SECTION 4.5 LEAVE OF ABSENCE. For purposes of this Agreement, the
-----------------------------
Grantee's employment or service with the Corporation or an Affiliate shall not
be deemed to terminate if the Grantee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Administrator of ninety (90)
days or less. In the event of a leave in excess of ninety (90) days, the
Grantee's employment or service shall be deemed to terminate on the ninety-first
(91st) day of the leave unless the Grantee's right to re-employment with the
Corporation or Affiliate remains guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise determined by the Administrator
(or required by law), a leave of absence shall not be treated as employment or
service for purposes of vesting in additional shares of Stock during such leave
pursuant to Section 2.1 of this Agreement.
ARTICLE 5
DRAG-ALONG RIGHTS
SECTION 5.1 DRAG-ALONG RIGHTS. If at any time any stockholder of the
------------------------------
Corporation or group of stockholders owning a majority or more of the voting
capital stock of the Corporation proposes to enter into any transaction
involving (i) the sale of all or substantially all of the assets of the
Corporation; (ii) the sale of more than fifty percent (50%) of the outstanding
common
-4-
<PAGE>
stock of the Corporation in a non-public sale; (iii) any merger, share exchange,
consolidation or other reorganization or business combination of the
Corporation, if immediately after such transaction either (A) persons who were
directors of the Corporation immediately prior to such transaction do not
constitute at least a majority of the directors of the surviving entity, or (B)
persons who hold a majority of the voting capital stock of the surviving entity
are not persons who held a majority of the voting capital stock of the
Corporation immediately prior to such transaction; or (iv) the dissolution or
liquidation of the Corporation, the Corporation and/or the transferring
stockholders may require the Grantee to participate in such transaction by
giving the Grantee written notice thereof at least ten (10) days in advance of
the date of the transaction or the date that tender is required, as the case may
be. Upon receipt of such notice, the Grantee shall sell, assign, tender or
transfer the same percentage of shares subject to the Option as the percentage
of the shares of Stock proposed to be sold, assigned, tendered or transferred by
the transferring stockholders collectively, upon the same terms and conditions
applicable to the transferring stockholders and at a price equal to the
difference between the Exercise Price per share under the Option and the price
per share of Stock the transferring stockholders will receive pursuant to the
terms of the transaction. If the Grantee has options to purchase Stock of the
Corporation other than the Option hereunder, and such options are subject to
terms similar those set forth in this Section 5.1, then the Grantee's options
shall be transferred in the order in which they were granted. The provisions of
this Section 5.1 shall apply in the event of the Grantee's death, to the
Grantee's executor, personal representative or the person(s) to whom the Option
shall have been transferred by will or the laws of descent and distribution, as
though such person is the Grantee.
ARTICLE 6
ADJUSTMENTS; BUSINESS COMBINATIONS
SECTION 6.1 ADJUSTMENTS FOR EVENTS AFFECTING COMMON STOCK. In the event
----------------------------------------------------------
of changes in the Common Stock of the Corporation by reason of any stock
dividend, split-up, recapitalization, merger, consolidation, business
combination or exchange of shares and the like, the Administrator shall, in its
discretion, make appropriate adjustments to the number, kind and price of shares
covered by this Option, and shall, in its discretion and without the consent of
the Grantee, make any other adjustments in this Option, including but not
limited to reducing the number of shares subject to the Option or providing or
mandating alternative settlement methods such as settlement of the Option in
cash or in shares of Common Stock or other securities of the Corporation or of
any other entity, or in any other matters which relate to the Option as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.
SECTION 6.2 POOLING OF INTERESTS TRANSACTION. Notwithstanding anything in
---------------------------------------------
the Plan or the Agreement to the contrary and without the consent of the
Grantee, the Administrator, in its sole discretion, may make any modifications
to the Option, including but not limited to cancellation, forfeiture, surrender
or other termination of the Option in whole or in part regardless of the vested
status of the Option, in order to facilitate any business combination that is
authorized by the Board to comply with requirements for treatment as a pooling
of interests transaction for accounting purposes under generally accepted
accounting principles.
-5-
<PAGE>
SECTION 6.3 BINDING NATURE OF ADJUSTMENTS. Adjustments under this Article
------------------------------------------
6 will be made by the Administrator, whose determination as to what adjustments,
if any, will be made and the extent thereof will be final, binding and
conclusive. No fractional shares will be issued pursuant to this Option on
account of any such adjustments.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 NON-GUARANTEE OF EMPLOYMENT. Nothing in the Plan or the
----------------------------------------
Agreement shall alter the employment status of the Grantee, nor be construed as
a contract of employment between the Corporation (or an Affiliate) and the
Grantee, or as a contractual right of the Grantee to continue in the employ or
service of the Corporation or an Affiliate, or as a limitation of the right of
the Corporation or an Affiliate to discharge the Grantee at any time with or
without cause or notice.
SECTION 7.2 NO RIGHTS OF STOCKHOLDER. The Grantee shall not have any of
-------------------------------------
the rights of a stockholder with respect to the shares of Stock that may be
issued upon the exercise of the Option until such shares of Stock have been
issued to him upon the due exercise of the Option. No adjustment shall be made
for dividends or distributions or other rights for which the record date is
prior to the date such certificate or certificates are issued.
SECTION 7.3 QUALIFIED NATURE OF OPTION. The Option is intended to qualify
---------------------------------------
as an incentive stock option ("Incentive Stock Option") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
the fullest extent permitted within the limit set forth under Section 422(d) of
the Code and this Agreement shall be so construed. The aggregate fair market
value (determined as of the Grant Date) of shares of Stock with respect to which
all Incentive Stock Options first become exercisable by the Grantee in any
calendar year under the Plan or any other plan of the Corporation (and its
parent and subsidiary corporations, as may exist from time to time) may not
exceed $100,000 or such other amount as may be permitted from time to time under
Section 422 of the Code. To the extent that such aggregate fair market value
shall exceed $100,000 or other applicable amount in any calendar year, such
stock options shall be treated as nonqualified stock options with respect to the
amount of aggregate fair market value thereof that exceeds the Section 422(d)
limit. For this purpose, the Incentive Stock Options will be taken into account
in the order in which they were granted. In such case, the Corporation may
designate the shares of Stock that are to be treated as stock acquired pursuant
to the exercise of an Incentive Stock Option and the shares of Stock that are to
be treated as stock acquired pursuant to a nonqualified stock option by issuing
separate certificates for such shares and identifying the certificates as such
in the stock transfer records of the Company.
SECTION 7.4 NOTICE OF DISQUALIFYING DISPOSITION. If the Grantee makes a
------------------------------------------------
disposition (as that term is defined in Section 424(c) of the Code) of any
shares of Stock acquired pursuant to the exercise of this Option within two (2)
years of the Grant Date or within one (1) year after the shares of Stock are
transferred to the Grantee, the Grantee shall notify the Administrator of such
disposition in writing within thirty (30) days of the disposition.
SECTION 7.5 THE CORPORATION'S RIGHTS. The existence of this Option shall
-------------------------------------
not affect in any way the right or power of the Corporation or its stockholders
to make or authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issue of bonds,
-6-
<PAGE>
debentures, preferred or other stocks with preference ahead of or convertible
into, or otherwise affecting the Stock or the rights thereof, or the dissolution
or liquidation of the Corporation, or any sale or transfer of all or any part of
the Corporation's assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
SECTION 7.6 WITHHOLDING OF TAXES. The Corporation or any Affiliate shall
---------------------------------
have the right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Stock) due the Grantee the
amount of any foreign, federal, state or local taxes required by law to be
withheld as the result of the exercise of the Option, the disposition (as that
term is defined in Section 424(c) of the Code) of shares of Stock acquired
pursuant to the exercise of the Option, or the lapsing of any restriction with
respect to any shares of Stock acquired on exercise of the Option; provided,
however, that the value of the shares of Stock withheld may not exceed the
statutory minimum withholding amount required by law. In lieu of such
deduction, the Administrator may require the Grantee to make a cash payment to
the Corporation or an Affiliate equal to the amount required to be withheld. If
the Grantee does not make such payment when requested, the Corporation may
refuse to issue any Stock certificate under the Plan until arrangements
satisfactory to the Administrator for such payment have been made.
SECTION 7.7 GRANTEE. Whenever the word "Grantee" is used in any provision
--------------------
of this Agreement under circumstances where the provision should logically be
construed to apply to the estate, personal representative or beneficiary to whom
this Option may be transferred by will or by the laws of descent and
distribution, the word "Grantee" shall be deemed to include such person.
SECTION 7.8 NONTRANSFERABILITY OF OPTION. The Option shall be
-----------------------------------------
nontransferable otherwise than by will or the laws of descent and distribution
and during the lifetime of the Grantee, the Option may be exercised only by the
Grantee or, during the period the Grantee is under a legal disability, by the
Grantee's guardian or legal representative. Except as provided in the preceding
sentence, the Option may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.
SECTION 7.9 NOTICES. All notices and other communications made or given
--------------------
pursuant to the Agreement shall be in writing and shall be sufficiently made or
given if hand delivered or mailed by certified mail, addressed to the Grantee at
the address contained in the records of the Corporation, or addressed to the
Administrator, care of the Corporation for the attention of its Secretary at its
principal office or, if the receiving party consents in advance, transmitted and
received via telecopy or via such other electronic transmission mechanism as may
be available to the parties.
SECTION 7.10 ENTIRE AGREEMENT; MODIFICATION. The Agreement contains the
--------------------------------------------
entire agreement between the parties with respect to the subject matter
contained herein and may not be modified, except as provided in the Plan or in a
written document signed by each of the parties hereto. Any oral or written
agreements, representations, warranties, written inducements, or other
communications made prior to the execution of the Agreement shall be void and
ineffective for all purposes.
-7-
<PAGE>
SECTION 7.11 CONFORMITY WITH PLAN. This Agreement is intended to conform
----------------------------------
in all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. In the event of any ambiguity in the Agreement or any matters as to which
the Agreement is silent, the Plan shall govern. A copy of the Plan is available
upon request to the Administrator.
SECTION 7.12 GOVERNING LAW. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the Commonwealth of Virginia, other
than the conflict of laws principles thereof.
SECTION 7.13 HEADINGS. The headings in the Agreement are for reference
----------------------
purposes only and shall not affect the meaning or interpretation of the
Agreement.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer as of the date first above written.
ATTEST: NETWORK ACCESS SOLUTIONS, INC.
/s/ Laura A. Henley By: /s/ Jon Aust
- -------------------- ------------------------------
The undersigned hereby acknowledges that he/she has carefully read this
Agreement and the Plan and agrees to be bound by all of the provisions set forth
in such documents.
WITNESS: GRANTEE
/s/ Laura A. Henley /s/ Scott G. Yancey
- -------------------- ------------------------------------
Date: August 4, 1998
-------------------------------
Enclosure: Network Access Solutions, Inc. 1998 Stock Incentive Plan
-8-
<PAGE>
SCHEDULE A
STOCK OPTION GRANTED TO: Scott Yancey
-------------
GRANT DATE: July 23, 1998
-------------
NUMBER OF SHARES: 780
-------
EXERCISE PRICE PER SHARE: $256.316
-------
EXPIRATION DATE: July 23, 2008
-------------
<PAGE>
Administrator of 1998 Stock Incentive Plan
c/o Office of the Corporate Secretary
Network Access Solutions, Inc.
100 Carpenter Drive
Suite 206
Sterling, VA 20164
Gentlemen:
I hereby exercise the Option granted to me on ____________________, ______,
by NETWORK ACCESS SOLUTIONS, INC. (the "Company"), subject to all the terms and
provisions thereof and of the NETWORK ACCESS SOLUTIONS, INC. 1998 STOCK
INCENTIVE PLAN (the "Plan"), and notify you of my desire to purchase
____________ shares of Common Stock of the Company at a price of $___________
per share pursuant to the exercise of said Option. This will confirm my
understanding with respect to the shares to be issued to me by reason of this
exercise of the Option (the shares to be issued pursuant hereto shall be
collectively referred to hereinafter as the "Shares") as follows:
(a) I am acquiring the Shares for my own account for investment with
no present intention of dividing my interest with others or of reselling or
otherwise disposing of any of the Shares.
(b) The Shares are being issued without registration under the
Securities Act of 1933, as amended (the "Act"), in reliance upon one or more
exemptions contained in the Act, and such reliance is based in part on the above
representation.
(c) The certificates for the Shares to be issued to me will bear a
legend substantially as follows:
"The securities represented by this stock certificate have not
been registered under the Securities Act of 1933 (the "Act") or applicable
state securities laws (the "State Acts"), and shall not be sold, pledged,
hypothecated, donated, or otherwise transferred (whether or not for
consideration) by the holder except upon the issuance to the Company of a
favorable opinion of its counsel and/or submission to the Company of such
other evidence as may be satisfactory to counsel for the Company, to the
effect that any such transfer shall not be in violation of the Act and the
State Acts.
The transfer of any interest in the securities represented by
this certificate is subject to a Stock Restriction Agreement, dated
______________ [DATE OF STOCK RESTRICTION AGREEMENT], by and among NETWORK
-------------------------------------
ACCESS SOLUTIONS, INC., a Virginia corporation and the holder of this
certificate, and no such transfer may be made without compliance with that
Agreement. A copy of that Agreement is available for inspection by any
shareholder of the Corporation at the office of the Corporation upon
appropriate request and without charge."
Appropriate stop transfer instructions will be issued by the issuer to its
transfer agent.
(d) Since the Shares have not been registered under the Act, they
must be held indefinitely until an exemption from the registration requirements
of the Act is available or they are subsequently registered, in which event the
representation in Paragraph (a) hereof shall terminate. As a condition to any
transfer of the shares, I understand that the issuer will require an
<PAGE>
opinion of counsel satisfactory to the issuer to the effect that such transfer
does not require registration under the Act or any state securities law.
(e) The issuer is not obligated to comply with the registration
requirements of the Act or with the requirements for an exemption under
Regulation A under the Act for my benefit.
(f) I am a party to a Stock Restriction Agreement with the Issuer,
pursuant to which I have agreed to certain restrictions on the transferability
of the Shares and other matters relating thereto.
Total Amount Enclosed: $__________
Date:___________________ _____________________________________
(Optionee)
Received by NETWORK ACCESS SOLUTIONS, INC. on
___________________________, ____
By: _________________________________
-11-
<PAGE>
EXHIBIT 10.15
NETWORK ACCESS SOLUTIONS, INC. 1998 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION GRANT AGREEMENT
(AMENDED THROUGH MARCH 16, 1999)
This Grant Agreement (the "Agreement") is entered into as of the 23rd day
of July, 1998, by and between NETWORK ACCESS SOLUTIONS, INC., a Virginia
corporation (the "Corporation"), and Christopher Melnick ("Grantee"), effective
as of the Grant Date as defined in Article 1 hereof.
In consideration of the premises, mutual covenants and agreements herein,
the Corporation and the Grantee agree as follows:
ARTICLE 1
GRANT OF OPTION
SECTION 1.1 GRANT OF OPTION. The Corporation hereby grants to the
----------------------------
Grantee, pursuant to the provisions of the Network Access Solutions, Inc. 1998
Stock Incentive Plan (the "Plan"), an incentive stock option to purchase shares
of Common Stock, par value of $0.01 per share, of the Corporation ("Stock"),
subject to the provisions of this Agreement (the "Option"). Unless stated
otherwise herein, capitalized terms in this Agreement shall have the same
meaning as defined in the Plan. Schedule A, attached hereto and incorporated
herein, sets forth the following terms of the Option:
(i) the date the Administrator approved the Option (the "Grant Date");
(ii) the number of shares of Stock which the Grantee may purchase under
the Option;
(iii) the exercise price per share (the "Exercise Price"); and
(iv) the date as of which the Option shall expire (the "Expiration
Date"), at 5:00 p.m. Eastern Time, unless terminated earlier
pursuant to other provisions of this Agreement.
SECTION 1.2 LIMITATION ON TERM OF OPTION. Notwithstanding the foregoing,
-----------------------------------------
in no event shall the Option expire later than 5:00 p.m. Eastern Time on the day
prior to the tenth (10th) anniversary of its Grant Date (or on the day prior to
the fifth (5th) anniversary of its Grant Date if the Grantee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Corporation or of any of its subsidiaries on the Grant Date).
ARTICLE 2
VESTING
SECTION 2.1 VESTING SCHEDULE. Unless the Option has earlier terminated
-----------------------------
pursuant to the provisions of the Agreement, the Grantee shall become vested in
the shares of Stock subject to the Option over a three (3) year period as
follows: the Grantee shall become vested in 8.33% of the total shares of Stock
subject to the Option on the date that is three months from the Grant
<PAGE>
Date (the "Initial Vesting Date") and shall become vested in 8.33% of the total
shares of Stock subject to the Option every third (3rd) month after the Initial
Vesting Date, on the date in each such month that corresponds with the Initial
Vesting Date (each referred to as a "Vesting Date"), during the thirty-six (36)
month period immediately following the Initial Vesting Date, so that the Grantee
shall be vested in 100% of the shares of Stock subject to the Option on the
third (3rd) anniversary of the Grant Date; provided, however, that the Grantee
must be in the continuous employ or service of the Corporation or an Affiliate
at all times from the Grant Date through the specified Vesting Date or Initial
Vesting Date, as applicable, for such vesting to occur.
SECTION 2.2 ACCELERATION OF VESTING. Unless the Option has earlier
------------------------------------
terminated pursuant to the provisions of the Agreement, vesting of the Option
shall be accelerated so that all unvested shares of Stock subject to the Option
shall become one hundred percent (100%) vested in the Grantee upon a Change of
Control. For purposes of this Agreement, the term "Change of Control" shall
mean (i) the sale of all or substantially all of the assets of the Corporation,
(ii) the sale of more than fifty percent (50%) of the outstanding common stock
of the Corporation in a non-public sale, (iii) the dissolution or liquidation of
the Corporation, or (iv) any merger, share exchange, consolidation or other
reorganization or business combination of the Corporation if immediately after
such transaction either (A) persons who were directors of the Corporation
immediately prior to such transaction do not constitute at least a majority of
the directors of the surviving entity, or (B) persons who hold a majority of the
voting capital stock of the surviving entity are not persons who held a majority
of the voting capital stock of the Corporation immediately prior to such
transaction. Notwithstanding anything contained herein to the contrary, a
Change in Control shall not be deemed to occur upon the closing of the sale of
up to 4,900,000 shares of the Corporation's Series A Preferred Stock and up to
10,000,000 shares of the Corporation's Common Stock on or about August 6, 1998.
ARTICLE 3
EXERCISE OF OPTION
SECTION 3.1 EXERCISABILITY OF OPTION. Pursuant to the terms of the
-------------------------------------
Agreement, the Option may be exercised at any time, and from time to time, with
respect to the number of shares subject to the Option.
SECTION 3.2 STOCK RESTRICTION AGREEMENT. The Administrator in its sole
----------------------------------------
discretion may require as a condition precedent to the exercise of the Option
granted pursuant to Section 1.1, that the Grantee or such other person
exercising the Option be, or shall execute and become, a party to a Stock
Restriction Agreement in substantially the form attached to this Agreement as
Exhibit A.
SECTION 3.3 MANNER OF EXERCISE. The Option may be exercised, in whole or
------------------------------
in part, by delivering written notice to the Administrator in such form as the
Administrator may require from time to time; provided, however, that the Option
may not be exercised at any one time as to fewer than one hundred (100) shares
(or such number of shares as to which the Option is then exercisable if such
number of shares then exercisable is less than one hundred (100)). Such notice
shall specify the number of shares of Stock subject to the Option as to which
the Option is being exercised, and shall be accompanied by full payment of the
Exercise Price for such shares.
Payment of the Exercise Price shall be made (a) in cash (or cash
equivalents acceptable to the Administrator in the Administrator's discretion);
(b) in the Administrator's discretion at the time of exercise, by tender to the
Corporation of shares of the Corporation's common stock owned by the Grantee,
having a Fair Market Value on the date of tender not less than the Exercise
Price, which either have been owned by the Grantee at least six (6) months or
were not
-2-
<PAGE>
acquired, directly or indirectly, from the Corporation; (c) in the
Administrator's discretion at the time of exercise, by the Grantee's full
recourse promissory note in a form approved by the Administrator; (d) by a
broker-assisted cashless exercise in accordance with Regulation T of the Board
of Governors of the Federal Reserve System and the provisions of the next
paragraph; or (e) by any combination of the foregoing. In the Administrator's
sole and absolute discretion, the Administrator may authorize payment of the
Exercise Price to be made, in whole or in part, by such other means as the
Administrator may prescribe. The Option may be exercised only in multiples of
whole shares and no fractional shares shall be issued.
If the Stock is registered under Section 12(b) of the Securities Exchange
Act of 1934, as amended, payment of the exercise price may be made, in whole or
in part, subject to such limitations as the Administrator may determine, by
delivery of a properly executed exercise notice, together with irrevocable
instructions: (i) to a brokerage firm approved by the Administrator to deliver
promptly to the Corporation the aggregate amount of sale or loan proceeds to pay
the exercise price and any withholding tax obligations that may arise in
connection with the exercise, and (ii) to the Corporation to deliver the
certificates for such purchased shares directly to such brokerage firm.
SECTION 3.4 ISSUANCE OF SHARES AND PAYMENT OF CASH UPON EXERCISE. Upon
-----------------------------------------------------------------
exercise of the Option, in whole or in part, in accordance with the terms of the
Agreement and upon payment of the Exercise Price for the shares of Stock as to
which the Option is exercised and delivery of such executed Stock Restriction
Agreement as may be required by the Administrator pursuant to Section 3.2, the
Corporation shall issue to the Grantee or such other person exercising the
Option, as the case may be, the number of shares of Stock so paid for, in the
form of fully paid and nonassessable Stock and, except as otherwise provided in
the Stock Restriction Agreement, shall deliver certificates therefor as soon as
practicable thereafter. The stock certificates for any shares of Stock issued
hereunder shall, unless such shares are registered or an exemption from
registration is available under applicable federal and state law, bear a legend
restricting transferability of such shares and referencing the Stock Restriction
Agreement, if applicable.
ARTICLE 4
TERMINATION OF OPTION
SECTION 4.1 TERMINATION, IN GENERAL. The Option granted hereby shall
------------------------------------
terminate and be of no force or effect after the Expiration Date set forth on
Schedule A, unless terminated prior to such time as provided below.
SECTION 4.2 TERMINATION OF EMPLOYMENT OR SERVICE FOR REASON OTHER THAN
-----------------------------------------------------------------------
DEATH OR DISABILITY. Unless the Option has earlier terminated pursuant to the
- -------------------
provisions of the Agreement, the Option shall terminate in its entirety,
regardless of whether the Option is vested in whole or in part, thirty (30) days
after the date the Grantee is no longer employed by, nor in the service of, the
Corporation and its Affiliates for any reason other than the Grantee's death or
Disability. Notwithstanding the foregoing, the Option shall terminate in its
entirety, regardless of whether the Option is vested in whole or in part, upon
termination of the employment or service of the Grantee by the Corporation or an
Affiliate for "Cause" as defined in the Grantee's employment agreement with the
Company, and, whether such Grantee is terminated for "Cause" pursuant to this
Section 4.2 shall be determined according to the terms of and in a manner
-3-
<PAGE>
consistent with the provisions of such written agreement. The good faith
determination by the Administrator of whether the Grantee's employment or
service was terminated by the Corporation for "Cause" shall be final and binding
for all purposes hereunder.
SECTION 4.3 UPON GRANTEE'S DEATH. Unless the Option has earlier
---------------------------------
terminated pursuant to the provisions of the Agreement, upon the Grantee's death
the Grantee's executor, personal representative, or the person(s) to whom the
Option shall have been transferred by will or the laws of descent and
distribution, may exercise all or any part of the outstanding Option with
respect to the shares of Stock as to which the Option is vested as of the
Grantee's date of death, provided such exercise occurs within twelve (12) months
after the date of the Grantee's death, but not later than the Expiration Date of
the Option. Unless sooner terminated, the Option shall terminate upon the
expiration of such twelve- (12-) month period.
SECTION 4.4 TERMINATION OF EMPLOYMENT OR SERVICE BY REASON OF DISABILITY.
-------------------------------------------------------------------------
Unless the Option has earlier terminated pursuant to the provisions of the
Agreement, in the event that the Grantee ceases, by reason of Disability, to be
an employee of or in the service of the Corporation or an Affiliate, the
outstanding Option may be exercised in whole or in part with respect to the
shares of Stock as to which the Option is vested as of the date of the Grantee's
termination of employment or service due to Disability at any time within twelve
(12) months after the date of such termination, but not later than the
Expiration Date of the Option. Unless sooner terminated, the Option shall
terminate upon the expiration of such twelve- (12-) month period.
For purposes of this Agreement, Disability shall mean the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The Administrator may require such proof of
Disability as the Administrator in its sole discretion deems appropriate and the
Administrator's determination as to whether the Grantee is Disabled shall be
final and binding on all parties concerned.
SECTION 4.5 LEAVE OF ABSENCE. For purposes of this Agreement, the
-----------------------------
Grantee's employment or service with the Corporation or an Affiliate shall not
be deemed to terminate if the Grantee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Administrator of ninety (90)
days or less. In the event of a leave in excess of ninety (90) days, the
Grantee's employment or service shall be deemed to terminate on the ninety-first
(91st) day of the leave unless the Grantee's right to re-employment with the
Corporation or Affiliate remains guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise determined by the Administrator
(or required by law), a leave of absence shall not be treated as employment or
service for purposes of vesting in additional shares of Stock during such leave
pursuant to Section 2.1 of this Agreement.
ARTICLE 5
DRAG-ALONG RIGHTS
SECTION 5.1 DRAG-ALONG RIGHTS. If at any time any stockholder of the
------------------------------
Corporation or group of stockholders owning a majority or more of the voting
capital stock of the Corporation proposes to enter into any transaction
involving (i) the sale of all or substantially all of the assets of the
Corporation; (ii) the sale of more than fifty percent (50%) of the outstanding
common
-4-
<PAGE>
stock of the Corporation in a non-public sale; (iii) any merger, share exchange,
consolidation or other reorganization or business combination of the
Corporation, if immediately after such transaction either (A) persons who were
directors of the Corporation immediately prior to such transaction do not
constitute at least a majority of the directors of the surviving entity, or (B)
persons who hold a majority of the voting capital stock of the surviving entity
are not persons who held a majority of the voting capital stock of the
Corporation immediately prior to such transaction; or (iv) the dissolution or
liquidation of the Corporation, the Corporation and/or the transferring
stockholders may require the Grantee to participate in such transaction by
giving the Grantee written notice thereof at least ten (10) days in advance of
the date of the transaction or the date that tender is required, as the case may
be. Upon receipt of such notice, the Grantee shall sell, assign, tender or
transfer the same percentage of shares subject to the Option as the percentage
of the shares of Stock proposed to be sold, assigned, tendered or transferred by
the transferring stockholders collectively, upon the same terms and conditions
applicable to the transferring stockholders and at a price equal to the
difference between the Exercise Price per share under the Option and the price
per share of Stock the transferring stockholders will receive pursuant to the
terms of the transaction. If the Grantee has options to purchase Stock of the
Corporation other than the Option hereunder, and such options are subject to
terms similar those set forth in this Section 5.1, then the Grantee's options
shall be transferred in the order in which they were granted. The provisions of
this Section 5.1 shall apply in the event of the Grantee's death, to the
Grantee's executor, personal representative or the person(s) to whom the Option
shall have been transferred by will or the laws of descent and distribution, as
though such person is the Grantee.
ARTICLE 6
ADJUSTMENTS; BUSINESS COMBINATIONS
SECTION 6.1 ADJUSTMENTS FOR EVENTS AFFECTING COMMON STOCK. In the event
----------------------------------------------------------
of changes in the Common Stock of the Corporation by reason of any stock
dividend, split-up, recapitalization, merger, consolidation, business
combination or exchange of shares and the like, the Administrator shall, in its
discretion, make appropriate adjustments to the number, kind and price of shares
covered by this Option, and shall, in its discretion and without the consent of
the Grantee, make any other adjustments in this Option, including but not
limited to reducing the number of shares subject to the Option or providing or
mandating alternative settlement methods such as settlement of the Option in
cash or in shares of Common Stock or other securities of the Corporation or of
any other entity, or in any other matters which relate to the Option as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.
SECTION 6.2 POOLING OF INTERESTS TRANSACTION. Notwithstanding anything in
---------------------------------------------
the Plan or the Agreement to the contrary and without the consent of the
Grantee, the Administrator, in its sole discretion, may make any modifications
to the Option, including but not limited to cancellation, forfeiture, surrender
or other termination of the Option in whole or in part regardless of the vested
status of the Option, in order to facilitate any business combination that is
authorized by the Board to comply with requirements for treatment as a pooling
of interests transaction for accounting purposes under generally accepted
accounting principles.
-5-
<PAGE>
SECTION 6.3 BINDING NATURE OF ADJUSTMENTS. Adjustments under this Article
------------------------------------------
6 will be made by the Administrator, whose determination as to what adjustments,
if any, will be made and the extent thereof will be final, binding and
conclusive. No fractional shares will be issued pursuant to this Option on
account of any such adjustments.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 NON-GUARANTEE OF EMPLOYMENT. Nothing in the Plan or the
----------------------------------------
Agreement shall alter the employment status of the Grantee, nor be construed as
a contract of employment between the Corporation (or an Affiliate) and the
Grantee, or as a contractual right of the Grantee to continue in the employ or
service of the Corporation or an Affiliate, or as a limitation of the right of
the Corporation or an Affiliate to discharge the Grantee at any time with or
without cause or notice.
SECTION 7.2 NO RIGHTS OF STOCKHOLDER. The Grantee shall not have any of
-------------------------------------
the rights of a stockholder with respect to the shares of Stock that may be
issued upon the exercise of the Option until such shares of Stock have been
issued to him upon the due exercise of the Option. No adjustment shall be made
for dividends or distributions or other rights for which the record date is
prior to the date such certificate or certificates are issued.
SECTION 7.3 QUALIFIED NATURE OF OPTION. The Option is intended to qualify
---------------------------------------
as an incentive stock option ("Incentive Stock Option") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
the fullest extent permitted within the limit set forth under Section 422(d) of
the Code and this Agreement shall be so construed. The aggregate fair market
value (determined as of the Grant Date) of shares of Stock with respect to which
all Incentive Stock Options first become exercisable by the Grantee in any
calendar year under the Plan or any other plan of the Corporation (and its
parent and subsidiary corporations, as may exist from time to time) may not
exceed $100,000 or such other amount as may be permitted from time to time under
Section 422 of the Code. To the extent that such aggregate fair market value
shall exceed $100,000 or other applicable amount in any calendar year, such
stock options shall be treated as nonqualified stock options with respect to the
amount of aggregate fair market value thereof that exceeds the Section 422(d)
limit. For this purpose, the Incentive Stock Options will be taken into account
in the order in which they were granted. In such case, the Corporation may
designate the shares of Stock that are to be treated as stock acquired pursuant
to the exercise of an Incentive Stock Option and the shares of Stock that are to
be treated as stock acquired pursuant to a nonqualified stock option by issuing
separate certificates for such shares and identifying the certificates as such
in the stock transfer records of the Company.
SECTION 7.4 NOTICE OF DISQUALIFYING DISPOSITION. If the Grantee makes a
------------------------------------------------
disposition (as that term is defined in Section 424(c) of the Code) of any
shares of Stock acquired pursuant to the exercise of this Option within two (2)
years of the Grant Date or within one (1) year after the shares of Stock are
transferred to the Grantee, the Grantee shall notify the Administrator of such
disposition in writing within thirty (30) days of the disposition.
SECTION 7.5 THE CORPORATION'S RIGHTS. The existence of this Option shall
-------------------------------------
not affect in any way the right or power of the Corporation or its stockholders
to make or authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issue of bonds,
-6-
<PAGE>
debentures, preferred or other stocks with preference ahead of or convertible
into, or otherwise affecting the Stock or the rights thereof, or the dissolution
or liquidation of the Corporation, or any sale or transfer of all or any part of
the Corporation's assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
SECTION 7.6 WITHHOLDING OF TAXES. The Corporation or any Affiliate shall
---------------------------------
have the right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Stock) due the Grantee the
amount of any foreign, federal, state or local taxes required by law to be
withheld as the result of the exercise of the Option, the disposition (as that
term is defined in Section 424(c) of the Code) of shares of Stock acquired
pursuant to the exercise of the Option, or the lapsing of any restriction with
respect to any shares of Stock acquired on exercise of the Option; provided,
however, that the value of the shares of Stock withheld may not exceed the
statutory minimum withholding amount required by law. In lieu of such
deduction, the Administrator may require the Grantee to make a cash payment to
the Corporation or an Affiliate equal to the amount required to be withheld. If
the Grantee does not make such payment when requested, the Corporation may
refuse to issue any Stock certificate under the Plan until arrangements
satisfactory to the Administrator for such payment have been made.
SECTION 7.7 GRANTEE. Whenever the word "Grantee" is used in any provision
--------------------
of this Agreement under circumstances where the provision should logically be
construed to apply to the estate, personal representative or beneficiary to whom
this Option may be transferred by will or by the laws of descent and
distribution, the word "Grantee" shall be deemed to include such person.
SECTION 7.8 NONTRANSFERABILITY OF OPTION. The Option shall be
-----------------------------------------
nontransferable otherwise than by will or the laws of descent and distribution
and during the lifetime of the Grantee, the Option may be exercised only by the
Grantee or, during the period the Grantee is under a legal disability, by the
Grantee's guardian or legal representative. Except as provided in the preceding
sentence, the Option may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.
SECTION 7.9 NOTICES. All notices and other communications made or given
--------------------
pursuant to the Agreement shall be in writing and shall be sufficiently made or
given if hand delivered or mailed by certified mail, addressed to the Grantee at
the address contained in the records of the Corporation, or addressed to the
Administrator, care of the Corporation for the attention of its Secretary at its
principal office or, if the receiving party consents in advance, transmitted and
received via telecopy or via such other electronic transmission mechanism as may
be available to the parties.
SECTION 7.10 ENTIRE AGREEMENT; MODIFICATION. The Agreement contains the
--------------------------------------------
entire agreement between the parties with respect to the subject matter
contained herein and may not be modified, except as provided in the Plan or in a
written document signed by each of the parties hereto. Any oral or written
agreements, representations, warranties, written inducements, or other
communications made prior to the execution of the Agreement shall be void and
ineffective for all purposes.
-7-
<PAGE>
SECTION 7.11 CONFORMITY WITH PLAN. This Agreement is intended to conform
----------------------------------
in all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. In the event of any ambiguity in the Agreement or any matters as to which
the Agreement is silent, the Plan shall govern. A copy of the Plan is available
upon request to the Administrator.
SECTION 7.12 GOVERNING LAW. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the Commonwealth of Virginia, other
than the conflict of laws principles thereof.
SECTION 7.13 HEADINGS. The headings in the Agreement are for reference
----------------------
purposes only and shall not affect the meaning or interpretation of the
Agreement.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer as of the date first above written.
ATTEST: NETWORK ACCESS SOLUTIONS, INC.
/s/ Laura A. Henley By: /s/ Jon Aust
- ----------------------------- ---------------------------
The undersigned hereby acknowledges that he/she has carefully read this
Agreement and the Plan and agrees to be bound by all of the provisions set forth
in such documents.
WITNESS: GRANTEE
/s/ Laura A. Henley /s/ Christopher J. Melnick
- ----------------------------- -------------------------------
Date: August 4, 1998
-------------------------
Enclosure: Network Access Solutions, Inc. 1998 Stock Incentive Plan
-8-
<PAGE>
SCHEDULE A
STOCK OPTION GRANTED TO: Christopher Melnick
-------------------
GRANT DATE: July 23, 1998
-------------
NUMBER OF SHARES: 1,092
-----
EXERCISE PRICE PER SHARE: $256.316
--------
EXPIRATION DATE: July 23, 2008
-------------
<PAGE>
Administrator of 1998 Stock Incentive Plan
c/o Office of the Corporate Secretary
Network Access Solutions, Inc.
100 Carpenter Drive
Suite 206
Sterling, VA 20164
Gentlemen:
I hereby exercise the Option granted to me on ____________________, ______,
by NETWORK ACCESS SOLUTIONS, INC. (the "Company"), subject to all the terms and
provisions thereof and of the NETWORK ACCESS SOLUTIONS, INC. 1998 STOCK
INCENTIVE PLAN (the "Plan"), and notify you of my desire to purchase
____________ shares of Common Stock of the Company at a price of $___________
per share pursuant to the exercise of said Option. This will confirm my
understanding with respect to the shares to be issued to me by reason of this
exercise of the Option (the shares to be issued pursuant hereto shall be
collectively referred to hereinafter as the "Shares") as follows:
(a) I am acquiring the Shares for my own account for investment with
no present intention of dividing my interest with others or of reselling or
otherwise disposing of any of the Shares.
(b) The Shares are being issued without registration under the
Securities Act of 1933, as amended (the "Act"), in reliance upon one or more
exemptions contained in the Act, and such reliance is based in part on the above
representation.
(c) The certificates for the Shares to be issued to me will bear a
legend substantially as follows:
"The securities represented by this stock certificate have not
been registered under the Securities Act of 1933 (the "Act") or applicable
state securities laws (the "State Acts"), and shall not be sold, pledged,
hypothecated, donated, or otherwise transferred (whether or not for
consideration) by the holder except upon the issuance to the Company of a
favorable opinion of its counsel and/or submission to the Company of such
other evidence as may be satisfactory to counsel for the Company, to the
effect that any such transfer shall not be in violation of the Act and the
State Acts.
The transfer of any interest in the securities represented by
this certificate is subject to a Stock Restriction Agreement, dated
______________ [DATE OF STOCK RESTRICTION AGREEMENT], by and among NETWORK
-------------------------------------
ACCESS SOLUTIONS, INC., a Virginia corporation and the holder of this
certificate, and no such transfer may be made without compliance with that
Agreement. A copy of that Agreement is available for inspection by any
shareholder of the Corporation at the office of the Corporation upon
appropriate request and without charge."
Appropriate stop transfer instructions will be issued by the issuer to its
transfer agent.
(d) Since the Shares have not been registered under the Act, they
must be held indefinitely until an exemption from the registration requirements
of the Act is available or they are subsequently registered, in which event the
representation in Paragraph (a) hereof shall terminate. As a condition to any
transfer of the shares, I understand that the issuer will require an
<PAGE>
opinion of counsel satisfactory to the issuer to the effect that such transfer
does not require registration under the Act or any state securities law.
(e) The issuer is not obligated to comply with the registration
requirements of the Act or with the requirements for an exemption under
Regulation A under the Act for my benefit.
(f) I am a party to a Stock Restriction Agreement with the Issuer,
pursuant to which I have agreed to certain restrictions on the transferability
of the Shares and other matters relating thereto.
Total Amount Enclosed: $__________
Date:___________________ _____________________________________
(Optionee)
Received by NETWORK ACCESS SOLUTIONS, INC. on
___________________________, ____
By: _________________________________
-11-
<PAGE>
EXHIBIT 10.16
NETWORK ACCESS SOLUTIONS, INC. 1998 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION GRANT AGREEMENT
This Grant Agreement (the "Agreement") is entered into this first day of
November, 1998, by and between NETWORK ACCESS SOLUTIONS, INC., a Delaware
corporation (the "Corporation"), and Jim Aust ("Grantee"), effective as of the
Grant Date as defined in Article 1 hereof.
In consideration of the premises, mutual covenants and agreements herein,
the Corporation and the Grantee agree as follows:
ARTICLE 1
GRANT OF OPTION
SECTION 1.1 GRANT OF OPTION. The Corporation hereby grants to the
----------------------------
Grantee, pursuant to the provisions of the Network Access Solutions, Inc. 1998
Stock Incentive Plan (the "Plan"), an incentive stock option to purchase shares
of Common Stock, par value of $0.001 per share, of the Corporation ("Stock"),
subject to the provisions of this Agreement (the "Option"). Unless stated
otherwise herein, capitalized terms in this Agreement shall have the same
meaning as defined in the Plan. Schedule A, attached hereto and incorporated
herein, sets forth the following terms of the Option:
(i) The date the Administrator approved the Option (the "Grant
Date");
(ii) The number of shares of Stock which the Grantee may purchase
under the Option;
(iii) The exercise price per share (the "Exercise Price"); and
(iv) The date as of which the Option shall expire (the "Expiration
Date"), at 5:00 p.m. Eastern Time, unless terminated earlier
pursuant to other provisions of this Agreement.
SECTION 1.2 LIMITATION ON TERM OF OPTION. Notwithstanding the foregoing,
-----------------------------------------
in no event shall the Option expire later than 5:00 p.m. Eastern Time on the day
prior to the tenth (10th) anniversary of its Grant Date (or on the day prior
to the fifth (5th) anniversary of its Grant Date if the Grantee owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Corporation or of any of its subsidiaries on the Grant Date).
ARTICLE 2
VESTING
SECTION 2.1 VESTING SCHEDULE. Subject to Section 2.2 below, unless the
-----------------------------
Option has earlier terminated pursuant to the provisions of the Agreement, the
Grantee shall become vested in the shares of Stock subject to the Option over a
four (4) year period as follows: the Grantee shall become vested in 6.25% of
the total shares of Stock subject to the Option on the date that is three
<PAGE>
months from the Grant Date (the "Initial Vesting Date") and shall become vested
in 6.25% of the total shares of Stock subject to the Option every third (3rd)
month after the Initial Vesting Date, on the date in each such month that
corresponds with the Initial Vesting Date (each referred to as a "Vesting
Date"), during the forty-eight (48) month period immediately following the
Initial Vesting Date, so that the Grantee shall be vested in 100% of the shares
of Stock subject to the Option on the fourth (4th) anniversary of the Grant
Date; provided, however, that the Grantee must be in the continuous employ or
service of the Corporation or an Affiliate at all times from the Grant Date
through the specified Vesting Date or Initial Vesting Date, as applicable, for
such vesting to occur.
SECTION 2.2 ACCELERATION. Notwithstanding the foregoing, in the event of
-------------------------
a "change of control," as defined below, the Grantee shall become vested in 100%
of any unvested Option that has not been terminated in accordance with the terms
of this Agreement. For purposes of this Agreement, a "change of control" shall
be deemed to occur upon the first of the following events:
(i) any person becomes the beneficial owner, directly or indirectly,
of securities of the Corporation representing 50% or more of the combined
voting power of the Corporation's then outstanding voting securities and
such person has the ability to elect a majority of the members of the
Corporation's Board of Directors, if such ownership is not in place on the
date of grant;
(ii) any person becomes the beneficial owner, directly or indirectly,
of securities of the Corporation sufficient to elect a majority of the
members of the Board of Directors of the Corporation, provided that
Optionee's responsibilities as an employee of the Corporation are
materially adversely diminished by such change in control; or
(iii) the sale of all or substantially all the assets of the
Corporation, or a merger, consolidation, or similar transaction of the
Corporation in which the Corporation is not the surviving entity or the
Corporation's stockholders immediately prior to such transaction hold less
than 50% of the voting securities of the surviving entity.
A "change in control" shall not include either of the following
events:
(i) a transaction, the sole purpose of which is to change the state
of the Corporation's incorporation; or
(ii) a transaction, the result of which is to sell all or
substantially all of the assets of the Corporation to another entity (the
"surviving entity"); provided that the surviving entity is owned directly
or indirectly by the Corporation's stockholders immediately following such
transaction in substantially the same proportions as their ownership of the
Corporation's voting capital stock immediately preceding such transaction.
<PAGE>
ARTICLE 3
EXERCISE OF OPTION
SECTION 3.1 EXERCISABILITY OF OPTION. Pursuant to the terms of the
-------------------------------------
Agreement, the Option may be exercised at any time, and from time to time, with
respect to the number of shares subject to the Option.
SECTION 3.2 STOCK RESTRICTION AGREEMENT. The Administrator in its sole
----------------------------------------
discretion may require as a condition precedent to the exercise of the Option
granted pursuant to Section 1.1, that the Grantee or such other person
exercising the Option be, or shall execute and become, a party to a Stock
Restriction Agreement in substantially the form attached to this Agreement as
Exhibit A.
SECTION 3.3 MANNER OF EXERCISE. The Option may be exercised, in whole or
-------------------------------
in part, by delivering written notice to the Administrator in such form as the
Administrator may require from time to time; provided, however, that the Option
may not be exercised at any one time as to fewer than one hundred (100) shares
(or such number of shares as to which the Option is then exercisable if such
number of shares then exercisable is less than one hundred (100)). Such notice
shall specify the number of shares of stock subject to the Option as to which
the Option is being exercised, and shall be accompanied by full payment of the
Exercise Price for such shares.
Payment of the Exercise Price shall be made (a) in cash (or cash
equivalents acceptable to the Administrator in the Administrator's discretion);
(b) in the Administrator's discretion at the time of exercise, by tender to the
Corporation of shares of the Corporation's common stock owned by the Grantee,
having a Fair Market Value on the date of tender not less than the Exercise
Price, which either have been owned by the Grantee at least six (6) months or
were not acquired, directly or indirectly, from the Corporation; (c) in the
Administrator's discretion at the time of exercise, by the Grantee's full
recourse promissory note in a form approved by the Administrator; (d) by a
broker-assisted cashless exercise in accordance with Regulation T of the Board
of Governors of the Federal Reserve System and the provisions of the next
paragraph; or (e) by any combination of the foregoing. In the Administrator's
sole and absolute discretion, the Administrator may authorize payment of the
Exercise Price to be made, in whole or in part, by such other means as the
Administrator may prescribe. The Option may be exercised only in multiples of
whole shares and no fractional shares shall be issued.
If the Stock is registered under Section 12(b) of the Securities Exchange
Act of 1934, as amended, payment of the exercise price may be made, in whole or
in part, subject to such limitations as the Administrator may determine, by
delivery of a properly executed exercise notice, together with irrevocable
instructions: (i) to a brokerage firm approved by the Administrator to deliver
promptly to the Corporation the aggregate amount of sale or loan proceeds to pay
the exercise price and any withholding tax obligations that may arise in
connection with the exercise, and (ii) to the Corporation to deliver the
certificates for such purchased shares directly to such brokerage firm.
SECTION 3.4 ISSUANCE OF SHARES AND PAYMENT OF CASH UPON EXERCISE. Upon
-----------------------------------------------------------------
exercise of the Option in whole or in part, in accordance with the terms of the
Agreement and upon payment of the Exercise Price for the shares of Stock as to
which the Option is exercised and delivery of such executed Stock Restriction
Agreement as may be required by the Administrator pursuant to Section 3.2, the
Corporation shall issue to the Grantee or such other person exercising the
Option,
<PAGE>
as the case may be, the number of shares of Stock so paid for, in the form of
fully paid and nonassessable Stock and, except as otherwise provided in the
Stock Restriction Agreement, shall deliver certificates therefore as soon as
practicable thereafter. The stock certificates for any shares of Stock issued
hereunder shall, unless such shares are registered or an exemption from
registration is available under applicable federal and state law, bear a legend
restricting transferability of such shares and referencing the Stock Restriction
Agreement, if applicable.
ARTICLE 4
TERMINATION OF OPTION
SECTION 4.1 TERMINATION, IN GENERAL. The Option granted hereby shall
------------------------------------
terminate and be of no force or effect after the Expiration Date set forth on
Schedule A, unless terminated prior to such time as provided below.
SECTION 4.2 TERMINATION OF EMPLOYMENT OR SERVICE FOR REASON OTHER THAN
-----------------------------------------------------------------------
DEATH OR DISABILITY. Unless the Option has earlier terminated pursuant to the
- -------------------
provisions of the Agreement, the Option shall terminate in its entirety,
regardless of whether the Option is vested in whole or in part, thirty (30) days
after the Grantee is no longer employed by, nor in the service of, the
Corporation and its Affiliates for any reason other than the Grantee's death or
Disability. Notwithstanding the foregoing, the Option shall terminate in its
entirety, regardless of whether the Option is vested in whole or in part, upon
termination of the employment or service of the Grantee by the Corporation or an
Affiliate or "Cause".
If the Grantee is a party to a written employment agreement or service
agreement with the Corporation or an Affiliate which contains a definition of
"cause," "termination for cause" or words of similar import, whether such
Grantee is terminated for "Cause" pursuant to this Section 4.2 shall be
determined according to the terms of and in a manner consistent with the
provisions of such written agreement. If the Grantee is not party to such a
written employment agreement or service agreement with the Corporation or an
Affiliate, then for purposes of this Section 4.2, "Cause" shall mean (a) the
conviction of the Grantee of, or the entry of a pleading of guilty or nolo
contendere by the Grantee to, any crime involving moral turpitude that may
reasonably be expected to have an adverse impact on the Corporation's reputation
or standing in the community or any felony, (b) willful misconduct in connection
with the Grantee's duties, willful failure to follow the directions of the
Grantee's supervisor or supervisors, or willful failure to perform his or her
responsibilities in the best interest of the Corporation, except in cases
involving the mental or physical incapacity or disability of the Grantee, or (c)
in the sole judgement of the President of the Corporation, the Grantee has acted
or is acting in a manner that is not in the best interest of the Corporation or
its employees, including but not limited to, disparaging the Corporation or its
products or engaging in harassment or other inappropriate behavior directed
towards employees of the Corporation. "Willful misconduct" and "willful failure
to perform" shall not include actions or inactions on the part of the Grantee
which were taken or not taken in good faith by the Grantee. The good faith
determination by the Administrator of whether the Grantee's employment or
service was terminated by the Corporation for "Cause" shall be final and binding
for all purposes hereunder.
SECTION 4.3 UPON GRANTEE'S DEATH. Unless the Option has earlier
---------------------------------
terminated pursuant to the provisions of the Agreement, upon the Grantee's death
the Grantee's executor, personal
<PAGE>
representative, or the person(s) to whom the option shall have been transferred
by will or the laws of descent and distribution, may exercise all or any part of
the outstanding Option with respect to the shares of Stock as to which the
Option is vested as of the Grantee's date of death, provided such exercise
occurs within twelve (12) months after the date of the Grantee's death, but not
later than the Expiration Date of the Option. Unless sooner terminated, the
Option shall terminate upon the expiration of such twelve-(12-) month period.
SECTION 4.4 TERMINATION OF EMPLOYMENT OR SERVICE BY REASON OF DISABILITY.
-------------------------------------------------------------------------
Unless the Option has earlier terminated pursuant to the provisions of the
Agreement, in the event that the Grantee ceases, by reason of Disability, to be
an employee of or in the service of the Corporation or an Affiliate, the
outstanding Option may be exercised in whole or in part with respect to the
shares of Stock as to which the Option is vested as of the date of the Grantee's
termination of employment or service due to Disability at any time within twelve
(12) months after the date of such termination, but not later than the
Expiration Date of the Option. Unless sooner terminated, the Option shall
terminate upon the expiration of such twelve-(12-) month period.
For purposes of this Agreement, Disability shall mean the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. The administrator may require such proof of
Disability as the Administrator in its sole discretion deems appropriate and the
Administrator's determination as to whether the Grantee is Disabled shall be
final and binding on all parties concerned.
SECTION 4.5 LEAVE OF ABSENCE. For purposes of this Agreement, the
-----------------------------
Grantee's employment or service with the Corporation or an Affiliate shall not
be deemed to terminate if the Grantee takes any military leave, sick leave, or
other bona fide leave of absence approved by the Administrator of ninety (90)
days or less. In the event of a leave in excess of ninety (90) days, the
Grantee's employment or service shall be deemed to terminate on the ninety-first
(91st) day of the leave unless the Grantee's right to re-employment with the
Corporation or Affiliate remains guaranteed by statute or contract.
Notwithstanding the foregoing, unless otherwise determined by the Administrator
(or required by law), a leave of absence shall not be treated as employment or
service for purposes of vesting in additional shares of Stock during such leave
pursuant to Section 2.1 of this Agreement.
ARTICLE 5
DRAG-ALONG RIGHTS
SECTION 5.1 DRAG-ALONG RIGHTS. If at any time any stockholder of the
------------------------------
Corporation or group of stockholders owning a majority or more of the voting
capital stock of the Corporation proposes to enter into any transaction
involving (i) the sale of all or substantially all of the assets of the
Corporation; (ii) the sale of more than fifty percent (50%) of the outstanding
common stock of the Corporation in a non-public sale; (iii) any merger, share
exchange, consolidation or other reorganization or business combination of the
Corporation, if immediately after such transaction either (A) persons who were
directors of the Corporation immediately prior to such transaction do not
constitute at least a majority of the directors of the surviving entity, or (B)
persons who hold a majority of the voting capital stock of the surviving entity
are not persons who held a majority of
<PAGE>
the voting capital stock of the Corporation immediately prior to such
transaction; or (iv) the dissolution or liquidation of the Corporation, the
Corporation and/or the transferring stockholders may require the Grantee to
participate in such transaction by giving the Grantee written notice thereof at
least ten (10) days in advance of the date of the transaction or the date that
tender is required, as the case may be. Upon receipt of such notice, the Grantee
shall sell, assign, tender or transfer the same percentage of shares subject to
the Option as the percentage of the shares of Stock proposed to be sold,
assigned, tendered or transferred by the transferring stockholders collectively,
upon the same terms and conditions applicable to the transferring stockholders
and at a price equal to the difference between the Exercise Price per share
under the Option and the price per share of Stock the transferring stockholders
will receive pursuant to the terms of the transaction. If the Grantee has
options to purchase Stock of the Corporation other than the Option hereunder,
and such options are subject to terms similar those set forth in this Section
5.1, then the Grantee's options shall be transferred in the order in which they
were granted. The provisions of this Section 5.1 shall apply in the event of the
Grantee's death, to the Grantee's executor, personal representative or the
person(s) to whom the Option shall have been transferred by will or the laws of
descent and distribution, as though such person is the Grantee.
ARTICLE 6
ADJUSTMENTS; BUSINESS COMBINATIONS
SECTION 6.1 ADJUSTMENTS FOR EVENTS AFFECTING COMMON STOCK. In the event
----------------------------------------------------------
of changes in the Common Stock of the Corporation by reason of any stock
dividend, split-up, recapitalization, merger, consolidation, business
combination or exchange of shares and the like, the Administrator shall, in its
discretion, make appropriate adjustments to the number, kind and price of shares
covered by this Option, and shall, in its discretion and without the consent of
the Grantee, make any other adjustments in this Option, including but not
limited to reducing the number of shares subject to the Option or providing or
mandating alternative settlement methods such as settlement of the Option in
cash or in shares of Common Stock or other securities of the Corporation or of
any other entity, or in any other matters which relate to the Option as the
Administrator shall, in its sole discretion, determine to be necessary or
appropriate.
SECTION 6.2 POOLING OF INTERESTS TRANSACTION. Notwithstanding anything in
---------------------------------------------
the Plan or the Agreement to the contrary and without the consent of the
Grantee, the Administrator, in its sole discretion, may make any modifications
to the Option, including but not limited to cancellation, forfeiture, surrender
or other termination of the Option in whole or in part regardless of the vested
status of the Option, in order to facilitate any business combination that is
authorized by the Board to comply with requirements for treatment as a pooling
of interests transaction for accounting purposes under generally accepted
accounting principles.
SECTION 6.3 BINDING NATURE OF ADJUSTMENTS. Adjustments under this Article
------------------------------------------
6 will be made by the Administrator, whose determination as to what adjustments,
if any, will be made and the extent thereof will be final, binding and
conclusive. No fractional shares will be issued pursuant to this Option on
account of any such adjustments.
<PAGE>
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 NON-GUARANTEE OF EMPLOYMENT. Nothing in the Plan or the
----------------------------------------
Agreement shall alter the employment status of the Grantee, nor be construed as
a contract of employment between the Corporation (or an Affiliate) and the
Grantee, or as a contractual right of the Grantee to continue in the employ or
service of the Corporation or an Affiliate, or as a limitation of the right of
the Corporation or an Affiliate to discharge the Grantee at any time with or
without cause or notice.
SECTION 7.2 NO RIGHTS OF STOCKHOLDER. The Grantee shall not have any of
-------------------------------------
the rights of a stockholder with respect to the shares of Stock that may be
issued upon the exercise of the Option until such shares of Stock have been
issued to him upon the due exercise of the Option. No adjustment shall be made
for dividends or distributions or other rights for which the record date is
prior to the date such certificate or certificates are issued.
SECTION 7.3 QUALIFIED NATURE OF OPTION. The Option is intended to qualify
---------------------------------------
as an incentive stock option ("Incentive Stock Option") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
the fullest extent permitted within the limit set forth under Section 422(d) of
the Code and this Agreement shall be so construed. The aggregate fair market
value (determined as of the Grant Date) of shares of Stock with respect to which
all Incentive Stock Options first become exercisable by the Grantee in any
calendar year under the Plan or any other plan of the Corporation (and its
parent and subsidiary corporations, as may exist from time to time) may not
exceed $100,000 or such other amount as may be permitted from time to time under
Section 422 of the Code. To the extent that such aggregate fair market value
shall exceed $100,000 or other applicable amount in any calendar year, such
stock options shall be treated as nonqualified stock options with respect to the
amount of aggregate fair market value thereof that exceed the Section 422(d)
limit. For this purpose, the Incentive Stock Options will be taken into account
in the order in which they were granted. In such case, the Corporation may
designate the shares of Stock that are to be treated as stock acquired pursuant
to the exercise of an Incentive Stock Option and the shares of Stock that are to
be treated as stock acquired pursuant to a nonqualified stock option by issuing
separate certificates for such shares and identifying the certificates as such
in the stock transfer records of the Company.
SECTION 7.4 NOTICE OF DISQUALIFYING DISPOSITION. If the Grantee makes a
------------------------------------------------
disposition (as that term is defined in Section 424(c) of the Code) of any
shares of Stock acquired pursuant to the exercise of this Option within two (2)
years of the Grant Date or within one (1) year after the shares of Stock are
transferred to the Grantee, the Grantee shall notify the Administrator of such
disposition in writing within thirty (30) days of the disposition.
SECTION 7.5 THE CORPORATION'S RIGHTS. The existence of this Option shall
-------------------------------------
not affect in any way the right or power of the Corporation or its stockholders
to make or authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Corporation's capital structure or its business, or any
merger or consolidation of the Corporation, or any issue of bonds, debentures,
preferred or other stocks with preference ahead of or convertible into, or
otherwise affecting the Stock or the rights thereof, or the dissolution or
liquidation of the Corporation, or any sale or transfer of all or any part of
the Corporation's assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
<PAGE>
SECTION 7.6 WITHHOLDING OF TAXES. The Corporation or any Affiliate shall
---------------------------------
have the right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Stock) due the Grantee the
amount of any foreign, federal, state or local taxes required by law to be
withheld as the result of the exercise of the Option, the disposition (as that
term is defined in Section 424(c) of the Code) of shares of Stock acquired
pursuant to the exercise of the Option, or the lapsing of any restriction with
respect to any shares of Stock acquired on exercise of the Option; provided,
however, that the value of the shares of Stock withheld may not exceed the
statutory minimum withholding amount required by law. In lieu of such
deduction, the Administrator may require the Grantee to make a cash payment to
the Corporation or an Affiliate equal to the amount required to be withheld. If
the Grantee does not make such payment when requested, the Corporation may
refuse to issue any Stock certificate under the Plan until arrangements
satisfactory to the Administrator for such payment have been made.
SECTION 7.7 GRANTEE. Whenever the word "Grantee" is used in any provision
--------------------
of this Agreement under circumstances where the provision should logically be
construed to apply to the estate, personal representative or beneficiary to whom
this Option may be transferred by will or by the laws of descent and
distribution, the word "Grantee" shall be deemed to include such person.
SECTION 7.8 NON-TRANSFERABILITY OF OPTION. The Option shall be non-
------------------------------------------
transferable otherwise than by will or the laws of descent and distribution and
during the lifetime of the Grantee, the Option may be exercised only by the
Grantee or, during the period the Grantee is under a legal disability, by the
Grantee's guardian or legal representative. Except as provided in the preceding
sentence, the Option may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.
SECTION 7.9 NOTICES. All notices and other communications made or given
--------------------
pursuant to the Agreement shall be in writing and shall be sufficiently made or
given if hand delivered or mailed by certified mail, addressed tot he Grantee at
the address contained in the records of the Corporation, or addressed to the
Administrator, care of the Corporation for the attention of its Secretary at its
principal office of, if the receiving party consents in advance, transmitted and
received via telecopy or via such other electronic transmission mechanism as may
be available to the parties.
SECTION 7.10 ENTIRE AGREEMENT; MODIFICATION. The Agreement contains the
--------------------------------------------
entire agreement between the parties with respect to the subject matter
contained herein and may not be modified, except as provided in the Plan or in a
written document signed by each of the parties hereto. Any oral or written
agreements, representations, warranties, written inducements, or other
communications made prior to the execution of the Agreement shall be void and
ineffective for all purposes.
SECTION 7.11 CONFORMITY WITH PLAN. This Agreement is intended to conform
----------------------------------
in all respects with, and is subject to all applicable provisions of, the Plan,
which is incorporated herein by reference. Inconsistencies between this
Agreement and the Plan shall be resolved in accordance with the terms of the
Plan. In the event of any ambiguity in the Agreement or any matters as to which
the Agreement is silent, the Plan shall govern. A copy of the Plan is available
upon request to the administrator.
<PAGE>
SECTION 7.12 GOVERNING LAW. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the Commonwealth of Virginia, other
than the conflict of laws principles thereof.
SECTION 7.13 HEADINGS. The headings in the Agreement are for reference
----------------------
purposes only and shall not affect the meaning or interpretation of the
Agreement.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized officer as of the date first above written.
ATTEST: NETWORK ACCESS SOLUTIONS, INC.
/s/ Amy Shank By: /s/ Scott Yancey
----------------- -----------------
The undersigned hereby acknowledges that he/she has carefully read this
Agreement and the Plan and agrees to be bound by all of the provisions set forth
in such documents.
WITNESS: GRANTEE
/s/ Illegible By: /s/ Jim Aust
----------------- -------------
Date: 11/22/98
--------
Enclosure: Network Access Solutions, Inc. 1998 Stock Incentive Plan
<PAGE>
SCHEDULE A
Stock Option Granted to: Jim Aust
Grant Date: November 1, 1998
Number of Shares: 65,000
Exercise Price Per Share: $0.40
Expiration Date: November 1, 2008
<PAGE>
EXHIBIT 10.18
NETWORK ACCESS SOLUTIONS, INC.
DEFERRED COMPENSATION AGREEMENT
This agreement is entered into by and between Network Access Solutions, Inc.
(hereinafter referred to as "the Company" and Jon Aust (hereinafter referred to
as "the Employee") on this 1st day of June, 1997. Pursuant to this Agreement,
the Employee may irrevocably elect to defer receipt of certain payments of
compensation for service performed for the Company to which he might otherwise
become currently entitled after the date set forth above.
1. Deferred Amounts: In addition to the Employee's salary and other
-----------------
compensation, the Company shall make payments of Deferred Amounts in the
amounts and on the conditions set forth herein:
A. If after the date of this Agreement, the Company should approve and award
a discretionary bonus to the Employee based on an assessment of the
Company, then all or a portion of any such bonus, but not more than
$355,000 shall not be currently payable to the Employee but shall instead
be credited to him as a Deferred Amount.
B. Deferred Amounts to which the Employee shall become entitled under
subparagraph "A" above shall be credited by the Company to a bookkeeping
account and such account shall also be credited with additional Deferred
Amounts equal to interest, adjusted and compounded quarterly at a rate to
be determined annually by the Company.
C. All Deferred Amounts to which the Employee shall become entitled under
this Agreement shall be paid to the Employee as a lump sum on the earlier
of: (1) a date within six months after the date of termination of the
Employee's employment with the Company for any reason, or (2)
installments of $118,333.33 (plus interest) on each of June 1, 1999,
December 1, 1999 and June 1, 2000.
D. In the event of the death of the Employee before full payment of all
Deferred Amounts to which he is entitled under this Agreement, any unpaid
amounts shall be paid to Longma Aust (or in the event that Longma Aust
does not survive, to the Employee's children, equally).
2. Term: The deferrals provided for by this Agreement shall be effective only
-----
with respect to salary or other compensation otherwise payable on or before
December 31,
<PAGE>
1997. The provisions of this Agreement with respect to crediting of interest
and time of payment shall, however, remain in effect until all Deferred
Amounts are paid.
3. Nature of Company's Obligation: The Company's obligation to make payments of
------------------------------
Deferred Amounts in accordance with this Agreement is an unsecured
contractual obligation to make payments when due and shall not be construed
to require the Company to hold any funds in trust for the benefit of the
Employee, to otherwise fund in advance the promised Deferred Amounts, or to
create a trust or fiduciary relationship of any kind between the Company and
the Employee or any other person. By this Agreement, the Employee
irrevocably agrees that any Deferred Amounts payable hereunder shall become
payable only at the time set forth in Paragraph I above, and on the other
conditions set forth herein. This Agreement shall not be construed to secure
to the Employee any right to continued employment by the Company.
4. This Agreement is a personal agreement and the rights of the Employee or his
beneficiary hereunder may not be sold, transferred, assigned, pledged,
hypothecated, or otherwise encumbered.
5. This Agreement shall be binding on and inure to the benefit of the successors
and assigns of the Company.
6. During the Employee's lifetime, the Company and Employee by mutual agreement
may amend, modify, or rescind this Agreement without the consent of any other
person.
IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement on
the date first written above.
NETWORK ACCESS SOLUTIONS, Inc.
By: /s/ Longma M. Aust
---------------------------------
President
Attest: /s/ Longma M. Aust
-------------------------------
Secretary
Attest: /s/ Jon Aust
-------------------------------
Employee
<PAGE>
EXHIBIT 10.19
NETWORK ACCESS SOLUTIONS, INC.
DEFERRED COMPENSATION AGREEMENT
This agreement is entered into by and between Network Access Solutions, Inc.
(hereinafter referred to as "the Company" and Jim Aust (hereinafter referred to
as "the Employee") on this 1st day of June, 1997. Pursuant to this Agreement,
the Employee may irrevocably elect to defer receipt of certain payments of
compensation for service performed for the Company to which he might otherwise
become currently entitled after the date set forth above.
1. Deferred Amounts: In addition to the Employee's salary and other
-----------------
compensation, the Company shall make payments of Deferred Amounts in the
amounts and on the conditions set forth herein:
A. If after the date of this Agreement, the Company should approve and award
a discretionary bonus to the Employee based on an assessment of the
Company, then all or a portion of any such bonus, but not more than
$75,000 shall not be currently payable to the Employee but shall instead
be credited to him as a Deferred Amount.
B. Deferred Amounts to which the Employee shall become entitled under
subparagraph "A" above shall be credited by the Company to a bookkeeping
account and such account shall also be credited with additional Deferred
Amounts equal to interest, adjusted and compounded quarterly at a rate to
be determined annually by the Company.
C. All Deferred Amounts to which the Employee shall become entitled under
this Agreement shall be paid to the Employee as a lump sum on the earlier
of: (1) a date within six months after the date of termination of the
Employee's employment with the Company for any reason, or (2)
installments of $25,000 (plus interest) on each of June 1, 1999, December
1, 1999 and June 1, 2000.
D. In the event of the death of the Employee before full payment of all
Deferred Amounts to which he is entitled under this Agreement, any unpaid
amounts shall be paid to Longma Aust (or in the event that Longma Aust
does not survive, to the Employee's children, equally).
2. Term: The deferrals provided for by this Agreement shall be effective only
-----
with respect to salary or other compensation otherwise payable on or before
December 31, 1997. The provisions of this Agreement with respect to
crediting of interest and time of payment shall, however, remain in effect
until all Deferred Amounts are paid.
<PAGE>
3. Nature of Company's Obligation: The Company's obligation to make payments of
------------------------------
Deferred Amounts in accordance with this Agreement is an unsecured
contractual obligation to make payments when due and shall not be construed
to require the Company to hold any funds in trust for the benefit of the
Employee, to otherwise fund in advance the promised Deferred Amounts, or to
create a trust or fiduciary relationship of any kind between the Company and
the Employee or any other person. By this Agreement, the Employee
irrevocably agrees that any Deferred Amounts payable hereunder shall become
payable only at the time set forth in Paragraph 1 above, and on the other
conditions set forth herein. This Agreement shall not be construed to secure
to the Employee any right to continued employment by the Company.
4. This Agreement is a personal agreement and the rights of the Employee or his
beneficiary hereunder may not be sold, transferred, assigned, pledged,
hypothecated, or otherwise encumbered.
5. This Agreement shall be binding on and inure to the benefit of the successors
and assigns of the Company.
6. During the Employee's lifetime, the Company and Employee by mutual agreement
may amend, modify, or rescind this Agreement without the consent of any other
person.
IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement on
the date first written above.
NETWORK ACCESS SOLUTIONS, Inc.
By:/s/ Longma M. Aust
-----------------------------
President
Attest:/s/ Longma M. Aust
---------------------------
Secretary
Attest:/s/ Jim Aust
---------------------------
Employee
<PAGE>
EXHIBIT 10.20
REPURCHASE AGREEMENT
THIS REPURCHASE AGREEMENT (the "Agreement") is made and effective this 6th
day of August, 1998, by and between Network Access Solutions, Inc. (the
"Company"), and the sellers set forth on Exhibit A hereto (individually, a
---------
"Seller" and collectively, the "Sellers").
On the terms and subject to the conditions set forth in this Agreement, the
Sellers desire to sell, and the Company desires to repurchase, an aggregate of
1,900,000 shares (the "Shares") of the Common Stock of the Company.
The parties hereto agree as follows:
1. Repurchase of the Shares. At the Closing (as defined below), on the
------------------------
terms and subject to the conditions set forth herein, the each Seller will sell
and convey the number of Shares set forth opposite such Seller's name on Exhibit
-------
A hereto to the Company at a price of $1.00 per share.
- -
2. The Closing. The closing of the purchase and sale of the Shares (the
-----------
"Closing") shall take place at the offices of the Company on the date hereof
upon the closing of the sale of the Company's Series A Preferred Stock and
Common Stock pursuant to the terms of a Series A Preferred Stock Purchase
Agreement of even date herewith (the "Closing Date"). At the Closing:
(a) Seller shall deliver to the corporate secretary of the Company
(the "Secretary") a stock certificate or certificates evidencing the
Shares, duly endorsed;
(b) If Seller shall have delivered to the Secretary a stock
certificate evidencing a number of shares of Common Stock greater than the
number of the Shares, Seller shall instruct the Secretary to issue and
deliver to Seller a new certificate to Seller in the amount of the number
of shares of Common Stock still owned by the Seller; and
(c) The Company shall deliver to each of the Sellers via check or wire
transfer the consideration set forth opposite such Seller on Exhibit A
---------
hereto.
Section 2. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants that this Agreement has been duly authorized,
executed and delivered by the Company, and this Agreement constitutes a valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
Section 3. Representations and Warranties of the Sellers. Each of the
---------------------------------------------
Sellers represents and warrants, severally and not jointly, to the Company that:
(a) The Seller has good and marketable title to his respective Shares
and full right, power and authority to sell such Shares to the Company as
provided herein.
<PAGE>
(b) Upon consummation of the transactions contemplated by this
Agreement, the Seller shall convey to the Company his respective Shares
free and clear of any and all mortgages, pledges, security interests, liens
or other encumbrances or charges of any kind.
(c) This Agreement has been duly authorized, executed and delivered by
the Seller and constitutes a valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms.
(d) The Seller has conducted his own independent evaluation and made
his own analysis as he has deemed necessary, prudent or advisable in order
for him to make the determination and decision to sell the Shares
hereunder, to enter into this Agreement and to consummate the transactions
contemplated hereby.
Section 4. Miscellaneous.
-------------
(a) The Sellers shall execute and deliver such further instruments of
conveyance and transfer and take such additional action as the Company may
reasonably request to transfer the Shares to the Company as provided
hereunder, free and clear of all mortgages, pledges, security interests,
liens and other encumbrances or charges of any kind.
(b) This Agreement may be executed in two or more counterparts, any
one of which need not contain the signatures of more than one party, but
all such counterparts taken together shall constitute one and the same
Agreement.
(c) This Agreement shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
NETWORK ACCESS SOLUTIONS, INC.
By: /s/ Longma M. Aust
---------------------------
Name: Longma M. Aust
-------------------------
Its: President
--------------------------
SELLERS:
/s/ Longma M. Aust
-------------------------------
Longma Aust
-2-
<PAGE>
/s/ Jon Aust
-------------------------------
Jon Aust
/s/ James Aust
-------------------------------
James Aust
/s/ Stephen Aust
-------------------------------
Stephen Aust
-3-
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
==================================================================================================
SELLER SHARES AMOUNT
==================================================================================================
<S> <C> <C>
Longma Aust 885,789 $ 885,789
- --------------------------------------------------------------------------------------------------
Jon Aust 434,211 $ 434,211
- --------------------------------------------------------------------------------------------------
James Aust 300,000 $ 300,000
- --------------------------------------------------------------------------------------------------
Stephen Aust 280,000 $ 280,000
==================================================================================================
TOTAL 1,900,000 $1,900,000
==================================================================================================
</TABLE>
<PAGE>
EXHIBIT 10.21
NETWORK ACCESS SOLUTIONS, INC.
INVESTOR RIGHTS AGREEMENT
AUGUST 6, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS............................................................ 1
2. REGISTRATION........................................................... 2
2.1. Requested Registration........................................... 2
2.2. Company Registration............................................. 3
2.3. Form S-3 Registration............................................ 4
2.4. Expenses of Registration......................................... 5
2.5. Registration Procedures.......................................... 5
2.6. Indemnification and Contribution................................. 6
2.7. Information by Holder............................................ 8
2.8. Termination of the Company's Obligations......................... 8
2.9. Rule 144 Reporting............................................... 9
2.10. Transfer of Registration Rights.................................. 9
2.11. Limitations on Subsequent Registration Rights.................... 10
2.12. "Market Stand-Off" Agreement..................................... 10
3. RIGHT OF FIRST OFFER AND ANTIDILUTION PROTECTION....................... 10
3.1. Right of First Offer............................................. 10
3.2. Antidilution Protection.......................................... 12
4. OTHER RIGHTS AND OBLIGATIONS........................................... 14
4.1. Reports.......................................................... 14
4.2. Annual Plan...................................................... 14
4.3. Termination of Reports; Public Filings........................... 14
4.4. Transfers to Competitors......................................... 14
5. PUT RIGHT.............................................................. 15
6. MISCELLANEOUS.......................................................... 18
6.1. Governing Law.................................................... 18
6.2. Successors and Assigns........................................... 18
6.3. Notices.......................................................... 18
6.4. Amendments and Waivers........................................... 18
6.5. Delays or Omissions.............................................. 18
6.6. Legal Fees....................................................... 19
6.7. Titles and Subtitles............................................. 19
6.8. Counterparts..................................................... 19
6.9. Severability..................................................... 19
6.10. Entire Agreement................................................. 19
6.11. Effect of Change in Capital Structure............................ 19
</TABLE>
i
<PAGE>
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") is made this 6th day of
August 1998 (the "Effective Date"), by and among Network Access Solutions, Inc.,
a Delaware corporation (the "Company"), and the other signatories hereto
("Holders").
In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties agree as follows:
1. DEFINITIONS
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Affiliate" means, with respect to any other Person, a
Person directly or indirectly controlling, controlled by, or under common
control with, such Person. For the purposes of such definitions, "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
(c) The term "Common Stock" means the Common Stock of the Company, par
value $.001 per share.
(d) The term "Holder" means any holder of outstanding Registrable
Securities or any person or entity to which the rights provided for in this
Agreement shall have been properly assigned in accordance with specific terms
hereof.
(e) The term "Initiating Holders" means any Holder or Holders of at
least 20% of the Registrable Securities then outstanding.
(f) The term "Person" means any individual, partnership, limited
liability company, corporation, joint venture, trust, unincorporated
organization, or any other entity, or a government or any department, agency or
political subdivision thereof.
(g) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of the effectiveness of
such registration statement.
(h) The term "Registrable Securities" means: (i) any shares of Common
Stock issued to the Holders pursuant to the Series A Preferred Stock Purchase
Agreement dated as of even date herewith and (ii) any other Common Stock issued
as a dividend or other distribution with respect to, or in exchange for or in
replacement of, the aforementioned Common Stock.
(i) The term "SEC" means the Securities and Exchange Commission.
1
<PAGE>
2. REGISTRATION
2.1. Requested Registration
----------------------
(a) Requested Registration. If at any time after six months after the
----------------------
initial public offering of the Company's Common Stock pursuant to a registration
statement filed with the SEC under the Act ("IPO"), the Company shall receive
from the Initiating Holder(s) a written request that the Company effect a
registration and any related qualification or compliance (collectively, a
"Registration") with respect to Registrable Securities, the Company will:
1. promptly give written notice of the proposed registration,
qualification or compliance to all Holders; and
2. as soon as practicable, use its diligent best efforts to
effect such Registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
the applicable blue sky or other state securities laws of such jurisdictions in
the United States as Holders shall reasonably request, and appropriate
compliance with applicable regulations issued under the Act and any other
governmental requirements or regulations) and as would permit or facilitate the
sale and distribution of all or such portion of such Holder's or Holders'
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written notice given within 30
days after receipt of such written notice from the Company, except that the
Company shall not be obligated to take any action to effect any such
Registration pursuant to this Section 2.1 after the Company has effected three
Registrations pursuant to request under this subsection 2.1(a) and such
registrations have been declared or ordered effective. In no event shall the
Company be required to qualify generally to do business as a foreign corporation
in any jurisdiction where it is not at the time so qualified or to execute or
file a general consent to service of process in any such jurisdiction where it
has not theretofore done so or to take any action that would subject it to
general service of process or taxation in any such jurisdiction where it is not
then subject.
Subject to the foregoing provisions, the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, but in any event within 90 days after receipt
of the request or requests of the Initiating Holders.
(b) Underwriting. If the Initiating Holders intend to distribute the
------------
Registrable Securities covered by their request by means of a firm commitment
underwritten offering, they shall so advise the Company. The Company and the
Initiating Holders shall mutually agree upon and shall designate the underwriter
or underwriters to be retained in connection therewith as a part of their
request made pursuant to Section 2.1(a). The Company shall include such
information in the written notice referred to in Section 2.1(a)(1). In such
event, the right of any Holder to registration pursuant to this Section 2.1
shall be conditioned upon such Holder's participation in such underwritten
offering and the inclusion of such Holder's Registrable Securities in the
underwritten offering (unless otherwise mutually agreed by at least a majority
of the Initiating Holders and such Holder) to the extent provided herein. The
Company shall (together with all Holders proposing to distribute their
securities through such underwritten
2
<PAGE>
offering) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting. Notwithstanding any
other provision of this Section 2.1, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, any securities to be sold on behalf of the Company
and any securities of the Company (other than Registrable Securities) held by
officers or directors and by other shareholders shall be excluded from such
registration to the extent so required by such limitation, and if a limitation
of the number of shares is still required, then the underwriter may limit the
number of Registrable Securities to be included in the registration. All Holders
proposing to sell shares in such offering shall share pro rata based on the
number of Registrable Securities held in the number of shares to be excluded
from such offering. If any Holder disapproves of the terms of the underwritten
offering, it may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holders. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
(c) Subject to the foregoing limitations set forth in Section 2.1(b),
the Company shall have the right to include in any offering effected pursuant to
this Section 2.1 securities to be sold on behalf of the Company.
(d) If the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that, in the good faith judgment of the
Board of Directors of the Company, effecting the registration at such time would
have a material adverse effect on the Company or would require disclosure of any
corporate development not otherwise required to be disclosed, the Company shall
have the right to defer the filing of the registration statement for a period of
not more than 90 days after the receipt of the request of the Holders under this
Section 2.1, except that the Company shall not utilize this right more than once
in any 12 month period.
2.2. Company Registration
--------------------
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders (other than a
registration on Form S-8, Form S-4 or a "universal" shelf on Form S-3 or any
successors to such forms), the Company will:
1. promptly give to each Holder written notice thereof which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under applicable blue sky or other state
securities laws;
2. use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), and in any
underwritten offering involved therein, all the Registrable Securities specified
in a written request or requests, made within 30 days after receipt of such
written notice from the Company, by any Holder or Holders, except as set forth
in Section 2.2(b) below.
Except as provided in Section 2.11 hereof, the Company represents that
it has not and covenants that it will not enter into any agreement with any
Holder or other shareholder of
3
<PAGE>
the Company giving such shareholder or Holder any right to restrict the
Company's registration of its securities pursuant to Section 2.2 hereof or
otherwise.
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwritten offering,
the Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.2(a)(1). In such event the right of any Holder to
registration pursuant to this Section 2.2 shall be conditioned upon such
Holder's participation in such underwritten offering and the inclusion of such
Holder's Registrable Securities in the underwritten offering to the extent
provided herein. All Holders proposing to distribute their securities through
such underwritten offering shall (together with the Company and other holders
distributing their securities through such underwritten offering) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwritten offering by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the securities of the Company (other than Registrable Securities)
held by officers or directors and by other shareholders shall be excluded from
such registration to the extent so required by such limitation, and if a
limitation of the number of shares is still required, then the underwriter may
limit the number of Registrable Securities to be included in the registration.
All Holders proposing to sell shares in such offering shall share pro rata based
on the number of Registrable Securities held in the number of shares to be
excluded from such offering. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the underwriter. The Registrable Securities so withdrawn shall also
be withdrawn from registration.
2.3. Form S-3 Registration. In case the Company shall receive from the
---------------------
Holder(s) of Registrable Securities a written request or requests that the
Company effect a registration on Form S-3 (or any substantially equivalent
registration form under the Act subsequently adopted by the SEC that permits
inclusion or incorporation by reference to other documents filed by the Company
with the SEC) with respect to Registrable Securities having an expected
aggregate offering price to the public in excess of $500,000, net of
underwriting discounts and commissions, the Company will:
(a) promptly give written notice of the proposed Registration to all
other Holders; and
(b) as soon as practicable, effect such Registration as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together will all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request given within 30 days after receipt of such written notice from
the Company, except that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 2.3:
1. if Form S-3 is not available for such offering by the
Holders; or
4
<PAGE>
2. if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than 90
days after receipt of the request of the Holder or Holders under this Section
2.3, except that the Company shall not utilize this right more than once in any
12 month period.
Subject to the foregoing, the Company shall file a registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. Registrations effected pursuant to this Section 2.3 shall not be
counted as demands for registration or registrations effected pursuant to
Section 2.1 or 2.2, respectively.
2.4. Expenses of Registration. The Company shall bear all expenses incurred
------------------------
in connection with a Registration pursuant to Sections 2.1, 2.2 and 2.3,
respectively, including without limitation, all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the
Company and expenses of any audits incidental to or required by such
registration, except that:
(a) The Company shall not be required to pay underwriters' discounts,
commissions, or stock transfer taxes relating to Registrable Securities; and
(b) The Company shall not be required to pay the fees or expenses of
more than one counsel to the Holders.
2.5. Registration Procedures. In the case of each Registration effected by
-----------------------
the Company pursuant to Section 2, the Company will keep each Holder
participating therein advised in writing as to the initiation of each
Registration and as to the completion thereof. At its expense (except as
otherwise provided in Section 2.4 above) the Company will use its best efforts
to:
(a) keep such registration, qualification or compliance pursuant to
Sections 2.1, 2.2 or 2.3 effective for a period of 180 days or until the Holder
or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request;
(c) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement within the time period referred to in Section 2.5(a);
5
<PAGE>
(d) notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing; and
(e) furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 2, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 2, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders whose
Registrable Securities are included in such registration statement and (ii) if
such securities are being sold through underwriters, a letter dated such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters.
2.6. Indemnification and Contribution
--------------------------------
(a) The Company will indemnify each Holder of Registrable Securities
with respect to which a Registration has been effected pursuant to this Section
2, each of its officers and directors, and each Person controlling such Holder,
and each underwriter, if any, of such Registrable Securities and each Person who
controls any such underwriter, against all claims, losses, damages, costs,
expenses and liabilities of any nature whatsoever (or actions in respect
thereof) ("Losses") arising out of or based upon any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document (including any
related registration, statement, notification or the like) incident to any such
Registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or any state
securities law or of any rule or regulation promulgated under the Act, the
Exchange Act or any state securities law applicable to the Company and relating
to action or inaction required of the Company in connection with any such
Registration, and will reimburse each such Holder, each of its officers and
directors, and each Person controlling such Holder, and each such underwriter
and each Person who controls any such underwriter, for any legal and other
expenses reasonably incurred in connection with investigating or defending
against any such Loss, except that the Company will not be liable in any such
case to the extent that any such Loss arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
any Holder or underwriter and stated to be specifically for use therein; and
except that the indemnity agreement contained in this Section 2.6(a) shall not
apply to any amounts paid in settlement of any such
6
<PAGE>
Loss if such settlement is effected without the consent of the Company, which
consent will not be unreasonably withheld.
(b) Each Holder will, if Registrable Securities held by or issuable to
such Holder are included in the securities as to which such Registration is
being effected, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each Person who controls the Company or any such underwriter within
the meaning of the Act, and each other Holder, each of such other Holder's
officers and directors and each Person controlling such other Holder, against
all Losses arising out of or based upon any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
Registration, or based upon any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company, such other
Holders, such directors, officers, Persons or underwriters and any such
controlling Persons for any legal and other expenses reasonably incurred in
connection with investigating or defending any such Loss, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein; provided, however, that the
-------- -------
indemnity agreement contained in this Section 2.6(b) shall not apply to amounts
paid in settlement of any such Loss if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld; and
provided further, that in no event shall any indemnity under this Section 2.6(b)
- -------- -------
exceed the gross proceeds from the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 2.6 (the
"Indemnified Party"), shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at its own
expense (except as set forth below). Failure of the Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 2.6, unless the failure or delay in giving notice
has a material adverse impact on the ability of the Indemnifying Party to defend
against such claim. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof, the giving by all claimants or plaintiffs of a
release from all liability in respect to such claim or litigation. If any such
Indemnified Party shall have been advised by counsel chosen by it that there may
be one or more legal defenses available to such Indemnified Party that are
different from or additional to those available to the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
on behalf of such Indemnified Party and will reimburse such Indemnified Party
and any Person controlling such Indemnified Party for the reasonable fees and
7
<PAGE>
expenses of any counsel retained by the Indemnified Party, it being understood
that the Indemnifying Party shall not, in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys for all of the
Indemnified Parties or controlling Persons, which firm shall be designated in
writing by the Indemnified Parties to the Indemnifying Party.
(d) If the indemnification provided for in this Section 2.6 is
unavailable to an Indemnified Party in respect of any Losses (other than in
accordance with its terms) or is insufficient to hold such Indemnified Party
harmless, then each applicable Indemnified Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party, on the one
hand, and such Indemnified Party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party, on the one hand, and Indemnified Party, on the other hand,
shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been taken by, or
relates to information supplied by, such Indemnifying Party or Indemnified
Party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission. The
amount paid or payable by a party as a result of any Losses shall be deemed to
include any legal or other fees or expenses incurred by such party in connection
with any investigation or proceeding. The parties hereto agree that it would
not be just and equitable if contribution pursuant to this Section 2.6(d) were
determined by pro rata allocation or by any other method of allocation that does
not take account of the equitable considerations referred hereinabove.
Notwithstanding the provision of this Section 2.6(d), an Indemnifying Party that
is a selling Holder of Registrable Securities shall not be required to
contribute any amount which, when added to any amounts payable by such party
pursuant to Section 2.6(b), is in excess of the amount of the net proceeds
received by such party from the sale of the Registrable Securities sold by such
Indemnifying Party. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
2.7. Information by Holder. The Holder or Holders of Registrable Securities
---------------------
included in any registration shall furnish to the Company such information
regarding such Holder or Holders and the distribution proposed by such Holder or
Holders as the Company may reasonably request in writing and as shall be
required in connection with any Registration referred to in Section 2.
2.8. Termination of the Company's Obligations. The Company shall have no
----------------------------------------
obligations pursuant to Sections 2.1, 2.2 or 2.3 with respect to any request
made by any Holder after the later of (i) five years following the effective
date of the Company's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, having an
aggregate offering price to the public of not less than $25,000,000, based on a
pre-money valuation of at least $100,000,000 (the "Qualified IPO") or (ii) at
such time
8
<PAGE>
following the Qualified IPO as such Holder may sell all of such Holder's
Registrable Securities in a single transaction pursuant to Rule 144 (or such
successor rule as may be adopted).
2.9. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the SEC which may permit the sale of
Registrable Securities or securities convertible into or exercisable for
Registrable Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company that
involves an underwritten sale of securities of the Company to the general
public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the underwritten
offering of its common stock to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act at any time
after it has become subject to such reporting requirements; and
(d) furnish to each Holder so long as such Holder owns Registrable
Securities or securities convertible into or exercisable for Registrable
Securities forthwith upon written request a written statement by the Company
that it has complied with the reporting requirements of such Rule 144 (at any
time after ninety days after the effective date of such first registration
statement filed by the Company), and of the Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents so filed by the Company as may be reasonably requested to avail
the Holder of any rule or regulation of the SEC permitting the selling of any
such securities without registration.
2.10. Transfer of Registration Rights. The rights to cause the Company to
-------------------------------
register securities granted by the Company under Sections 2.1, 2.2 and 2.3 may
be assigned by any Holder to any transferee or assignee of at least 500,000
Registrable Securities (as adjusted for stock splits, combinations and the like)
or securities convertible into Registrable Securities (or all of such Holder's
Registrable Securities if such Holder holds less than such amount), provided
--------
that such transfer may otherwise be and is effected in accordance with
applicable securities laws and as otherwise required by this Agreement, and
provided further that the Company is given written notice by such Holder at the
- -------- -------
time of or within reasonable time after such transfer, stating the name and
address of such transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned and the transferee
or assignee agrees in writing to be bound by this Agreement. The foregoing
minimum share limitation shall not apply to transfers by a Holder (i) to
constituent affiliates, or constituent former or current partners or members of
the Holder (including spouses and ancestors, lineal descendants and siblings of
such
9
<PAGE>
partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) if all such transferees or assignees agree in writing to
be bound by the terms of this Agreement and appoint a single representative as
their attorney-in-fact for the purpose of receiving any notices once exercising
their rights under this Section 2 or (ii) to an entity controlling, controlled
by or under common control with the transferor.
2.11. Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders (as determined pursuant to Section 6.4), enter into any agreement
with any holder or prospective holder of any securities of the Company which
would give such holder registration rights, provided that the Company may grant
subordinate registration rights to future equity investors in the Company
without such consent. Any right given by the Company to any holder or
prospective holder of the Company's securities in connection with the
registration of securities shall be conditioned such that it shall be consistent
with the provisions of this Section 2 and with the rights of the Holders
provided in this Agreement.
2.12. "Market Stand-Off" Agreement. Each Holder hereby agrees that during
---------------------------
the 180 day period following the effective date of the Qualified IPO, it shall
not, to the extent requested by the Company and the Company's underwriters,
sell, offer to sell, or otherwise transfer or dispose of any Common Stock of the
Company held by it at any time during such period except Common Stock included
in such registration; provided that the foregoing obligation shall be
--------
conditioned upon all of the Company's then-current officers, directors, and 5%
stockholders agreeing to the same restrictions; and provided further that any
-------- -------
waiver of the foregoing restriction by the Company or the Company's underwriters
shall apply to all Persons subject to such restrictions pro rata based on the
number of shares of Common Stock owned. To enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Registrable
Securities of the Holder (and the shares or securities of every other Person
subject to the foregoing restriction) until the end of such period. Each Holder
agrees to execute the form of such market stand-off agreement as may be
reasonably requested by the underwriters.
3. RIGHT OF FIRST OFFER AND ANTIDILUTION PROTECTION
3.1. Right of First Offer. Subject to the terms and conditions specified in
--------------------
this Section 3.1, the Company hereby grants to each Holder, a right of first
offer with respect to future sales by the Company of its New Securities (as
defined in Section 3.1(d)(i)) after the date hereof. For purposes of this
Section 3.1, the term Holder includes any partners, shareholders or affiliates
of the Holder. The Holder shall be entitled to apportion the right of first
offer hereby granted among itself and its partners, shareholders and affiliates
in such proportions as it deems appropriate.
(a) In the event the Company proposes to issue New Securities, it
shall give each Holder written notice (the "Notice") of its intention stating:
(i) a description of the New Securities it proposes to issue, (ii) the number of
shares of New Securities it proposes to offer, (iii) the price per share at
which, and other terms on which, it proposes to offer such New Securities, and
(iv) the number of shares that the Holder has the right to purchase under this
Section 3.1, based on the Holder's Percentage (as defined in Section
3.1(d)(ii)).
10
<PAGE>
(b) Within 30 days after the Notice is given (in accordance with
Section 5.3), the Holder may elect to purchase, at the price specified in the
Notice, up to the number of shares of the New Securities proposed to be issued
equal to the Holder's Percentage. An election to purchase shall be made in
writing and must be given to the Company within such 30-day period (in
accordance with Section 5.3). The closing of the sale of New Securities by the
Company to the participating Holder upon exercise of its rights under this
Section 3.1 shall take place simultaneously with the closing of the sale of New
Securities to third parties.
(c) The Company shall have 90 days after the last date on which the
Holder's right of first offer lapsed to enter into an agreement (pursuant to
which the sale of New Securities covered thereby shall be closed, if at all,
within 45 days from the execution thereof) to sell the New Securities which the
Holder did not elect to purchase under this Section 3.1, at or above the price
and upon terms not materially more favorable to the purchasers of such
securities than the terms specified in the initial Notice given in connection
with such sale. In the event the Company has not entered into an agreement to
sell the New Securities within such 90 day period (or sold and issued New
Securities in accordance with the foregoing within 45 days from the date of such
agreement), the Company shall not thereafter issue or sell any New Securities
without first offering such New Securities to the Holder in the manner provided
in this Section 3.1.
(d) (i) "New Securities" shall mean any shares of, or securities
convertible into or exercisable for any shares of, any class of the Company's
capital stock; provided that "New Securities" does not include: (A) securities
issued pursuant to the acquisition of another business entity by the Company by
merger, purchase of substantially all of the assets of such entity, or other
reorganization whereby the Company owns not less than a majority of the voting
power of such entity; (B) shares of the Company's Common Stock, options or
warrants to purchase shares of the Company's Common Stock, and the shares of
Common Stock issuable upon exercise of such options or warrants, issued pursuant
to any arrangement approved by the Board of Directors to employees, officers and
directors of, or consultants, advisors or other Persons performing services for,
the Company; (C) shares of the Company's Common Stock or warrants or options for
the purchase of shares of the Company's Common Stock issued by the Company to a
commercial bank or equipment lessor in connection with any loan or lease
financing transaction approved by the Board of Directors of the Company; (D)
shares of the Company's Common Stock issued to a corporate partner in a
transaction approved by the Board of Directors of the Company in which there is
a substantial commercial aspect to the transactions and in which there is no
other financial investor involved; (E) shares of the Company's Common Stock
issued in connection with any stock split, stock dividend or recapitalization of
the Company; (F) shares of the Company's Common Stock issued upon exercise of
warrants, options or convertible securities if the issuance of such warrants,
options or convertible securities was a result of the exercise of the right of
first offer granted under this Section 3.1 or was subject to the right of first
offer granted under this Section 3.1; or (G) shares of Common Stock issued in
the Qualified IPO.
(ii) The applicable "Percentage" for each Holder shall be the number
of shares of New Securities calculated by dividing (A) the total number of
shares of Common Stock owned by the Holder (assuming conversion of all
outstanding convertible securities and exercise of all outstanding options and
warrants) by (B) the total number of shares of Common
11
<PAGE>
Stock outstanding at the time the Notice is given (assuming conversion of all
outstanding convertible securities and exercise of all outstanding options and
warrants).
(e) The right of first offer granted under this Section may be
assigned by the Holder to a transferee or assignee of the Holder's securities of
the Company. In the event that the Holder shall assign its right of first offer
pursuant to this Section 3.1 in connection with the transfer of less than all of
its securities of the Company, the Holder shall also retain its right of first
offer to the extent then applicable under this Section 3.1.
(f) The Right of First Offer described by this Section 3.1 shall
expire upon the closing of a Qualified IPO.
3.2. Antidilution Protection
-----------------------
(a) If the Company issues New Securities for no consideration or for
a consideration per share (as determined below) less than $1.00 (as adjusted for
any stock splits, combinations, recapitalizations or similar events, the
"Adjustment Price") (such issuance, a "Dilutive Issuance"), then the Company
shall offer to sell to each Holder such number of shares of Common Stock ("Make
Whole Shares"), at a price per share equal to the par value thereof, equal to
(x) the number of shares of Common Stock held by such Holder immediately prior
to the Dilutive Issuance, divided by (y) the Adjustment Factor (as defined
below), less (z) the number of shares of Common Stock held by such Holder
immediately prior to the Dilutive Issuance. The "Adjustment Factor" shall be
calculated as follows:
Adjustment Factor = CSE + (consideration per share for all New Securities in
the aggregate/Adjustment Price)
--------------------------------------------------------
CSE + number of New Securities issued
where (A) "CSE" shall mean the aggregate number of shares of Common Stock,
options and warrants to acquire Common Stock and securities convertible into
Common Stock that are outstanding immediately prior to the Dilutive Issuance and
(B) the "consideration per share" is determined in accordance with Section
3.2(b).
Such offer, if applicable, shall be included in the Notice referenced
in Section 3.1(a). The closing of the sale of the Make Whole Shares shall occur
concurrently with the closing of the Dilutive Issuance.
(b) For purposes of Section 3.2(a), the "consideration per share" of
New Securities shall be determined as follows:
(i) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
(ii) In the case of the issuance of the Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be
12
<PAGE>
deemed to be the fair value thereof as determined by the Board of Directors in
good faith irrespective of any accounting treatment.
(iii) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible into
or exchangeable for Common Stock or options to purchase or rights to subscribe
for such convertible or exchangeable securities (which are not excluded from the
definition of New Securities), the following provisions shall apply:
1) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the consideration
(determined in the manner provided above), if any, received by the Company upon
the issuance of such options or rights plus the minimum purchase price provided
in such options or rights for the Common Stock covered thereby.
2) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Company for
any such securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the additional
consideration, if any, to be received by the Company upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner above).
3) All Common Stock deemed issued pursuant to this Section
3.2(b)(iii) shall be considered issued only at the time of its deemed issuance
and any actual issuance of such stock shall not be an actual issuance or a
deemed issuance of the Company's Common Stock under the provisions of Section
3.2.
(c) In the event of any change in the number of shares of Common
Stock deliverable or any increase in the consideration payable to the Company
upon exercise of the options or rights or upon conversion of or in exchange for
the convertible or exchangeable securities referenced in Section 3.2(b)(iii),
including, but not limited to, a change resulting from the antidilution
provisions thereof, the number of shares of Common Stock to be offered to the
Holders hereunder shall be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(d) The antidilution rights provided in Section 3.2 shall expire upon
the closing of a Qualified IPO.
13
<PAGE>
4. OTHER RIGHTS AND OBLIGATIONS
4.1. Reports
-------
(a) For fiscal years ending after the date of this Agreement, the
Company agrees to deliver to each Holder, as soon as practicable after the end
of each fiscal year, and in any event within 90 days thereafter, a consolidated
balance sheet of the Company as of the end of such fiscal year and a
consolidated statement of operations and a consolidated statement of sources and
application of funds of the Company for such year, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in each case in comparative form the figures for the two previous fiscal years,
all in reasonable detail and audited by independent public accountants selected
by the Company;
(b) For quarters ending after the date of this Agreement, the Company
agrees to deliver to each Holder who then holds (together with its Affiliates)
securities representing at least 3% of the fully diluted equity of the Company,
computed on a fully diluted basis ("Qualified Holders"), within 45 days after
the end of each quarter, an unaudited consolidated profit or loss statement for
such quarter and an unaudited consolidated balance sheet as of the end of each
quarter, in the form provided to the Company's management; and
(c) For months ending after the date of this Agreement, the Company
agrees to deliver to each Qualified Holder within 45 days after the end of each
month, (i) an unaudited consolidated profit or loss statement for such month and
an unaudited balance sheet as of the end of such month and (ii) reports
detailing the size and status of customer contracts.
4.2. Annual Plan. No later than 45 days prior to the beginning of each
-----------
fiscal year of the Company, the Company shall submit to each Qualified Holder an
annual plan for such year approved by the Board of Directors of the Company
which shall include quarterly capital and operating expense budgets, cash flow
statements, projected balance sheets, profit and loss projections and sales
projections for each month and for the end of such year and the succeeding two
years itemized in such detail as the Board may reasonably determine. If the
annual plan is modified by the Board of Directors to reflect changes as a result
of operating results and other events that occur during the year covered by the
annual plan, copies of such modification shall be promptly submitted to each
Qualified Holder.
4.3. Termination of Reports; Public Filings. The Company shall deliver the
--------------------------------------
reports specified in Sections 4.1 and 4.2 to each applicable Holder until the
earlier of such time as (i) such Holder is no longer a shareholder or Qualified
Holder, as applicable, (ii) the closing of a Qualified IPO, or (iii) the Company
otherwise becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended.
4.4. Transfers to Competitors. Prior to the Qualified IPO, without the
------------------------
written consent of the Holders pursuant to Section 6.4 hereof, no Holder shall
transfer any Registrable Securities to any Person who the Board of Directors of
the Company determines in good faith to be a potential or actual competitor to
the Company or its subsidiaries; provided, however, that the foregoing shall not
-------- -------
prohibit a Holder from transferring Registrable Securities in connection with
14
<PAGE>
the consolidation or merger of the Company with or into one or more other
corporations or other similar event in which the holders of capital stock of the
Company entitled to vote in the election of directors prior to the consummation
of such event own less than 50% of the capital stock of the surviving
corporation entitled to vote in the election of directors.
5. PUT RIGHT
(a) Put Right. At any time during the one-year period after the sixth
---------
anniversary of the date hereof, in the event the Common Stock is not then traded
on any national securities exchange or the Nasdaq National Market (or any
successor thereof), each Holder, with the consent of Holders holding at least a
majority of the Registrable Securities then outstanding (the "Majority
Holders"), shall have the right (the "Put Right") to sell to the Company, and
upon the exercise of the Put Right the Company shall have the obligation to
purchase, all (and not less than all) of the shares of Registrable Securities
then held by the Holders exercising the Put Right on the terms and conditions
hereafter provided in this section. All Holders intending to exercise a Put
Right shall deliver written notice thereof to the Company (the "Put Notice"),
which Put Notice shall be effective only if consented to or joined in by the
Majority Holders (which may include for such purpose the Holder(s) intending to
exercise its Put Right).
(b) Participation by Other Holders. The Company shall within 10 days
------------------------------
of its receipt of the Put Notice deliver to each Holder (other than the Holder
initially delivering the Put Notice) written notice of its receipt of such Put
Notice (the "Company Notices"). Each Holder shall have the right to participate
in the exercise of the Put Right by delivering notice thereof (a "Participation
Notice") to the Company on or before the 30th day following the Company's
delivery of the Company Notice (such 30th day being referred to as the
"Determination Date"). Each Holder electing to exercise its Put Right hereunder
(each a "Participating Holder") shall exercise its rights with respect to all
(and not less than all) of its Registrable Securities. Each Holder that does
not elect to participate in the exercise of the Put Right by delivering a
Participation Notice shall thereafter be precluded from exercising its Put Right
until the earlier of (i) 180 days after the Determination Date and (ii) the 30th
day following the determination of the Put Price with respect to the then
pending exercise of the Put Rights. No Participating Holder may rescind its
election to exercise its Put Rights, and each Participating Holder shall be
obligated to sell its Registrable Securities in accordance with this section
unless (i) such rescission is consented to by the Majority Holders (which may
include for such purpose the Holder intending to rescind its exercise of its Put
Right) or (ii) the Company fails to purchase such Participating Holder's
Registrable Securities in accordance with this section on the date of the Put
Closing.
(c) Put Price. The purchase price to be paid by the Company for the
---------
Registrable Securities shall be the "fair market value" thereof as of the
Determination Date
(d) Fair Market Value. The fair market value of the Registrable
-----------------
Securities means the product of (i) the total consideration that would be
received by a holder of one share of Common Stock upon the sale of all of the
Company's issued and outstanding equity securities in a single transaction or
series of related transactions to a buyer willing to pay the highest purchase
price that would be received in an auction conducted by a nationally recognized
investment banking firm that has experience valuing network businesses and other
businesses of the type
15
<PAGE>
then engaged in by the Company, which buyer is under no compulsion to buy and
the holders of such equity securities are under no compulsion to sell, all
parties having reasonable knowledge of all relevant facts, with no discount
being applied for any other reason and (ii) the percentage equity ownership of
the Company represented by the Registrable Securities, calculated on a fully
diluted basis.
(e) Determination of Fair Market Value. The fair market value of the
----------------------------------
Registrable Securities shall be that which is negotiated by the Company and a
majority in interest of the Participating Holders (as measured by their relative
holdings of Registrable Securities) (the "Majority Participating Holders"). If
the Company and the Majority Participating Holders fail to agree on the fair
market value within 30 days of the Determination Date, then, at the election of
the Majority Participating Holders, either (i) the Majority Participating
Holders shall then have the right to require a sale of the Company by asset
sale, merger or otherwise (a "Sale of the Company") in accordance with the
provisions of Section 5(g) and (h) hereof by delivering to the Company an Exit
Instruction Notice or (ii) the Company and the Majority Participating Holders
shall attempt to agree upon an appraiser to determine the fair market value,
which appraiser shall be a nationally recognized investment banking firm that
has experience valuing network businesses and other businesses of the type then
engaged in by the Company (the firm or firms engaged to determine the fair
market value hereunder having such qualifications being referred to as an
"Appraiser"). If, within the ten day period after the expiration of such 30 day
period, the Company and the Majority Participating Holders agree upon an
Appraiser to determine the fair market value in accordance with Section 5.4
above, then such Appraiser shall make such determination within 30 days after
the date of such Appraiser's engagement, and such determination shall govern.
If the Company and the Majority Participating Holder do not, within such 10 day
period, agree as to a single Appraiser, or if the Appraiser appointed as
provided above fails to determine such fair market value within 30 days of the
date of such Appraiser's engagement, then each of the Company and the Majority
Participating Holder's engagement, then each of the Company and the Majority
Participating Holders, by notice to the other, shall appoint one Appraiser. If
either the Company or the Majority Participating Holders shall fail to appoint
such an Appraiser within 10 days after the lapse of such 10 or 30 day period, as
applicable, then the Appraiser appointed by the party that does so appoint an
Appraiser shall make the determination of such fair market value and such
determination shall govern. If two Appraisers are appointed and they agree upon
such fair market value, their joint determination shall govern. If said two
Appraisers cannot reach an agreement within 30 days after the appointment of the
last Appraiser to be appointed, the two Appraisers selected shall promptly
select a third Appraiser who shall within 15 days following such Appraiser's
appointment, select one of the two other appraisals as constituting fair market
value. All decision of the Appraiser(s) shall be rendered in writing and shall
be signed by the Appraiser(s). The fair market value determined as herein
provided shall be conclusive, final and binding on the parties and shall be
enforceable in any court having jurisdiction over a proceeding brought to seek
such enforcement. The cost of the fair market value determination shall not be
taken into account in determining fair market value and shall be borne by the
Company and the Participating Holders, with the Participating Holders bearing
such portion of such cost as equals their percentage equity ownership of the
Company on a fully diluted basis.
(f) Put Closing. The Company shall purchase from the Participating
-----------
Holders, and
16
<PAGE>
each Participating Holder shall sell to the Company (the "Put Closing"), all of
each Participating Holder's Registrable Securities at such time and place as may
be agreed upon by the Company and the Majority Participating Holders, but in no
event shall the Put Closing occur more than 120 days after the determination of
the fair market value in accordance herewith. In the absence of an agreement,
the Put Closing shall occur at the offices of the Company's principal outside
counsel. At the Put Closing, each Participating Holder shall deliver to the
Company certificates representing such Holder's Registrable Securities (free and
clear of all liens and encumbrances other than those granted in favor of and
held by the Company's creditors), and the Company shall pay to each
Participating Holder the purchase price therefor as provided herein by wire
transfer of immediately available funds. Upon the consummation of the Put
Closing as contemplated hereby, the Company's obligations under this Section 5
shall terminate.
(g) Remedies. If, for any reason, the Company fails to purchase all
--------
of the Registrable Securities of the Participating Holders as provided in this
section, then, in addition to whatever rights and remedies that may arise at law
or in equity as a result thereof, then (i) the Company shall pay each
Participating Holder on demand interest on the unpaid balance of the amount due
under clause (c) above (the "Put Price") at the rate of 15% per annum (or the
highest rate permitted under applicable law, if lower), until the unpaid balance
of the Put Price is paid in full and (ii) the Majority Holders shall have the
right, exercisable by giving notice hereof to the Company (such notice being
referred to as an "Exit Instruction Notice"), to require a Sale of the Company
yielding consideration to the Company or the stockholders consisting of at least
90% cash or readily marketable securities, whereupon the primary mandate and
duty of the Company's Board of Directors and stockholders shall be to effect a
sale of the Company. No Holder or any director or officer of the Company may
participate as a buyer (whether directly or indirectly as the holder of any
existing or prospective equity interest) in any such transaction without the
consent of the Majority Holders. If the Company fails to enter into one or more
definitive agreements with one or more third parties that are not affiliates of
the Company or any Holder contemplating a Sale of the Company on or before the
180th day following the delivery of the Exit Instruction Notice or if such
definitive agreements shall have been terminated, then, subject to obtaining any
required governmental consent with respect thereto, the Majority Holders shall
have all requisite right, power and authority, as the Company's agent, to bind
the Company and effect a Sale of the Company.
(h) Exit Transaction. In exercising its rights to effect a Sale of
----------------
the Company, the Majority Holders shall have full and plenary power and
authority, as the agent of the Company, to cause the Company to enter into a
transaction providing for a Sale of the Company (an "Exit Transaction") and to
take any and all such further action in connection therewith as the Majority
Holders may deem necessary or appropriate in order to consummate any such Exit
Transaction. The Major Holders, in exercising their rights under this section
shall have complete discretion over the terms and conditions of any Exit
Transactions effected thereby, including, without limitation, price, payment
terms, conditions to closing, representations, warranties, affirmative
covenants, negative covenants, indemnification, holdbacks and escrows. Without
limitation of the foregoing, the Majority Holders may execute on behalf of the
Company or such agreements, documents, applications, authorizations and
instruments (collectively, "Exit Documents") as they shall deem necessary or
appropriate in connection with any Exit Transaction, and each third party with
whom the Majority Holders contracts on behalf of the Company or any Subsidiary
may rely on the
17
<PAGE>
authority vested in the Majority Holders under this section for all purposes.
(i) Business Judgment Rule. In conducting an Exit Transaction, the
----------------------
Majority Holders shall be guided by corporate law principles and decisions
governing the sale of a Delaware corporation or its assets with a goal of
maximizing such corporation's value at a sale or liquidation for its
stockholders' benefit. Without limitation of the foregoing, the Majority
Holders shall enjoy the benefit of the business judgment rule and other
protections afforded directors under Delaware law with respect to all of their
decisions and actions in connection with any Exit Transaction to the maximum
extent permitted by law.
6. MISCELLANEOUS
6.1. Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of Delaware without regard to provisions regarding choice of
laws.
6.2. Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
whose rights or obligations hereunder are affected by such amendments.
6.3. Notices. Except as may be otherwise provided herein, all notices and
-------
other communications required or permitted hereunder shall be in writing and
shall be hand delivered or mailed by registered or certified first class mail,
postage prepaid, or by overnight courier addressed, (a) if to the Holders, to
each such Holder's address set forth on the signature page hereof, or to such
other address as such Holder or any of its successors or assigns shall have
furnished to the Company in writing, or (b) if to the Company, to its address
set forth below its signature hereto, or to such other address as the Company
shall have furnished to the Holders or their successors or assigns in writing.
Notices hand delivered or delivered by overnight courier shall be effective upon
delivery and notices sent by first class mail shall be effective three days
following deposit in the United States mail.
6.4. Amendments and Waivers. Any term of this Agreement may be amended and
----------------------
the observance of any term of the Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of at least a majority of the
Registrable Securities then outstanding, provided that any waivers or consents
in connection with Section 2 shall require the written consent of at least 66
2/3% of the Registrable Securities then outstanding.
6.5. Delays or Omissions. No delay or omission to exercise any right, power
-------------------
or remedy accruing to the Company or to the Holders, upon any breach or default
of any party hereto under this Agreement, shall impair any such right, power or
remedy of the Company, or the Holders nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of any similar
breach or default thereafter occurring; nor shall any waiver of any other breach
or default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of the Company or the Holders of
any breach or default under this Agreement or any waiver on the part of the
Company or the Holders
18
<PAGE>
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded to the
Company or the Holders shall be cumulative and not alternative.
6.6. Legal Fees. In the event of any action at law, suit in equity or
----------
arbitration proceeding in relation to this Agreement, the prevailing party,
shall be paid its reasonable attorney's fees and expenses by the other party.
6.7. Titles and Subtitles. The titles of the sections and subsections of
--------------------
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.9. Severability. Should any provision of this Agreement be determined to
------------
be illegal or unenforceable, such determination shall not affect the remaining
provisions of this Agreement.
6.10. Entire Agreement. This Agreement and the exhibits hereto which are
----------------
hereby expressly incorporated herein by this reference constitute the entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof and supersede any prior agreement or understanding with
respect to the subjects hereof and thereof.
6.11. Effect of Change in Capital Structure. The parties' rights and
-------------------------------------
obligations under this Agreement shall apply as well to any securities of the
Company received from the Company as a result of any stock dividend, stock
split, reverse stock split, combination, reclassification or similar change in
the capital structure of the Company.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first written.
COMPANY:
NETWORK ACCESS SOLUTIONS, INC.
100 Carpenter Drive
Suite 206
Sterling, Virginia 20164
/s/ Longma M. Aust
------------------------
Signature
Longma M. Aust
------------------------
Printed Name
President
------------------------
Title
For purposes of the notice provided for in
Section 6.3, with a copy to:
Piper & Marbury LLP
1200 19th Street, N.W.
Washington, D.C. 20036
Attention: Nancy Spangler, Esq.
20
<PAGE>
HOLDERS:
SPECTRUM EQUITY INVESTORS II, L.P.
245 Lytton Avenue
Palo Alto, CA 94301
Attention: Fred Wang
By: Spectrum Equity Associates II, L.P.
its Managing General Partner
/s/ Fred Wang
------------------------
Signature
Fred Wang
------------------------
Printed Name
Attorney-in-Fact
------------------------
Title
For purposes of the notice provided for in
Section 6.3, with a copy to:
Latham & Watkins
75 Willow Road
Menlo Park, California 94025
Attention: Ora T. Fisher, Esq.
SEA 1998 II, L.P.
245 Lytton Avenue
Palo Alto, CA 94301
Attention: Fred Wang
/s/ Randy Henderson
------------------------
Signature
Randy Henderson
------------------------
Printed Name
Vice President
------------------------
Title
21
<PAGE>
FBR TECHNOLOGY VENTURE PARTNERS L.P.
1001 19th Street
Arlington, VA 22209
Attention: Scott Frederick
By: FBR Venture Capital Managers Inc.
its General Partner
/s/ Gene Riechers
------------------------
Signature
Gene Riechers
------------------------
Printed Name
Managing Director
------------------------
Title
W2 VENTURE PARTNERS, LLC
3814 Shinglewood Court
Union City, CA 94587
Attention: Ed Wang
/s/ Ed Wang
------------------------
Signature
Ed Wang
------------------------
Printed Name
Member
------------------------
Title
22
<PAGE>
NETWORK ACCESS SOLUTIONS CORPORATION
AMENDMENT NO.1 TO
INVESTOR RIGHTS AGREEMENT
-------------------------
THIS AMENDMENT NO. 1 (the "Amendment No. 1") to that certain Investor
Rights Agreement dated as of August 6, 1998, by and between Network Access
Solutions Corporation, formerly known as Network Access Solutions, Inc., (the
"Company") and the other signatories thereto (such Investor Rights Agreement in
the form attached hereto as Exhibit A, the "Investor Rights Agreement"), is made
---------
effective as of the 17th day of March, 1999.
WHEREAS, the Company and the signatories to the Investor Rights
Agreement wish to provide that the Put Right set forth in Section 5 of the
Investor Rights Agreement be terminated immediately upon a qualified initial
public offering of shares of the Company's Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Effective the date hereof, the following new Section 5(j) be
inserted at the end of Section 5 of the Investor Rights Agreement:
"(j) Notwithstanding anything contained herein to the contrary, the Put
Right set forth in this Section 5 shall terminate immediately upon the first
sale of the Company's Common Stock in a firm commitment underwritten public
offering that is (i) pursuant to a registration statement filed under the Act
and (ii) based on a pre-money valuation of the Company in excess of
$200,000,000."
2. Successors and Assigns. All covenants and agreements in this
----------------------
Amendment No. 1 by or on behalf of any of the parties hereto will bind and inure
to the benefit of their respective successors and assigns whether so expressed
or not.
3. Governing Law. This Amendment No. 1 shall be governed by and
-------------
construed under the laws of the State of Delaware.
4. Ratification of Agreement. Except as specifically set forth
-------------------------
herein, the Investor Rights Agreement shall remain in full force and effect.
5. Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Amendment No. 1 are for convenience of reference only and are not to be
considered in construing this Amendment No. 1.
6. Counterparts. This Amendment No. 1 may be executed in
------------
counterparts, each which shall be deemed an original, and all of which shall
constitute one and the same instrument.
Signatures on following pages
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as
of the day and year first above written.
COMPANY:
NETWORK ACCESS SOLUTIONS CORPORATION
100 Carpenter Drive
Sterling, Virginia 20164
/s/ Jonathon Aust
------------------
Signature
Jonathon Aust
-------------
Printed Name
President and Chief Executive Officer
-------------------------------------
Title
HOLDERS:
SPECTRUM EQUITY INVESTORS II, L.P.
245 Lytton Avenue
Palo Alto, CA 94301
By: Spectrum Equity Associates II, L.P.
its General Partner
/s/ Brion B. Applegate
-----------------------
Signature
Brion B. Applegate
------------------
Printed Name
Managing General Partner
------------------------
Title
<PAGE>
SEA 1998 II, L.P.
245 Lytton Avenue
Palo Alto, CA 94301
/s/ Randy Henderson
--------------------
Signature
Randy Henderson
---------------
Printed Name
Vice President
--------------
Title
FBR TECHNOLOGY VENTURE PARTNERS L.P.
1001 19th Street
Arlington, VA 22209
By: FBR Venture Capital Managers Inc.
its General Partner
--------------------------
Signature
-------------------
Printed Name
---------------------
Title
W2 VENTURE PARTNERS, LLC
3814 Shinglewood Court
Union City, CA 94587
--------------------------
Signature
----------------------
Printed Name
---------------
Title
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF LOSS PER SHARE
<TABLE>
For the years ended December 31,
-------------------------------------------------
1995 1996 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss $ 90,120 $ 90,183 $ 42,152 $(2,075,938)
------------ ---------- ---------- -----------
Weighted average common shares 9,740,000 9,740,000 9,740,000 12,134,286
Common equivalent shares:
Dilutive stock options - - - -
Dilutive preferred stock - - - -
--------- --------- ---------- ------------
Weighted average common shares outstanding
(basic and diluted) 9,740,000 9,740,000 9,740,000 12,134,286
Net loss per share $ 0.01 $ 0.01 $ 0.00 $ (0.17)
========== ========== ========== ============
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
of our report dated March 18, 1999, on our audits of the financial statements of
Network Access Solutions Corporation. We also consent to the references to our
firm under the captions "Experts," "Summary Financial And Other Data," and
"Selected Financial And Other Data."
/s/ PricewaterhouseCoopers, LLP
- --------------------------------
McLean, Virginia
March 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NETWORK
ACCESS SOLUTIONS CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001081665
<NAME> NETWORK ACCESS SOLUTIONS CORPORATION
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 713,246 5,518,117
<SECURITIES> 0 0
<RECEIVABLES> 765,325 1,858,750
<ALLOWANCES> 0 51,959
<INVENTORY> 47,547 59,233
<CURRENT-ASSETS> 1,526,118 7,489,834
<PP&E> 153,045 5,173,665
<DEPRECIATION> 12,868 142,872
<TOTAL-ASSETS> 1,865,027 12,928,078
<CURRENT-LIABILITIES> 1,114,859 4,004,926
<BONDS> 500,000 2,350,823
0 5,640,651
0 0
<COMMON> 9,740 19,800
<OTHER-SE> 240,428 911,878
<TOTAL-LIABILITY-AND-EQUITY> 1,865,027 12,928,078
<SALES> 8,944,816 11,639,075
<TOTAL-REVENUES> 8,944,816 11,639,075
<CGS> 7,413,035 9,441,390
<TOTAL-COSTS> 7,413,035 9,441,390
<OTHER-EXPENSES> 1,448,811 4,366,058
<LOSS-PROVISION> 0 51,959
<INTEREST-EXPENSE> 5,144 81,006
<INCOME-PRETAX> 77,826 (2,103,911)
<INCOME-TAX> 35,674 (27,973)
<INCOME-CONTINUING> 42,152 (2,075,938)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 42,152 (2,642,547)
<EPS-PRIMARY> .01 (.22)
<EPS-DILUTED> .01 (.22)
</TABLE>
