<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999
REGISTRATION NO. 333-85597
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
ALLIED RISER COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 75-2789492
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1700 PACIFIC AVENUE
DALLAS, TEXAS 75201
(214) 210-3000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------------
MICHAEL R. CARPER
SENIOR VICE PRESIDENT
AND GENERAL COUNSEL
1700 PACIFIC AVENUE
DALLAS, TEXAS 75201
(214) 210-3000
(Name, Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
COPIES TO:
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<S> <C>
PHYLLIS G. KORFF JAMES S. SCOTT, SR.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP SHEARMAN & STERLING
919 THIRD AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 735-3000 (212) 848-4000
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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, 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,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"). The Prospectuses are identical in all material
respects except for the front cover page. The U.S. Prospectus is included herein
and is followed by the alternate front cover page to be used in the
International Prospectus. The alternate page for the International Prospectus
included herein is labeled "Alternate Page for International Prospectus." Final
forms of each Prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b).
<PAGE> 3
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK TO OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED , 1999.
[LOGO]
Shares
ALLIED RISER COMMUNICATIONS CORPORATION
Common Stock
---------------------
This is an initial public offering of shares of common stock of Allied
Riser Communications Corporation. This prospectus relates to an offering of
shares in the United States. In addition, shares are being offered
outside the United States in an international offering. All of the shares
of common stock are being sold by Allied Riser.
It is currently estimated that the initial public offering price per share
will be between $ and $ . Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "ARCC".
See "Risk Factors" on page 8 to read about factors you should consider
before buying shares of the common stock.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
---------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Allied Riser.................. $ $
</TABLE>
---------------------
To the extent that the underwriters sell more than shares of
common stock, the underwriters have the option to purchase up to an additional
shares from Allied Riser at the initial public offering price less the
underwriting discount.
---------------------
The underwriters expect to deliver the shares in New York, New York on
, 1999.
GOLDMAN, SACHS & CO.
---------------------
Prospectus dated , 1999.
<PAGE> 4
[GRAPHICS]
<PAGE> 5
PROSPECTUS SUMMARY
We are a facilities-based provider of broadband data, video and voice
communications services to small- and medium-sized businesses in 16 major
metropolitan areas in the United States. We typically deliver our services over
fiber-optic networks that we design, construct, own and operate inside large-
and medium-sized office buildings. Today, over this infrastructure, we offer
ultra high-speed Internet access, business-oriented television for display on
computer desktops, enhanced conference calling services and other broadband data
services. We own and operate in-building fiber-optic networks inside 57 office
buildings with more than 31.1 million rentable square feet. We have agreements
with building owners to install and operate fiber-optic networks in more than
1,000 office buildings with more than 325 million rentable square feet.
Our Internet access services provide a direct connection to the Internet at
speeds up to 175 times faster than standard dial-up service and are always-on.
We believe that our service offers a combination of price and performance to our
target customers that is superior to competing offerings. Our business-oriented
television is the first of many additional connectivity services and
broadband-enabled applications and content that we intend to offer using our in-
building broadband infrastructure. We intend to take advantage of our growing
market presence and brand by also offering similar broadband services to our
customers' branch offices and other businesses located in buildings in which we
have not installed our fiber-optic networks.
We use our in-building fiber-optic networks to transmit data to and from
each of our customers at speeds of ten million bits of data per second. Using
commercially available equipment, we can increase this transmission speed to one
billion bits of data per second. We connect each of our in-building networks to
a central facility in each metropolitan area, usually over fiber-optic lines we
lease from other carriers. At this metropolitan hub, we aggregate and
disseminate network traffic for Internet connectivity and our other broadband
services.
We have entered into agreements to obtain access to buildings owned or
managed by some of the largest commercial property companies in the United
States, including affiliates of Hines, Equity Office Properties, Trizec Hahn,
Whitehall and others. Upon completion of the offering, these real estate
companies and their affiliates will own more than 21.8% of our equity. These
entities, and our financial sponsors, including affiliates of Telecom Partners,
Crescendo Ventures, Norwest Venture Partners and Goldman Sachs, have invested
over $117 million in our equity.
THE GROWING NEED FOR ADVANCED COMMUNICATIONS SOLUTIONS
High-speed dedicated Internet access and other broadband data services
offer new commercial opportunities to and can substantially improve the
productivity of small- and medium-sized businesses. Today, most of these
businesses obtain access to the Internet through dial-up connections. These
standard connections are slow, expensive and require the user to wait before a
connection is established. Forrester Research projects that the worldwide market
for dedicated Internet access spending among businesses will grow from $1.6
billion in 1998 to approximately $35.3 billion by 2003. We believe that many
small- and medium-sized businesses can also benefit from having ready access to
business-oriented television programming, such as CNN, as well as enhanced
conference calling services and other advanced communications solutions. These
services are unavailable to many small- and medium-sized businesses today
because the communications infrastructure inside the buildings in which their
offices are located is inadequate.
OUR SOLUTION
We own and operate advanced communications networks inside office
buildings, enabling us to provide a broad range of advanced data, video and
voice communications services that are tailored to meet the needs of all
business customers, especially those of small- and medium-sized businesses.
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<PAGE> 6
BUSINESS STRATEGY
- - PARTNER WITH REAL ESTATE OWNERS. We provide real estate owners with a new
amenity to assist their leasing and tenant retention efforts and share with
them a modest portion of the revenue that we generate from tenants in their
buildings.
- - OWN THE KEY ELEMENTS OF THE LOCAL BROADBAND NETWORK. We usually operate the
only fiber-optic network inside the buildings in which we provide services,
providing the critical first mile connection between local fiber networks and
end-users.
- - CAPITALIZE ON OUR FIRST MOVER ADVANTAGE. We have already installed fiber-optic
networks, established metropolitan hubs and hired sales personnel in 16
metropolitan areas, which enables us to deploy networks rapidly and
efficiently in additional buildings in those areas.
- - DESIGN NETWORKS FOR THE FUTURE. We designed our networks using fiber-optic
technology to ensure they are easily upgradeable.
- - TARGET SMALL- AND MEDIUM-SIZED BUSINESSES. Although we service businesses of
all sizes, our product offerings are targeted at underserved small- and
medium-sized businesses.
- - FOCUS SALES AND MARKETING EFFORTS. Our sales and marketing efforts are focused
on tenants in buildings in which we own and operate a network, which should
result in lower customer acquisition costs than our competitors.
- - EXPAND OUR SERVICE OFFERINGS. We intend to expand our service offerings and
more fully use our networks' capacity and capabilities.
- - OFFER SERVICES TO CUSTOMERS IN SELECTED OTHER BUILDINGS. We seek to increase
revenue with relatively modest incremental sales and marketing costs by
offering services to our core customers' remote offices located in buildings
where we do not own a fiber-optic network.
- - PROVIDE EXCELLENT CUSTOMER CARE. We operate an around-the-clock customer care
center and have technical personnel in each metropolitan area where we provide
services.
- - BUILD OUR BRAND. We seek to build our brand to enhance our ability to gain
access to additional buildings, add new customers, reduce customer churn and
attract employees.
4
<PAGE> 7
THE OFFERING
Common stock offered................ shares
Common stock to be outstanding after
the offering........................ shares
Proposed Nasdaq National Market
symbol.............................. "ARCC"
Use of proceeds..................... For the construction of in-building
networks, working capital and business
acquisitions and investments, general
corporate purposes, including to fund
operating losses.
In the above table and throughout this prospectus, unless otherwise
indicated, the number of shares of common stock that will be outstanding after
this offering is based on the number of shares of common stock outstanding as of
September 15, 1999, plus:
- the number of shares of common stock to be sold by us in this offering;
- shares of common stock, assuming an initial public offering price of
$ per share, to be issued at the completion of this offering upon the
conversion of all of our outstanding convertible preferred stock; and
- shares of common stock issued upon the exercise of warrants with no
exercise price.
The number of shares of common stock outstanding as of September 15, 1999
excludes:
- 73,326 shares of common stock issuable upon the exercise of stock
options. These options have an exercise price of $.336 per share.
Unless we indicate otherwise, the information in this prospectus assumes
that the underwriters will not exercise their over-allotment option. See
"Description of Capital Stock."
---------------------
Our principal executive offices are located at 1700 Pacific Avenue, Dallas,
Texas 75201 and our phone number is (214) 210-3000.
The ARC Lightspeed Network, OpticNet and ARC Connected are some of our
trademarks. Each trademark, trade name or service mark of any other company
appearing in this prospectus belongs to its holder.
5
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
You should read the following consolidated summary financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes, all
of which appear elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION JUNE 30,
(DECEMBER 19, 1996) YEAR ENDED -------------------
TO DECEMBER 31, DECEMBER 31, (UNAUDITED)
1997 1998 1998 1999
------------------- ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Network services revenue............. $ -- $ 212 $ 27 $ 547
Operating expenses................... 1,438 14,216 4,205 17,791
------- -------- -------- --------
Operating income (loss).............. (1,438) (14,004) (4,178) (17,244)
Other income (expense)............... (59) (606) (204) 368
------- -------- -------- --------
Net income (loss).................... $(1,497) $(14,610) $ (4,382) $(16,876)
======= ======== ======== ========
Net income (loss) applicable to
common stock....................... $(1,497) $(15,062) $ (4,382) $(20,176)
======= ======== ======== ========
</TABLE>
The pro forma balance sheet information below reflects:
- the sale and issuance of 17 shares of series B preferred stock and
2,019,766 shares of common stock in a financing transaction consummated
in August 1999; and
- the sale and issuance of 34 shares of series B preferred stock and
4,039,531 shares of common stock to our real estate partners and their
affiliates consummated in August 1999.
The pro forma as adjusted balance sheet information reflects all of these
adjustments and:
- the receipt of estimated net proceeds of $232,700,000 from this offering,
assuming an initial public offering price of $ per share; and
- the conversion upon the completion of this offering of all preferred
stock into common stock, assuming an initial public offering price of
$ per share.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------
(UNAUDITED)
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 24,307 $ 74,316 $307,016
Property and equipment, net............................... 20,765 20,765 20,765
Total assets.............................................. 47,220 97,229 329,929
Total liabilities......................................... 11,311 11,311 11,311
Convertible redeemable preferred stock.................... 69,751 120,751 --
Stockholders' equity (deficit)............................ (33,842) (34,833) 318,619
</TABLE>
6
<PAGE> 9
As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes, depreciation and amortization. We have provided EBITDA
because it is a measure of financial performance commonly used in our industry
and is often used by investors as an indicator of a company's historical ability
to service existing debt or incur additional debt. EBITDA is not a measure
calculated under generally accepted accounting principles. Other companies may
calculate EBITDA differently from us. It is not an alternative to operating
income as an indicator of our operating performance or as an alternative to cash
flows from operating activities as a measure of liquidity. We anticipate that
EBITDA, if any, generated from our operations in the foreseeable future will be
used to build our infrastructure and expand our business.
The last three line items of other operating data below reflect data as of
the last day of each period and do not include our work-in-progress or under
contract as of those dates.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
INCEPTION JUNE 30,
(DECEMBER 19, 1996) YEAR ENDED ---------------------
TO DECEMBER 31, DECEMBER 31, (UNAUDITED)
1997 1998 1998 1999
------------------- ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER OPERATING DATA:
Net cash provided by (used in)
operating activities............. $(1,229) $(14,420) $ (3,615) $ (10,380)
Net cash provided by (used in)
investing activities............. $(1,088) $ (8,115) $ (1,931) $ (4,528)
Net cash provided by (used in)
financing activities............. $ 2,504 $ 63,719 $ 6,538 $ (2,157)
EBITDA............................. $(1,401) $(13,504) $ (4,111) $ (13,890)
Capital expenditures............... $ 1,220 $ 12,032 $ 2,972 $ 8,650
Metropolitan markets served........ -- 2 1 9
Buildings in operation............. -- 4 3 30
Rentable square feet in buildings
in operation..................... -- 2,900,000 1,900,000 22,000,000
</TABLE>
7
<PAGE> 10
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in the shares of common stock.
WE ARE A START-UP THAT MUST GROW VERY RAPIDLY TO SUCCEED
We began operating our first fiber-optic network in January 1998. An
investor in our common stock must consider the risks, expenses and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, including providers of Internet access and other Internet related
services. These risks are increased by the fact that we must grow very rapidly
to succeed. The growth we must achieve will put a significant strain on all our
resources.
WE HAVE EXPERIENCED INCREASING NEGATIVE EBITDA, OPERATING LOSSES AND NET LOSSES,
WHICH WILL CONTINUE
Since our formation we have generated increasing negative EBITDA, and
larger operating losses and net losses each quarter. We have not achieved
profitability and expect to continue to incur increasing negative EBITDA,
operating losses and net losses in 1999 and for the foreseeable future. For
1998, we had negative EBITDA of $13,504,000, an operating loss of $14,004,000
and a net loss of $14,610,000 on revenues of $212,000. For the first six months
of 1999, we had negative EBITDA of $13,890,000, an operating loss of $17,244,000
and a net loss of $16,876,000 on revenues of $547,000.
In addition, we expect to continue to incur significant development costs
and, as a result, we will need to generate significant revenue to achieve
profitability, which may not occur. We cannot be sure that we will achieve or
sustain positive EBITDA, operating income or net income in the future. If we
cannot, eventually it could have a material adverse effect on the price of our
common stock.
WE HAVE AN UNPROVEN BUSINESS MODEL
We are not aware of any company that has achieved positive EBITDA,
operating income or net income by executing a business plan like ours. We cannot
be sure that our business plan can be successfully executed, that there will be
adequate demand for our services, that we will be able to achieve or maintain
profitability or that we will foresee all of the future difficulties in
executing our business plan. We will make substantial capital expenditures in
deploying our networks before we know whether our business plan can be
successfully executed. As a result, there is a risk that the price of our common
stock may fluctuate and may substantially decrease.
OUR BILLING, CUSTOMER SERVICE AND INFORMATION SUPPORT SYSTEMS NEED FURTHER
DEVELOPMENT OR REPLACEMENT
Sophisticated information processing systems are vital to our growth and
our ability to achieve operating efficiencies. Systems we have identified as
being presently inadequate to meet the increased demands of our anticipated
growth include billing and collections, work-flow and customer priority
management, financial and accounting, human resources, sales and customer
support and fixed asset management.
We estimate that modifying or replacing these systems will cost
approximately $16 million in the current fiscal year. Our plans for the
development and implementation of these operational support systems rely, for
the most part, on acquiring products and services offered by third-party vendors
and integrating those products and services. However, we cannot be sure that we
have successfully identified all of our information processing needs or that our
cost estimates are accurate. In addition, we may be unable to implement these
systems on a timely basis or at all,
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<PAGE> 11
and these systems may not perform as expected. We may also be unable to maintain
and upgrade our operational support systems as necessary. These factors could
have a material adverse effect on the price of our common stock.
We are also dependent on the systems of our network capacity providers,
and, in some cases, on the interface between our systems and those of our
providers. Therefore, any systems failures experienced by our suppliers could
also have a material adverse effect on the price of our common stock.
THE SECTOR IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY
We face competition from many entities with significantly greater financial
resources, well-established brand names and larger customer bases. We expect
competition to intensify in the future. We expect significant competition from
traditional and new telecommunications companies, including local, long
distance, cable modem, Internet, digital subscriber line, microwave, mobile and
satellite data service providers. If we fail to compete effectively or if we
experience severe price competition for our services or the right to install our
networks, there could be a material adverse effect on the price of our common
stock.
IN-BUILDING COMPETITORS. Some competitors, such as Cypress Communications,
OnSite Access, Intermedia Communications, SiteLine, RCN Telecom Services,
NextLink, Winstar, Teligent and Advanced Radio Telecom are attempting to gain
access to office buildings in our target markets. Some of these competitors have
sought to develop exclusive relationships with building owners. To the extent
these competitors are successful, we may face difficulties in building our
networks and marketing our services within some of our target buildings. Our
agreements to use utility shaft space within buildings are not exclusive. An
owner of any of the buildings we have rights to install a network in could also
give similar rights to one of our competitors. It will take a substantial amount
of time for us to build networks in all the buildings where we obtain rights to
do so. Each building in which we have not built a network is particularly
vulnerable to competitors. It is not clear whether it will be profitable for two
or more different companies to operate broadband networks within the same
building. Therefore, it is critical that we build our networks in additional
buildings quickly. Once we have done so, if a competitor installs a network in
the same building, it is likely that there will be substantial price
competition.
LOCAL TELEPHONE COMPANIES. Incumbent local telephone companies, including
GTE and the Bell Operating Companies, have several competitive strengths,
including:
- an established brand name and reputation;
- significant capital to deploy fiber-optic equipment rapidly;
- ability to offer higher-speed data services through digital subscriber
line technology;
- their own inter-building connections; and
- ability to bundle digital data services with their voice services to
achieve economies of scale in servicing customers.
Competitive local telephone companies often have broadband inter-building
connections, market their services to tenants of large- and medium-sized
buildings and selectively build in-building facilities.
LONG DISTANCE COMPANIES. Many of the leading long distance carriers,
including AT&T, MCI WorldCom, and Sprint, are expanding their capabilities to
support high-speed, end-to-end data networking services, and could begin to
build their own in-building networks. AT&T has deployed high-speed cable modems.
The newer national long distance carriers, such as Qwest, Level 3,
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<PAGE> 12
Williams Communications and IXC Communications, which has agreed to be acquired
by Cincinnati Bell, are building and managing high-speed fiber-based national
data networks, partnering with Internet service providers, and may extend their
networks by installing in-building fiber-optic cables.
FIXED WIRELESS SERVICE PROVIDERS. Fixed wireless service providers can
provide high speed inter-building communications services using microwave or
other facilities or satellite earth stations on building rooftops that send and
receive signals over various radio frequency bands. Some of these providers have
targeted small- and medium-sized-business customers and have a business strategy
that is similar to ours. These providers include Winstar, Teligent, Advanced
Radio Telecom, Sprint and MCI WorldCom.
INTERNET, DIGITAL SUBSCRIBER LINE, AND CABLE MODEM SERVICE
PROVIDERS. Internet service providers, such as GTE Internetworking, UUNET, a
subsidiary of MCI WorldCom, Sprint, Concentric Networks, MindSpring, Prodigy,
EarthLink, Verio and PSINet, provide Internet access to residential and business
customers, generally using the existing communications infrastructure. Digital
subscriber line companies and/or their Internet service provider customers, such
as Covad, Rhythms NetConnections, NorthPoint, Network Access Solutions typically
provide broadband Internet access. Cable modem service providers, such as
Excite@Home and its @Work subsidiary, Road Runner, RCN Telecom Services and High
Speed Access also provide broadband Internet access. On-line service providers,
such as America Online, Compuserve, Microsoft Network, and WebTV, provide
Internet connectivity, ease-of-use and a stable environment for modem
connections. The services provided by all of these Internet service providers
and cable modem service providers are competitive with our Internet access
services. In addition, if these service providers were to extend their owned
access networks to in-building fiber-optic networks, they would be competitors
for many of our services.
WE MUST OBTAIN ADDITIONAL AGREEMENTS WITH BUILDING OWNERS OR OUR GROWTH WILL BE
CONSTRAINED
Our business depends upon our ability to install in-building networks. The
failure of building owners to grant or renew access rights on acceptable terms
could have a material adverse effect on the price of our common stock. Current
federal and state regulations do not require building owners to make space
available to us, or to do so on terms that are reasonable or nondiscriminatory.
Building owners may decide not to permit us to install our networks in their
buildings. In addition, building owners may elect not to renew our access
agreements which typically have terms of ten years. Non-renewal of these
agreements would cause losses resulting from the removal or sale of our
infrastructure in these buildings and would reduce our revenues.
WE ARE IN A RACE TO INSTALL NETWORKS IN ADDITIONAL BUILDINGS
Our success will depend upon our ability to quickly install our in-building
networks in a lot more buildings. This is crucial in order to establish a
first-mover advantage. We may not be able to accomplish this. Each building in
which we have not built a network is particularly vulnerable to competitors.
Future expansions and adaptations of our network infrastructure may be necessary
to respond to growth in the number of customers served, increased capacity
demands and changes to our services. The expansion and adaptation of our
in-building networks will require substantial financial, operational and
managerial resources. We cannot be sure that we will be able to expand or adapt
our networks to meet the increasing demands of customers or evolving industry
standards. Our failure to rapidly deploy, expand and adapt our networks to
changing conditions could have a material adverse effect on the price of our
common stock.
DEMAND FOR BROADBAND SERVICES, SUCH AS THOSE WE OFFER, IS UNCERTAIN
Demand for broadband services has grown rapidly, and this market is
characterized by rapidly changing technology, evolving industry standards and
frequent new service introductions.
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In addition, demand and market acceptance for recently introduced services in
this industry are subject to a high level of uncertainty.
In addition, critical issues concerning the commercial use of services
requiring broadband capabilities remain unresolved and may impact the growth of
these services. Historically, some businesses have been reluctant to purchase
broadband services, such as high-speed Internet access, for a number of reasons,
including:
- resistance to the use of the Internet in business applications;
- inconsistent quality of service;
- lack of available cost-effective, high-speed options;
- the need to deal with multiple and frequently incompatible vendors;
- inadequate security for stored or transmitted data;
- lack of networking tools to simplify Internet access and use; and
- lack of high-speed application requirements.
Capacity constraints caused by heavy use of the Internet may impede further
development to the extent that users experience delays, transmission errors and
other difficulties. Further, enterprises that have already invested substantial
resources in other methods may be particularly reluctant or slow to adopt a new
strategy. If the commercial market for Internet access and other broadband
services develops more slowly than expected or if the Internet services that we
offer are not broadly accepted, there could be a material adverse effect on the
price of our common stock.
ALTERNATIVE TECHNOLOGIES POSE COMPETITIVE THREATS
In addition to fiber-optic technology, there are other technologies that
provide more capacity and speed than traditional copper wire transmission
technology. Furthermore, other new technologies may develop that provide more
capacity and speed than the fiber-optic technology we employ. These new
technologies may replace existing switch technology, the need for fiber-optic
cables or other network components. Existing alternative technologies include:
- DIGITAL SUBSCRIBER LINE TECHNOLOGY. Digital subscriber line technology
was developed to produce higher data transfer rates over the existing
copper-based telephone network. The data transfer rates for digital
subscriber lines are reported to range between 144 thousand bits of data
per second and six million bits of data per second. Improvements in
digital subscriber line data transfer rates would make it more
competitive. Digital subscriber line technology has been substantially
improved in recent years.
- CABLE MODEMS. Cable modems can allow users to send and receive data using
cable television distribution systems. According to industry sources,
cable modem users typically experience download speeds of 1.5 million
bits of data per second.
- WIRELESS TECHNOLOGIES. Wireless technologies, such as satellite and
microwave communications systems, can provide high-speed data
communications. Satellite systems, such as DirecPC, can offer high
download speeds that are advertised at 400 thousand bits of data per
second.
- INTEGRATED SERVICES DIGITAL NETWORKS. Integrated services digital
networks have been offered by the incumbent local telephone companies
over the existing copper-based
11
<PAGE> 14
telephone network for some time. These services offer data transfer
speeds of 128 thousand bits of data per second.
The development of new technologies or the significant penetration of
alternative technologies into our target market may reduce the demand for our
services and consequently could have a material adverse effect on the price of
our common stock.
WE MUST PURCHASE CAPACITY FROM THIRD PARTIES
We construct in-building networks and generally rely on other
communications carriers to provide transmission capacity outside the buildings.
Until a connection is provided by another telecommunications carrier from our
in-building network to the public networks, we typically cannot provide services
to a building.
We have experienced, and expect to continue to experience, delays in
obtaining this transmission capacity. In addition, in some of the areas we
provide services and intend to provide services, there is only one established
carrier available to provide the necessary connection. This increases our cost
and makes it extremely difficult, if not impossible, to obtain redundant
connections. We cannot be sure that sufficient capacity or redundant capacity
will be readily available from third parties at commercially reasonable rates,
if at all. Our failure to obtain adequate connections on a timely basis could
delay or impede our ability to provide services and generate revenue. Our
failure to obtain sufficient redundant connectivity could result in service
interruptions, which could in time lead to loss of customers and damage to our
reputation.
We contract with other carriers to carry our customers' traffic. These
contracts provide for penalties if we do not use as much capacity as expected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and capital resources."
WE MAY NEED MORE CAPITAL
We will require additional capital to finance our operations in the future
according to our current business plan. In addition, we also may need more
capital to respond to unforeseen industry or economic developments. We may seek
debt or equity financing. Debt financing would subject us to covenants that
could limit our flexibility. Equity financing would dilute the ownership
interests of investors in this offering. We may not be able to raise additional
capital on a timely basis or on acceptable terms, or at all. The failure to
obtain enough capital may require us to delay or abandon some of our plans, sell
our assets or default in the payment of our loans and could have a material
adverse effect on the price of our common stock.
WE MUST MAKE SIGNIFICANT CAPITAL EXPENDITURES BEFORE GENERATING REVENUE
When we install an in-building network, we incur significant initial
expenditures. These expenditures vary depending on the size of the building and
whether we encounter any construction-related difficulties. In addition, we
typically install an in-building network before we have any customers in that
building. Since we generally do not solicit customers within a building until
our network is in place, and since our costs can vary, we cannot assure you that
we will be able to recoup our expenditures within any building. If we fail to
attract enough customers within each office building, there could be a material
adverse effect on the price of our common stock.
OUR NETWORKS ARE SUBJECT TO SECURITY RISKS
Our networks may be vulnerable to unauthorized access, computer viruses and
other disruptive problems. Remediating the effects of computer viruses and
alleviating other security problems may require interruptions, incurrence of
costs and delays or cessation of service to our customers. Other companies have
experienced interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
12
<PAGE> 15
Unauthorized access could jeopardize the security of confidential information
stored in our computer systems or those of our customers. Although we intend to
continue to implement industry-standard and other security measures, such
measures at other companies have been circumvented in the past and may be
circumvented on our systems in the future. These risks could have a material
adverse effect on the price of our common stock.
YEAR 2000 RISKS MAY HARM OUR BUSINESS
The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. We are evaluating our internal information
technology systems and contacting our information technology and other third
party suppliers to ascertain their Year 2000 status. However, we cannot
guarantee that our own systems will be Year 2000 compliant, that our third party
suppliers will be Year 2000 compliant, or that there will not be significant
operational problems among information technology systems. In addition,
customers may spend less on our service in the second half of 1999 as customers
focus on Year 2000 readiness and systems rather than invest in new products. As
a result of these risks there could be a material adverse effect on the price of
our common stock.
WE MUST ATTRACT AND RETAIN KEY PERSONNEL IN A TIGHT LABOR MARKET
There currently is intense competition for personnel with the
qualifications we require. The loss of the services of key personnel or the
failure to attract additional personnel as required could have a material
adverse effect on the price of our common stock. We are highly dependent upon
the efforts of our existing senior management team. Although we have entered
into employment agreements with members of our senior management team, these
agreements do not obligate the employees to remain with us for any length of
time. We believe that our future success will depend in large part on our
ability to attract and retain qualified technical and sales personnel.
IMPACT OF LEGISLATION AND GOVERNMENT REGULATION ON OUR OPERATIONS COULD AFFECT
PERFORMANCE
The provision of basic telecommunications services is subject to
significant regulation at the federal and state level. The Federal
Communications Commission regulates telecommunications carriers providing
interstate and international common carrier services. State public utilities
commissions exercise jurisdiction over intrastate basic telecommunications
services but do not regulate most enhanced services, which involve more than the
pure transmission of customer provided information. Many of our competitors and
vendors, especially incumbent local telephone companies, are subject to federal
and state regulations. These regulations change from time to time in ways that
are difficult for us to predict. Changes in the regulatory environment, however,
could affect our operating results by increasing competition, decreasing
revenue, increasing costs or impairing our ability to offer services. In
addition, although we believe the services we provide today are not subject to
substantial regulation by the FCC or the state public utilities commissions,
changes in regulation or new legislation may increase the regulation of our
current services. In addition, a regulatory body may seek to apply
telecommunications regulations to our enhanced services. Significant regulation
of our current services could have a material adverse effect on the price of our
common stock.
13
<PAGE> 16
WE MAY BE NEGATIVELY AFFECTED BY REGULATION IF WE DECIDE TO PROVIDE VOICE
AND OTHER BASIC TELECOMMUNICATIONS SERVICES. We will become subject to
regulation by the FCC and state agencies in the event we decide to offer
non-enhanced voice and other basic telecommunications services. Through
subsidiaries, we are in the process of applying for, and in some states have
received, authority from state regulatory commissions and the FCC to provide
basic telecommunications services, such as voice telephony service. These
subsidiaries will be subject to direct federal and state regulation upon
approval of their respective applications. The regulations that apply to basic
telecommunications services change from time to time and we cannot predict the
effect that such changes may have on the price of our common stock.
REGULATION OF ACCESS TO OFFICE BUILDINGS COULD NEGATIVELY AFFECT OUR
BUSINESS. There have been proposals to require that commercial office buildings
give access to competitive providers of telecommunications services. Recently,
the FCC initiated a regulatory proceeding relating to utility shaft access in
multiple tenant buildings, and a bill was introduced in Congress regarding the
same topic. Some of the issues being considered in these developments include
requiring building owners to provide utility shaft access to telecommunications
carriers, and requiring some telecommunications providers to provide access to
other telecommunications providers. We cannot predict whether or in what form
these proposals will be adopted. If they are adopted and regulatory or legal
requirements change access rights to our target buildings or our networks, these
requirements could have a material adverse effect on the price of our common
stock.
AS AN INTERNET ACCESS PROVIDER, WE MAY INCUR LIABILITY FOR INFORMATION
DISSEMINATED THROUGH OUR NETWORK. The law relating to the liability of Internet
access providers and on-line services companies for information carried on or
disseminated through their networks is unsettled. Although we have not been sued
for information carried on our network, it is possible that we could be. Federal
and state statutes have been directed at imposing liability on Internet service
providers for aspects of content carried on their networks. There may be new
legislation and court decisions that may affect our services and expose us to
potential liability.
As the law in this area develops, the potential imposition of liability
upon us for information carried on and disseminated through our network could
require us to implement measures to reduce our exposure to such liability, which
may require the expenditure of substantial resources or the discontinuation of
certain products or service offerings. Any costs that are incurred as a result
of such measures contesting any such claims, or the consequent imposition of
liability could have a material adverse effect on the price of our common stock.
RETAINED CONTROL OF ALLIED RISER BY OUR PRINCIPAL STOCKHOLDERS MAY CREATE
CONFLICTS OF INTEREST
The concentration of ownership of our stock may have the effect of
delaying, deferring or preventing a change in control, merger, consolidation, or
a tender offer which could involve a premium over the price of our common stock.
Upon completion of this offering, our officers, directors and
greater-than-five-percent stockholders and their affiliates will, in the
aggregate, beneficially own approximately % or % if the underwriters'
over-allotment option is exercised in full, of the outstanding common stock,
assuming an offering price of $ per share.
MEMBERS OF OUR BOARD SERVE ON THE BOARDS OF OUR POTENTIAL COMPETITORS, WHICH MAY
CREATE CONFLICTS OF INTEREST
Members of our board of directors also serve as officers or directors of
other telecommunications or Internet services companies. To the extent that any
of these companies presently offer, or at some future point begin to offer,
services having characteristics similar to those offered by us, there may be
conflicts of interest between the fiduciary duties owed by these individuals to
us and the duties owed to these other companies. We have not adopted specific
policy guidelines to address these potential conflicts of interest and there can
be no assurance that if these conflicts of interest arise, that they will be
resolved on terms that are in the best
14
<PAGE> 17
interests of our stockholders. Failure to resolve conflicts of interest in a
manner that is consistent with the interests of our stockholders could have a
material adverse effect on the price of our common stock.
THE SALE OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD ADVERSELY
AFFECT OUR STOCK PRICE
The market price of our common stock may fall as a result of sales of a
large number of shares in the market or the perception that such sales could
occur. For a description of shares that may be eligible for sale in the public
markets, certain shares subject to registration rights and "lock-up" agreements
of our directors, executive officers and certain current stockholders and
optionholders, see "Shares Eligible for Future Sale" and "Underwriting."
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, could have a material adverse effect on the market
price for our common stock or our ability to raise capital by offering equity
securities.
ANTI-TAKEOVER PROVISIONS COULD PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our amended and restated certificate of incorporation and
amended and restated by-laws and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:
- the ability of our board of directors to issue preferred stock without
any further approval being required from our stockholders;
- the "staggered" nature of our board of directors which results in
directors being elected for terms of three years; and
- the requirement that stockholders provide us with advance notice of
proposed actions.
These provisions may have the effect of delaying, deferring or preventing a
change in our control, impeding a merger, consolidation, takeover or other
business combination, which in turn could have a material adverse effect on the
price of our common stock.
IMPAIRMENT OF OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS
While we are seeking federal registration of ARC and certain other
trademarks, we have not been awarded any trademark registrations, and are
relying upon our common law rights. It is possible that other entities may
challenge our registration and use of these trademarks based on a claim of
superior rights, dilution or otherwise. Such challenges, if successful, could
preclude us from registering and even using our trademarks, in which case the
expense of developing new trademarks and resulting loss of product
identification and goodwill could have a material adverse effect on the price of
our common stock.
15
<PAGE> 18
FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations, intentions
and assumptions and other statements that are not historical facts. When used in
this prospectus, the words "expect," "anticipate," "intend," "plan," "believe,"
"seek," "estimate" and similar expressions are generally intended to identify
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by these forward-looking statements. We do not intend to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of common stock in this
offering will be approximately $232,700,000, or $267,600,000 if the underwriters
exercise their over-allotment option in full, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
We intend to use more than $175,000,000 of the net proceeds from this
offering for the construction of in-building networks, and the remainder for
working capital and general corporate purposes, including to fund operating
losses. We may also use a portion of the net proceeds to acquire or invest in
complementary businesses, technologies, services or products. However, we
currently have no material commitments or agreements with respect to any of
these types of transactions.
Prior to the application of the net proceeds from the offering as described
above, the net proceeds from the offering will be invested in marketable,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and
do not anticipate paying any cash dividends on our common stock for the
foreseeable future.
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<PAGE> 19
CAPITALIZATION
You should read this table in conjunction with the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Use of Proceeds" and our consolidated financial statements and
the related notes included elsewhere in this prospectus.
The following cash and capitalization table sets forth:
-- Our actual cash and capitalization as of June 30, 1999.
-- Our pro forma cash and capitalization after giving effect to:
- the sale and issuance of 17 shares of series B preferred stock and
2,019,766 shares of common stock in a financing transaction
consummated in August 1999; and
- the sale and issuance of 34 shares of series B preferred stock and
4,039,531 shares of common stock to our real estate partners and their
affiliates consummated in August 1999.
-- Our pro forma as adjusted cash and capitalization to reflect, in
addition:
- the receipt of estimated net proceeds of $232,700,000 from this
offering, assuming an initial public offering price of $ per
share; and
- the conversion upon the completion of this offering of all preferred
stock into common stock, assuming an initial public offering price of
$ per share.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------
JUNE 30, 1999
---------------------------------------------
(UNAUDITED) PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
---------- ----------- --------------
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 24,307 $74,316 $307,016
======== ======= ========
Capital lease obligations, including current
portion............................................ $ 5,376 $ 5,376 $ 5,376
Convertible redeemable preferred stock, par value
$.0001 per share, 1,000 shares authorized, 66
shares issued and outstanding (actual) and 117
shares issued and outstanding (pro forma) and zero
shares issued and outstanding (pro forma as
adjusted).......................................... 69,751 120,751 --
Stockholders' equity (deficit):
Common stock, par value $.0015 per share,
66,666,667 shares authorized, 26,787,632 shares
issued and outstanding (actual) and 32,846,929
shares issued and outstanding (pro forma) and
shares issued and outstanding (pro
forma as adjusted).............................. 40 49 80
Additional paid-in capital......................... 7,300 6,300 359,721
Deferred compensation.............................. (7,792) (7,792) (7,792)
Accumulated deficit................................ (33,390) (33,390) (33,390)
-------- ------- --------
Total stockholders' equity (deficit)............... (33,842) (34,833) 318,619
-------- ------- --------
Total capitalization....................... $ 41,285 $91,294 $323,995
======== ======= ========
</TABLE>
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<PAGE> 20
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $ or
$ per share of outstanding common stock, after giving effect to the
adjustments shown in the pro forma column under "Capitalization." The pro forma
net tangible book value per share represents our total tangible assets less
total liabilities, divided by shares of common stock outstanding on a
pro forma basis before the offering. Dilution per share represents the
difference between the amount per share paid by investors in this offering and
the pro forma net tangible book value per share after the offering. After giving
effect to this offering, the as adjusted pro forma net tangible book value at
June 30, 1999 would have been $ or $ per share. This represents an
immediate increase in the net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors purchasing shares at the initial public offering price.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public price per share.............................. $[ ]
Pro forma net tangible book value per share as of June 30,
1999...................................................... $[ ]
Increase per share attributable to new investors............ $[ ]
Pro forma as adjusted net tangible book value per share
after the offering........................................ $[ ]
Dilution per share to new investors......................... $[ ]
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the difference between the existing stockholders and new investors with respect
to the number of shares purchased from Allied Riser, the total consideration
paid and the average price per share paid. These amounts do not include
estimated underwriting discounts and commissions and offering expenses payable
by Allied Riser.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... [ ] [ ]% $[ ] [ ]% $[ ]
New investors............................ [ ] [ ] [ ] [ ] $[ ]
Total.................................... [ ] 100% $[ ] 100.0%
</TABLE>
The foregoing table assumes no exercise of stock options. As of September
15, 1999, there were options outstanding to purchase 73,326 shares of common
stock at an exercise price of $.336 per share. To the extent outstanding options
are exercised, there will be further dilution to new investors. In addition, we
have agreed to give warrants to acquire common stock to owners and managers of
commercial office buildings. These warrants have no purchase price or exercise
price. We may issue more warrants in the future.
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
You should read the following consolidated summary financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the related notes, all
of which appear elsewhere in this prospectus. The following selected
consolidated statement of operations data for the period from inception
(December 19, 1996) to December 31, 1997 and for the year ended December 31,
1998, and the balance sheet data as of December 31, 1997 and 1998 have been
derived from our audited financial statements and the related notes. The
selected statement of operations data for the six months ended June 30, 1998 and
1999, and the selected balance sheet data as of June 30, 1999 are derived from
our unaudited condensed consolidated financial statements. Operating results for
the six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the entire year.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION SIX MONTHS ENDED
(DECEMBER 19, JUNE 30,
1996) TO YEAR ENDED --------------------
DECEMBER 31, DECEMBER 31, (UNAUDITED)
1997 1998 1998 1999
-------------- ------------- -------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Network services revenue................... $ -- $ 212 $ 27 $ 547
Operating expenses:
Network operations....................... 80 2,358 718 2,819
Selling expense.......................... -- 1,623 599 2,406
General and administrative expenses...... 1,348 9,736 2,822 9,207
Amortization of deferred compensation.... -- -- -- 2,469
Depreciation and amortization............ 10 499 66 890
------- -------- ------- --------
Total operating expenses......... 1,438 14,216 4,205 17,791
------- -------- ------- --------
Operating income (loss).................... (1,438) (14,004) (4,178) (17,244)
Other income (expense)..................... (59) (606) (204) 368
Provision for income taxes................. -- -- -- --
------- -------- ------- --------
Net income (loss).......................... (1,497) (14,610) (4,382) (16,876)
Accrued dividends on preferred stock....... -- (452) -- (3,300)
------- -------- ------- --------
Net income (loss) applicable to common
stock.................................... $(1,497) $(15,062) $(4,382) $(20,176)
======= ======== ======= ========
Net income (loss) per common share......... $ (7.45) $ (7.33) $(18.15) $ (.77)
======= ======== ======= ========
Weighted average number of shares
outstanding.............................. 201 2,056 241 26,291
======= ======== ======= ========
</TABLE>
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<PAGE> 22
The pro forma balance sheet information below reflects:
- the sale and issuance of 17 shares of series B preferred stock and
2,019,766 shares of common stock in a financing transaction consummated
in August 1999; and
- the sale and issuance of 34 shares of series B preferred stock and
4,039,531 shares of common stock to our real estate partners and their
affiliates consummated in August 1999.
The pro forma as adjusted balance sheet information reflects all of these
adjustments and:
- the receipt of estimated net proceeds of $232,700,000 from this offering,
assuming an initial public offering price of $ per share; and
- the conversion upon the completion of this offering of all preferred
stock into common stock, assuming an initial public offering price of
$ per share.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------
AS OF DECEMBER 31, (UNAUDITED)
------------------ PRO FORMA AS
1997 1998 ACTUAL PRO FORMA ADJUSTED
------- -------- ------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 188 $41,371 $24,307 $ 74,316 $307,016
Property and equipment, net........... 1,250 13,005 20,765 20,765 20,765
Total assets.......................... 1,487 55,572 47,220 97,229 329,929
Total liabilities..................... 3,228 5,257 11,311 11,311 11,311
Convertible redeemable preferred
stock............................... -- 66,452 69,751 120,751 --
Additional paid-in capital............ 162 339 7,300 6,300 359,721
Stockholders' equity (deficit)........ (1,741) (16,137) (33,842) (34,833) 318,619
</TABLE>
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<PAGE> 23
As used in the table below, EBITDA consists of net loss excluding net
interest, income taxes, depreciation and amortization. We have provided EBITDA
because it is a measure of financial performance commonly used in our industry
and is often used by investors as an indicator of a company's historical ability
to service existing debt or incur additional debt. EBITDA is not a measure
calculated under generally accepted accounting principles. Other companies may
calculate EBITDA differently from us. It is not an alternative to operating
income as an indicator of our operating performance or as an alternative to cash
flows from operating activities as a measure of liquidity. We anticipate that
EBITDA, if any, generated from our operations in the foreseeable future will be
used to build our infrastructure and expand our business.
The last three line items of other operating data below reflects data as of
the last day of each period and do not include our work-in-progress or under
contract as of those dates.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(DECEMBER 19, SIX MONTHS ENDED JUNE 30,
1996) TO YEAR ENDED -------------------------
DECEMBER 31, DECEMBER 31, (UNAUDITED)
1997 1998 1998 1999
------------- ------------ ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OTHER OPERATING DATA:
Net cash provided by (used in)
operating activities............... $(1,229) $ (14,420) $ (3,615) $ (10,380)
Net cash provided by (used in)
investing activities............... $(1,088) $ (8,115) $ (1,931) $ (4,528)
Net cash provided by (used in)
financing activities............... $ 2,504 $ 63,719 $ 6,538 $ (2,157)
EBITDA............................... $(1,401) $ (13,504) $ (4,111) $ (13,890)
Capital expenditures................. $ 1,220 $ 12,032 $ 2,972 $ 8,650
Metropolitan markets served.......... -- 2 1 9
Buildings in operation............... -- 4 3 30
Rentable square feet in buildings in
operation.......................... -- 2,900,000 1,900,000 22,000,000
</TABLE>
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<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the summary and
selected consolidated financial and other data, and the consolidated financial
statements and the related notes contained elsewhere in this prospectus. See
"Risk Factors" for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the
forward-looking statements contained in this prospectus.
OVERVIEW
Since our inception in December 1996, our principal activities have
included developing our business plan, raising capital, hiring management and
other key personnel, designing and developing our fiber-optic networks inside
buildings, acquiring equipment and facilities, entering into agreements with
building owners and real estate managers and beginning the initial deployment of
our fiber-optic networks. In June 1997, we began installing our networks, and we
began operating our first in-building network in January 1998. We provide
services in 16 metropolitan areas. We currently own and operate fiber-optic
networks inside 57 office buildings with more than 31.1 million rentable square
feet. In addition, we have recently entered into agreements to install and
operate our fiber-optic networks in more than 1,000 office buildings with more
than 325 million rentable square feet.
To rapidly establish a strong position in the markets we target, we are
heavily investing in our fiber-optic networks. We incur costs in the design and
installation of our in-building infrastructure, which is typically installed
within a building's riser, a secure conduit located in the building's vertical
utility shaft. We also invest in electronic equipment that is needed to connect
our networks to the Internet. We expect to incur significant additional costs
building and refining our operational support systems; this includes the
purchase and implementation of software to facilitate customer acquisition,
billing, collections, and network management.
As a result of our development activities and the deployment of our
networks, from inception to date we have incurred significant operating losses,
net losses and negative EBITDA. We expect that the continued expansion of our
operations will result in increasing operating losses, net losses and negative
EBITDA. As a result of our limited operating history, prospective investors have
limited operating and financial data upon which to base an evaluation of our
performance and an investment in our common stock. See "Risk Factors -- We are a
start-up that must grow very rapidly to succeed."
FACTORS AFFECTING FUTURE OPERATIONS
NETWORK SERVICES REVENUE. We generate revenue from selling broadband data,
video and voice services primarily to tenants in buildings in which we own and
operate our fiber-optic networks. We generally enter into long-term,
non-exclusive contracts with the owners and managers of portfolios of office
buildings to permit us to construct and operate these networks within their
buildings. In return for the right to deploy and maintain our networks, building
owners receive a modest portion of the gross revenue we generate from tenants
inside their buildings. Upon completion of an in-building network, our direct
sales personnel market our services to the tenants of the building. Once a
customer orders our services, we generally initiate service within one to ten
business days. Our customers are not generally required to purchase or maintain
any equipment beyond their existing local area network.
We currently offer:
- ultra high-speed Internet access;
- business-oriented television for display on the computer desktop;
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<PAGE> 25
- enhanced conference calling services; and
- other broadband data services.
We generate the majority of our recurring revenue from subscription fees,
which vary depending upon a number of factors, including the services provided,
the number of desktops connected to our network and bandwidth usage volume. We
generally offer services on a month-to-month contractual basis. In addition, we
charge customers a one-time installation fee for most of the services we
provide. We do not require our customers to purchase any equipment from us. We
price our combination of services competitively compared to existing providers
of Internet connectivity and broadband data services, such as local telephone
companies and Internet service providers. Although competitive pricing is an
important part of our strategy, we believe that the speed and performance of our
fiber-optic networks, combined with a high level of customer care, are the keys
to successfully attracting and retaining small- and medium-sized business
customers.
We expect that in the short term the majority of our revenue will be
derived from our Internet connectivity services. We intend to take advantage of
our presence in buildings in which we operate a network and our customer
relationships to market additional services to our customers. We expect these
services to include bandwidth-enabled services, such as enhanced Internet voice
services; full-motion, interactive, desktop-delivered video conferencing; direct
access to both on-line content and business applications through industry
specific portals; e-commerce and network management services. We also intend to
take advantage of our growing market presence and brand by offering similar
broadband services to our customers' branch offices and other businesses located
in buildings in which we have not installed our fiber-optic networks. We believe
that these additional services may generate significant incremental revenue.
NETWORK OPERATIONS. Our network operations expenses include payments to
providers of transmission capacity, costs associated with customer care and
equipment maintenance, payments to building owners, and content licensing costs.
In order to provide our services, we must connect each in-building network to a
metropolitan hub via a local network and each metropolitan hub to a national
network. These local and national networks are owned by unaffiliated parties. We
have contracts with terms ranging from one month to five years for connections
to these networks. Under these agreements, we incur fixed monthly charges for
local connectivity. For national connectivity, we incur fixed monthly charges
plus incremental charges based upon customer usage. In addition, if we fail to
meet our minimum volume commitments for national connectivity, we may be
obligated to pay penalties. In the future, we may contract for volume discounts
based on the volume purchased from national backbone providers. In the event we
underestimate our need for transmission capacity, we may be required to obtain
capacity through more expensive means. We expect that our connectivity costs
will increase as we enter new markets and provide services for new customers. In
addition, we pay usage-based calling fees in connection with our enhanced
conference calling services.
We incur expenses related to ongoing operations for customer support. We
provide customer care through our Dallas-based customer care center, which is
augmented by field support personnel and contracts with outside support
providers for on-site customer service. Because our strategy emphasizes the
importance of customer care, we expect that initially customer service will
become a larger part of our ongoing expenses. Equipment maintenance costs
include expenses for equipment repair and periodic servicing. Maintenance
services are provided by our field operations personnel, third-party contractors
and equipment vendors. In exchange for access rights from building owners, we
pay building owners a modest portion of the revenue that we generate from
tenants inside their buildings. The fee we pay building owners varies
proportionally with revenues generated in the respective buildings. We incur
both fixed and
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<PAGE> 26
variable costs in connection with licenses related to the provisioning of
enhanced communications services, such as business-oriented desktop television.
SELLING EXPENSE. Selling expense includes costs of employee salaries and
commissions, marketing, advertising and promotional expenses and costs
associated with leasing and operating sales demonstration centers. To attract
and retain a qualified sales force, we offer our sales personnel a compensation
package emphasizing commissions and stock options. We expect to incur
significant selling and marketing costs as we continue to expand our sales force
and penetrate our targeted markets.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include costs associated with corporate administration and infrastructure,
billing and personnel. We are currently in the process of building and refining
our new operational support systems. These systems are necessary to enter,
schedule, provision and track a customer order from the point of sale to
installation, testing, and service initiation. In addition, these systems will
interface with our billing, collection and customer care service systems. We
believe that because most of our services are currently billed on a flat-rate
basis, the cost and complexity of generating and reconciling our billings is
less than that with usage-based pricing models. However, as we add customers and
provide more services that require usage-based billing, such as our enhanced
conference calling services, we expect that billing costs will increase.
Accordingly, customer billing is expected to be a significant part of our
ongoing administrative expenses. We have selected a group of vendors to provide
automated billing systems and other operational support systems that will either
replace or be integrated with our existing systems. See "Risk Factors -- Our
billing, customer service and information support systems need further
development or replacement."
We expect that costs will increase significantly as we expand our
operations and that general and administrative expenses will be a larger portion
of these costs during the early stages of our business. However, we expect that
our general and administrative expenses will represent a smaller percentage of
our revenue as we build our customer base.
AMORTIZATION OF DEFERRED COMPENSATION. Amortization of deferred
compensation is a result of granting stock options and issuing restricted shares
to our employees with exercise prices per share treated for accounting purposes
as below the fair value of our common stock at the dates of grant. We are
amortizing the deferred compensation over the vesting period of the applicable
option and the lapsing of the restrictions on the applicable shares.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
include depreciation of system infrastructure, system equipment, furniture and
fixtures and the amortization of leasehold improvements. We expect depreciation
and amortization expenses to increase significantly as we install our
fiber-optic networks in more buildings. While construction is in progress and we
have outstanding debt, we capitalize related interest and we amortize the
related capitalized interest over the useful life of the constructed assets.
OTHER INCOME (EXPENSE). Other income (expense) consists primarily of net
interest income and expense. We expect interest income to increase over the
short term as a result of receiving the proceeds of this offering.
PROVISION FOR INCOME TAXES. Provision for income taxes consists of federal,
state and local taxes, when applicable. We have not generated any taxable income
to date and therefore have not paid any federal income taxes since inception. A
full valuation allowance has been recorded on the deferred tax asset, consisting
primarily of start-up costs and net operating loss carry forwards, because of
the uncertainty of future operating results. We expect to generate significant
net losses for the foreseeable future which should generate net operating loss
carry forwards.
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<PAGE> 27
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NETWORK SERVICES REVENUE. Network services revenue for the six months ended
June 30, 1999 increased to $547,000 as compared to $27,000 for the corresponding
period of the prior year. Network services revenue for the six months ended June
30, 1999 includes the recognition in April 1999 of $123,000 of previously fully
reserved revenue which was earned upon the successful deployment of a virtual
private network. The remaining increase is attributable to growth in the number
of customers resulting from increased sales and marketing efforts concentrated
in our networked properties and the increased penetration of our fiber-optic
network into new buildings compared to the corresponding period in 1998. As of
June 30, 1999, our fiber-optic network was installed inside 30 buildings with
more than 22.0 million rentable square feet as compared to June 30, 1998 when
our networks were installed inside 3 buildings, with 1.9 million rentable square
feet.
NETWORK OPERATIONS. Network operations expenses were $2,819,000 for the six
months ended June 30, 1999 and $718,000 for the six months ended June 30, 1998.
This increase is consistent with expansion of our fiber-optic network and
resulting increase in transport, licensing and customer support costs.
SELLING EXPENSE. Selling expense increased from $599,000 for the six months
ended June 30, 1998 to $2,406,000 for the six months ended June 30, 1999. This
increase is attributable to the continued expansion of sales and marketing
efforts including commissions, development of corporate identification,
promotional and advertising materials, the establishment of sales demonstration
centers, market launch events and hiring sales personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $9,207,000 for the six months ended June 30, 1999 and $2,822,000 for the
six months ended June 30, 1998. This increase is consistent with our development
activities and is attributable to the rapid growth in number of employees we
incurred in connection with building our operating infrastructure. Our number of
general and administrative employees increased to 122 as of June 30, 1999 as
compared to 43 at June 30, 1998.
AMORTIZATION OF DEFERRED COMPENSATION. Amortization of deferred
compensation was $2,469,000 for the six months ended June 30, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the six
months ended June 30, 1999 increased to $890,000 as compared to $66,000 for the
corresponding period of the prior year. This increase was primarily due to the
increase in system infrastructure and system equipment placed in service.
OTHER INCOME (EXPENSE). Other income (expense) was $368,000 for the six
months ended June 30, 1999 and $(204,000) for the six months ended June 30,
1998. The change in other income (expense) is primarily due to a reduction in
interest expense and an increase in interest income as a result of the
recapitalization and reorganization. See "-- Liquidity and capital resources."
PROVISION FOR INCOME TAXES. For the six months ended June 30, 1999 and June
30, 1998 no provision for taxes was recognized as we operated at a loss
throughout both periods.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO PERIOD FROM INCEPTION
(DECEMBER 19, 1996) TO DECEMBER 31, 1997
NETWORK SERVICES REVENUE. Network services revenue for the year ended
December 31, 1998 was $212,000. Our first fiber-optic network began operation in
January of 1998. Accordingly, no revenue was recognized for the period from
inception to December 31, 1997. As
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<PAGE> 28
of December 31, 1998, our fiber-optic network was installed in 4 buildings, with
more than 2.9 million rentable square feet.
NETWORK OPERATIONS. Network operations expenses were $2,358,000 for the
year ended December 31, 1998 and $80,000 for the period from inception to
December 31, 1997. This increase is consistent with the expansion of our
fiber-optic network and resulting increase in related costs.
SELLING EXPENSE. Our selling expense for the year ended December 31, 1998
was $1,623,000. This expense was attributable to the initial deployment of our
fiber-optic network and the related sales and marketing efforts, including
development of our brand and logo, establishment of sales demonstration centers,
promotional and advertising materials and hiring sales personnel. Consistent
with the initial deployment of our network in January of 1998, we had no selling
expense in the period from inception to December 31, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $9,736,000 for the year ended December 31, 1998 and $1,348,000 for the
period from inception to December 31, 1997. This increase is consistent with our
development activities and is attributable to growth in number of employees we
incurred in connection with building our operating infrastructure. Our number of
general and administrative employees increased to 85 as of December 31, 1998 as
compared to 13 at December 31, 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the year
ended December 31, 1998 was $499,000 as compared to $10,000 for the
corresponding period of the prior year. This increase was attributable to the
deployment of our system infrastructure and system equipment which commenced in
January 1998.
OTHER INCOME (EXPENSE). Other income (expense) was $(606,000) for the year
ended December 31, 1998 and $(59,000) for the period from inception to December
31, 1997. The change in other income (expense) is primarily due to an increase
in interest expense as a result of increased borrowings throughout 1998.
PROVISION FOR INCOME TAXES. For the year ended December 31, 1998 and the
period from inception to December 31, 1997 no provision for taxes was recognized
as we operated at a loss throughout both periods.
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<PAGE> 29
QUARTERLY FINANCIAL INFORMATION
The following table sets forth certain quarterly statement of operations
data for each full fiscal quarter since our inception. This information has been
derived from our unaudited financial statements. In the opinion of management,
this unaudited information has been prepared on the same basis as the annual
financial statements and includes all adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of the information for
the quarters presented. This information should be read in conjunction with the
financial statements and related notes included elsewhere in the prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------
(UNAUDITED)
PERIOD FROM
INCEPTION
(DECEMBER 19, THREE MONTHS ENDED
1996) TO -----------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1997 1997 1998 1998
------------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Network services revenues.. $ -- $ -- $ -- $ -- $ 5 $ 22
Operating expenses:
Network operations........ -- 3 14 63 220 498
Selling expense........... -- -- -- -- 205 394
General and administration
expenses................ 94 260 235 759 1,057 1,765
Amortization of deferred
compensation............ -- -- -- -- -- --
Depreciation and
amortization............ -- -- 1 9 21 45
------ ------ ------ ------ ------- -------
Total operating expenses... 94 263 250 831 1,503 2,702
------ ------ ------ ------ ------- -------
Operating income (loss).... (94) (263) (250) (831) (1,498) (2,680)
Other income (expense)..... 3 1 (17) (46) (61) (143)
Provision for income
taxes..................... -- -- -- -- -- --
------ ------ ------ ------ ------- -------
Net income (loss).......... (91) (262) (267) (877) (1,559) (2,823)
Accrued dividends on
preferred stock........... -- -- -- -- -- --
------ ------ ------ ------ ------- -------
Net income (loss)
applicable to common
stock..................... $ (91) $ (262) $ (267) $ (877) $(1,559) $(2,823)
====== ====== ====== ====== ======= =======
Net income (loss) per
common share.............. $ (.89) $(1.20) $(1.11) $(3.64) $ (6.46) $(11.69)
====== ====== ====== ====== ======= =======
Weighted average number of
shares outstanding........ 102 219 241 241 241 241
====== ====== ====== ====== ======= =======
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------------
(UNAUDITED)
THREE MONTHS ENDED
------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1999 1999
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Network services revenues.. $ 77 $ 108 $ 146 $ 401
Operating expenses:
Network operations........ 775 865 1,168 1,651
Selling expense........... 522 502 605 1,801
General and administration
expenses................ 2,840 4,074 3,608 5,599
Amortization of deferred
compensation............ -- -- 54 2,415
Depreciation and
amortization............ 159 274 386 504
------- ------- ------- --------
Total operating expenses... 4,296 5,715 5,821 11,970
------- ------- ------- --------
Operating income (loss).... (4,219) (5,607) (5,675) (11,569)
Other income (expense)..... (253) (149) 415 (47)
Provision for income
taxes..................... -- -- -- --
------- ------- ------- --------
Net income (loss).......... (4,472) (5,756) (5,260) (11,616)
Accrued dividends on
preferred stock........... -- (452) (1,650) (1,650)
------- ------- ------- --------
Net income (loss)
applicable to common
stock..................... $(4,472) $(6,208) $(6,910) $(13,266)
======= ======= ======= ========
Net income (loss) per
common share.............. $(18.56) $ (.83) $ (.27) $ (.51)
======= ======= ======= ========
Weighted average number of
shares outstanding........ 241 7,441 25,743 26,052
======= ======= ======= ========
</TABLE>
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<PAGE> 30
We have generated greater revenue in each successive quarter in the last
six quarters, reflecting increases in the number of customers and buildings
served. Network operating expenses have increased in every quarter, reflecting
costs associated with deploying our fiber-optic networks in existing and new
markets and payments to providers of transmission capacity. Selling expenses
have increased with the acquisition of customers. General and administrative
expenses have generally increased in connection with the development of our
corporate infrastructure. Depreciation and amortization expenses have increased
in each quarter, reflecting the purchase of system infrastructure and system
equipment associated with the deployment of our fiber-optic networks.
Accordingly, our net losses have increased in each successive quarter.
LIQUIDITY AND CAPITAL RESOURCES
We have required significant capital to fund the construction and
installation of our fiber-optic networks within buildings and to purchase
electronic equipment for installation in building and metropolitan points of
presence. As of June 30, 1999, we had made capital expenditures of $21,902,000
since inception. We expect that our capital expenditures will increase
substantially in future periods as we construct our networks and purchase more
equipment. We will continue to seek access to additional buildings. If we are
successful in gaining access to additional buildings, we will have substantial
needs for additional capital for an indefinite period. We also expect to have
substantial and increasing operating losses and net losses.
Since our formation in December 1996 until November 1998, we funded our
capital expenditures and operating losses through $17,600,000 in loans and
advances. In November 1998, we consummated a series of reorganization and
recapitalization transactions, pursuant to which we issued shares of our common
and preferred stock for approximately $41,000,000 and used a portion of the
proceeds to repay the loans and advances. In December 1998, we sold additional
shares of common and preferred stock for aggregate proceeds of approximately
$25,000,000.
Since June 1998, we have received $10,500,000 in vendor commitments for
lease financing, subject to certain conditions. As of June 30, 1999, we have
financed approximately $6,557,000 of equipment additions through these lease
facilities and have outstanding capital lease obligations of approximately
$5,376,000.
As of June 30, 1999, we had committed to pay approximately $1,874,000 to
carriers under our existing connectivity contracts.
In March 1999, we entered into a credit facility with Chase Manhattan Bank
under which we can borrow up to $45,000,000, subject to certain conditions
including having less than $12,500,000 cash available at the time of initial
borrowing. We have not borrowed against the facility as of June 30, 1999 and
currently do not intend to. The facility will accrue interest at one of the
following or a combination of the following, at our option: the bank's prime
rate plus 3.5%, a base certificate of deposit rate plus 4.5%, Federal funds rate
plus 4%, or an Eurodollar rate plus 4.5%. The credit facility is secured by all
of our assets, except for the assets pledged in connection with our capital
lease obligations. We will pay a commitment fee of 1.5% on the unused portion of
the credit facility if we borrow against the facility. The facility, which
extends through October 2000, contains various restrictive covenants, including
the maintenance of certain financial ratios, the achievement of certain
operational targets and restrictions on certain activities.
As of June 30, 1999, we had cash and cash equivalents of $24,307,000.
In August 1999, we issued shares of common and preferred stock to a group
of financial sponsors for approximately $17,000,000.
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<PAGE> 31
Additionally, in August 1999, we issued shares of common and preferred
stock to our real estate partners for approximately $34,000,000. We also agreed
to give warrants to acquire approximately additional shares of our
common stock to our real estate partners.
Prior to the offering, we will have received irrevocable elections from all
preferred stockholders, whereby these parties will agree to convert all of their
preferred stock for shares of common stock. Had the conversion of
preferred stock occurred at the beginning of each period, net income (loss) per
common share would have been $ , $ , $ , and
$ for the period from inception to December 31, 1997, the year ended
December 31, 1998, and the six months ended June 30, 1998 and 1999,
respectively.
We estimate that the net proceeds of this offering in addition to our cash
on hand will be sufficient to fund our operations and the projected deployment
of our network through approximately the middle of 2001. We do, however, expect
to continue our growth, expansion and the further development of our network and
services beyond that point. Accordingly, we expect that we will eventually need
to arrange for additional sources of capital through the issuance of debt or
equity or additional bank borrowings. We have no commitments other than those
described above for any such additional financing, and we cannot be sure that we
will be able to obtain any such additional financing at the times required and
on terms and conditions acceptable to us. In such event, our growth could slow
and operations could be adversely affected.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of many factors. These factors
include:
- our ability to meet our construction schedules;
- obtaining favorable prices for purchases of equipment;
- our ability to develop, acquire and integrate the necessary operational
support systems;
- the cost of network development in each of our markets;
- demand for our services;
- the nature and penetration of new services that may be offered by us;
- regulatory changes; and
- changes in technology and competitive developments beyond our control.
We also expect that we will require additional financing or require
financing sooner than anticipated if our current business plans change, the
assumptions underlying those plans are inaccurate, if we engage in any material
acquisitions or we are not successful with this offering. We believe that our
current cash position and the net proceeds of this offering are adequate to fund
our current level of operations although this would require modification of our
business plan to reduce our network development plans. If we require additional
capital, we may raise such capital with proceeds from public or private sales of
equity and debt securities, credit facilities and other borrowings. There can be
no assurance that such financing will be available on a timely basis, on terms
acceptable to us or at all. See "Risk Factors -- We may need more capital."
RECENT ACCOUNTING PRONOUNCEMENTS
We do not believe that any recent accounting pronouncements will have a
material impact on our financial statements.
YEAR 2000 READINESS DISCLOSURE
We view Year 2000 readiness as the ability to:
- correctly handle date information before, on and after December 31, 1999;
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<PAGE> 32
- function properly without material changes in operation resulting from
the advent of a new century; and
- recognize the Year 2000 as a leap year.
PROCESS. Our Year 2000 project is composed of four phases:
(1) INVENTORY. In the inventory phase, we identified all of the
systems and equipment that could be impacted by the Year 2000 problem. The
inventory phase is complete for all systems and equipment.
(2) ASSESSMENT. In the assessment phase, we assessed whether the
systems and equipment identified in the inventory are Year 2000 ready. The
assessment phase is complete for all systems and equipment.
(3) REMEDIATION. In the remediation phase, we seek to remedy any Year
2000 problems in systems or equipment we identified in the assessment
phase. Where the source of a Year 2000 problem is software or equipment
provided by a third party, we either obtain a Year 2000 ready upgrade from
the third party or obtain equivalent software or equipment from another
source. The remediation phase is in process and we expect to be finished in
September 1999.
(4) TESTING. In the testing phase, we test the systems and equipment
that were the subject of remediation efforts to verify that they are Year
2000 ready. The testing phase is in process and we expect to complete the
testing phase in September 1999.
THIRD PARTY PRODUCTS. We acquired our material systems and equipment
from third party vendors, and we have received assurances from our major
third party vendors either that the products we use are Year 2000 ready, or
that their recommended upgrades, which we have installed, are Year 2000
ready. In addition to these assurances, with the exception of our telephone
and security systems, we test all third party products to determine whether
they are Year 2000 ready. With the exception of one product from one
vendor, which we have not assessed and for which we have not received any
assurances from the vendor, we are not currently aware of any material
operational issues associated with preparing our systems for the Year 2000.
With respect to the one product for which we have not received assurances,
we intend to replace the product with one that is Year 2000 ready by
October 1999. Since May 1999, we have required, as part of our quality
testing process, that all new products and services are tested for Year
2000 readiness before they are introduced. Despite the assurances we
receive and the testing we perform, we may experience material
unanticipated problems, both operational and other, as a result of the Year
2000. In addition, there can be no guarantee that we identified and
remediated all of our material systems that could potentially be impacted
by the Year 2000. We may also experience material unexpected costs or
business interruption caused by undetected errors or defects in the
technology used in our systems. This could have a material adverse effect
on our business, financial condition, results of operations and the price
of our common stock.
SERVICES. We rely on telecommunications providers, building managers
and other service providers to deliver services to our customers. Our
ability to provide our Internet access and other services is dependent on
the Year 2000 readiness of these third parties. We have sought and received
assurances from the major telecommunications carriers we use that they are
Year 2000 ready, and we have received such assurances from the majority of
such building managers. Nevertheless, we cannot test the Year 2000
readiness of such carriers, managers and providers, and failure of any of
these third parties to be Year 2000 ready by January 1, 2000 could result
in a deterioration in the performance of our network or other systems, or a
complete system failure, which could have a material adverse effect on
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<PAGE> 33
our business, financial condition, results of operations and the price of
our common stock. Additionally, the Internet could face serious disruptions
arising from the Year 2000 problem.
We are also subject to external forces that might generally affect
industry and commerce, such as utility Year 2000 compliance failures and
related service interruptions. All of these factors could have a material
adverse effect on our business, financial condition, results of operations
and the price of our common stock.
CUSTOMERS. The ability of our customers to receive our services
depends on the readiness of their personal computer equipment and the
equipment and services of telecommunications and other third party vendors.
We do not currently have any information concerning the Year 2000 readiness
status of our customers. As is the case with other similarly-situated
companies, if our current or future customers fail to achieve Year 2000
readiness, it could have a material adverse effect on our business,
financial condition, results of operations and the price of our common
stock.
COSTS/CONTINGENCY PLANS. The total budget for our Year 2000 project is
approximately $500,000 and is being expensed as incurred and funded through
operating cash flows. We do not expect to exceed the estimated budget.
We have not developed a contingency plan to address situations that
may result if either we or third parties upon which we rely are unable to
achieve Year 2000 readiness. We intend to perform a risk analysis for our
key services and develop a contingency plan where appropriate. We expect to
conclude this planning effort by November 1999. In addition, in order to
mitigate the effects of Year 2000 readiness problems from
telecommunications carriers, which are beyond our control, we utilize
multiple carriers in key locations. The cost of developing and implementing
a comprehensive contingency plan, if necessary, could be material.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our exposure to financial market risk, including changes in interest rates
and marketable equity security prices, relates primarily to our investment
portfolio and to a lesser extent to our outstanding debt obligations. We
typically do not attempt to reduce or hedge our market exposure on our
investment securities because a substantial majority of our investments are in
fixed-rate, short-term securities. We do not have any derivative instruments.
The fair value of our investment portfolio or related income would not be
significantly impacted by either a 100 basis point increase or decrease in
interest rates due mainly to the fixed-rate, short-term nature of the
substantial majority of our investment portfolio. In addition, substantially all
of our outstanding indebtedness at June 30, 1999 is fixed-rate debt.
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<PAGE> 34
BUSINESS
HISTORY
Our company was formed in 1996. In 1998, we sold equity to several
financial sponsors and began implementing our business plan. By the end of 1998,
we had designed, constructed and were operating fiber optic networks inside 4
office buildings with more than 2.9 million rentable square feet in 2
metropolitan areas. In 1999, we completed another round of private equity
financing and signed agreements with more than a dozen owners and managers of
significant commercial real estate portfolios. These agreements with real estate
owners and managers give us the right to install and operate fiber-optic
networks in more than 1,000 office buildings with more than 325 million rentable
square feet. Today, we own and operate our fiber-optic networks inside 61
buildings with more than 33.6 million rentable square feet in 16 metropolitan
areas.
OUR MARKET OPPORTUNITY
Demand for connectivity to the Internet is growing as businesses are
realizing that the Internet can significantly enhance communications among
offices and employees as well as with customers and suppliers. In addition, more
and more businesses use the Internet to conduct business and more effectively
manage their human resources, allocate capital, reduce operating costs, access
valuable information and reach new markets. According to International Data
Corporation, business-to-business commerce over the Internet amounted to $24.8
billion in 1998 and is expected to be $632.9 billion in 2003.
While most large enterprises build or lease expensive, dedicated high-speed
networks, most small- and medium-sized businesses are using comparatively slow
dial-up connections. Ferris, Baker Watts, Inc. estimates that approximately 57%
of U.S. businesses access the internet through dial-up connections. We believe
that faster, always-on connections enhance the productivity of employees of
small- and medium-sized businesses. International Data Corporation forecasts
that dedicated connections to the Internet for small- and medium-sized
businesses will grow from approximately 240,000 in 1998 to approximately 771,000
in 2000, representing a 83% compounded annual growth rate.
In addition to Internet connectivity, small- and medium-sized businesses
already demand enhanced services such as web hosting, network security,
e-commerce, video conferencing, data storage and retrieval, conference calling,
branch office connectivity and business television. However, most small- and
medium-sized business do not have full access to these services because the
existing in-building infrastructure is unable to provide broadband services to
small tenants. According to International Data Corporation, value-added services
is one of the fastest growing segments of the Internet services market and is
expected to grow from $3.0 million in 1998 to over $12.9 billion in 2003. In
addition, International Data Corporation estimates that Web hosting revenue from
small- and medium-sized businesses will grow from $658 million in 1998 to over
$3.4 billion in 2000, representing 96% of the total web hosting market.
Businesses of moderate size also do not usually have the resources to fully
analyze the choice between evolving service options on their own.
OUR SOLUTION
We provide small- and medium-sized businesses ultra high-speed Internet
access, business-oriented television for display on computer desktops, enhanced
conference calling services as well as other broadband services. We market these
services directly to our target customers with a consultative approach to
facilitate our customers' selection of appropriate services. Our solution offers
small- and medium-sized businesses a number of important advantages, including:
- ULTRA HIGH-SPEED INTERNET ACCESS. Our Internet access products are able
to operate at speeds that are otherwise typically unavailable or
unaffordable to small- and medium-sized businesses. Our standard service
operates at ten megabits of data per second, which is
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<PAGE> 35
substantially greater than those usually available with digital subscriber
lines, cable modems, dial-up modems, integrated services digital network lines
and T-1 circuits, the later of which transmits at 1.54 million bits of data per
second.
- ALWAYS-ON CONNECTIVITY. While dial-up connections require a user to dial
a phone number and wait while the modem connects to the Internet, our
service is always-on, providing an instantaneous connection and the
capability to send and receive data continuously.
- EASY BANDWIDTH UPGRADES. As our customers' needs evolve, our network
architecture enables us to provide our customers with higher bandwidth
and new broadband services. Using commercially available equipment, we
can increase the transmission speed of our infrastructure by 100 times,
to one billion bits of data per second.
- BROAD RANGE OF VALUE-ADDED SERVICES. In addition to providing ultra
high-speed Internet service, we offer business-oriented television and
other broadband data services to our customers. We intend to expand the
services we provide in the future to include other enhanced services such
as web hosting, network security, e-commerce, video conferencing and data
storage and retrieval, thereby increasing the value of a connection to
our network.
- AFFORDABLE DESKTOP-BASED MONTHLY RATE. We typically price our services on
a per desktop basis at a cost that makes our solutions affordable and
scaleable for our customers. This approach permits our customers to
initiate a relationship with us for a low monthly cost and increase the
number of employees with access to our network once our products
demonstrate their ability to enhance productivity.
- RAPID, EASY INSTALLATION. Unlike other providers of bandwidth-enabled
services who rely on local telephone companies to complete each customer
installation, we are able to independently provision a customer within a
few days. We connect each customer's local area network directly to our
fiber-based network so that our customers usually do not need to purchase
or install any new equipment.
- RELIABILITY. We provide support for our services through a national
customer care center and a national operations control center, both
located in Dallas. The national centers continuously monitor the network
for disruptions in service, remotely resolve problems, configure networks
and compile data on customer service levels. In addition, field
operations personnel augment our customer care center by providing local
support in each metropolitan market that we serve.
STRATEGY
Our objective is to be the primary provider of broadband communications
services to our target market. To achieve this objective we will employ the
following strategies:
- PARTNER WITH REAL ESTATE OWNERS. We seek to gain a competitive advantage
by partnering with large-scale building owners and securing the right to
install our fiber-optic networks inside office buildings that meet our
strategic criteria. We believe that having our services available in a
building assists the building owner in its tenant leasing and retention
efforts. We generally target buildings with more than 100,000 rentable
square feet and 10 or more tenants. We have already secured access to
more than 1,000 office buildings with aggregate rentable space of more
than 325 million square feet, including more than 100 buildings from each
of Hines, Equity Office Properties, Whitehall and Cornerstone. We provide
real estate owners a modest portion of the revenue we generate from
tenants in their buildings.
- OWN THE KEY ELEMENTS OF THE LOCAL BROADBAND NETWORK. We strive to be the
first broadband communications provider that owns the critical first mile
fiber-optic connection
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<PAGE> 36
in the buildings we target. While local and long distance broadband
capacity has recently become readily available from a wide variety of
providers, in-building fiber-based broadband capacity is typically not
available. We believe that our in-building broadband networks are highly
valuable because they allow us to provide scalable, ultra-high speed
communications services to the businesses we target.
- CAPITALIZE ON OUR FIRST MOVER ADVANTAGE. We have already established a
national presence by installing hubs and in-building networks in 16
metropolitan areas. Once we have established a local presence in a
metropolitan area, we are able to expand our network into additional
buildings quickly and economically.
- DESIGN NETWORKS FOR THE FUTURE. We have designed our network architecture
to be robust enough to handle the predicted expansion of demand for
broadband capacity and services. Our fiber-based networks are easily
upgradeable with the use of commercially available equipment and software
and we expect further technological developments to continue to improve
the data transmission capacity of our facilities.
- TARGET SMALL- AND MEDIUM-SIZED BUSINESSES. We believe that small- and
medium-sized businesses are underserved by Internet, data and voice
communications service providers. Our in-building infrastructure
positions us to provision rapidly and provide superior broadband
communications products and services directly to these target customers.
- FOCUS SALES AND MARKETING EFFORTS. We focus our sales and marketing
efforts on the tenants of buildings in which we own and operate a
fiber-optic network. We have developed building-specific marketing and
promotional techniques, such as lobby events and advertising in landlord
newsletters. This focused approach should enable us to have lower per
customer sales and marketing costs than our competitors.
- EXPAND OUR SERVICE OFFERINGS. We seek to widen our array of advanced
broadband communications service offerings. Because we own in-building
fiber-optic networks, we are able to provide these broadband services
reliably and directly to our customers.
- OFFER SERVICES TO CUSTOMERS IN SELECTED OTHER BUILDINGS. Although we
focus our sales and marketing efforts on buildings in which we have
installed our broadband fiber-based networks, by also offering our
services outside these buildings we are better able to serve the
communications needs of our customers. For example, we can offer our
customers wide-area network services to reach their branch offices
located in buildings in which we have not installed a fiber-optic
network. We believe that by selectively offering our services outside
buildings in which we own fiber-based facilities, we can generate
additional revenue with only modest incremental sales and marketing
costs.
- PROVIDE EXCELLENT CUSTOMER CARE. We are dedicated to providing our
customers with the highest levels of customer service and satisfaction in
the industry. We believe we enjoy a competitive advantage because our
network and electronic equipment are located inside buildings occupied by
our customers. We have technical staff present in each of our markets,
who focus their efforts on buildings in which we provide service. We also
operate a national customer care center in Dallas that is staffed 24
hours a day, 365 days per year.
- BUILD OUR BRAND. We seek to build our brand to assist us in becoming a
leading provider of broadband communications services. We believe that
our brand will, over time, enhance our ability to gain access to
additional buildings. Because our services provide significant value to
small- and medium-sized businesses, we believe that by branding buildings
as ARC connected, we will assist owners in marketing office space. In
addition, developing a strong, lasting brand should help us in our
efforts to add new customers, reduce customer churn and attract
employees.
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PRODUCTS AND SERVICES
Our products and services are designed for small- and medium-sized
businesses and today include ultra high-speed Internet access, business-oriented
television, enhanced conference calling services and other broadband data
services. These products and services and the additional products and services
that we intend to offer in the future fall into three categories and are
summarized as follows:
<TABLE>
<CAPTION>
CONNECTIVITY PRODUCTS BANDWIDTH-ENABLED APPLICATIONS MANAGED DATA SERVICES
--------------------- ------------------------------ ---------------------
<S> <C> <C>
- Internet Access - Business Television - Enhanced Conference Calling
- Virtual Private Networks - Messaging - Design
- Remote Access - Web Hosting - Implementation
- Voice - Content Services - Monitoring/Management
- Collaboration Applications - Support
- Video Conferencing - Backup
- eBusiness Toolkit
- Industry-Focused Web Pages
</TABLE>
CONNECTIVITY PRODUCTS. We use our in-building fiber-optic infrastructure
and networks to provide ultra high speed, always-on Internet access. Our
Internet access service is up to 175 times faster than standard dial-up modems
and operates at speeds substantially faster than a T-1 circuit, which transmits
data at 1.54 million bits of data per second. In addition, because our
infrastructure provides a dedicated fiber-optic connection for each customer,
our customer's Internet traffic is secure from other customers in the building.
We believe our connectivity services offer a combination of price and
performance that is substantially better than alternative service offerings that
are currently available to our target customers. We also offer branch office
connections to enable our customers to exchange data with their remote offices.
Our connectivity pricing varies by market, building and customer size. For
Internet access, we charge an initial installation fee and a minimum fee for the
first desktop connected. We charge an incremental monthly fee for each
additional desktop, which typically ranges from $50 to $5. This enables the
typical small- to medium-sized business customer to connect its desktops to our
services for as little as several hundred dollars per month. Our pricing is
competitive with other broadband Internet access services while generally
providing substantially more bandwidth. We believe our customers benefit from
our desktop-by-desktop pricing policy because they only incur expense for the
actual number of desktops connected to our networks and they therefore are able
to add users at a pace that matches their resources and requirements.
BANDWIDTH-ENABLED APPLICATIONS AND CONTENT. We currently offer our
customers a business-oriented television service that provides a high-quality
video feed from CNN and Bloomberg Television directly to computer desktops over
our in-building networks. Many office buildings do not have cable or satellite
television service, so tenants are unable to receive these business-oriented
information services through traditional means. We charge our customers on a
per-desktop basis for this service. We are developing additional
bandwidth-enabled products with a focus on providing value-added information
services to our customers. We expect to offer a number of new services,
including industry-focused web pages known as portals, over the next several
years.
MANAGED DATA SERVICES. Many of our current and targeted customers require
assistance in managing their data and data networks. We provide systems design
services and offer support and assistance with the implementation of our
customers' data networks. In addition, we offer enhanced conference calling
services that use the Internet to enable efficient scheduling and operation of
conference calls.
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NETWORK ARCHITECTURE
We design, install, own, and operate Internet-protocol-based data networks
that provide broadband capacity to our customers. Our networks are a combination
of:
- fiber-optic infrastructure that we design, install, own and manage inside
an office building;
- electronic equipment at a building point of presence, usually located in
the basement of the building;
- electronic equipment at a metropolitan hub, which is where we aggregate
and disseminate traffic, which we call a metropolitan point of presence;
and
- leased facilities connecting our networked building to our metropolitan
point of presence and our metropolitan point of presence to a national
service provider, such as GTE Internetworking, Qwest or Level 3.
FIBER-OPTIC FACILITIES INSIDE BUILDINGS. Inside of our network buildings,
we design, install, own and manage a fiber-optic infrastructure that typically
runs from the basement of the building to the top floor inside the building's
vertical utility shaft. This fiber-optic infrastructure is designed to be
capable of carrying data and voice traffic for all the building's tenants for
the foreseeable future. We initiate service for our customers by connecting a
fiber-optic cable from a customer's local area network to the fiber in the
vertical utility shaft. Our customer then has dedicated and secure access to our
network using a link known as an Ethernet connection. Ethernet connections
generally permit the transmission of ten million bits of data per second, and
can transmit as much as one billion bits of data per second.
OUR BUILDING POINTS-OF-PRESENCE. Inside the building, usually in the
basement, we also establish a building point of presence. In each building point
of presence, we connect the fiber-optic cable to Cisco routers and other
electronic equipment that enables the transmission of data and video traffic and
aggregates and disseminates traffic to and from those cables. We typically
obtain the right to use a small amount of space in the basement of our buildings
to establish the building point of presence.
LEASED FIBER-OPTIC FACILITIES OUTSIDE OUR BUILDINGS. Within each
metropolitan area that we serve, we have a metropolitan point of presence, at
which we aggregate and disseminate traffic to and from all of our network
buildings in a city. We typically connect each of our buildings to the
metropolitan point of presence using fiber-optic cables. These fiber-optic lines
are leased from carriers that have previously installed fiber in the local
market. In our experience to date, there are generally several providers in the
local market who are able to provide us with local connectivity for traffic
between our buildings and the metropolitan point of presence.
OUR METROPOLITAN POINTS OF PRESENCE. At our metropolitan point of presence,
we install the electronic equipment necessary to provide our services in the
metropolitan area. This equipment includes network computer servers, traffic
routers and other items. We generally connect each metropolitan point of
presence to multiple major Internet service providers that provide Internet
connectivity to our network. Each metropolitan point of presence is connected to
at least one other metropolitan point of presence in a different city over a
dedicated circuit to increase redundancy in our network. We also connect each
metropolitan point of presence to our national operating center in Dallas, Texas
where we manage and monitor our network traffic.
The architecture of our network provides us with significant competitive
advantages, including the ability to:
- rapidly connect customers without requiring complex provisioning of local
phone lines and circuits from phone companies;
- capitalize on advanced Internet-protocol-based technology to construct a
more efficient and lower cost network;
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<PAGE> 39
- provide low cost, high performance services;
- offer always-on, secure connections to our network and the Internet; and
- provide a flexible platform for bandwidth upgrades and new service
offerings as data communications technology and applications continue to
develop.
CONSTRUCTION
We have assembled an in-house centralized construction group with
experience in office building construction and electrical engineering. We
believe that our construction capabilities are a key competitive advantage, as
they allow us to rapidly and efficiently deploy our network within the markets
we penetrate.
STANDARD CONSTRUCTION PRACTICES. Our construction group has developed
standardized installation drawings and details that can be applied to most of
our construction projects and result in high quality construction processes. Our
construction practices are focused on ensuring compliance with applicable
building and industry codes and standards. Our expertise in designing and
constructing in-building advanced data networks allows us to reduce the space
and resources needed to support our fiber-optic infrastructure and associated
electronic systems in buildings.
DESIGN AND IMPLEMENTATION OF OUR IN-BUILDING NETWORK. Prior to commencement
of construction of a fiber-optic network inside an office building, our
construction management staff conducts a formal, detailed, building site survey.
Our construction team then develops a site-specific fiber and cable system
design using our standardized practices, and prepares a formal installation
contract. We utilize computer assisted design and drawing systems to design,
draw and document our system installations. We generally engage the specialty
electrical contractor who is most familiar with the building to perform the
installation under the supervision of our own construction management personnel.
We typically purchase construction services on a fixed price basis.
CONSTRUCTION TIME AND COST ASSOCIATED WITH OUR IN-BUILDING NETWORKS. The
total construction time for the completion of our in-building fiber-optic
infrastructure and related equipment room facility is typically between 60 and
90 days for a major metropolitan office-building complex. We typically spend
several hundred thousand dollars per building for the construction of the
vertical fiber-based infrastructure and electronic equipment. This cost has
fallen considerably as we have gained experience and standardized our
construction processes. These construction costs vary considerably with building
size, location, complexity of the construction project and other factors. We
believe that our current cost structure, together with our technical expertise
and our rapid construction process, provide us with a competitive advantage.
CONSTRUCTING CONNECTIONS TO OUR CUSTOMERS. Once we have completed the
construction and installation of our in-building fiber-optic network and have
received an order for service from a customer, we connect the customer's local
area network to our in-building network. Typically, this connection can be
completed within a few days by one of our employees or an independent contractor
hired for this purpose. The connection requires the installation of a piece of
electronic equipment to enable the connection of a strand of fiber-optic cable
from the vertical riser to the customer's local area network. Once this
connection is made, our installation representative will help the customer test
the network connection to verify that the intended desktops are receiving our
service. This approach to provisioning service to our customers is intended to
establish a relationship with the customer that will encourage future use of our
technical support and data management services.
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OUR COMPETITIVE ADVANTAGE
Small- and medium-sized businesses currently face a limited choice of
alternatives for high-speed Internet access. Over the last few years, digital
subscriber line technologies, cable modems, T-1-based solutions and
fixed-wireless connections have emerged as alternative technologies for
high-speed, always-on service.
We believe that our fiber-optic-based solution is generally superior for
most of our target customers because our network provides:
- consistent speed and quality of signal that does not vary with distance
of the building from our metropolitan hub or environmental factors such
as rain;
- rapid, relatively uncomplicated provisioning of new customers that is not
dependent on the provider of local connectivity;
- symmetrical broadband capacity that will allow us to offer enhanced
business communication services such as full motion video conferencing;
- scaleable, competitive pricing schemes which are based on the number of
desktops connected to the network; and
- substantially higher speeds and an easy path to increased bandwidth.
For more information about the highly competitive market in which we
operate and the competitive risks we face, see "Risk Factors -- The sector in
which we operate is highly competitive, and we may not be able to compete
effectively."
MARKETING AND SALES
MARKETING STRATEGY. We directly market our services to the tenants in
buildings in which we have a fiber-optic infrastructure. To reach tenants, we
use a combination of direct marketing, public relations, event marketing, and
personal selling. Prior to marketing in a building, we conduct a detailed
customer analysis with the help of the building owner. We generally launch
service in each of our buildings with a promotional event, typically in the
lobby, at which we demonstrate our services and generate leads. Based on tenant
data provided by the building owner and other sources, we often use approaches
that are tailored to specific businesses, such as law firms, accounting firms,
consulting firms and other business segments. We also use promotional materials
and employ public relations firms to raise awareness of our services before an
official sales launch within a building or market, and later follow up with
event marketing and personal selling to launch and increase tenant sales in each
building. We also attempt to work closely with the building owners, management
and leasing representatives in both our initial and ongoing marketing efforts.
SALES FORCE ORGANIZATIONAL STRUCTURE. We have a sales organization, which
is managed by regional sales managers. These regional sales managers usually
have multiple account teams reporting to them. These regional account teams
consist of an account manager, supported by a sales engineer and a project
administrator and are typically responsible for two to four buildings. The sales
engineer provides our customers with very specific technical consulting on local
area and wide area networking and other application implementation and
integration issues. This is generally important to small- and medium-sized
businesses that typically have limited information technology staffs and
expertise. Our sales team typically jointly markets our services with the local
building management or leasing organization.
SALES STRATEGY. Our experienced sales team tailors the right broadband data
solutions for our customers using a consultative sales approach. We also market
to tenants of buildings that
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are not yet connected to our network through similarly targeted tactics,
including the use of local market and on-line advertising. We believe that this
approach is part of our competitive advantage because this level of service was
previously available only to very large enterprises either through in-house
expertise or through expensive consulting contracts.
SALES CENTERS. We build and operate sales centers in each of our markets
where sales people and real estate leasing agents can bring customers or
prospects to obtain hands-on experience with our products and customer service.
These centers are also used to stage marketing events and seminars.
SALES SYSTEMS SUPPORT. To support our sales and customer service processes,
we employ a sales and customer service automation application. The system is
based around a database that enables all sales and service personnel to have
instantaneous access to current and historical customer information. We are also
currently implementing an Internet-based customer interface known as an extranet
that will allow registered customers to purchase additional services, modify or
otherwise customize their service profiles.
REAL ESTATE SELECTION AND MARKETING
To build our fiber-optic infrastructure inside of office buildings and
offer our services to the tenants of those buildings, we must first secure the
right to install fiber-optic cable in the utility shaft of the building. We
carefully target the buildings in our markets that we wish to secure rights in
and then work with the owners of those buildings to negotiate a partnership that
will benefit both the property owner and us.
PROPERTY SELECTION. We consider a number of criteria in selecting buildings
we target for installation of our fiber-based networks. These criteria include
building location, building size, number of tenants, tenant mix, proximity to
local fiber-optic systems, relationship to other network buildings and
suitability for installation of our network infrastructure. In addition, we
consider the presence of any existing broadband communications network systems
in the building. We have a team of real estate professionals who conduct the
assessment necessary to identify candidate buildings prior to the signing of
lease or license agreements with the owners of the buildings selected.
ARRANGEMENTS WITH REAL ESTATE OWNERS. Once we have selected an office
building or collection of office buildings in which we would like to offer our
services, we contact the property owner to secure the right to access the
building and install our network. When we contact building owners, we emphasize
the following benefits of partnering with us:
- we install and manage the in-building fiber-optic communications
infrastructure at no cost to the building owner or manager;
- our fiber-optic infrastructure and service offerings provide building
owners with a significant competitive advantage in attracting and
retaining tenants;
- we pay building owners either a fixed rental fee or a modest percentage
of the revenue we generate in the building; and
- our real estate services and construction groups are staffed with
experienced property management and construction management personnel who
reduce the disruption to the property owner and the customer.
Our typical lease or license agreement with a building owner is for a total
term of ten or more years. The agreement provides for the development of the
network installation design and the approval of the construction plans and
arrangements by the building owner. The agreement
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<PAGE> 42
\provides for ongoing reporting to the building owner of our network expansion
as we add customers and provides for revenue sharing or fixed monthly rent.
MAJOR REAL ESTATE RELATIONSHIPS. We have agreements with more than a dozen
large commercial property owners and managers to obtain access to and the right
to install and operate networks in more than 1,000 buildings in major
metropolitan areas in the United States and selected international markets. Our
relationships include the following:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
PROPERTY OWNER OR MANAGER BUILDINGS PRINCIPAL CITIES
- ------------------------- ----------- --------------------------------------------
<S> <C> <C>
Whitehall 200 Boston, Dallas, Denver, Houston, Los
Angeles, Northern NJ and Washington, DC
Cornerstone 110 Los Angeles, Oakland, Phoenix and San
Francisco
Equity Office Properties 110 Boston, Philadelphia and Washington, DC
Hines 110 Chicago, Houston, Los Angeles, New York
City, San Francisco and Washington, DC
Transwestern 110 Houston, Los Angeles, Phoenix and Salt Lake
City
Boston Properties 90 Boston, Central NJ and Washington, DC
Trizec Hahn 90 Atlanta, Dallas, Houston, Los Angeles and
Washington, DC
Vornado 75 New York City and Washington, DC
Hamilton 55 Chicago
Shorenstein 30 San Francisco
Met Life 20 Various
</TABLE>
PENETRATION. The table below summarizes our success at selecting property
and negotiating license arrangements in the ten largest United States real
estate markets covered by Torto Wheaton data. Target buildings are generally
those designated by Torto Wheaton as Class A, Class B or Class C commercial
office buildings with more than 100,000 rentable square feet and Data below
concerning total number and approximate square feet of target buildings is from
Torto Wheaton. Data for buildings and square feet that we have in operation or
under contract includes only those buildings with more than 100,000 square feet.
<TABLE>
<CAPTION>
TARGET BUILDINGS TARGET BUILDINGS SQUARE FEET
--------------------------------- ---------------------------------
IN OPERATION OR IN OPERATION OR
MARKET UNDER CONTRACT TOTAL IN MARKET UNDER CONTRACT TOTAL IN MARKET
- ------ --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
New York City 749 352,000,000
Washington, D.C. 821 168,000,000
Chicago 501 156,000,000
Los Angeles 477 122,000,000
Dallas 397 108,000,000
Houston 359 100,000,000
Boston 400 92,000,000
Atlanta 322 80,000,000
Northern New Jersey 361 76,000,000
San Francisco 204 53,000,000
</TABLE>
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NETWORK OPERATIONS
Our operations and customer care facilities are located in Dallas, Texas.
The operations center is staffed with skilled technicians and engineers and is
equipped with computerized network management tools.
PROVISIONING A CUSTOMER. We believe that rapid activation of services is
one of our key competitive advantages. We generally provide our customers with a
conservative estimate for provisioning time that ranges between one to several
days from receipt of contract.
PROVIDING CUSTOMER SERVICE. We believe that a high level of customer
service is required for us to build our brand and develop a strong reputation
among the tenants in our buildings. All of our customer service is managed
in-house and is available 24 hours a day, 365 days a year. Our customer service
representatives are equipped to handle requests for all of our services. We
strive to answer all calls quickly, provide rapid resolution and follow up with
customers to ensure satisfactory resolution. We use a computerized relationship
management system to capture, track and save customer call details. Information
is stored in a database that provides a valuable source of feedback about our
customer satisfaction and service quality.
MANAGING THE NETWORK. The network operations center is staffed 24 hours a
day, 365 days a year. All of our network assets are continuously monitored for
events that may interrupt or degrade service. Traffic and service-level
statistics are gathered to report performance, plan additional capacity and
communicate with our customers. Our technical staff is trained in provisioning,
activation, maintenance and troubleshooting. Service-affecting events are
automatically detected and communicated to our technical managers. Our system
assigns network events to network operations engineers for resolution.
PERFORMING FIELD SUPPORT. Field operations engineers are deployed in each
of the metropolitan markets we serve. Our field operations engineers are on call
24 hours a day. They perform on-site customer support, service activation, field
troubleshooting and equipment repair. We support our field personnel with a
computerized spare parts management system that provides delivery of spare parts
within each city served.
REGULATION
We are subject to numerous local regulations such as building and
electrical codes, licensing requirements and construction requirements. These
regulations vary on a city-by-city and county-by-county basis. There is no
current legal requirement in a large majority of states that owners or managers
of commercial office buildings give access to competitive providers of
telecommunications services, but such laws and regulations have been proposed in
the past and may be adopted in the future. On June 10, 1999, the FCC initiated a
regulatory proceeding on a number of issues related to utility shaft access in
multiple tenant environments, including the following:
- the FCC's tentative conclusion that utilities must allow
telecommunications and cable service providers access to rooftop and
other rights-of-way and utility shaft conduit in multiple tenant
environments on just, reasonable and nondiscriminatory rates, terms and
conditions;
- whether incumbent local telephone companies should make available
unbundled access to riser cable and wiring within multiple tenant
environments; and
- whether building owners offering access to any telecommunications
provider should be required to make comparable access available to all
such providers on a nondiscriminatory basis, and whether the FCC has the
authority to impose such a requirement.
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In addition, legislation has been introduced in the U.S. Senate that covers
similar issues relating to access to building risers and other rights-of-way. We
cannot predict the outcome of the FCC's proceeding or of any legislation that
may be enacted into law, nor what effect, if any, it may have on our business.
The FCC regulates common carriers' interstate services. State public
utilities commissions exercise jurisdiction over intrastate basic
telecommunications services but do not regulate most enhanced services, which
involve more than the pure transmission of customer-provided information. The
FCC has preempted certain inconsistent state regulation of, and does not itself
regulate, enhanced services. We believe that all of the communications services
that we currently provide are enhanced services and therefore not subject to
direct regulation. The offerings of many of our competitors and vendors,
especially incumbent local telephone companies, are subject to direct federal
and state regulations. These regulations change from time to time in ways that
are difficult for us to predict.
Through subsidiaries, we are in the process of applying for, and have
received in some states, authority from various state regulatory commissions and
the FCC to provide basic telecommunications services, such as voice telephony
service. These subsidiaries will be subject to direct state and federal
regulation upon approval of their applications. We do not expect to encounter
substantial legal barriers to entry into regulated telecommunications services.
We also do not expect to face regulatory restrictions on the pricing or terms of
any regulated telecommunications service offerings we might choose to offer that
would have a material adverse effect on our business. Changes in the regulatory
environment, however, could have a material adverse effect on our business.
The Telecommunications Act of 1996 substantially altered the federal and
state regulatory environment for telecommunications services. Among its more
significant provisions, the Telecom Act:
- removed most of the significant legal barriers to entry into
telecommunications service, including local exchange service markets;
- required incumbent local telephone companies to interconnect with
competitors through unbundled network elements and with provision of
operations support systems, reciprocal compensation, local number
portability, dialing parity and collocation;
- required incumbent local telephone companies to offer their retail
services at wholesale discounts for resale by competitors;
- required incumbent local telephone companies and utilities to grant
access to their rights-of-way, conduit and ducts;
- established criteria and procedures for entry of Bell Operating Companies
into long distance service in their local service areas; and
- directed the FCC to establish an explicit subsidy mechanism for the
preservation of universal service.
We anticipate that, eventually, the Bell companies' applications to provide
in-region long distance service will be granted, at which time the Bell
companies will be able to compete more effectively in various markets, including
against us.
In September 1999, the FCC declined to require incumbent telephone
companies to make their facilities used to provide high-speed data offerings,
such as digital subscriber line equipment, available to competitors as an
unbundled network element. The FCC has a pending regulatory proceeding regarding
steps to spur the deployment of broadband transmission capabilities and advanced
services, by both incumbent telephone companies and their competi-
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tors. The rules adopted by the FCC in this area could have a material effect on
our competitive position with regard to incumbent telephone companies and other
telecommunications companies.
The FCC and state commissions may act in the near future to change the
charges for Internet traffic handled in part by incumbent local telephone
companies and Internet service providers' obligation to contribute to universal
service funds.
There have been various statutes, regulations and court cases relating to
liability of Internet service providers and other on-line service providers for
information carried on or through their services or equipment, including in the
areas of copyright, indecency/obscenity, defamation and fraud. The laws in this
area are unsettled and there may be new legislation and court decisions that may
affect our services and expose us to liability. See "Risk Factors -- Impact of
legislation and government regulation on our operations could affect
performance."
EMPLOYEES
As of September 15, 1999, we had 261 employees. None of our employees are
represented by a labor union, and we consider our relations with our employees
to be good. See "Risk Factors -- We must attract and retain key personnel in a
tight labor market."
FACILITIES
We are headquartered in facilities consisting of approximately 43,000
square feet in Dallas, Texas which we occupy under a lease that expires in
December 2003. In addition, our engineering department occupies approximately
19,000 square feet in Richardson, Texas under a lease which expires in December
2003. We also lease space under varying terms from three to five years in each
of our metropolitan areas served for sales demonstration centers. We consider
this space adequate for our current operations.
LEGAL PROCEEDINGS
We are not currently engaged in any material legal proceedings.
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<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND OTHER SENIOR MANAGEMENT
The following table sets forth certain information with respect to our
executive officers, directors, and other senior management as of September 15,
1999.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
David H. Crawford........... 42 Chief executive officer and director (class I)
John M. Todd................ 49 Chief operating officer, president and director (class
I)
John H. Davis............... 60 Chief technology officer and director (class II)
Todd C. Doshier............. 38 Senior vice president and chief financial officer
Michael R. Carper........... 38 Senior vice president and general counsel
Stephen W. Schovee.......... 40 Director and chairman of the board (class III)
Rod F. Dammeyer............. 58 Director (class III)
William J. Elsner........... 47 Director (class II)
R. David Spreng............. 38 Director (class II)
Blair P. Whitaker........... 38 Director (class I)
William T. White............ 38 Director (class III)
OTHER SENIOR MANAGEMENT
Elizabeth Carey Billante.... 38 Vice president -- real estate services
Thomas A. Blake............. 52 Vice president -- accounting
James P. Breen.............. 37 Vice president -- corporate development
John R. Bukowsky............ 43 Vice president -- product management
Thomas A. Eppes............. 51 Vice president -- technical operations
J. Ted Gilmore.............. 47 Vice president -- sales
William T. Guthrie.......... 37 Vice president -- engineering
Brenda L. Hardesty.......... 41 Vice president -- human resources and administration
John D. Keys................ 67 Vice president -- construction
Douglas J. Morgan........... 46 Vice president -- strategic national initiative
Steve L. Reichert........... 42 Vice president -- information technology
Charles W. Yeargain......... 38 Vice president -- finance
</TABLE>
DAVID H. CRAWFORD has served as our chief executive officer since July
1998, was elected to our board of directors in July 1998, and from July 1998 to
May 1999 also served as our president. From March 1997 until July 1998, Mr.
Crawford was senior vice president -- administration, general
counsel -- property operations and assistant secretary at Equity Office
Properties Trust. From February 1991 until December 1996, Mr. Crawford held
senior vice president, general counsel and other senior management positions at
Equity Office Properties and their affiliates and was of counsel to Rosenberg &
Liebentritt. Mr. Crawford was an associate at Kirkland & Ellis, a national law
firm based in Chicago, Illinois from June 1988 until February 1991.
JOHN M. TODD has served as our president and chief operating officer since
May 1999 and was elected to our board of directors in May 1999. From February
1996 to May 1999, Mr. Todd was vice president -- sales support services for
Sprint Business and vice president -- technology integration for Sprint
Business. From February 1986 until February 1996, Mr. Todd held various officer
and senior management positions at MCI, including vice president for
professional services, product management and marketing.
JOHN H. DAVIS, PH.D. has served as our chief technology officer since July
1999 and was elected to our board of directors in December 1998. Since September
1997, Dr. Davis has been a principal of GeoPartners Research. Prior to September
1997, Dr. Davis held senior management positions at Bell Labs and AT&T,
culminating in his role as the chief technology officer for AT&T
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<PAGE> 47
Communications Services from 1993 until September 1997. Dr. Davis presently
serves on the board of directors of Acoustics Technologies, a startup company in
Phoenix, AZ.
TODD C. DOSHIER has served as our chief financial officer since December
1996 and served as our chief operating officer from December 1996 to May 1999.
From May 1991 until December 1996, Mr. Doshier was a principal in Doshier & Co.,
later Perry, Nestman & Doshier, which provided corporate consulting, financial
advisory and management services.
MICHAEL R. CARPER has served as our senior vice president and general
counsel since June 1999. From August 1995 to June 1999, Mr. Carper was assistant
general counsel and assistant secretary of Nextel Communications. From August
1993 until July 1995, Mr. Carper was vice president and general counsel of
OneComm Communications, when it merged with Nextel. Prior to August 1993, Mr.
Carper worked for Jones, Day, Reavis and Pogue, an international law firm, in
their communications practice area.
STEPHEN W. SCHOVEE was elected to our board of directors in December 1998
and currently serves as its chairman. Since August 1995, Mr. Schovee has been a
managing member of Telecom Management L.L.C. Since October 1997 Mr. Schovee has
been a managing member of Telecom Management II, L.L.C., the general Partner of
Telecom Partners II, L.P. From August 1992 until August 1995, Mr. Schovee was
the chief executive officer of OneComm, when it merged with Nextel. Mr. Schovee
was a founding director of Verio and is currently a director of Centennial
Communications, Advanced Telecom Group, Gabriel Communications and VeloCom.
ROD F. DAMMEYER was elected to our board of directors in December 1998.
Since January 1998, Mr. Dammeyer has been the managing director of Equity Group
Corporate Investments, an affiliate of EGI-ARC. Mr. Dammeyer is a director and
vice chairman of Anixter International where he has been employed since 1985 and
is also a director of Antec, CNA Surety, Grupo Azucarero Mexico, IMC Global,
Matria Healthcare, Stericycle, TeleTech Holdings and Transmedia Network. He is a
trustee of the Van Kampen Closed-End Funds.
WILLIAM J. ELSNER was elected to our board of directors in December 1998.
Since October 1997, Mr. Elsner has been a managing member of Telecom Management
II, L.L.C., the general partner of Telecom Partners II, L.P. From October 1995
until November 1997, Mr. Elsner was a private investor. From July 1991 until
September 1995, Mr. Elsner was the chief executive officer of United
International Holdings, an international cable operator he co-founded. Mr.
Elsner is currently the chairman of the board of directors of Formus
Communications and a director of Via Net.Works and VeloCom.
R. DAVID SPRENG was elected to our board of directors in December 1998.
Since September 1998, Mr. Spreng has been the managing general partner of
Crescendo Ventures. From March 1993 until September 1998, Mr. Spreng was
president of IAI Ventures, Crescendo's predecessor which he founded. Mr. Spreng
serves on the boards of CoSine Communications, Digital Island, E/O Networks,
Fujant Technologies, Infoscape, Novolux and Quikpage.
BLAIR P. WHITAKER was elected to our board of directors in December 1998.
Since 1997, Mr. Whitaker has been a general partner at Norwest Venture Partners.
From January 1996 until October 1997 Mr. Whitaker was chief financial officer
and vice president for business development of Exactis.Com. From August 1990
until December 1995 he was a vice president at the Centennial Funds, Language
Technology and Massachusetts Institute of Technology. Mr. Whitaker is a director
of Advanced Telecom Group, Diginet Americas, CO Space and Pangea.
WILLIAM T. WHITE was elected to our board of directors in December 1998.
Since 1991, Mr. White has held senior management positions at various Equity
Group Investment companies. Equity Group Investments is an affiliate of EGI-ARC.
Prior to 1991, Mr. White was an officer at Manufacturer's Hanover Trust Company.
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<PAGE> 48
ELIZABETH CAREY BILLANTE has served as our vice president -- real estate
services since August 1998. Since 1990, Ms. Billante has held senior management
positions at Equity Office Properties and Wiggins Properties in the areas of
portfolio management and property management.
THOMAS A. BLAKE has served as our vice president -- accounting since
September 1998. Prior to joining us in November 1997 and since 1974, Mr. Blake
founded an independent CPA firm and served as the chief financial officer for
four international construction and real estate firms.
JAMES P. BREEN has served as our vice president -- corporate development
since July 1998. Since 1990, Mr. Breen has held officer and senior management
positions at Equity Office, Equity Group Investments and Barclays Bank in the
areas of finance and investments for the real estate and communications
industries.
JOHN R. BUKOWSKY has served as our vice president -- product management
since April 1999. Since 1996, Mr. Bukowsky has held officer and senior
management positions at Sanga International and GTE in the areas of business
strategy, business development, marketing, product development and sales.
THOMAS A. EPPES, PH.D., has served as our vice president -- operations
since August 1998. Since June 1979, Dr. Eppes has held officer and senior
management positions at VTX and Frito Lay in the areas of network design and
deployment, process engineering and operations.
J. TED GILMORE has served as our vice president -- sales since November
1998. Since 1993, Mr. Gilmore has held officer and senior management positions
at GTE, GTE Communications and GTE Professional Services in the areas of
international sales and marketing.
WILLIAM T. GUTHRIE has served as our vice president -- engineering since
July 1998. Prior to joining us in February 1998 and since April 1992, Mr.
Guthrie held officer and senior management positions at MCI and US West in the
areas of wireless engineering and network systems.
BRENDA L. HARDESTY has served as our vice president -- human resources and
administration since March 1999. Prior to joining us in August 1998 and since
1984, Ms. Hardesty held senior management positions at Accugraph
Corporation/Architel Systems in the areas of human resources, customer support
and customer services.
JOHN D. KEYS has served as our vice president -- construction since
November 1997. Prior to joining us as a consultant in March 1997 and since 1968,
Mr. Keys founded two international electrical construction firms and has served
as a senior officer of Blount, Foley Enterprises and Fishbach & Moore.
DOUGLAS J. MORGAN has served as our vice president -- strategic national
initiative since July 1999. Since 1991, Mr. Morgan has held officer and senior
management positions at Winstar and Unisys in the areas of enhanced services,
sales, business development, marketing, product management, training, strategic
initiatives and media relations.
STEVE L. REICHERT has served as our vice president -- information
technology since June 1999. Since 1994, Mr. Reichert has held officer and senior
management positions at Pagenet and Pro Staff in the areas of business systems
development, IT consulting services, customer systems development, network
systems development and technical architecture planning.
CHARLES W. YEARGAIN has served as our vice president -- finance since
December 1996. Since 1984, Mr. Yeargain has founded an investment and consulting
firm, and has held officer positions at AMRESCO Management and Texas American
Bank.
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<PAGE> 49
ELECTION OF DIRECTORS AND OFFICERS
According to our by-laws, our stockholders shall elect the members of our
board of directors at the annual meeting of the stockholders to be held each
year at a time specified by our board of directors. The by-laws also provide
that the directors shall be elected by a plurality of the votes cast at the
annual meeting. Each director elected shall hold office until his or her
successor is duly elected and qualified or until his or her earlier death,
resignation or removal.
Our board of directors will appoint officers at the annual board meeting or
at other times throughout the year, as may be required. Each officer appointed
will hold office until his or her successor is duly chosen and qualified or
until his or her earlier death, resignation or removal.
CLASSIFIED BOARD OF DIRECTORS
Our board of directors is divided into three classes of directors serving
staggered three-year terms. Messrs. Crawford, Todd and Whitaker will serve as
class I directors whose terms expire at the 2000 annual meeting of stockholders.
Messrs. Davis, Elsner and Spreng will serve as class II directors whose terms
expire at the 2001 annual meeting of stockholders. Messrs. Dammeyer, Schovee and
White will serve as class III directors whose terms expire at the 2002 annual
meeting of stockholders.
BOARD COMMITTEES
Our by-laws provide that our board of directors may designate one or more
board committees. We currently have an audit committee and a compensation
committee.
Our audit committee, currently comprised of Messrs. Elsner and Whitaker:
- monitors our financial reporting and our internal and third-party audits;
- reviews and approves material accounting policy changes;
- monitors our internal accounting controls;
- recommends the engagement of independent auditors;
- reviews transactions between Allied Riser and our officers and directors;
and
- performs other duties upon the request of our board.
Our compensation committee, currently comprised of Messrs. Schovee and
Whitaker:
- reviews and approves compensation and benefits paid to our executive
officers; and
- administers our 1999 stock option plan.
COMPENSATION OF DIRECTORS
Directors who are not our employees do not receive cash fees for serving as
directors. Our outside directors are compensated $1,000 for each meeting they
attend in person and $500 for each telephonic meeting. In addition, we reimburse
directors for out-of-pocket expenses incurred in connection with attendance at
meetings. Directors may also be granted options to purchase shares of our common
stock.
EMPLOYMENT AGREEMENTS
We have employment agreements with each of Messrs. Crawford, Todd, Doshier,
Davis and Carper. These employment agreements do not set salary or bonus
compensation but provide for full accelerated vesting of restricted shares and
stock options in the event of a qualifying business combination transaction. The
agreements also provide for severance payments equal to
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<PAGE> 50
six months salary and partial accelerated vesting of restricted shares and stock
options upon termination of the employee's employment without cause. The
agreements also impose non-competition and nonsolicitation obligations on these
employees for a period of two years following their employment.
We have employment agreements with our employees at the vice president
level. These employment agreements do not set salary or bonus compensation but
provide for full accelerated vesting of restricted shares and stock options in
the event of both a qualifying business combination transaction and termination
of the employees employment under certain circumstances. The agreements also
provide for severance payments equal to three months salary and partial
accelerated vesting of restricted shares and stock options upon termination of
the employee's employment without cause. The agreements also impose
non-competition and nonsolicitation obligations on these employees for a period
of one year following their employment.
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth certain information
concerning the compensation paid or accrued for services rendered in all
capacities by the chief executive officer and our other executive officers whose
combined salary and other annual compensation exceeded $100,000 during 1998. The
columns for "Other Annual Compensation" and "All Other Compensation" have been
omitted from the table because there is no compensation required to be reported
in those columns. The aggregate amount of perquisites and other personal
benefits provided to each officer listed above is less than 10% of the total
annual salary and bonus of that officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION RESTRICTED
FISCAL ------------------ STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS
- --------------------------- ------ -------- ------- ----------
<S> <C> <C> <C> <C>
David H. Crawford, chief executive officer.............. 1998(1) $104,077 $50,000 623,737
John M. Todd, chief operating officer................... 1998(2) -- -- --
John H. Davis, chief technology officer................. 1998(3) -- -- --
Todd C. Doshier, senior vice president and chief
financial officer..................................... 1998 $168,115 $45,000 577,485
Michael R. Carper, senior vice president and general
counsel............................................... 1998(4) -- -- --
</TABLE>
- ---------------
(1) Represents payments made from July 1998, the date on which Mr. Crawford
began his employment with Allied Riser.
(2) Mr. Todd commenced his employment in May 1999.
(3) Mr. Davis commenced his employment in July 1999.
(4) Mr. Carper commenced his employment in June 1999.
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<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of our common stock as of September 15, 1999, as adjusted to reflect the
conversion of outstanding preferred stock into common stock immediately prior to
the completion of this offering, assuming an offering price of $ , by:
- each stockholder who is known by us to beneficially own 5% or more of any
class of our capital stock;
- each of the executive officers named in the "Summary Compensation Table"
and each of our directors; and
- all of our executive officers and our directors as a group.
Unless otherwise indicated in the footnotes to this table, each of the
stockholders named in this table has sole voting and investment power with
respect to the shares shown as beneficially owned. In accordance with Rule 13d-3
under the Exchange Act, a person is deemed to be a beneficial owner of a
security if he or she has or shares the power to dispose or direct the
disposition of such security. A person also is deemed to be a beneficial owner
of any securities of which that person has the right to acquire beneficial
ownership within 60 days. The percentage of beneficial ownership at September
15, 1999 is based on 53,594,372 shares of our common stock outstanding as of
such date.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 15, 1999
---------------------------------------------------------------------------------
NUMBER OF TOTAL ALL
SHARES PERCENT OF TOTAL PERCENT OF SHARES PERCENT OF
BENEFICIALLY OUTSTANDING VESTED OUTSTANDING (VESTED AND OUTSTANDING
NAME OWNED SHARES SHARES SHARES UNVESTED) SHARES
- ---- ------------ ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EGI-ARC Investors(1)
Two North Riverside Plaza,
Chicago, Illinois 60606................. 6,389,157 11.9%
Telecom Partners II
6400 South Fiddlers Green Circle, Suite
720
Englewood, Colorado 80111............... 5,854,226 10.9
Crescendo(2)
c/o Crescendo Venture Management
800 LaSalle Avenue, Suite 2250
Minneapolis, Minnesota 55402............ 5,517,557 10.3
The Goldman Sachs Group, Inc.(3)
85 Broad Street
New York, New York 10004................ 35,349,123 6.5
Norwest Venture Partners VII
40 William Street, Suite 305
Wellesley, Massachusetts 02481.......... 5,165,494 9.6
David H. Crawford......................... 623,737 1.2 285,879 0.5% 623,737 1.2%
John M. Todd.............................. 466,666 0.9 124,444 0.2 466,666 0.9
John H. Davis............................. 333,334 0.6 39,167 -- 333,334 0.6
Todd C. Doshier........................... 617,094 1.2 372,039 0.7 617,094 1.2
Michael R. Carper......................... 266,667 0.5 47,916 -- 266,667 0.5
Stephen W. Schovee(4)..................... 5,854,226 10.9 5,854,226 10.9 5,854,226 10.9
Rod F. Dammeyer(6)........................ -- -- -- -- -- --
William J. Elsner(4)...................... 5,854,226 10.9 5,854,226 10.9 5,854,226 10.9
R. David Spreng(7)........................ 5,517,557 10.3 5,517,557 10.3 5,517,557 10.3
Blair P. Whitaker(5)...................... -- -- -- -- -- --
William T. White(6)....................... -- -- -- -- -- --
All executive officers and directors as a
group (11 persons)...................... 13,679,281 25.5% 12,241,228 22.8% 13,679,281 25.5%
</TABLE>
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<PAGE> 52
- ---------------
* Less than 1% of the issued and outstanding shares of our common stock.
(1) EGI-ARC Investors is controlled by Samuel Zell, a Chicago-based investor who
is chairman of Equity Group Investors, L.L.C.
(2) The shares beneficially owned by the Crescendo affiliates are held as
follows: Crescendo World Fund, 985,735; Eagle Venture WF, 55,061; Crescendo
III, 4,132,395; and Lawrence Equity Group, 344,366.
(3) Represents 35,349,123 shares of Common Stock owned by certain investment
partnerships, of which affiliates of The Goldman Sachs Group, Inc. are the
general partner, managing general partner or investment manager. Includes
13,490,105.57 shares held of record by GS Capital Partners III, L.P.,
3,708,596.08 shares held of record by GS Capital Partners III Offshore,
L.P., 622,771.35 shares held of record by Goldman, Sachs & Co. Verwaltungs,
GmbH, and 17,527,651 shares held of record by Whitehall Street Limited
Partnership XI. The Goldman Sachs Group disclaims beneficial ownership of
the shares owned by such investment partnerships to the extent attributable
to partnership interests therein held by persons other than The Goldman
Sachs Group and its affiliates. Each of such investment partnerships shares
voting and investment power with certain of its respective affiliates.
(4) Includes 5,854,226 shares of our common stock beneficially owned by Telecom
Partners II. Messrs. Schovee and Elsner are managing members of Telcom
Management II, the general partner of Telcom Partners II.
(5) Excludes 5,165,494 shares of our common stock beneficially owned by Norwest
of which Mr. Whitaker is the general partner. Mr. Whitaker disclaims
beneficial ownership of these shares.
(6) Excludes 6,389,157 shares of common stock beneficially owned by EGI-ARC, as
to which each of Messrs. Dammeyer and White disclaim beneficial ownership
because neither individual has or shares control over the voting or
disposition of such shares.
(7) Includes 5,517,557 shares of our common stock beneficially owned by
Crescendo of which Mr. Spreng is the managing partner.
STOCK OPTION PLAN
We have adopted, effective June 1, 1999, a stock option and equity
incentive plan. The option and incentive plan authorizes the issuance of up to
2,703,116 shares of common stock subject to equitable adjustment upon the
occurrence of any stock dividend or other distribution, stock split, merger,
consolidation, combination, share repurchase or exchange, or other similar
corporate transaction or event.
In accordance with the option and incentive plan, our board of directors
may grant incentive stock options as that term is defined in Section 442 of the
Internal Revenue Code and nonstatutory stock options, stock appreciation rights,
restricted shares, deferred shares and certain tax offset payments. The terms of
any particular grant, including any performance-based requirements, vesting
terms and other restrictions are determined by the board or by the compensation
committee of the board. Certain limited authority to effect grants may also be
delegated to specified executive officers. Grants may be made to employees,
officers, directors or consultants.
The option and incentive plan is administered by the compensation committee
consisting of no less than two members of the board, each of whom is a
nonemployee director within the meaning of Rule 16 b-3(b)(3)(i) under Section 16
of the Exchange Act.
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<PAGE> 53
The exercise price of nonstatutory options may be above, at or below fair
market value of the common stock on the date of grant the exercise price of an
incentive stock option must not be less than the fair market value of the common
stock on the date of grant. The exercise period may be set by the board or the
committee but may not exceed ten years for incentive stock options. Stock
appreciation rights may be granted alone or in tandem with stock options. A
stock appreciation right that is granted without stock options, is a right to be
paid an amount equal to the excess of the fair market value of a share of common
stock on the date the stock appreciation right is exercised over the fair market
value of a share of common stock on the date of grant. A stock appreciation
right that is granted with stock options is a right to be paid an amount equal
to the exercise price of the related stock option. Payment on stock appreciation
rights may be made in cash, common stock or both, as specified in the grant or
determined by the committee.
Stock options and stock appreciation rights will be exercisable at such
times and upon such conditions as the committee may determine, as reflected in
the applicable grant.
A restricted stock award is an award of common stock that is subject to
such vesting, performance criteria, restrictions on transferability and other
restrictions, if any, as the committee may impose at the date of grant, which
restrictions may lapse separately or in combination at such times, under such
circumstances, in such installments or otherwise, as the committee may
determine. Except to the extent restricted under the grant relating to the
restricted stock, a participant granted restricted stock shall have all of the
rights of a stockholder, including without limitation the right to vote and the
right to receive dividends thereon. The committee has the authority to cancel
all or any portion of any outstanding restrictions.
Except as otherwise determined by the committee, options, restricted shares
and other rights granted under the option and incentive plan may not be
transferred other than by will, or by the laws of descent and distribution.
The option and incentive plan may, at any time and from time to time, be
altered, amended, suspended or terminated by the board of directors, in whole or
in part, except that no amendment that requires stockholder approval in order
for the option and incentive plan to comply with state law, stock exchange
requirements or other applicable law will be effective, except as otherwise
determined by the committee, unless such amendment has received the requisite
approval of stockholders. In addition, no amendment may be made which adversely
affects any of the rights of a participant under any grant previously granted,
without that participant's consent.
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<PAGE> 54
CERTAIN TRANSACTIONS
REORGANIZATION AND RECAPITALIZATION, AND RELATED TRANSACTIONS
We were formed in Texas on December 19, 1996 as RCH Holdings. In November
1998, we consummated a reorganization and recapitalization transaction in which
our operations were merged into Allied Riser Communications Corporation,
formerly known as Allied Riser Communications Holdings, a Delaware corporation.
In connection with the reorganization and recapitalization, in November and
December of 1998, we sold 20,560,831 shares of our common stock and 66 shares of
our preferred stock in private transactions. In connection with this offering
all of these shares of outstanding preferred stock will be converted into
shares of common stock, assuming an initial public offering price of $ per
share.
We had previously agreed to grant to Advest a warrant and certain future
co-management rights and fees in consideration of investment banking services
received from Advest. William Lundquist, a former director of RCH, is a managing
director of Advest. In connection with the reorganization and recapitalization,
this warrant and these rights were canceled in consideration for the issuance of
125,407 shares of our common stock to Advest in April 1999.
In February 1996, each of Messrs. Yeargain and Doshier and a former
employee of RCH acquired warrants to purchase, at a purchase price of $.15 per
share, a number of shares of our common stock representing two percent of the
total number of shares of our common stock outstanding, determined on a fully
diluted basis, on the earlier of the date of exercise of the warrant or April
30, 1998. As of April 30, 1998, there were 241,433 shares of our common stock
outstanding. As a result, each of these warrants evidenced the right to purchase
approximately 4,800 shares of our common stock. These warrants were terminated
in 1998 and early 1999 in connection with the consummation of the reorganization
and recapitalization.
INVESTOR RELATIONSHIPS
Samuel Zell and affiliates of Samuel Zell own an interest in and or control
a number of entities with which we have entered into contractual or other
relationships. EGI-ARC Investors is a limited liability company whose managing
member is controlled by Samuel Zell. Affiliates of Mr. Zell have substantial
economic interests in EGI-ARC. As an investor, EGI-ARC has a substantial equity
interest in us. Through a stockholders' agreement, which has been terminated
prior to this offering, EGI-ARC, and therefore Mr. Zell, exercised a substantial
degree of control over us during 1998. Through EGI-ARC, Mr. Zell may be deemed
to beneficially own 6,389,157 shares of our common stock as of September 15,
1999, which amount includes the conversion of all preferred stock held by
EGI-ARC. Mr. Zell is the chairman of the board of trustees of Equity Office
Properties which, as of September 15, 1999 owned shares of our common
stock. Mr. Zell disclaims beneficial ownership of these shares.
Samuel Zell has a significant economic interest in and controls S Z
Investments, which provided the majority of our debt financing prior to the
consummation of the reorganization and recapitalization transactions. During
1998, we incurred $14,000,000 of indebtedness to S Z Investments, all of which
was paid off in November 1998.
Samuel Zell is chairman of the board of trustees of Equity Office
Properties Trust, a publicly held real estate investment trust. As of December
31, 1998 and June 30, 1999 we had license agreements with Equity Office
Properties covering the installation of our fiber-optic networks in 58
buildings. In addition, we have negotiated an agreement with Equity Office
Properties which would cover these and additional buildings. Total license fees
paid to Equity Office Properties under the existing license agreements were less
than $1,000 in 1998 and approximately $36,000 for the six months ended June 30,
1999.
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<PAGE> 55
We currently lease approximately 36,000 feet of office space from Equity
Office. Rent payments to Equity Office for this space during 1998 were
approximately $156,000 and $487,000 for the six months ended June 30, 1999. In
addition, Equity Office advanced us $3,600,000 for infrastructure in buildings
during 1998. This advance was repaid in November 1998.
Affiliates of Mr. Zell are significant stockholders of Anixter
International, a supplier of wiring systems, networking, and Internet working
products for voice, data, and video networks. Mr. Zell also serves as chairman
of Anixter. Anixter supplies us with a portion of our fiber-optic cable
requirements and other materials used in the installation of our networks. For
the year ended December 31, 1998 and for the six months ended June 30, 1999, we
paid Anixter approximately $2,319,000 and $1,408,000, respectively for such
supplies.
In addition, we purchased commercial general liability and other insurance
policies through EGI Risk Services, an insurance brokerage firm affiliated with
Samuel Zell. For the year ended December 31, 1998 and for the six months ended
June 30, 1999, we paid approximately $64,000 and $55,000, respectively, to EGI
Risk Services.
In addition, we engaged Rosenberg & Liebentritt for certain legal services
during 1998 and the first six months of 1999. Rosenberg & Liebentritt was a law
firm that provided legal services almost exclusively to Samuel Zell and his
affiliates. For the year ended December 31, 1998 and the six months ended June
30, 1999, we paid approximately $323,000 and $108,000 for such legal services.
We are not currently using Rosenberg & Liebentritt to provide any material
amount of legal services.
We believe that these transactions were negotiated on market-based terms
and all material transactions with Mr. Zell have been approved by our board of
directors. Our current policy is to obtain the approval of our board of
directors with respect to any transaction involving our affiliates.
DIRECTOR AND STOCKHOLDER RELATIONSHIPS
In addition to serving as members of our board, Messrs. Elsner, Schovee and
Spreng each serve as directors of other communications companies and other
private companies. As a result of these additional directorships, Messrs.
Elsner, Schovee and Spreng may be subject to conflicts of interest during their
tenure as our directors. Because of these potential conflicts, Messrs. Elsner,
Schovee and Spreng may be required, from time to time, to disclose certain
financial or business opportunities to us and to the other companies to which
they owe fiduciary duties. However, we do not believe these conflicts of
interest will be a detriment to our growth or ability to operate our business.
Currently, we do not have any standard procedures for resolving potential
conflicts of interest relating to corporate opportunities or otherwise.
Certain of our directors are affiliated with our principal stockholders.
Mr. Whitaker is a general partner of Norwest Venture Partners VII. Mr. Spreng is
a managing partner of Crescendo Ventures. Mr. Dammeyer is a director and vice
chairman of Anixter International. Mr. Dammeyer also serves as the managing
director of Equity Group Corporate Investments, an affiliate of EGI-ARC. Each of
Messrs. Elsner and Schovee is a managing member of Telecom Management II, the
general partner of Telecom Partners II, L.P. Mr. White is employed by Equity
Group Investments, an affiliate of EGI-ARC.
RELATIONSHIP WITH OUR PRINCIPAL UNDERWRITER
Goldman Sachs is a representative of the underwriters in this offering and
provides financial advisory and consulting services to us.
In August 1999, we issued 17 shares of series B preferred stock and
2,019,766 shares of common stock to a group of financial sponsors, including GS
Capital Partners III, an affiliate of
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<PAGE> 56
Goldman Sachs. We received $16.7 million in proceeds from GS Capital Partners
III in this financing transaction.
Also in August 1999, we issued 34 shares of series B preferred stock and
4,039,531 shares of common stock to our real estate partners and their
affiliates, including Whitehall Street Real Estate Limited Partnership XI, an
affiliate of Goldman Sachs. We received $ million in proceeds from
Whitehall in connection with this transaction. In addition, in August 1999 we
agreed to give warrants to acquire shares of common stock to our real
estate partners and their affiliates, including warrants to acquire
shares of common stock to Whitehall. These warrants will have no exercise price.
Each of the transactions with affiliates of Goldman Sachs has been approved
by our board of directors and each of these transactions was completed on
substantially the same terms as with several unaffiliated third-parties
participating in the same transactions.
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<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock.
However, you should refer to the actual terms of the capital stock contained in
our certificate of incorporation. The following summary gives effect to the
conversion of all outstanding shares of preferred stock and warrants into common
stock upon the completion of this offering.
Our authorized capital stock of 66,667,667 consists of 33,194,372 shares of
common stock and 117 shares of preferred stock issued and outstanding, as of
September 15, 1999. There were 173 holders of record of common stock on that
date. The common stock has a par value of $.0015 and the preferred stock has a
par value of $.0001 per share. After the offering, there will be 53,594,372
shares outstanding. As of September 15, 1999, options to purchase 73,326 shares
of common stock were outstanding. Upon the completion of this offering, no
shares of preferred stock will be outstanding.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available for this purpose
at the times and in the amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in our amended and restated
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. At the
time of the offering, the common stock will not be entitled to preemptive
rights. The common stock is not subject to conversion or redemption. Upon the
occurrence of a liquidation, dissolution or winding-up of Allied Riser, the
holders of shares of common stock would be entitled to share ratably in the
distribution of all of our assets remaining available for distribution after
satisfaction of all its liabilities and the payment of the liquidation
preference of any outstanding preferred stock.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in our certificate of incorporation, as amended, to provide
by resolution for the issuance of up to 1,000 shares of preferred stock, in one
or more classes or series, and to fix the rights, preferences, privileges and
restrictions of this preferred stock, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund provisions, if any, and the number of shares constituting any series or the
designation of such series. The issuance of preferred stock could have the
effect of decreasing the market price of the common stock and could adversely
affect the voting and other rights of the holders of common stock.
WARRANTS
In August 1999, we agreed to give warrants to acquire approximately
shares of common stock to property owners and managers. The
warrants will have no exercise price and will be exercisable for a period of ten
years from the date of grant.
OPTIONS
As of September 15, 1999:
- options to purchase a total of 73,326 shares of common stock at an
exercise price of $.336 were outstanding, of which 1,530 shares
underlying these options have vested; and
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<PAGE> 58
- up to 2,282,347 additional shares of common stock may be subject to
options granted in the future.
Outstanding options expire on July 26, 2009.
See "Management -- Executive compensation -- stock option plan."
REGISTRATION RIGHTS
In November and December 1998, we issued 20,560,831 shares of common stock
and 66 shares of series A preferred stock in private transactions which will be
converted into shares of common stock at the consummation of this offering,
assuming an initial offering price of $ per share. In connection with these
transactions, these parties entered into a registration rights agreement with
us. This agreement grants contractual rights to these holders which require us
to register their shares under the Securities Act. Prior to the offering, all of
these holders will have delivered to us written waivers, which will effectively
waive their registration rights with respect to this offering. These waivers
will not affect the rights of these holders with respect to any future
offerings.
In August 1999, we issued 51 shares of series B preferred stock and
6,059,297 shares of common stock in a series of transactions. The preferred
shares will be converted into shares of common stock at the consummation of
this offering, assuming an initial offering price of $ per share. The
holders of these shares were made a party to the registration rights agreement
mentioned above.
As a result, the holders of these securities have the ability, upon the
request of holders of at least 33% of these securities, to require us to
register their shares of common stock. They may also include the common shares
in a piggy-back registration when we file another registration statement
covering the sale of common stock.
In August 1999, we agreed to give warrants to acquire shares of
common stock. These warrant holders may include the common shares underlying
these warrants in a piggy-back registration when we file another registration
statement covering the sale of common stock.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Some provisions of our amended and restated certificate of incorporation
and amended and restated by-laws, which provisions are summarized in the
following paragraphs, may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider it its best interest, including those attempts that might result
in a premium over the market price for the shares held by stockholders. See
"Risk Factors -- Anti-takeover provisions could prevent or delay a change in
control."
CLASSIFIED BOARD OF DIRECTORS
Because our board of directors is divided into three classes of directors
serving staggered three-year terms, approximately one-third of the board of
directors will be elected each year. Our classified board, coupled with the
provision of our amended and restated certificate of incorporation authorizing
the board of directors to fill vacant directorships or increase the size of the
board of directors, may deter a stockholder from removing incumbent directors
and simultaneously gaining control of the board of directors by filling the
vacancies created by such removal with its own nominees.
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<PAGE> 59
CUMULATIVE VOTING
Our amended and restated certificate of incorporation expressly denies
stockholders the right to cumulate votes in the election of directors.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS
Our amended and restated certificate of incorporation eliminates the
ability of stockholders to act by written consent. It further provides that
special meetings of our stockholders may be called only by the chairman of the
board of directors, the president or a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTORS NOMINATIONS
Our amended and restated by-laws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 60 days nor
more than 90 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders. If the annual meeting is called for a date that
is not within thirty (30) days before or after such anniversary date, notice by
the stockholder in order to be timely must be received not later than the close
of business on the 10th day following the date on which notice of the date of
the annual meeting was mailed to stockholders or made public, whichever first
occurs. In the case of a special meeting of stockholders called for the purpose
of electing directors, notice by the stockholder in order to be timely must be
received not later than the close of business on the tenth (10th) day following
the day on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first occurs.
Our amended and restated by-laws also specify certain requirements as to the
form and content of a stockholder's notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or
from making nominations for directors at an annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
AMENDMENTS; SUPERMAJORITY VOTE REQUIREMENTS
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. Our amended and restated certificate of
incorporation imposes supermajority vote requirements in connection with
business combination transactions and the amendment of provisions of our amended
and restated certificate of incorporation and amended and restated by-laws,
including those provisions relating to the classified board of directors, action
by written consent and the ability of stockholders to call special meetings.
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TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company. Its address is 40 Wall Street, New York, New York
10005, and its telephone number at this location is (212) 936-5100.
LISTING
We have applied to have our common stock approved for quotation on the
Nasdaq National Market under the trading symbol "ARCC."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since no shares will be available for sale shortly after this offering because
of contractual and legal restrictions on resale described below, sales of
substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
53,594,372 shares of our common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless such shares
are purchased by affiliates as that term is defined in Rule 144 under the
Securities Act. The remaining shares of common stock held by existing
stockholders are restricted securities as that term is defined in Rule 144 under
the Securities Act. Restricted securities may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rule
144 promulgated under the Securities Act, which rules are summarized below.
As a result of the contractual restrictions described below and the
provisions of Rule 144, the restricted securities will be available for sale in
the public market subject to the volume limitations and other conditions of Rule
144. The shares could be available for resale immediately upon the expiration of
the 180-day lock-up period.
LOCK-UP AGREEMENTS
The Company, all of our executive officers and directors, certain of our
stockholders and certain of our employees holding shares of common stock or
options exercisable in the six months following this offering have signed
lock-up agreements under which they have agreed not to transfer, dispose of or
hedge, any shares of common stock or any securities convertible into,
exercisable or exchangeable for shares of common stock, for a period of 180 days
after the date of this prospectus without the prior consent of the
representatives of the underwriters. The lock-up agreements by these persons
cover an aggregate of approximately shares.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares of our common stock, which are subject to Rule 144, for at least one year
would be entitled to sell within any three-month period a number of those shares
that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an
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affiliate, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
STOCK OPTIONS AND WARRANTS
Following the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act of 1933 covering 2,703,116 shares
of common stock reserved for issuance under our 1999 stock option and equity
incentive plan. The registration statement will become effective automatically
upon filing. As of September 15, 1999, options to purchase 73,326 shares of
common stock were issued and outstanding, of which 1,530 shares underlying these
options have vested. Accordingly, shares registered under the registration
statement will, subject to vesting provisions and Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market
immediately after the 180-day lock-up agreements expire. See "Description of
Capital Stock -- Registration rights."
In addition, we have agreed to give warrants to acquire shares of our
common stock to owners and managers of commercial office buildings, which have
no purchase price or exercise price.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of shares of our
common stock, or their transferees, are entitled to request that we register
their shares under the Securities Act. After these shares are registered, they
will become freely tradable without restriction under the Securities Act. Any
sales of securities by these stockholders could have a material adverse effect
on the trading price of our common stock. See "Description of Capital Stock
-- Registration rights."
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MATERIAL UNITED STATES FEDERAL TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following is a general summary of the material United States federal
income and estate tax consequences of the purchase, ownership, and sale or other
taxable disposition of the common stock by any person or entity other than:
- a citizen or resident of the United States;
- a partnership, corporation or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
- a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust or the trust has a valid election in effect under applicable
U.S. Treasury regulations to be treated as a U.S. person; and
- an estate, the income of which is includible in gross income for United
States income tax purposes regardless of its source.
This summary does not address all tax considerations that may be relevant
to non-U.S. holders in light of their particular circumstances or to certain
non-U.S. holders that may be subject to special treatment under United States
federal income or estate tax laws. This summary is based upon the Internal
Revenue Code of 1986, existing, temporary and proposed regulations promulgated
thereunder and administrative and judicial decisions, all of which are subject
to change, possibly with retroactive effect. In addition, this summary does not
address the effect of any state, local or foreign tax laws. Each prospective
purchaser of common stock should consult its tax advisor with respect to the tax
consequences of purchasing, owning and disposing of the common stock.
DIVIDENDS
Dividends paid to a non-U.S. holder of common stock generally will be
subject to a withholding of United States federal income tax at a 30 percent
rate or such lower rate as may be specified by an applicable income tax treaty,
unless:
- the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. holder within the United States; or
- if a tax treaty applies, it is attributable to a United States permanent
establishment of the non-U.S. holder.
In these cases, the dividend will be taxed at ordinary federal income tax
rates. If the non-U.S. holder is a corporation, such effectively connected
income may also be subject to an additional branch profits tax. A non-U.S.
holder may be required to satisfy certain certification requirements in order to
claim treaty benefits or otherwise claim a reduction of, or exemption from, the
withholding described above.
SALE OR OTHER DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of common stock, unless:
- the gain is effectively connected with the conduct of a trade or business
of the non-U.S. holder within the United States;
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- in the case of a non-U.S. holder who is an individual and holds the
common stock as a capital asset, the holder is present in the United
States for 183 or more days in the taxable year of the disposition and
certain other tests are met;
- the non-U.S. holder is subject to tax under the provisions of United
States federal income tax law applicable to certain United States
expatriates; or
- we are or have been during certain periods preceding the disposition a
United States real property holding corporation for United States federal
income tax purposes and certain other requirements are met. We currently
believe that we not a real property holding corporation and we do not
anticipate that we will become one.
ESTATE TAX
Common stock owned or treated as owned by an individual non-U.S. holder at
the time of death will be includible in the individual's gross estate for United
States federal estate tax purposes, unless an applicable treaty provides
otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. United States backup withholding tax generally will not apply to
dividends paid on the common stock that are subject to the 30 percent or reduced
treaty rate of United States withholding tax previously discussed. We must
report annually to the Internal Revenue Service and to each non-U.S. holder the
amount of dividends paid to, and the tax withheld with respect to, such holder,
regardless of whether any tax was withheld. This information may also be made
available to the tax authorities in the non-U.S. holder's country of residence.
Sale or Other Disposition of Common Stock. Upon the sale or other taxable
disposition of common stock by a non-U.S. holder to or through a United States
office of a broker, the broker must backup withhold at a rate of 31 percent and
report the sale to the Internal Revenue Service, unless the holder certifies its
non-U.S. holder status under penalties of perjury or otherwise establishes an
exemption. Upon the sale or other taxable disposition of common stock by a
non-U.S. holder to or through the foreign office of a United States broker, or a
foreign broker with a certain relationship to the United States, the broker must
report the sale to the Internal Revenue Service, but not backup withhold, unless
the broker has documentary evidence in its files that the seller is a non-U.S.
holder and certain other conditions are met or the holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules generally are allowable as a refund or credit against a
non-U.S. holder's United States federal income tax liability, if any, provided
that the required information is furnished to the Internal Revenue Service on a
timely basis.
The U.S. Treasury Department has issued regulations generally effective for
payments made after December 31, 2000 that will affect the procedures to be
followed by a non-U.S. holder in establishing such holder's status as a non-U.S.
holder for purposes of the withholding, backup withholding and information
reporting rules described herein. In general, such regulations do not
significantly alter the substantive withholding and information reporting
requirements, but unify current certification procedures and forms and clarify
reliance standards. Prospective investors should consult their tax advisors
concerning the effect of such regulations on an investment in the common stock.
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LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York. Certain legal matters in connection with this offering will be passed upon
for the underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of Allied Riser Communications
Corporation as of December 31, 1997 and 1998 and for the period from inception
(December 19, 1996) through December 31, 1997 and for the year ended December
31, 1998 included in this prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving such reports.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered by this prospectus. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits and
schedules filed with the registration statement. For additional information
about us and the common stock offered by this prospectus, reference is made to
the registration statement and the exhibits and schedule filed with the
registration statement, with respect to statements contained in this prospectus
regarding the contents of any contract or any other document, reference is made
to the copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference. A copy of the registration statement and the exhibits and
schedules filed with the registration statement may be inspected without charge
at the public reference facilities maintained by the Commission in Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at the Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048, and copies of all or any part of the Registration
Statement may be obtained from such offices upon the payment of the fees
prescribed by the Commission. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The
Commission maintains a World Wide web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
Upon the effectiveness of the Registration Statement, we will become
subject to the information requirement of the Exchange Act. We will then file
reports, proxy statements and other information under the Exchange Act with the
Commission. You will be able to inspect and copy these reports and other
information about our company at the locations set forth above or download these
reports from the Commission's web site.
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ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Operations for the Period from
Inception (December 19, 1996) to December 31, 1997 and the
Year Ended December 31, 1998.............................. F-4
Consolidated Statements of Stockholders' Deficit for the
Period from Inception (December 19, 1996) to December 31,
1997 and the Year Ended December 31, 1998................. F-5
Consolidated Statements of Cash Flows for the Period from
Inception (December 19, 1996) to December 31, 1997 and the
Year Ended December 31, 1998.............................. F-6
Notes to Consolidated Financial Statements.................. F-7
Unaudited Condensed Consolidated Balance Sheet as of June
30, 1999.................................................. F-20
Unaudited Condensed Consolidated Statement of Operations for
the Three Months Ended June 30, 1998 and 1999............. F-21
Unaudited Condensed Consolidated Statement of Operations for
the Six Months Ended June 30, 1998 and 1999............... F-22
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1999........... F-23
Notes to Unaudited Condensed Consolidated Financial
Statements................................................ F-24
</TABLE>
F-1
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Allied Riser Communications Corporation:
We have audited the accompanying consolidated balance sheets of Allied
Riser Communications Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' deficit and cash flows for the period from inception
(December 19, 1996) to December 31, 1997 and the year ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Allied Riser Communications
Corporation and subsidiaries as of December 31, 1997 and 1998, and the results
of their operations and their cash flows for the period from inception (December
19, 1996) to December 31, 1997 and the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
January 11, 1999 (except with
respect to Note 12, as to which
the dates are April 29, 1999 for
the matters discussed in the
first two paragraphs, and
September 20, 1999 for the
matter discussed in the third
paragraph.)
F-2
<PAGE> 68
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1997 AND 1998
ASSETS
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 187,919 $ 41,371,453
Accounts receivable, net of reserve of $2,123 in 1998..... -- 19,979
Stock subscription receivable............................. -- 7,371
Prepaid expenses and other current assets................. 3,390 131,023
----------- ------------
Total current assets.............................. 191,309 41,529,826
PROPERTY AND EQUIPMENT, net of accumulated depreciation and
amortization of $10,477 and $509,674 in 1997 and 1998,
respectively.............................................. 1,250,353 13,004,626
OTHER ASSETS................................................ 44,951 1,037,065
----------- ------------
Total assets...................................... $ 1,486,613 $ 55,571,517
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 341,641 $ 271,756
Accrued liabilities....................................... 318,694 2,842,503
Current maturities of debt................................ 2,517,715 --
Current maturities of capital lease obligations........... -- 722,338
----------- ------------
Total current liabilities......................... 3,178,050 3,836,597
DEBT, net of current maturities............................. 50,107 --
CAPITAL LEASE OBLIGATIONS, net of current maturities........ -- 1,420,385
----------- ------------
Total liabilities................................. 3,228,157 5,256,982
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERRED STOCK, $.0001 par value,
1,000 shares authorized, Series A, 66 shares issued and
outstanding in 1998 (aggregate redemption of
$66,451,781).............................................. -- 66,451,781
STOCKHOLDERS' DEFICIT:
Common stock, $.0015 par value, 66,666,667 shares
authorized, 241,433 and 25,716,396 shares issued and
outstanding in 1997 and 1998, respectively............. 362 38,575
Additional paid-in capital................................ 162,333 338,752
Accumulated deficit....................................... (1,904,239) (16,514,573)
----------- ------------
Total stockholders' deficit....................... (1,741,544) (16,137,246)
----------- ------------
Total liabilities and stockholders' deficit....... $ 1,486,613 $ 55,571,517
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 69
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (DECEMBER 19, 1996) TO
DECEMBER 31, 1997 AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
NETWORK SERVICES REVENUE.................................... $ -- $ 212,285
OPERATING EXPENSES:
Network operations........................................ 79,624 2,358,196
Selling expense........................................... -- 1,623,292
General and administrative expenses....................... 1,348,451 9,735,336
Depreciation and amortization............................. 10,477 499,197
----------- ------------
Total operating expenses.......................... 1,438,552 14,216,021
----------- ------------
OPERATING INCOME (LOSS)..................................... (1,438,552) (14,003,736)
----------- ------------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (123,196) (724,777)
Interest income........................................... 37,421 117,179
Other income, net......................................... 27,116 1,000
----------- ------------
Total other income (expense)...................... (58,659) (606,598)
----------- ------------
NET INCOME (LOSS) BEFORE INCOME TAXES....................... (1,497,211) (14,610,334)
PROVISION FOR INCOME TAXES.................................. -- --
----------- ------------
NET INCOME (LOSS)........................................... (1,497,211) (14,610,334)
ACCRUED DIVIDENDS ON PREFERRED STOCK........................ -- (451,781)
----------- ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK................ $(1,497,211) $(15,062,115)
=========== ============
NET INCOME (LOSS) PER COMMON SHARE.......................... $ (7.45) $ (7.33)
=========== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 200,883 2,056,069
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 70
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (DECEMBER 19, 1996) TO DECEMBER 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER ADDITIONAL
OF PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 19, 1996 (date of
inception)......................... -- $ -- $ -- $ -- $ --
Issuance of common stock in
conjunction with the DPI Tech and
DPI merger (see Note 1).......... 200,000 300 156,180 (407,028) (250,548)
Issuance of common stock........... 41,433 62 6,153 -- 6,215
Net income (loss).................. -- -- -- (1,497,211) (1,497,211)
---------- ------- --------- ------------ ------------
BALANCE, December 31, 1997........... 241,433 362 162,333 (1,904,239) (1,741,544)
Issuance of common stock........... 25,474,963 38,213 -- -- 38,213
Stock issuance costs............... -- -- (351,580) -- (351,580)
Capital contribution by SZI and
EOP.............................. -- -- 979,780 -- 979,780
Accrued cumulative dividends on
preferred stock.................. -- -- (451,781) -- (451,781)
Net income (loss).................. -- -- -- (14,610,334) (14,610,334)
---------- ------- --------- ------------ ------------
BALANCE, December 31, 1998........... 25,716,396 $38,575 $ 338,752 $(16,514,573) $(16,137,246)
========== ======= ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE> 71
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (DECEMBER 19, 1996) TO DECEMBER 31, 1997
AND THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM FOR THE
INCEPTION TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(1,497,211) $(14,610,334)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... 10,477 499,197
Changes in assets and liabilities --
Increase in accounts receivable, net................. -- (19,979)
Increase in prepaid expenses and other current
assets............................................ (3,390) (127,633)
Increase in other assets............................. (44,062) (992,114)
Increase in accounts payable and accrued
liabilities....................................... 305,556 830,567
----------- ------------
Net cash used in operating activities............. (1,228,630) (14,420,296)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (1,260,830) (8,115,325)
Cash received in the merger and liquidation in the net
assets of DPI and DPI Tech (see Note 1)................ 173,059 --
----------- ------------
Net cash used in investing activities............. (1,087,771) (8,115,325)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ 2,505,803 15,100,000
Payments of debt.......................................... (7,698) (17,667,822)
Payments on capital lease obligations..................... -- (372,065)
Proceeds from related party loans......................... 160,000 --
Payments on related party loans........................... (160,000) --
Capital contribution by SZI and EOP....................... -- 979,780
Proceeds from issuance of common stock.................... 6,215 30,842
Proceeds from issuance of preferred stock................. -- 66,000,000
Stock issuance costs...................................... -- (351,580)
----------- ------------
Net cash provided by financing activities......... 2,504,320 63,719,155
----------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 187,919 41,183,534
CASH AND CASH EQUIVALENTS, beginning of period.............. -- 187,919
----------- ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 187,919 $ 41,371,453
=========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 11,602 $ 113,457
Noncash investing and financing activities --
Equipment acquired under capital leases................ -- 2,514,788
Accrued dividends on preferred stock................... -- 451,781
Accrued property and equipment additions............... -- 1,623,357
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 72
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. ORGANIZATION:
Allied Riser Communications Corporation ("ARC Corporation") (collectively
including all predecessors, the "Company") was incorporated on November 2, 1998,
as a Delaware corporation. Immediately following its incorporation, a
reorganization of its predecessor, RCH Holdings, Inc. ("RCH"), occurred. The
wholly owned subsidiaries of RCH, Allied Riser Communications, Inc. ("ARC"), a
Texas corporation, and Carrier Direct, Inc.("Carrier Direct"), a Texas
corporation, distributed their assets and liabilities to RCH in a complete
liquidation and dissolution. Thereafter, RCH transferred all of its assets and
liabilities to ARC Corporation in exchange for shares of ARC Corporation common
stock. ARC Corporation then contributed the assets and liabilities acquired to
its wholly owned subsidiary, Allied Riser Communications, Inc., a Delaware
corporation.
RCH was incorporated on December 19, 1996, as a Texas corporation.
Concurrent with its formation, RCH purchased 100% of the outstanding common
stock of two newly formed corporations, ARC (formerly RiserCorp, Inc.) and
Carrier Direct. For the period from December 19, 1996 through December 31, 1996,
RCH had no operations.
On February 14, 1997, DPI Technology Resources, Inc. ("DPI Tech") and
Digital Packet Interface Solutions, Inc. ("DPI"), two affiliates under common
control, merged with and into RCH. The stockholders of DPI Tech and DPI
exchanged all the outstanding stock for stock of RCH. DPI Tech and DPI had no
significant operations before the merger with RCH and concurrent with the
merger, the Company made a decision to discontinue the operations and business
activities of DPI Tech and DPI. Accordingly, substantially all of the net assets
of DPI Tech and DPI were liquidated subsequent to the merger. Due to the merger
and subsequent liquidation and as the DPI Tech and DPI operations were separate
and distinctly different from RCH's business plan, historical financial results
of DPI Tech and DPI for 1996 have not been presented. In 1996, DPI Tech and DPI
incurred a combined loss of $363,653. The merger of the companies was accounted
for as an exchange between companies under common control, as such, the assets
and liabilities were recorded on a historical cost basis at the date of
inception of RCH.
The Company is a facilities-based provider of broadband data, video, and
voice communications services to small-and-medium-sized businesses in major
metropolitan areas in the United States. The Company's services, which today
include ultra high-speed Internet access, business-oriented television for
display on the computer desktop, and Internet-enhanced voice conferencing
calling services, among others, are typically delivered to the Company's
customers over its own fiber optic network built inside multi-tenant commercial
office buildings. In addition to selling services to the commercial tenants of
buildings in which the Company owns and operates these advanced communications
networks, the Company leverages its market presence and brand by offering
end-to-end connectivity on a resold basis to businesses located outside these
buildings.
Until April 29, 1999, the Company was in the development stage (see Note
12). Since its inception on December 19, 1996, the Company's principal
activities have included developing its business plans, procuring governmental
authorizations, raising capital, hiring management and other key personnel,
working on the design and development of its high capacity fiber-optic networks,
acquiring equipment and facilities, and negotiating interconnection agreements.
Accordingly, the Company has incurred operating losses and operating cash flow
deficits.
The Company's success will be affected by the problems, expenses and delays
encountered by early stage companies and the competitive environment in which
the Company intends to
F-7
<PAGE> 73
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operate. Certain key risk factors which may impact the Company include: the
Company's ability to successfully market its products and services and to
generate profitable results, the availability of adequate financial and capital
resources to finance the execution of the Company's business plan, the Company's
industry is highly competitive and competitive threats are expected to increase,
the Company operates in an industry subject to rapid technological changes and
future changes may negatively impact the Company's ability to successfully
market its products and services, the availability of adequate network capacity
from other communication carriers and the Company's ability to manage its
anticipated growth. The Company's failure to mitigate these significant risk
factors will have a material adverse effect on the Company's business, financial
condition and results of operations. Although management believes that the
Company will be able to successfully mitigate these risks, management cannot
give assurances that it will be able to do so or that the Company will ever
operate profitably.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The accompanying financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and marketable securities with
original maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated once placed in
service using the straight-line method. Interest is capitalized during the
construction period of system infrastructure based on the rates applicable to
borrowings outstanding during the period. Equipment held under capital lease
obligations is amortized over the estimated useful life of the asset. Equipment
held under capital lease obligations amounted to approximately $2,453,000, net
of accumulated amortization of approximately $62,000, as of December 31, 1998.
No equipment was held under capital leases as of December 31, 1997.
The Company periodically evaluates its long-lived assets, including
property and equipment, to determine whether events or changes in circumstances
have occurred that indicate the remaining asset balances may not be recoverable
and an impairment loss should be recorded. Recoverability of assets is measured
by comparing the carrying amount of an asset to the undiscounted future cash
flows estimated to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Repair
and maintenance costs are expensed as incurred.
REVENUE RECOGNITION
Network services revenue includes broadband data, video, voice
communication and installation services. Broadband data and video are
subscription based services provided to customers under month-to-month
contracts. Voice communications and installation services are usage based
services. Installation service fees are nonrecurring fees for customers access
to our network. Revenues are recognized in the month in which the services is
provided. All expenses related to services provided are recognized as incurred.
F-8
<PAGE> 74
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NETWORK OPERATIONS
Network operations include payments to providers of transmission capacity,
costs associated with customer care and equipment maintenance, payments to
building owners, and content licensing costs. Costs are expensed as incurred.
SELLING EXPENSE
Selling expense includes employee salaries and commissions, marketing,
advertising, and promotional expenses and costs associated with leasing and
operating sales demonstration centers.
INCOME TAXES
Deferred income tax assets and liabilities are recorded for the differences
between the tax and financial reporting basis of the assets and liabilities and
are based on the enacted income tax rates which are expected to be in effect in
the period in which the difference is expected to be settled or realized. A
change in tax laws would result in adjustments to the deferred tax assets and
liabilities.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results may differ from those estimates.
NEW ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities," in April
1998. Effective for financial statements for fiscal years beginning after
December 15, 1998, SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. Start-up activities are defined
as those one-time activities related to opening a new facility, introducing a
new product or service, conducting business in a new territory, conducting
business with a new class of customer or beneficiary, initiating a new process
in an existing facility, or commencing some new operation. The Company has not
capitalized any expenses with such characteristics for financial reporting
purposes. Therefore, the Company believes adoption of this SOP will not
materially impact the consolidated financial statements.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is presented in accordance with the provisions
of Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
(SFAS 128). SFAS 128 requires a presentation of basic EPS and diluted EPS. Basic
EPS excludes dilution for common stock equivalents and is computed by dividing
income or loss available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock and resulted in the issuance of
common stock.
Shares issued to employees subject to repurchase by the Company are
included in the weighted average number of common shares outstanding for the
period. Convertible redeemable
F-9
<PAGE> 75
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock was outstanding at December 31, 1998. These securities were not
considered in a computation of diluted EPS at December 31, 1998 as the
conversion is dependent upon a qualifying public offering or qualifying
recapitalization, as defined in the articles of incorporation.
Diluted EPS is not presented as all potentially dilutive securities would
be antidilutive.
3. PROPERTY AND EQUIPMENT:
Property and equipment as of December 31, consist of the following:
<TABLE>
<CAPTION>
AVERAGE
ESTIMATED
USEFUL
LIVES
(YEARS) 1997 1998
--------- ---------- -----------
<S> <C> <C> <C>
Office equipment................................... 4 $ 156,587 $ 1,944,527
Furniture and fixtures............................. 7 892 71,770
Leasehold improvements............................. 5 639 450,818
System infrastructure.............................. 10 -- 2,420,834
System equipment................................... 5 -- 2,240,357
Construction-in-progress........................... 1,102,712 6,385,994
---------- -----------
1,260,830 13,514,300
Less --
Accumulated depreciation and amortization........ (10,477) (509,674)
---------- -----------
Property and equipment, net........................ $1,250,353 $13,004,626
========== ===========
</TABLE>
Capitalized interest for the period from inception (December 19, 1996) to
December 31, 1997 and the year ended December 31, 1998 was approximately $41,000
and $221,000, respectively.
4. OTHER ASSETS:
Other assets as of December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Restricted cash............................................. $ -- $ 550,000
Deposits.................................................... 44,951 487,065
------- ----------
$44,951 $1,037,065
======= ==========
</TABLE>
Restricted cash represents cash securing a letter of credit issued by a
bank in accordance with an operating lease for office space.
F-10
<PAGE> 76
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities as of December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1998
-------- ----------
<S> <C> <C>
Property and equipment additions............................ $ -- $1,751,779
Legal fees.................................................. -- 50,000
General operating expenses.................................. -- 285,000
Rent........................................................ -- 264,333
Interest.................................................... 151,240 --
Property taxes.............................................. -- 145,795
Other taxes................................................. -- 100,192
Other....................................................... 167,454 245,404
-------- ----------
$318,694 $2,842,503
======== ==========
</TABLE>
6. DEBT:
Debt as of December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Credit agreement due August 10, 1998, bearing interest
at prime plus 2%, secured by all property of the
Company............................................... $ 2,500,000 $ --
Bank loan agreement due April 28, 2001, bearing interest
at prime plus 2%, secured by property of the
Company............................................... 67,822 --
----------- -----------
2,567,822
Current maturities...................................... (2,517,715) --
----------- -----------
Debt, net of current maturities......................... $ 50,107 $ --
=========== ===========
</TABLE>
On May 16, 1997, the Company entered into a credit agreement with S Z
Investments, L.L.C. ("SZI") to finance the initial network installation and
other general corporate purposes (see Notes 8, 9 and 11). Between January 15,
1998 and November 18, 1998, the Company and SZI executed several amendments to
the credit agreement, which effectively increased the original principal amount
of $2,500,000 to a total aggregate amount of $14,000,000. As part of the
agreement, SZI received a security interest in all of the Company's assets and
outstanding common shares. On November 23, 1998, the Company repaid the entire
outstanding balance of $14,000,000 under the credit agreement. In May 1998, EOP
Operating Limited Partnership ("EOP") advanced the Company $3,600,000 for the
construction of certain infrastructure in Equity Office Properties Trust
("EOPT") buildings. The Company repaid the entire $3,600,000 advance on November
23, 1998 (see Notes 8, 9 and 11).
Accrued interest totaling $979,780 was contributed by SZI and EOP. As both
SZI and EOP are related parties, the contribution has been accounted for as a
capital transaction and included in the accompanying consolidated statements of
stockholders' deficit (see Notes 8, 9 and 11).
On May 29, 1997, the Company issued a $75,520 promissory note to a bank.
The note was paid off in November 1998 in conjunction with the Company's equity
funding (see Notes 8 and 9).
F-11
<PAGE> 77
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has entered into various operating lease agreements, with
expirations through 2004, for leased space and equipment. Future minimum lease
obligations as of December 31, 1998, related to the Company's operating leases
are as follows:
<TABLE>
<S> <C>
1999........................................................ $1,312,219
2000........................................................ 1,319,126
2001........................................................ 1,288,708
2002........................................................ 1,152,993
2003........................................................ 1,207,270
Thereafter.................................................. 24,098
----------
Total minimum lease obligations................... $6,304,414
==========
</TABLE>
Total rent expense for the period from inception (December 19, 1996) to
December 31, 1997, and for the year ended December 31, 1998, was approximately
$94,000 and $586,000, respectively.
CAPITAL LEASES
The Company has entered into various capital leases for equipment. Future
minimum lease obligations as of December 31, 1998, related to the Company's
capital leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 918,493
2000........................................................ 987,805
2001........................................................ 571,596
Thereafter.................................................. --
----------
Total minimum lease obligations................... 2,477,894
Less -- Amounts representing interest....................... (335,171)
----------
Present value of minimum lease obligations.................. 2,142,723
Current maturities.......................................... (722,338)
----------
Capital lease obligations, net of current maturities........ $1,420,385
==========
</TABLE>
CONNECTIVITY CONTRACTS
In order to provide its services, the Company must connect each
intra-building network to a local network and each metropolitan point of
presence to a national fiber optic backbone. The Company has secured contracts
that range from monthly to five years for local transport and up to three years
for national inter-city transport. The Company incurs fixed monthly charges for
local connectivity. For national backbone connectivity, the Company incurs fixed
monthly charges plus incremental charges for customer usage above a certain
volume. In addition, in the event the Company fails to meet its minimum volume
commitments for national backbone connectivity, it may be obligated to pay
underutilization charges.
F-12
<PAGE> 78
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum obligations as of December 31, 1998, related to the
Company's connectivity contracts are as follows:
<TABLE>
<S> <C>
1999........................................................ $328,679
2000........................................................ 49,800
2001........................................................ 34,950
2002........................................................ 30,000
2003........................................................ 25,000
--------
Total minimum lease obligations............................. $468,429
========
</TABLE>
LITIGATION
The Company is involved in certain litigation arising in the ordinary
course of business. Management believes that such litigation will be resolved
without material effect on the Company's financial position or results of
operations.
8. CONVERTIBLE REDEEMABLE PREFERRED STOCK:
Pursuant to the Investment Agreement dated November 23, 1998, in November
and December 1998, the Company issued to a group of investors 41 and 25 shares
of Series A convertible redeemable preferred stock (the "Preferred Stock"),
respectively, for $41,000,000 and $25,000,000 in cash, respectively. Proceeds
from the issuance were used to repay all outstanding indebtedness (see Note 6).
The shareholders of the Preferred Stock are entitled to certain rights as
described below:
-Redemption -- Upon the occurrence of a qualifying public offering or
qualifying recapitalization as defined in the Articles of Incorporation,
the holders of at least a majority of the outstanding shares of Preferred
Stock may elect to redeem all or any part of the Preferred Stock at a price
per share equal to the liquidation value ($1,000,000 per share) plus
accrued and unpaid dividends ($451,781 for all preferred shares as of
December 31, 1998).
-Conversion Rights -- Upon the occurrence of a qualifying public
offering or qualifying recapitalization as defined in the Articles of
Incorporation, the holders of at least a majority of the outstanding shares
of Preferred Stock may elect to convert all or any portion of their
Preferred Stock into shares of common stock computed by dividing the
liquidation value of the Preferred Stock by the applicable market value of
the common stock. Regardless of the foregoing, all issued and outstanding
shares of Preferred Stock not redeemed shall be automatically converted
into shares of common stock upon a qualifying public offering.
-Dividends -- Dividends shall accrue on a daily basis at a rate of 10%
per annum on the liquidation value ($1,000,000 per share). The dividends
shall be cumulative such that all accrued and unpaid dividends shall be
fully paid or declared before any dividend may be made with respect to any
common shares. Additionally, in certain situations upon occurrence of a
qualifying initial public offering or qualifying recapitalization (1) no
further dividends shall accrue on the Series A Preferred Stock (2) any
accrued but unpaid dividends on the Series A Preferred Stock shall be
waived and (3) each holder of shares of Series A Preferred Stock shall
return all previous paid dividends to the Company.
F-13
<PAGE> 79
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
-Liquidation Preference -- Each share of Preferred Stock outstanding
at the time of a "liquidating event," as defined in the Articles of
Incorporation, shall be paid $1,000,000 per share, plus any accrued and
unpaid dividends.
As a result of the redemption provision, the Preferred Stock has been
presented outside of stockholders' deficit.
9. COMMON STOCK:
On February 14, 1997, DPI Tech and DPI, two affiliates under common
control, merged with and into RCH. The stockholders of DPI Tech exchanged 75,000
shares, and the stockholders of DPI exchanged 151,266 shares, which represented
the total outstanding shares of both entities, respectively, for 200,000 shares
of RCH (see Note 1).
In early 1997, after the formation of RCH and the merger with DPI Tech and
DPI, RCH sold 41,433 shares at par, $.15, to executives and various other
related parties. As discussed in Note 6, all shares were pledged as security for
the loan from SZI.
On November 16, 1998, the stockholders of RCH approved an amendment to the
Articles of Incorporation increasing authorized shares to 3,666,667 shares from
666,667 shares and reducing the par value to no par from $.15.
In November 1998, ARC Corporation, the successor to RCH, authorized the
issuance of up to 66,667,667 shares of capital stock of which 66,666,667 shares
were designated as common stock, par value $.0015 per share, and 1,000 shares
were designated as Series A convertible redeemable preferred stock, par value
$.0015 per share. The consolidated financial statements and the notes thereto
have been adjusted to reflect the change in par value on a retroactive basis.
In conjunction with the reorganization, RCH transferred all of its assets
and liabilities to ARC Corporation in exchange for 3,495,786 shares of ARC
Corporation common stock, which represented the 200,000 shares issued in the DPI
Tech and DPI mergers, the 41,433 shares issued to executives and various other
related parties during 1997, and 3,254,353 shares to be issued to management,
current and former employees, and non-employee stockholders for $.0015 per share
during 1999. Certain of these shares are subject to vesting as described below
in the stockholders' agreement.
Pursuant to an investment agreement dated November 23, 1998, the Company
issued to a group of investors 13,269,756 shares of common stock for $.0015 per
share, which management believes represented the fair value of the shares.
Subject to a subscription agreement, 927,466 additional shares of common stock
were reserved by the Company in connection with this transaction. Subscription
agreements entered into by the former RCH stockholders granted protection
against dilution, in the event of certain issuances of ARC Corporation common
stock. Certain of these shares are subject to vesting as described below in the
stockholders' agreement. The subscribers were entitled to purchase common stock
in an amount equal to 25% of the total common stock outstanding up to
$60,000,000 of cash equity investments in ARC Corporation (including the capital
invested by the group of investors upon their purchase of ARC Corporation
preferred stock in connection with the reorganization and recapitalization).
On December 30, 1998, the Company issued to a second group of investors
7,291,075 shares of common stock for $.0015 per share. In accordance with the
subscription agreement described above, 1,659,778 shares of common stock were
issued to RCH for distribution to management, current and former employees, and
non-employee stockholders for
F-14
<PAGE> 80
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$.0015 per share, and an additional 387,294 shares of common stock were reserved
by the Company. As a result of this transaction, ARC Corporation equity
investment exceeded $60,000,000, effectively terminating all anti-dilution
rights. Including the 3,495,786 shares exchanged for the RCH common stock to be
issued to management, current and former employees, and non-employee
stockholders, and the 13,269,756 shares issued to a group of investors in
November 1998, the aggregate common shares issued by the Company during 1998
totaled 25,716,389. Of the 25,716,389 shares issued during 1998, 4,914,131
shares were issued to RCH for subsequent issuance to management, current and
former employees and non-employee stockholders subject to subscription
agreements. The subscription agreements were ratified and the shares were
distributed by RCH on January 11, 1999. Reserved shares totaling 1,314,760 will
be used by management for issuance to new employees and potentially for issuance
under a stock option agreement. Issuance costs of approximately $351,580 were
offset against additional paid-in capital.
STOCKHOLDERS' AGREEMENT
As a condition of the investment agreement discussed above, on November 5,
1998, a stockholders' agreement was established which stipulates the terms under
which the Company's shares can be sold or transferred. Among other things, the
agreement states that any stockholder wishing to sell his shares must first
allow the Company and certain other stockholders the option to purchase the
shares. The agreement shall terminate at the election of all the Series A
Preferred stockholders and at least 50% of the common stockholders.
The Company accounts for restricted stock awards under the provisions of
Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees."
The Company believes the restricted stock issuances reflect fair value. With
respect to stockholders who are employees of the Company or its successors, the
subscription agreements provide that the shares of ARC Corporation common stock
held by such subscribers shall be restricted, non-transferable, and subject to
repurchase by the Company, or its successors, until vested. Upon issuance of the
shares to the employees in 1998, certain shares were vested based on employees'
prior service with the Company. Unvested shares vest over four years in equal
monthly installments commencing upon their issuance. In accordance with the
terms of the subscription agreements, unvested shares automatically become
vested upon the occurrence of a qualifying business combination and termination
of the employees' employment without cause. Certain employees have employment
agreements which provide additional accelerated vesting rights. Upon the
resignation or termination of an employee subscriber for any reason, all
unvested shares will be subject to repurchase by the Company, or its successors,
at the price paid by the employee.
The vesting schedule for the shares that have been issued or subscribed
through December 31, 1998, for the years ending December 31 is:
<TABLE>
<S> <C>
1998........................................................ 1,982,606
1999........................................................ 602,838
2000........................................................ 602,838
2001........................................................ 602,838
2002........................................................ 552,601
</TABLE>
Prior to the reorganization, the Company had both outstanding warrants to
purchase common stock and outstanding stock rights. At November 23, 1998, all
outstanding warrants and stock rights were extinguished, except for warrants to
purchase approximately 4,800 shares of common stock held by one individual. It
is management's opinion that these warrants are currently not exercisable.
F-15
<PAGE> 81
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
The provision (benefit) for income taxes for the year ended December 31
consist of the following:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Current..................................................... $-- $--
Deferred.................................................... -- --
--- ---
Total....................................................... $-- $--
=== ===
</TABLE>
The differences between the statutory federal income tax rates and the
Company's effective income tax rate for the year ended December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Computed statutory tax expense.............................. (34.0)% (34.0)%
Non-deductible expenses and non-book income................. 0.3% 2.4%
Valuation allowance......................................... 33.7% 31.6%
----- -----
-- --
===== =====
</TABLE>
Deferred taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as incurred by tax laws and regulations.
]The following table discloses the components of the deferred tax amounts at
December 31:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Deferred tax assets --
Temporary difference for basis in and depreciation of
property and equipment................................ $ 5,698 $ 157,754
Start-up costs........................................... 406,246 3,896,352
Net operating loss....................................... 92,895 811,920
Other.................................................... -- 76,090
--------- -----------
Total deferred tax assets........................ 504,839 4,942,116
Deferred tax liability..................................... -- --
--------- -----------
Net deferred tax asset..................................... 504,839 4,942,116
Less -- Valuation allowance................................ (504,839) (4,942,116)
--------- -----------
Net deferred tax amount.......................... $ -- $ --
========= ===========
</TABLE>
The Company had approximately $2,388,000 of net operating loss carryforward
for federal income tax purposes at December 31, 1998. The net operating loss
carryforward will expire in the year 2018 if not previously utilized. Under
existing income tax law, all operating expenses incurred prior to a company
commencing its principal operations are capitalized and amortized over a
five-year period for tax purposes. On November 23, 1998, the Company commenced
its principal operations for tax purposes and no longer capitalizes operating
expenses as start-up costs.
A valuation allowance must be provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. Management has
decided to record this allowance due to the uncertainty of future operating
results. In subsequent periods, the Company may reduce
F-16
<PAGE> 82
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the valuation allowance, provided that utilization of the deferred tax asset is
more likely than not, as defined by SFAS No. 109.
11. RELATED PARTIES:
One member of the group of investors that purchased common stock and
Preferred Stock on November 23, 1998, was EGI-ARC Investors, L.L.C. ("EGI-ARC").
The managing member of EGI-ARC is indirectly controlled by Samuel Zell. EGI-ARC
purchased 5,687,038 shares of common stock and 15 shares of Series A Preferred
Stock. Further, an affiliate of Samuel Zell is a passive investor in Telecom
Partners, L.P. ("TP"). TP purchased 4,957,931 shares of common stock and 17
shares of Series A Preferred Stock.
Samuel Zell owns and controls SZI, a lender who had provided the majority
of the Company's debt prior to November 23, 1998 (see Note 6). Affiliates of
Samuel Zell own an interest in and/or control a number of entities with which
the Company has entered into contractual or other relationships. Samuel Zell is
Chairman of the Board of Trustees of EOPT, a publicly held Real Estate
Investment Trust. The Company has telecommunications license agreements with 40
EOPT properties. In certain of these properties, the Company paid approximately
$155,900 to EOPT for rent and other related costs during the year ended December
31, 1998. In addition, EOP advanced the Company $3,600,000 for infrastructure in
EOPT buildings (see Note 6).
Samuel Zell is Chairman of Anixter International, Inc., ("Anixter") a
supplier of wiring systems, networking, and internetworking products for voice,
data, and video networks. Anixter supplies the Company with certain of its
requirements for fiber optic cable and other materials used in the installation
of the ARC Network. For the period from inception (December 19, 1996) to
December 31, 1997 and the year ended December 31, 1998, the Company paid Anixter
approximately $195,000 and $2,319,000, respectively, for such supplies.
In addition, the Company purchases its commercial general liability and
other insurance policies through EGI Risk Services, Inc., an insurance brokerage
affiliated with Samuel Zell. For the year ended December 31, 1998, the Company
remitted approximately $64,000 to EGI Risk Services, Inc. Moreover, the Company
engaged Rosenberg & Liebentritt, P.C. for certain legal services. Rosenberg &
Liebentritt, P.C. was a law firm that provided legal services almost exclusively
to Samuel Zell and his affiliates. For the year ended December 31, 1998, the
Company paid approximately $323,000 for such legal services.
In April 1997, Mrs. O.W. Koberg, a related party of William Koberg, a
shareholder, lent the Company $100,000, at 10% annual interest, for the purpose
of funding continuing operations. This loan was paid shortly after the Company
received the funding from SZI in June 1997 (see Note 6).
In December 1996, Todd Doshier, the CFO and shareholder, and Steve Polizzi,
a shareholder, lent the Company $60,000, for the purpose of funding continuing
operations. The loan was repaid on February 20, 1997.
12. SUBSEQUENT EVENTS (AUDITED):
In March 1999, the Company entered into a credit facility under which the
Company can borrow up to $45,000,000, subject to certain conditions. The
facility will accrue interest at one of the following or a combination of the
following, at the Company's option: the bank's prime rate plus 3.5%, a base CD
rate plus 4.5%, Federal funds rate plus 4.0%, or an Eurodollar rate plus 4.5%.
The credit facility is secured by all of the Company's assets, except for the
assets pledged
F-17
<PAGE> 83
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in connection with the Company's capital lease obligations. The Company paid an
origination fee of $1,350,000 in conjunction with the agreement. This amount is
being amortized to interest expense over the term of the agreement. The Company
pays a commitment fee of 1.5% on the unused portion of the credit facility once
the facility is initially borrowed against. The facility, which extends through
October 2000, contains various restrictive covenants, including the maintenance
of certain financial ratios, the achievement of certain operation targets and
restrictions on certain activities.
On April 29, 1999, the Company successfully deployed a significant product
and emerged from the development stage.
On September 20, 1999 the Company's Board of Directors declared a 1:15
reverse stock split applicable to its outstanding common stock. The number of
shares and net income (loss) per share have been retroactively adjusted to
reflect the stock split for all periods presented.
13. SUBSEQUENT EVENTS (UNAUDITED)
Stock Options
In late June 1999, the Company engaged an independent third party to
perform another valuation of the Company. The valuation, received in late July,
indicated a stock valuation of $.336 per share as of June 29, 1999. Management
believes that the increase in the value of the Company from mid June is the
result of the Company executing a letter of intent on June 22, 1999 with an
investor to purchase an interest in the Company.
On July 27, 1999 the Company granted approximately 73,000 stock options to
employees. Each of the options granted has an exercise price of $.336 per share.
Compensation Charge
The Company is in the process of filing for an initial public offering of
its securities. Based on the ultimate valuation of the Company determined by
this offering and business activities and transactions which have occurred prior
to the completion of the offering, the Company will be required to record
compensation expense and deferred compensation to the extent the Company cannot
reconcile the value determined in the offering to the exercise prices of options
granted and issuance prices of restricted stock issued.
Based on the midpoint of the estimated range of the per share price of the
initial public offering, the Company will be unable to reconcile the $ per
share difference. Accordingly, the Company will record a compensation charge of
$ per share for each restricted stock issuance or option grant to employees
related to the period subsequent to January 1, 1999. The total compensation
charge as of June 30, 1999 is approximately $10,261,000 of which approximately
$7,792,000 will be deferred and amortized over the employee service period. An
additional compensation charge of $440,000 will be recorded for options granted
to employees for the period July 1,1999 through September 15, 1999.
Common, Preferred Stock and Warrants
In August 1999, we issued 17 shares of Series B Preferred Stock and
2,017,766 shares of common stock to a group of financial sponsors, for
approximately $17,000,000 in cash.
Also in August 1999, we issued 34 shares of Series B Preferred Stock,
4,039,531 shares of common stock and entered into agreements for the issuance of
warrants to acquire shares of our common stock to real estate
partners and their affiliates for approximately
F-18
<PAGE> 84
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$34,000,000 in cash. The warrants are exercisable upon the occurrence of certain
events, as defined in the warrant acquisition agreements and will have no
exercise price.
Simultaneous with the Company's initial public offering and pursuant to
contractual agreements with the preferred shareholders, all shares of preferred
stock will be converted into shares of common stock (See Note 8). Accrued
dividends on the preferred stock will be waived as of the initial public
offering and recorded as a contribution to capital. Assuming a price at the
midpoint of estimated price range of the initial public offering and had the
conversion of preferred stock occurred at the beginning of each year presented,
net loss per common share would have been $ and $ respectively for the
period from inception (December 16, 1996) to December 31, 1997 and for the year
ended December 31, 1998.
WARRANTS
The issuance of the warrants does not occur until the Company completes
certain due diligence efforts. The warrants and the rights associated with the
warrants may be adjusted if certain telecommunication license agreements are not
executed in accordance with the parameters outlined in the warrant acquisition
agreements. Accordingly, the measurement date for the warrants will be the
date(s) on which the telecommunications license agreements are signed and the
real estate partners effectively complete their performance element of the
agreement.
At the measurement date, the Company will measure the fair value of the
warrants based on the fair value of the underlying common stock. As the terms of
the warrant allow the holder to acquire shares of common stock without any
additional consideration, the fair value of the warrant is equivalent to the
fair value of the common stock. The fair value of the warrants will be
capitalized as an intangible asset in accordance with APB No. 17, Intangible
Assets.
F-19
<PAGE> 85
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET -- JUNE 30, 1999
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 24,307,103
Accounts receivable, net of reserve of $6,378............. 113,666
Stock subscription receivable............................. 762
Prepaid expenses and other current assets................. 269,110
------------
Total current assets.............................. 24,690,641
PROPERTY AND EQUIPMENT, net................................. 20,764,738
OTHER ASSETS................................................ 1,764,889
------------
Total assets...................................... $ 47,220,268
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 789,905
Accrued liabilities....................................... 5,145,063
Current maturities of capital lease obligations........... 1,882,444
------------
Total current liabilities......................... 7,817,412
CAPITAL LEASE OBLIGATIONS, net of current maturities........ 3,493,405
------------
Total liabilities................................. 11,310,817
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERRED STOCK, $.0001 par value,
1,000 shares authorized, Series A, 66 shares issued and
outstanding (aggregate redemption of $69,751,781)......... 69,751,781
STOCKHOLDERS DEFICIT:
Common Stock, $.0015 par value, 66,666,667 shares
authorized, 26,787,632 shares issued and outstanding... 40,181
Additional paid-in capital................................ 7,300,237
Deferred compensation..................................... (7,792,411)
Accumulated deficit....................................... (33,390,337)
------------
Total stockholders' deficit....................... (33,842,330)
------------
Total liabilities and stockholders' deficit....... $ 47,220,268
============
</TABLE>
The accompanying notes are an integral part of this
condensed consolidated balance sheet.
F-20
<PAGE> 86
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998, AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
NETWORK SERVICES REVENUE.................................... $ 22,325 $ 401,466
OPERATING EXPENSES:
Network operations........................................ 497,913 1,651,634
Selling expense........................................... 394,007 1,800,590
General and administrative expenses....................... 1,764,938 5,598,985
Amortization of deferred compensation..................... -- 2,415,350
Depreciation and amortization............................. 45,172 504,292
----------- ------------
Total operating expenses.......................... 2,702,030 11,970,851
----------- ------------
OPERATING INCOME (LOSS)..................................... (2,679,705) (11,569,385)
OTHER INCOME (EXPENSE):
Interest expense.......................................... (151,994) (390,806)
Interest income........................................... 8,061 349,092
Other income (expense), net............................... 1,000 (4,926)
----------- ------------
Total other income (expense)...................... (142,933) (46,640)
----------- ------------
NET INCOME (LOSS) BEFORE INCOME TAXES....................... (2,822,638) (11,616,025)
----------- ------------
PROVISION FOR INCOME TAXES.................................. -- --
----------- ------------
NET INCOME (LOSS)........................................... (2,822,638) (11,616,025)
ACCRUED DIVIDENDS ON PREFERRED STOCK........................ -- (1,650,000)
----------- ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK................ $(2,822,638) $(13,266,025)
=========== ============
NET INCOME (LOSS) PER COMMON SHARE.......................... $ (11.69) $ (.51)
=========== ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 241,433 26,051,759
=========== ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-21
<PAGE> 87
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
NETWORK SERVICES REVENUE:................................... $ 26,992 $ 547,463
OPERATING EXPENSES:
Network operations........................................ 717,686 2,819,162
Selling expense........................................... 599,501 2,406,302
General and administrative expenses....................... 2,821,605 9,207,479
Amortization of deferred compensation..................... -- 2,469,074
Depreciation and amortization............................. 65,741 889,650
------------ ------------
Total operating expenses.......................... 4,204,533 17,791,667
------------ ------------
OPERATING INCOME (LOSS)..................................... (4,177,541) (17,244,204)
OTHER INCOME (EXPENSE):
Interest expense.......................................... (220,407) (461,627)
Interest income........................................... 15,057 834,993
Other income (expense), net............................... 1,000 (4,926)
------------ ------------
Total other income (expense)...................... (204,350) 368,440
------------ ------------
NET INCOME (LOSS) BEFORE INCOME TAXES....................... (4,381,891) (16,875,764)
------------ ------------
PROVISION FOR INCOME TAXES.................................. -- --
------------ ------------
NET INCOME (LOSS)........................................... (4,381,891) (16,875,764)
ACCRUED DIVIDENDS ON PREFERRED STOCK........................ -- (3,300,000)
------------ ------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK................ $ (4,381,891) $(20,175,764)
============ ============
NET INCOME (LOSS) PER COMMON SHARE.......................... $ (18.15) $ (.77)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING............... 241,433 26,290,996
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-22
<PAGE> 88
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998, AND 1999
<TABLE>
<CAPTION>
1998 1999
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(4,381,891) $(16,875,764)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization.......................... 65,741 889,650
Amortization of deferred compensation.................. -- 2,469,074
Changes in assets and liabilities --
Increase in accounts receivable, net................. (9,379) (87,078)
Increase in prepaid expenses......................... (52,345) (138,087)
(Increase) decrease in other assets.................. (37,583) 622,176
Increase in accounts payable and accrued
liabilities....................................... 800,032 2,740,460
----------- ------------
Net cash used in operating activities............. (3,615,425) (10,379,569)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (1,930,650) (4,527,800)
----------- ------------
Net cash used in investing activities............. (1,930,650) (4,527,800)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ 6,585,252 --
Payments on capital lease obligations..................... (47,533) (808,587)
Proceeds from issuance of common stock.................... -- 1,606
Credit facility origination fee........................... -- (1,350,000)
----------- ------------
Net cash provided by (used in) financing
activities...................................... 6,537,719 (2,156,981)
----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 991,644 (17,064,350)
CASH AND CASH EQUIVALENTS, beginning of period.............. 187,919 41,371,453
----------- ------------
CASH AND CASH EQUIVALENTS, end of period.................... $ 1,179,563 $ 24,307,103
=========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.................................... $ 1,495 $ 236,627
Noncash investing and financing activities --
Equipment acquired under capital leases................ 213,109 4,041,713
Accrued property and equipment additions............... 900,000 80,249
Accrued dividends on preferred stock................... -- 3,300,000
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-23
<PAGE> 89
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1999
1. ORGANIZATION:
The Company is a facilities-based provider of broadband data, video and
voice communications services to small-and-medium-sized businesses in major
metropolitan areas in the United States. The Company's services, which today
include ultra high-speed Internet access, business-oriented television for
display on the computer desktop, and Internet-enhanced voice conferencing
calling services, among other things, are typically delivered to the Company's
customers over its own fiber optic network built inside multi-tenant commercial
office buildings. In addition to selling services to the commercial tenants of
buildings in which the Company owns and operates these advanced communications
networks, the Company leverages its market presence and brand by offering
end-to-end connectivity on a resold basis to businesses located outside these
buildings.
On April 29, 1999, the Company successfully deployed a significant product
and emerged from the development stage. Since its inception on December 19,
1996, the Company's principal activities have included developing its business
plans, procuring governmental authorizations, raising capital, hiring
management, and other key personnel, working on the design and development of
its high capacity fiber-optic networks, acquiring equipment and facilities, and
negotiating interconnection agreements. Accordingly, the Company has incurred
operating losses and operating cash flow deficits.
2. PRESENTATION:
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position as of June 30, 1999 (see Note 7). The results of
operations for the three and six months ended June 30, 1999 and cash flows for
the six months ended June 30, 1998 and 1999, are not necessarily indicative of
the results of operations or cash flows to be expected for the full year. The
accompanying unaudited condensed consolidated financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in notes to consolidated financial statements have been condensed or omitted
pursuant to such rules and regulations, but resultant disclosures are in
accordance with generally accepted accounting principles as they apply to
interim reporting. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto.
3. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Shares issued to employees subject to repurchase by the Company are
included in the weighted average number of common shares outstanding for the
period. Convertible redeemable preferred stock was outstanding at June 30, 1999.
These securities were not considered in a computation of diluted EPS for the
periods ended June 30, 1999 as the conversion is dependent upon a qualifying
public offering or qualifying recapitalization, as defined in the articles of
incorporation and due to the net loss incurred for both the three and six month
period ended June 30, 1999, as the impact would be antidilutive.
Options to purchase 347,443 shares of common stock at $.0015 per share were
outstanding at June 30, 1999. In management's opinion, the exercise price was
equal to the fair value of the
F-24
<PAGE> 90
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
common stock at the date of grant. These securities were not considered in a
computation of diluted EPS due to the net loss incurred for both the three and
six month period ended June 30, 1999, as the impact would be antidilutive.
4. PROPERTY AND EQUIPMENT:
Property and equipment as of June 30, 1999, consist of the following:
<TABLE>
<CAPTION>
AVERAGE
ESTIMATED
USEFUL LIVES
(YEARS)
-------------
<S> <C> <C>
Office equipment.......................................... 4 $ 4,272,137
Furniture and fixtures.................................... 7 198,160
Leasehold improvements.................................... 5 712,649
System infrastructure..................................... 10 3,434,929
System equipment.......................................... 5 3,288,823
Construction-in-progress.................................. 10,256,321
-----------
22,163,019
Less -- Accumulated depreciation and amortization......... (1,398,281)
-----------
Property and equipment, net............................... $20,764,738
===========
</TABLE>
No interest was capitalized for the six months ended June 30, 1999.
5. CREDIT FACILITY:
In March 1999, the Company entered into a credit facility under which the
Company can borrow up to $45,000,000, subject to certain conditions. The Company
has not borrowed against the facility as of June 30, 1999. The facility will
accrue interest at one of the following or a combination of the following, at
the Company's option: the bank's prime rate plus 3.5%, a base CD rate plus 4.5%,
Federal funds rate plus 4.0%, or an Eurodollar base rate plus 4.5%. The credit
facility is secured by all of the Company's assets, except for the assets
pledged in connection with the Company's capital lease obligations. The Company
pays a commitment fee of 1.5% on the unused portion of the credit facility once
the facility is initially borrowed against. The facility, which extends through
October 2000, contains various restrictive covenants, including the maintenance
of certain financial ratios, the achievement of certain operation targets and
restrictions on certain activities.
The Company paid an origination fee of $1,350,000 in conjunction with the
facility. This amount has been included in other assets and is being amortized
to interest expense over the term of the facility.
F-25
<PAGE> 91
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has entered into various operating lease agreements, with
expirations through 2005, for lease space and equipment. Future minimum lease
obligations as of June 30, 1999, related to the Company's operating leases are
as follows:
<TABLE>
<S> <C>
2000........................................................ $2,018,766
2001........................................................ 2,021,051
2002........................................................ 2,004,498
2003........................................................ 2,000,463
2004........................................................ 1,134,285
Thereafter.................................................. 8,507
----------
Total minimum lease obligations................... $9,187,570
==========
</TABLE>
Total rent expense for the three months ended June 30, 1998 and 1999, was
approximately $64,597 and $495,995, respectively. Total rent expense for the six
months ended June 30, 1998 and 1999, was approximately $100,303 and $851,389,
respectively.
CAPITAL LEASES
The Company has entered into various capital leases for equipment. Future
minimum lease obligations as of June 30, 1999, related to the Company's capital
leases are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 2,351,772
2001........................................................ 2,478,865
2002........................................................ 1,348,714
Thereafter.................................................. --
-----------
Total minimum lease obligations................... 6,179,351
Less -- Amounts representing interest....................... (803,502)
-----------
Present value of minimum lease obligations.................. 5,375,849
Current maturities.......................................... (1,882,444)
-----------
Capital lease obligations, net of current maturities........ $ 3,493,405
===========
</TABLE>
CONNECTIVITY CONTRACTS
In order to provide its services, the Company must connect each
intra-building network to a local network and each metropolitan point of
presence to a national fiber optic backbone. The Company has secured contracts
that range from monthly to five years for local transport and up to three years
for national inter-city transport. The Company incurs fixed monthly charges for
local connectivity. For national backbone connectivity, the Company incurs fixed
monthly charges plus incremental charges for customer usage above a certain
volume. In addition, in the event the Company fails to meet its minimum volume
commitments for national backbone connectivity, it may be obligated to pay
underutilization charges.
F-26
<PAGE> 92
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum obligations as of June 30, 1999, related to the Company's
connectivity contracts are as follows:
<TABLE>
<S> <C>
2000........................................................ $1,323,506
2001........................................................ 279,855
2002........................................................ 152,624
2003........................................................ 75,019
2004........................................................ 42,511
----------
Total minimum lease obligations................... $1,873,515
==========
</TABLE>
7. EQUITY TRANSACTIONS:
Effective June 1, 1999, the Company adopted the 1999 Stock Option and
Equity Incentive Plan (the "Plan") under which 2,703,116 shares of common stock,
subject to adjustment, are available for award to employees, officers,
directors, or consultants. Pursuant to the Plan, the Company's board of
directors may grant stock options, stock appreciation rights, restricted shares,
deferred shares and certain tax offset payments. The terms of any particular
grant, including any performance-based requirements, vesting terms and other
restrictions are determined by the Board or by the Compensation Committee of the
Board.
The exercise price of nonstatutory options may be above, at or below fair
market value of the common stock on the grant date. The exercise price of
incentive stock options must not be less than the fair market value. The
exercise period of options may be set by the Board or the Committee but may not
exceed ten years for incentive stock options.
The Company accounts for stock options and other employee awards under the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." For the six month period ended June 30, 1999, the Company
granted approximately 347,000 stock options to employees. Each of the options
granted has an exercise price of $.0015 per share and a term of 10 years.
Options granted during the six month period ended June 30, 1999 vest over a four
year period and include a provision for exercise through July 26, 1999. Any
options which are not exercised by July 26, 1999 will vest ratably over four
years based upon the employee's anniversary date. Shares issued upon the
exercise of the stock options are restricted. Restricted shares vest on a
monthly basis over a four year period.
Also during the six month period ended June 30, 1999, the Company issued,
net of repurchases, 945,829 shares of restricted stock to certain employees.
These issuances were pursuant to subscription agreements and vest on a monthly
basis over four years. The restricted stock was issued at $.0015 per share.
Unvested shares will be subject to repurchase by the Company at the price paid
by the employee. The Company believes the exercise price of the stock options
issued and the restricted stock issuances during the six month period ended June
30, 1999 reflects fair value. Management determined the exercise and issuance
price based on a valuation of the Company's common stock and stock transactions
with independent third parties in late 1998 and considering business activities
through mid June 1999.
In April 1999, the Company issued 125,407 shares of common stock to Advest
at $.0015 per share as settlement of certain rights held by Advest and for
consulting and investment banking services.
F-27
<PAGE> 93
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
8. SUBSEQUENT EVENTS
Stock Options
In late June 1999, the Company engaged an independent third party to
perform another valuation of the Company. The valuation, received in late July,
indicated a stock valuation of $.336 per share as of June 29, 1999. Management
believes that the increase in the value of the Company from mid June is the
result of the Company executing a letter of intent on June 22, 1999 with an
investor to purchase an interest in the Company.
On July 27, 1999, the Company granted approximately 73,000 stock options to
employees. Each of the options granted has an exercise price of $.336 per share.
Compensation Charge
The Company is in the process of filing for an initial public offering of
its securities. Based on the ultimate valuation of the Company determined by
this offering and business activities and transactions which have occurred prior
to the completion of the offering, the Company will be required to record
compensation expense and deferred compensation to the extent the Company cannot
reconcile the value determined in the offering to the exercise prices of options
granted and issuance prices of restricted stock issued.
In September 1999, the Company began negotiating an equity transaction and
service agreement with a major telecommunications company to become a strategic
partner. Based on these negotiations, management believes the equity issued in
this transaction will be sold at $12.00 per share. Based on an $18.00 midpoint
of the estimated range of the per share price of the initial public offering,
the Company will be unable to reconcile the $6.00 per share difference.
Accordingly, the Company will record a compensation charge for $6.00 per share
for each restricted stock issuance or option grant to employees related to the
period subsequent to January 1, 1999. The total compensation charge as of June
30, 1999 is approximately $10,261,000 of which approximately $7,792,000 will be
deferred and amortized over the employee service period. An additional
compensation charge of approximately $440,000 will be recorded for options
granted to employees for the period July 1, 1999 through September 15, 1999.
Common, Preferred Stock and Warrants
In August 1999, we issued 17 shares of Series B Preferred Stock for
$17,000,000 in cash and 2,019,766 shares of common stock for $.0015 per share to
a group of financial sponsors.
Also in August 1999, we issued 34 shares of Series B Preferred Stock for
$34,000,000 in cash, 4,039,531 shares of common stock for $.0015 per share and
we have agreed to give warrants to purchase shares of our common
stock to real estate partners and their affiliates. The warrants are exercisable
upon the occurrence of certain events, as defined in the warrant acquisition
agreements.
Simultaneous with the Company's initial public offering and pursuant to
contractual agreements with the preferred shareholders, all shares of preferred
stock will be converted into shares of common stock (see Note 8 to the December
31, 1998 financial statements). Accrued dividends on the preferred stock will be
waived as of the initial public offering and recorded as a contribution to
capital. Assuming the offering is priced at the midpoint of the estimated price
range of the initial public offering of $ per share, the 117 shares of
preferred stock
F-28
<PAGE> 94
ALLIED RISER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
outstanding at August 31, 1999, will be converted into shares of common
stock. Had the conversion of preferred stock occurred at the beginning of each
year period presented, net income (loss) per common shares would have
$ and $ for the six months ended June 30, 1998 and 1999.
Warrants
The issuance of the warrants does not occur until the Company completes
certain due diligence efforts. The warrants and the rights associated with the
warrants may be adjusted if certain telecommunication license agreements are not
executed in accordance with the parameters outlined in the warrant acquisition
agreements. Accordingly, the measurement date for the warrants will be the
date(s) on which the telecommunications license agreements are signed and the
real estate partners effectively complete their performance element of the
agreement.
At the measurement date, the Company will measure the fair value of the
warrants based on the fair value of the underlying common stock. As the terms of
the warrant allow the holder to acquire shares of common stock without any
additional consideration, the fair value of the warrant is equivalent to the
fair value of the common stock. The fair value of the warrants will be
capitalized as an intangible asset in accordance with APB No. 17, Intangible
Assets.
Stock Split
On September 20, 1999, the Company's Board of Directors declared a 1:15
reverse stock split applicable to its outstanding common stock. The number of
common shares and net income (loss) per share have been retroactively adjusted
to reflect the stock split for all periods presented.
F-29
<PAGE> 95
UNDERWRITING
Allied Riser and the underwriters for the U.S. offering named below have
entered into an underwriting agreement with respect to the shares being offered
in the United States. Subject to certain conditions, each U.S. underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs, & Co., , and are the
representatives of the U.S. underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
............................................................
............................................................
----------
Total.............................................
==========
</TABLE>
---------------------
If the U.S. underwriters sell more shares than the total number set forth
in the table above, the U.S. underwriters have an option to buy up to an
additional shares from Allied Riser to cover such sales. They may
exercise this option for 30 days. If any shares are purchased pursuant to this
option, the U.S. underwriters will severally purchase shares in approximately
the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. underwriters by Allied Riser. Such
amounts are shown assuming both no exercise and full exercise of the U.S.
underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Allied Riser
--------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.............................................. $ $
Total.................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Allied Riser has entered into an underwriting agreement with the
underwriters for the sale of shares outside of the United States. The
terms and conditions of both offerings are the same and the sale of shares in
both offerings are conditioned on each other. Goldman Sachs International,
, and are representatives of the underwriters for
the international offering outside the United States. Allied Riser has granted
the international underwriters a similar option to purchase up to an aggregate
of an additional shares.
The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The underwriters also have agreed that they may sell shares among each
of the underwriting groups.
Allied Riser and its executive officers and directors, certain of its
stockholders, and certain of its employees holding shares or options exercisable
in the six months following this offering have agreed with the underwriters not
to dispose of or hedge any of its common stock or securities
U-1
<PAGE> 96
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any existing employee benefit
plans. The lock-up agreements by persons other than Allied Riser cover an
aggregate of approximately shares. See "Shares Available for Future Sale"
for a discussion of certain transfer restrictions.
Prior to the offerings, there has been no public market for the shares. The
initial public offering price will be negotiated among Allied Riser and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Allied Riser's historical performance, estimates of the
business potential and ARC's earnings prospects, an assessment of Allied Riser's
management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "ARCC."
In connection with the offerings, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offerings are in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Allied Riser estimates that its share of the total expenses of the
offerings, excluding underwriting discounts and commissions, will be
approximately $2,502,000.
Allied Riser has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters in the offering being made outside of the
United States, to persons located in the United States.
In August 1999, Allied Riser issued 17 shares of series B preferred stock
and 2,019,766 shares of common stock to a group of financial sponsors, including
GS Capital Partners III, L.P., an affiliate of Goldman, Sachs & Co. Allied Riser
received $16,703,000 in net proceeds from this financing transaction.
Also in August 1999, Allied Riser issued 34 shares of series B preferred
stock and 4,039,531 shares of common stock and agreed to give warrants to
acquire approximately additional shares of its common stock to
real estate partners and their affiliates,
U-2
<PAGE> 97
including Whitehall Street Real Estate Limited Partnership XI, an affiliate of
Goldman, Sachs & Co. Allied Riser received $33,306,000 in net proceeds from the
sale of the preferred and common stock to these partners. The warrants will be
executed as a fee to gain the right to install and operate Allied Riser's
fiber-optic networks inside more than 1,000 buildings owned or managed by these
partners.
U-3
<PAGE> 98
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Summary Consolidated Financial and
Other Data......................... 6
Risk Factors......................... 8
Forward-looking Statements........... 16
Use of Proceeds...................... 16
Dividend Policy...................... 16
Capitalization....................... 17
Dilution............................. 18
Selected Consolidated Financial and
Other Data......................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 32
Management........................... 44
Summary Compensation Table........... 48
Principal Stockholders............... 49
Certain Transactions................. 52
Description of Capital Stock......... 55
Shares Eligible for Future Sale...... 59
Material United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock.................... 61
Legal Matters........................ 63
Experts.............................. 63
Additional Information............... 63
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
---------------------------
Through and including , 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold allotment
or subscription.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
ALLIED RISER
COMMUNICATIONS
CORPORATION
Common Stock
---------------------------
[LOGO]
---------------------------
GOLDMAN, SACHS & CO.
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 99
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK TO OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION. DATED , 1999.
[LOGO]
Shares
ALLIED RISER COMMUNICATIONS CORPORATION
Common Stock
---------------------
This is an initial public offering of shares of common stock of Allied
Riser Communications Corporation. This prospectus relates to an offering of
shares in an international offering outside the United States. In
addition, shares are being offered in United States offering. All of
the shares of common stock are being sold by Allied Riser.
It is currently estimated that the initial public offering price per share
will be between $ and $ . Application has been made for quotation of the
common stock on the Nasdaq National Market under the symbol "ARCC".
See "Risk Factors" on page 8 to read about factors you should consider
before buying shares of the common stock.
---------------------
THIS PROSPECTUS IS INTENDED FOR USE ONLY IN CONNECTION WITH OFFERS AND
SALES OF THESE SECURITIES OUTSIDE THE UNITED STATES AND IS NOT TO BE SENT OR
GIVEN TO ANY PERSON WITHIN THE UNITED STATES. THESE SECURITIES ARE NOT BEING
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 FOR THE PURPOSE OF SALES
OUTSIDE THE UNITED STATES.
---------------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Allied Riser.................. $ $
</TABLE>
---------------------
To the extent that the underwriters sell more than shares of
common stock, the underwriters have the option to purchase up to an additional
shares from Allied Riser at the initial public offering price less the
underwriting discount.
---------------------
The underwriters expect to deliver the shares in New York, New York on
, 1999.
GOLDMAN SACHS INTERNATIONAL
---------------------
Prospectus dated , 1999.
<PAGE> 100
UNDERWRITING
Allied Riser and the underwriters for the international offering named
below have entered into an underwriting agreement with respect to the shares
being offered outside the United States. Subject to certain conditions, each
international underwriter has severally agreed to purchase the number of shares
indicated in the following table. Goldman Sachs International,
and are the representatives of the international underwriters.
<TABLE>
<CAPTION>
International Underwriters Number of Shares
-------------------------- ----------------
<S> <C>
Goldman Sachs International.............................
........................................................
........................................................
-----------
Total.........................................
===========
</TABLE>
---------------------
If the international underwriters sell more shares than the total number
set forth in the table above, the International underwriters have an option to
buy up to an additional shares from Allied Riser to cover such sales.
They may exercise this option for 30 days. If any shares are purchased pursuant
to this option, the international underwriters will severally purchase shares in
approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the international underwriters by Allied Riser.
Such amounts are shown assuming both no exercise and full exercise of the
international underwriters' option to purchase additional shares.
<TABLE>
<CAPTION>
Paid by Allied Riser
--------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share...................................... $ $
Total.......................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the initial
offering price, the representatives may change the offering price and the other
selling terms.
Allied Riser has entered into an underwriting agreement with the
underwriters for the sale of shares in the United States. The terms and
conditions of both offerings are the same and the sale of shares in both
offerings are conditioned on each other. Goldman, Sachs & Co.,
and are representatives of the underwriters for the offering in
the United States. Allied Riser has granted the international underwriters a
similar option to purchase up to an aggregate of an additional shares.
The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The underwriters also have agreed that they may sell shares among each
of the underwriting groups.
Allied Riser and its executive officers and directors, certain of its
stockholders, and certain of its employees holding shares or options exercisable
in the six months following this offering have agreed with the underwriters not
to dispose of or hedge any of its common stock or securities convertible into or
exchangeable for shares of common stock during the period from the date of
U-1
<PAGE> 101
this prospectus continuing through the date 180 days after the date of this
prospectus, except with the prior written consent of the representatives. This
agreement does not apply to any existing employee benefit plans. The lock-up
agreements by persons other than Allied Riser cover an aggregate of
approximately shares. See "Shares Available for Future Sale" for a
discussion of certain transfer restrictions.
Prior to the offerings, there has been no public market for the shares. The
initial public offering price will be negotiated among Allied Riser and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Allied Riser's historical performance, estimates of the
business potential and Allied Riser's earnings prospects, an assessment of
Allied Riser's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
Application has been made for quotation of the common stock on the Nasdaq
National Market under the symbol "ARCC."
In connection with the offerings, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or recording a decline in the market price of the common
stock while the offerings are in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
Each underwriter has also represented and agreed that (i) it has not
offered or sold and prior to the date six months after the date of issue of the
shares of common stock will not offer or sell any shares of common stock to
persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances that have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied, and will comply with, all
applicable provisions of the Financial Services Act 1986 of Great Britain with
respect to anything done by it in relation to the shares of common stock in,
from or otherwise involving the United Kingdom; and (iii) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of the international shares to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1986 (as amended) of Great
Britain or is a person to whom the document may otherwise lawfully be issued or
passed on.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
Allied Riser estimates that its share of the total expenses of the
offerings, excluding underwriting discounts and commissions, will be
approximately $ .
U-2
<PAGE> 102
Allied Riser has agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
In August 1999, Allied Riser issued 17 shares of series B preferred stock
and shares of common stock to a group of financial sponsors, including GS
Capital Partners III, L.P., an affiliate of Goldman, Sachs & Co. Allied Riser
received $16,703,000 in net proceeds from this financing transaction.
Also in August 1999, Allied Riser issued 34 shares of series B preferred
stock, and 4,039,531 shares of common stock and agreed to give warrants to
acquire additional shares of common stock to real estate partners and
their affiliates, including Whitehall Street Real Estate Limited Partnership XI,
an affiliate of Goldman, Sachs & Co. Allied Riser received $33,306,000 in net
proceeds from the sale of the preferred and common stock to these partners.
U-3
<PAGE> 103
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the shares offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Summary Consolidated Financial and
Other Data......................... 6
Risk Factors......................... 8
Forward-looking Statements........... 16
Use of Proceeds...................... 16
Dividend Policy...................... 16
Capitalization....................... 17
Dilution............................. 18
Selected Consolidated Financial and
Other Data......................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 22
Business............................. 32
Management........................... 44
Summary Compensation Table........... 48
Principal Stockholders............... 49
Certain Transactions................. 52
Description of Capital Stock......... 55
Shares Eligible For Future Sale...... 59
Material United States Federal Tax
Considerations for Non-U.S. Holders
of Common Stock.................... 61
Legal Matters........................ 63
Experts.............................. 63
Additional Information............... 63
Underwriting......................... U-1
Index to Financial Statements........ F-1
</TABLE>
---------------------------
Through and including , 1999 (the 25th day after the date of
this international prospectus), all dealers effecting transactions in these
securities in the United States, whether or not participating in this offering,
may be required to deliver the U.S. prospectus. This is in addition to the
dealers' obligation to deliver a U.S. prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions in transactions in the
United States.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
Shares
ALLIED RISER
COMMUNICATIONS
CORPORATION
Common Stock
---------------------------
[LOGO]
---------------------------
GOLDMAN SACHS INTERNATIONAL
Representatives of the Underwriters
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 104
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection
with the offering described in this Registration Statement, all of which will be
paid by Allied Riser. All amounts are estimates, other than the Securities and
Exchange Commission registration fee, the NASD fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities Exchange Commission Registration fee............. $
National Association of Securities Dealers, Inc. fee Nasdaq
listing fee............................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Director and officer insurance expenses..................... *
Printing and engraving...................................... *
Transfer agent fees and expenses............................ *
Miscellaneous expenses...................................... *
-----
Total............................................. $ *
=====
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended ("DGCL"),
allows a corporation to eliminate the personal liability of directors of a
corporation to the corporation or its stockholders for monetary damages for a
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may 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 (other than an
action by or in the right of Allied Riser) by reason of the fact that the person
is or was a director, officer, agent or employee of Allied Riser or is or was
serving at our request as a director, officer, agent, or employee 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 the person in connection with
such action, suit or proceeding. The power to indemnify applies (a) if such
person is successful on the merits or otherwise in defense of any action, suit
or proceeding, or (b) if such person acted in good faith and in a manner he or
she reasonably believed to be in the best interest, or not opposed to the best
interest, of Allied Riser, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The power to indemnify applies to actions brought by or in the right of Allied
Riser as well, but only to the extent of defense expenses (including attorneys'
fees but excluding amounts paid in settlement) actually and reasonably incurred
and not to any satisfaction of judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification shall be
made in the event of any adjudication of negligence or misconduct in the
performance of his or her duties to Allied Riser, unless the court believes that
in the light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for such actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time may avoid liability by causing his or her
II-1
<PAGE> 105
dissent to such actions to be entered in the books containing the minutes of the
meetings of the board of directors at the time such action occurred or
immediately after such absent director receives notice of the unlawful acts.
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the directors's duty of loyalty to Allied Riser or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under the section 174 of the DGCL regarding unlawful dividends and stock
purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our by-laws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we may indemnify our other employees and agents to the same extent that
we indemnified our officers and directors, unless otherwise determined by
our board of directors; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
The indemnification provisions contained in Allied Riser certificate of
incorporation and by-laws are not exclusive of any other rights to which a
person may be entitled by law, agreement, vote of stockholders or disinterested
directors or otherwise. In addition, Allied Riser maintains insurance on behalf
of its directors and executive officers insuring them against any liability
asserted against them in their capacities as directors or officers or arising
out of such status.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Common Stock
(1) On February 14, 1997, Allied Riser issued 200,000 shares in connection
with a business combination whereby DPI and DPI Tech were merged into Allied
Riser in consideration for all of the issued and outstanding shares of DPI and
DPI Tech.
(2) In early 1997, Allied Riser sold 41,433 shares for an aggregate
offering price of $6,215, to a group of employees and other individuals.
(3) On November 23, 1998, Allied Riser consummated a private placement
pursuant to which ARC issued to a group of private investors 13,269,756 shares
of common stock for an aggregate offering price of $19,905.
(4) On December 30, 1998, Allied Riser issued to a second group of private
investors 7,291,075 shares of common stock for an aggregate offering price of
$10,937.
(5) On November 23, 1998, Allied Riser consummated a private placement
pursuant to which Allied Riser issued 41 and 25 shares of Series A convertible
redeemable preferred stock to a group of individual investors, respectively, for
$41,000,000 and $25,000,000 in cash, respectively.
(6) On November 23, 1998 and December 30, 1998, Allied Riser issued an
aggregate of 5,985,368 shares of common stock to employees and directors in
connection with subscription agreements for an aggregate consideration of
$8,978. On November 23, 1998 shares were
II-2
<PAGE> 106
reserved for subsequent issuing to management and new employees. As of June 30,
1999, 110,190 shares were still reserved.
(7) From June 1, 1999 to June 30, 1999, Allied Riser issued stock options
to purchase an aggregate of 347,443 shares of common stock to employees, with an
exercise price of $0.0015 per share pursuant to Allied Riser's 1999 Stock Option
and Equity Incentive Plan.
(8) In August 1999, Allied Riser issued 51 shares of Series B Preferred
Stock 6,059,297 shares of common stock to a group of private investors and real
estate owners, for an aggregate consideration of approximately $51,000,000.
(9) In August, 1999, Allied Riser agreed to give warrants to acquire
approximately shares of common stock to a group of real estate owners.
The warrants had no purchase price and no exercise price.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to (1) Rule 701 promulgated thereunder on the basis that
these options were offered and sold either pursuant to a written compensatory
benefit plan or pursuant to written contracts relating to consideration, as
provided by Rule 701, or (2) Section 4(2) thereof, on the basis that the
transactions did not involve a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* -- Underwriting Agreement
2.1* -- Plan of Complete Liquidation and Reorganization, dated
November , 1998
3.1* -- Certificate of Incorporation of Allied Riser, as amended
and restated
3.2* -- By-laws of Allied Riser, as amended and restated
4.1* -- Specimen Certificate for Allied Riser's common stock
4.2* -- Specimen Certificate for Allied Riser's warrants
4.3 -- Registration Rights Agreement, dated as of November 23,
1998, among Allied Riser and the stockholders named
therein
4.3.1 -- First Amendment to Registration Rights Agreement, dated
as of December 30, 1998
4.3.2 -- Second Amendment to Registration Rights Agreement, dated
as of
4.3.3 -- Third Amendment to Registration Rights Agreement, dated
as of August 18, 1999
5.1* -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1* -- Form of Employment Agreement
10.2* -- Form of Lock-Up Agreement
10.3 -- Lease Facility, dated October 23, 1997, by and between
Allied Riser and Cisco Systems Capital Corporation, as
amended
10.4 -- Stockholders' Agreement, dated as of November 5, 1998,
among the stockholders listed on the signature pages
thereof
10.4.1 -- Amendment No. 1 and Joinder to Stockholders' Agreement,
dated November , 1998
10.4.2* -- Amendment No. 2 and Joinder to Stockholders' Agreement,
dated November 23, 1998
10.4.3* -- Amendment No. 3 and Joinder to Stockholders' Agreement,
dated
10.4.4* -- Amendment No. 4 and Joinder to Stockholders' Agreement,
dated August 18, 1999
10.5 -- Subscription Agreement, dated as of November 13, 1998, by
and among Allied Riser and the investors listed on the
signature pages thereof
</TABLE>
II-3
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.5.1 -- Amendment No. 1 to Subscription Agreement, dated as of
November , 1998
10.6* -- Indemnification Agreement, dated as of November 23, 1998,
by and among Allied Riser and the investors listed on the
signature pages thereof
10.6.1* -- Joinder to Indemnification Agreement, dated December 30,
1998
10.7* -- Stockholders' Pledge Agreement, dated as of November 23,
1998, by and among Allied Riser and the investors listed
on the signature pages thereof
10.8* -- Series A-1 Preferred Stock and Common Stock Investment
Agreement, dated December 30, 1998, by and between Allied
Riser and Norwest Venture Partners VII, L.P. (includes
schedule of other 1998 Investment Agreements)
10.9* -- Waiver and Consent, dated as of December 30, 1998, by and
among Allied Riser and the investors listed on the
signature pages thereof
10.10* -- Allied Riser 1999 Stock Option Plan, as amended
10.11 -- Credit Facility, dated March 25, 1999, by and among
Allied Riser and The Chase Manhattan Bank, as
Administrative Agent, and Chase Securities Inc., as Lead
Arranger and Book Manager
10.12* -- Transaction Agreement, dated as of August 4, 1999, by and
between Allied Riser and Metropolitan Life Insurance
Company (includes schedule of other Transaction
Agreements)
10.13* -- Investment Agreement, dated as of August 6, 1999, by and
between Allied Riser and GS Capital Partners III, L.P.
(includes schedule of other 1999 Investment Agreements)
10.14* -- Investment Agreement, dated as of August 6, 1999, by and
between Allied Riser and Whitehall Street Real Estate
Limited Partnership XI
10.15* -- Warrant Agreement, dated as of August 17, 1999, between
Allied Riser and Boston Properties Limited Partnership
(includes schedule of other Warrant Agreements)
10.16* -- Warrant Acquisition Agreement, dated as of August 17,
1999, between Allied Riser and Boston Properties Limited
Partnership (includes schedule of other Warrant
Acquisition Agreements)
10.17* -- Waiver and Consent, dated as of August 18, 1999, by and
among Allied Riser and the investors listed on the
signature pages thereof
10.18* -- Waiver and Consent, dated as of , 1999, by
and among Allied Riser and the investors listed on the
signature pages thereof
10.19* -- Form of Real Property Access Agreement
21.1* -- Subsidiaries of Allied Riser
23.1 -- Consent of Arthur Andersen LLP
23.2* -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
24.1 -- Power of Attorney (contained on the signature page of
this Registration Statement)
27.1* -- Financial Data Schedule
99.1* -- Agreement and Plan of Merger, dated January , 1997, by
and among RCH Holdings, Digital Packet Interface
Solutions and DPI Technology
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules:
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
II-4
<PAGE> 108
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is therefore unenforceable. In the event that
a claim for indemnification by the registrant 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.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on September 23, 1999.
ALLIED RISER COMMUNICATIONS
CORPORATION
/s/ DAVID H. CRAWFORD
------------------------------------
By: David H. Crawford
Title: Chief executive officer
Each person whose signature appears below hereby constitutes and appoints
David H. Crawford and Todd C. Doshier, and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all (i) amendments (including post-effective amendments) and additions to
this Registration Statement and (ii) Registration Statements, and any and all
amendments thereto (including post-effective amendments), relating to the
offering contemplated pursuant to Rule 462(b) under the Securities Act of 1933,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or his
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID H. CRAWFORD Chief executive officer September 23, 1999
- ----------------------------------------------------- and director
David H. Crawford (principal executive
officer)
/s/ TODD C. DOSHIER Senior vice president September 23, 1999
- ----------------------------------------------------- and chief financial
Todd C. Doshier officer (principal
financial and
accounting officer)
/s/ JOHN M. TODD Chief operating officer, September 23, 1999
- ----------------------------------------------------- president and director
John M. Todd
/s/ JOHN H. DAVIS Chief technology officer September 23, 1999
- ----------------------------------------------------- and director
John H. Davis
/s/ STEPHEN W. SCHOVEE Director and chairman of September 23, 1999
- ----------------------------------------------------- the board
Stephen W. Schovee
/s/ ROD F. DAMMEYER Director September 23, 1999
- -----------------------------------------------------
Rod F. Dammeyer
</TABLE>
II-6
<PAGE> 110
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM J. ELSNER Director September 23, 1999
- -----------------------------------------------------
William J. Elsner
/s/ R. DAVID SPRENG Director September 23, 1999
- -----------------------------------------------------
R. David Spreng
/s/ BLAIR P. WHITAKER Director September 23, 1999
- -----------------------------------------------------
Blair P. Whitaker
/s/ WILLIAM T. WHITE Director September 23, 1999
- -----------------------------------------------------
William T. White
</TABLE>
II-7
<PAGE> 111
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* -- Underwriting Agreement
2.1* -- Plan of Complete Liquidation and Reorganization, dated
November , 1998
3.1* -- Certificate of Incorporation of Allied Riser, as amended
and restated
3.2* -- By-laws of Allied Riser, as amended and restated
4.1* -- Specimen Certificate for Allied Riser's common stock
4.2* -- Specimen Certificate for Allied Riser's warrants
4.3 -- Registration Rights Agreement, dated as of November 23,
1998, among Allied Riser and the stockholders named
therein
4.3.1 -- First Amendment to Registration Rights Agreement, dated
as of December 30, 1998
4.3.2 -- Second Amendment to Registration Rights Agreement, dated
as of
4.3.3 -- Third Amendment to Registration Rights Agreement, dated
as of August 18, 1999
5.1* -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
10.1* -- Form of Employment Agreement
10.2* -- Form of Lock-Up Agreement
10.3 -- Lease Facility, dated October 23, 1997, by and between
Allied Riser and Cisco Systems Capital Corporation, as
amended
10.4 -- Stockholders' Agreement, dated as of November 5, 1998,
among the stockholders listed on the signature pages
thereof
10.4.1 -- Amendment No. 1 and Joinder to Stockholders' Agreement,
dated November , 1998
10.4.2* -- Amendment No. 2 and Joinder to Stockholders' Agreement,
dated November 23, 1998
10.4.3* -- Amendment No. 3 and Joinder to Stockholders' Agreement,
dated
10.4.4* -- Amendment No. 4 and Joinder to Stockholders' Agreement,
dated August 18, 1999
10.5 -- Subscription Agreement, dated as of November 13, 1998, by
and among Allied Riser and the investors listed on the
signature pages thereof
10.5.1 -- Amendment No. 1 to Subscription Agreement, dated as of
November , 1998
10.6* -- Indemnification Agreement, dated as of November 23, 1998,
by and among Allied Riser and the investors listed on the
signature pages thereof
10.6.1* -- Joinder to Indemnification Agreement, dated December 30,
1998
10.7* -- Stockholders' Pledge Agreement, dated as of November 23,
1998, by and among Allied Riser and the investors listed
on the signature pages thereof
10.8* -- Series A-1 Preferred Stock and Common Stock Investment
Agreement, dated December 30, 1998, by and between Allied
Riser and Norwest Venture Partners VII, L.P. (includes
schedule of other 1998 Investment Agreements)
10.9* -- Waiver and Consent, dated as of December 30, 1998, by and
among Allied Riser and the investors listed on the
signature pages thereof
10.10* -- Allied Riser 1999 Stock Option Plan, as amended
10.11 -- Credit Facility, dated March 25, 1999, by and among
Allied Riser and The Chase Manhattan Bank, as
Administrative Agent, and Chase Securities Inc., as Lead
Arranger and Book Manager
10.12* -- Transaction Agreement, dated as of August 4, 1999, by and
between Allied Riser and Metropolitan Life Insurance
Company (includes schedule of other Transaction
Agreements)
10.13* -- Investment Agreement, dated as of August 6, 1999, by and
between Allied Riser and GS Capital Partners III, L.P.
(includes schedule of other 1999 Investment Agreements)
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.14* -- Investment Agreement, dated as of August 6, 1999, by and
between Allied Riser and Whitehall Street Real Estate
Limited Partnership XI
10.15* -- Warrant Agreement, dated as of August 17, 1999, between
Allied Riser and Boston Properties Limited Partnership
(includes schedule of other Warrant Agreements)
10.16* -- Warrant Acquisition Agreement, dated as of August 17,
1999, between Allied Riser and Boston Properties Limited
Partnership (includes schedule of other Warrant
Acquisition Agreements)
10.17* -- Waiver and Consent, dated as of August 18, 1999, by and
among Allied Riser and the investors listed on the
signature pages thereof
10.18* -- Waiver and Consent, dated as of , 1999, by
and among Allied Riser and the investors listed on the
signature pages thereof
10.19* -- Form of Real Property Access Agreement
21.1* -- Subsidiaries of Allied Riser
23.1 -- Consent of Arthur Andersen LLP
23.2* -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1)
24.1 -- Power of Attorney (contained on the signature page of
this Registration Statement)
27.1* -- Financial Data Schedule
99.1* -- Agreement and Plan of Merger, dated January , 1997, by
and among RCH Holdings, Digital Packet Interface
Solutions and DPI Technology
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
November 23, 1998, between Allied Riser Communications Holdings, Inc., a
Delaware corporation (the "Company"), EGI-ARC Investors, L.L.C., a Delaware
limited liability company ("EGI"), Telecom Partners II, L.P., a Delaware limited
partnership ("TP"), Crescendo World Fund, LLC, a Delaware limited liability
company, Eagle Ventures WF, LLC, a Minnesota limited liability company,
Crescendo III, L.P., a Delaware limited partnership (together with Crescendo
World Fund, LLC and Eagle Ventures WF, LLC, "Crescendo"), and Lawrence Equity
Group, LLC, a California limited liability company ("Lawrence"). Collectively,
EGI, TP, Crescendo and Lawrence are referred to herein as the "Investors."
The Company and EGI are parties to a Series A-2 Preferred Stock and
Common Stock Investment Agreement of even date herewith, and the Company and
each of the Investors (other than EGI) are parties to separate Series A-1
Preferred Stock and Common Stock Investment Agreements of even date herewith
(collectively, the "Investment Agreements"). In order to induce the Investors to
enter into the Investment Agreements, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the Closing under the Investment Agreements.
Unless otherwise provided in this Agreement, capitalized terms used herein shall
have the meanings set forth in paragraph 8 hereof.
The parties hereto agree as follows:
1. Demand Registrations.
(a) Requests for Registration. At any time after the third
anniversary of the Closing under the Investment Agreements or such earlier time
as the Company has completed a public offering of its equity securities under
the Securities Act, the holders of at least 33% of the Registrable Securities
may request registration under the Securities Act of all or part of their
Registrable Securities on Form S-1 or any similar long-form registration
("Long-Form Registrations"), and the holders of at least 33% of the Registrable
Securities may request registration under the Securities Act of 1933, as amended
(the "Securities Act") of all or part of their Registrable Securities on Form
S-2 or S-3 or any similar short-form registration ("Short-Form Registrations")
if available. Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be registered and the
anticipated per share price range for such offering. Within ten days after
receipt of any such request, the Company will give written notice of such
requested registration to all other holders of Registrable Securities and will
include in such registration all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the receipt of the Company's notice. All registrations requested pursuant
to this paragraph 1(a) are referred to herein as "Demand Registrations".
(b) Long-Form Registrations. The holders of Registrable
Securities will be entitled to request two Long-Form Registrations in which the
Company will pay all Registration Expenses ("Company-paid Long-Form
Registrations") and two Long-Form Registrations in which the holders of
Registrable Securities will pay their share of the Registration Expenses as set
forth in paragraph 5 hereof. A registration will not count as one of the
permitted Long-Form Registrations until it has become effective, and neither the
last nor any subsequent Company-paid Long-Form Registration will count as one of
the permitted Long-Form Registrations unless the holders of Registrable
Securities are able to register and sell at least 90% of the Registrable
Securities requested to be included in such registration; provided that in any
event the Company
<PAGE> 2
will pay all Registration Expenses in connection with any registration initiated
as a Company-paid Long-Form Registration whether or not it has become effective.
(c) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to paragraph 1(b), the holders of Registrable
Securities will be entitled to request an unlimited number of Short-Form
Registrations in which the Company will pay all Registration Expenses. Demand
Registrations will be Short-Form Registrations whenever the Company is permitted
to use any applicable short form. After the Company has become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, the
Company will use its best efforts to make Short-Form Registrations available for
the sale of Registrable Securities.
(d) Priority on Demand Registrations. The Company will not
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of at least 50% of
the Registrable Securities included in such registration. If a Demand
Registration is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable Securities and other
securities, if any, which can be sold (in an orderly manner in such offering
within a price range acceptable to the holders of a majority of the Registrable
Securities initially requesting registration), the Company will include in such
registration prior to the inclusion of any securities which are not Registrable
Securities the number of Registrable Securities requested to be included which
in the opinion of such underwriters can be sold in an orderly manner within the
price range of such offering, pro rata among the respective holders thereof on
the basis of the amount of Registrable Securities owned by each such holder. Any
Persons other than holders of Registrable Securities who participate in Demand
Registrations which are not at the Company's expense must pay their share of the
Registration Expenses as provided in paragraph 5 hereof.
(e) Restrictions on Long-Form Registrations. The Company may
postpone for up to 90 days the filing or the effectiveness of a registration
statement for a Demand Registration if the Company and the holders of a majority
of the Registrable Securities agree that such Demand Registration would
reasonably be expected to have an adverse effect on any proposal or plan by the
Company or any of its Subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer or similar transaction; provided that in such event, the holders of
Registrable Securities initially requesting such Demand Registration will be
entitled to withdraw such request and, if such request is withdrawn, such Demand
Registration will not count as one of the permitted Demand Registrations
hereunder and the Company will pay all Registration Expenses in connection with
such registration.
(f) Selection of Underwriters. The holders of a majority of
the Registrable Securities included in any Demand Registration initially
requesting registration will have the right to select the investment banker(s)
and manager(s) to administer the offering, subject to the Company's approval
which will not be unreasonably withheld.
(g) Other Registration Rights. Except as provided in this
Agreement, the Company will not grant to any Persons the right to request the
Company to register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, without the
prior written consent of the holders of a majority of the Registrable
Securities; provided that the Company may grant rights to other Persons to
participate in Piggyback Registrations (as defined below) so long as such rights
are subordinate to the rights of
-2-
<PAGE> 3
the holders of Registrable Securities with respect to such Piggyback
Registrations and request registrations so long as the holders of Registrable
Securities are entitled to participate in any such registrations with such
Persons pro rata on the basis of the number of shares owned by each such holder.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration) and the registration form to be used may be used for the
registration of Registrable Securities (a "Piggyback Registration"), the Company
will give prompt written notice (in any event within three business days after
its receipt of notice of any exercise of demand registration rights other than
under this Agreement) to all holders of Registrable Securities of its intention
to effect such a registration and will include in such registration all
Registrable Securities with respect to which the company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice. Notwithstanding the foregoing, the Piggyback Registration rights set
forth in this Section 2 shall not be applicable to any registration statements
on Form S-4 or on Form S-8, or on any successor forms thereto.
(b) Piggyback Expenses. The Registration Expenses of the
holders of Registrable Securities will be paid by the Company in all Piggyback
Registrations.
(c) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company will include in such
registration first, the securities the Company proposes to sell, second, the
Registrable Securities requested to be included in such registration, pro rata
among the holders of such Registrable Securities on the basis of the number of
shares owned by each such holder, and third, other securities requested to be
included in such registration.
(d) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the holders initially
requesting such registration, the Company will include in such registration
first, the securities requested to be included therein by the holders requesting
such registration, second, the Registrable Securities requested to be included
in such registration, pro rata among the holders of such Registrable Securities
on the basis of the number of shares owned by each such holder, and third, other
securities requested to be included in such registration.
(e) Selection of Underwriters. If any Piggyback Registration
is an underwritten offering, the selection of investment banker(s) and
manager(s) for the offering must be approved by the holders of a majority of the
Registrable Securities included in such Piggyback Registration. Such approval
will not be unreasonably withheld or delayed.
(f) Other Registrations. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
paragraph 1 or pursuant to this paragraph 2, and if such previous registration
has not been withdrawn or abandoned, the
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<PAGE> 4
Company will not file or cause to be effected any other registration of any of
its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-8 or any successor form), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of at least six months has
elapsed from the effective date of such previous registration.
3. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect
any public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for such securities, during the seven days prior to and the 90-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration in which Registrable Securities are
included (except as part of such underwritten registration), unless the
underwriters managing the registered public offering otherwise agree.
(b) The Company agrees not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any underwritten
Demand Registration or any underwritten Piggyback Registration (except as part
of such underwritten registration or pursuant to a registration on Form S-8 or
any successor form), unless the underwriters managing the registered public
offering otherwise agree, and to cause each holder of at least 2% (on a
fully-diluted basis) of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any such securities during such period (except as
part of such underwritten registration, if otherwise permitted), unless the
underwriters managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the Securities and Exchange
commission a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective (provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered by
such registration statement copies of all such documents proposed to be filed,
which documents will be subject to the review of such counsel);
(b) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
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<PAGE> 5
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, subject itself to
taxation in any such jurisdiction or consent to general service of process in
any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the National Association of
Securities Dealers ("NASD") automated quotation system and, if listed on the
NASD automated quotation system, use its best efforts to secure designation of
all such Registrable Securities covered by such registration statement as a
"Nasdaq national market" security within the meaning of Rule 11Aa2-1 of the
Securities and Exchange Commission or, failing that, to secure Nasdaq
authorization for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
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<PAGE> 6
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(k) permit any holder of Registrable Securities which holder,
in its sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable judgment
of such holder and its counsel should be included, provided that such material
shall be furnished under such circumstances as shall cause it to be subject to
the indemnification provisions provided pursuant to paragraph 6 hereof; and
(l) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order.
(m) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
sellers thereof to consummate the disposition of such Registrable Securities;
(n) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily covered by cold comfort letters as the holders of a
majority of the Registrable Securities being sold reasonably request (provided
that such Registrable Securities constitute at least 10% of the securities
covered by such registration statement);
If any such registration or comparable statement refers to any holder
by name or otherwise as the holder of any securities of the Company and if its
sole and exclusive judgment, such holder is or might be deemed to be a
controlling person of the Company, such holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such holder and presented to the Company in writing, to the effect that the
holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (ii)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force, the
deletion of the reference to such holder; provided that with respect to this
clause (ii) such holder shall furnish to the Company an opinion of counsel to
such effect, which opinion and counsel shall be reasonably satisfactory to the
Company.
5. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
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<PAGE> 7
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne as provided in this Agreement, except
that the Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on the NASD
automated quotation system.
(b) In connection with each Demand Registration and each
Piggyback Registration, the Company will reimburse the holders of Registrable
Securities covered by such registration for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the
Registrable Securities initially requesting such registration.
(c) To the extent Registration Expenses are not required to be
paid by the Company, each holder of securities included in any registration
hereunder will pay those Registration Expenses allocable to the registration of
such holder's securities so included, and any Registration Expenses not so
allocable will be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities to
be so registered.
6. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted
by law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
therein or by such holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished such holder with a sufficient number of copies of the
same. In connection with an underwritten offering, the Company will indemnify
such underwriters, their officers and directors and each Person who controls
such underwriters (within the meaning of the Securities Act) to the same extent
as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will furnish
to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the extent permitted by law, will indemnify the Company,
its directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
will be individual to each holder and will be limited to
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<PAGE> 8
the net amount of proceeds received by such holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) If the indemnification provided for in this Section 6 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss, claim,
damage, liability or expense, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission.
(e) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling Person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
7. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
8. Definitions.
"Common Stock" means the common stock, no par value, of the Company.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a government entity or any department, agency or political
subdivision thereof.
-8-
<PAGE> 9
"Registrable Securities" means (i) any Common Stock issued pursuant to
the Investment Agreements, (ii) any Common Stock issued upon the conversion of
any Series A Preferred Stock issued pursuant to the Investment Agreements, (iii)
any Common Stock issued or issuable with respect to the securities referred to
in clauses (i) and (ii) by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization, and (iv) any other shares of Common Stock held by
Persons holding securities described in clauses (i) to (iii), inclusive, above.
As to any particular Registrable Securities, such securities will cease to be
Registrable Securities when they have been distributed to the public pursuant to
an offering registered under the Securities Act or sold to the public through a
broker, dealer or market maker in compliance with Rule 144 under the Securities
Act (or any similar rule then in force). For purposes of this Agreement, a
Person will be deemed to be a holder of Registrable Securities whenever such
Person has the right to acquire directly or indirectly such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
"Series A Preferred Stock" means the Series A-1 Preferred Stock and the
Series A-2 Preferred Stock, $0.0001 par value per share, issued pursuant to the
Investment Agreements.
"Subsidiary" means with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by any Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest in a
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of partnership, association or other business
entity gains or losses or shall be or control the managing director or general
partner of such partnership, association or other business entity.
9. Miscellaneous.
(a) Selection of Investment Bankers. Except as otherwise
provided herein in connection with Demand Registrations, the selection of
investment banker(s) and manager(s) for any public offering or private sale by
the Company of its securities must be approved by the holders of a majority of
the Registrable Securities, which approval will not be unreasonably withheld.
(b) No Inconsistent Agreements. The Company will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the holders of Registrable Securities in
this Agreement.
(c) Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
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<PAGE> 10
(d) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(e) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and holders of a majority of the
Registrable Securities.
(f) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(g) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(h) Counterparts; Facsimile. This Agreement may be executed
simultaneously 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
will constitute one and the same Agreement. This Agreement may be executed by
facsimile.
(i) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(j) Governing Law. The corporate law of the State of Delaware
will govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits and schedules hereto will be
governed by the internal law, and not the law of conflicts, of the State of
Delaware.
(k) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable express courier
service (charges prepaid) or mailed to the recipient by certified or registered
mail, return receipt requested and postage prepaid. Such notices, demands and
other communications will be sent to the parties hereto at the following
addresses:
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<PAGE> 11
If to the Company: Allied Riser Communications Holdings, Inc.
Two North Riverside Plaza, Suite 1900
Chicago, IL 60606
Fax: (312) 454-5956
Attn: President
and
Allied Riser Communications Holdings, Inc.
700 Pearl Street, Suite 200
Dallas, TX 75201
Fax: (214) 855-9121
Attn: Chief Financial Officer
with a copy to: Crouch & Hallett, L.L.P.
717 N. Harwood, Suite 1400
Dallas, TX 75201
Fax: (214) 922-4193
Attn: Timothy R. Vaughan
If to EGI: EGI-ARC Investors, L.L.C.
c/o EGI Corporate Investments
Two North Riverside Plaza, 6th Floor
Chicago, IL 60606
Fax: (312) 575-7024
(312) 454-9678
Attn: Donald Liebentritt
William T. White III
with a copy to: Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, 16th Floor
Chicago, IL 60606
Fax: (312) 454-0335
Attn: Jon Wasserman
If to TP: Telecom Partners II, L.P.
3200 Cherry Creek Drive South
Suite 450
Denver, CO 80209
Fax: (303) 765-1110
Attn: Steve Schovee
with a copy to: Holland & Hart LLP
555 Seventeenth Street
Suite 3200
Denver, CO 80202
Fax: (303) 295-8261
Attn: Michael S. Quinn
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<PAGE> 12
If to Crescendo: c/o Crescendo Venture Management, LLC
800 La Salle Avenue, Suite 2250
Minneapolis, MN 55402
Fax: (612) 607-2801
Attn: David Spreng
with a copy to: Messerli & Kramer
1800 Fifth Street Tower
150 S. 5th St.
Minneapolis, MN 55402
Fax: (612) 672-3777
Attn: Kevin Spreng
If to Lawrence: Lawrence Equity Group, LLC
c/o Joseph Sperske
3615 Country Club Terrace
Danville, CA 94506
Fax: (415) 398-7499
Attn: Joseph Sperske
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
* * *
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
ALLIED RISER COMMUNICATIONS HOLDINGS,
INC.
By: /s/David H. Crawford
------------------------------------
Name: David H. Crawford
Title: President
EGI-ARC INVESTORS, L.L.C.
By: GAMI Investments, Inc.
Its: Managing Member
By: /s/Don Liebentritt
------------------------------------
Name: Don Liebentritt
Title: Vice President
TELECOM PARTNERS II, L.P.
By: Telecom Management II, L.L.C.,
Its: General Partner
By: /s/Stephen W. Schovee
------------------------------------
Name: Stephen W. Schovee
Title: Managing Member
<PAGE> 14
CRESCENDO WORLD FUND, LLC
By: Crescendo Ventures World Fund, LLC
Its: Managing Member
By: /s/Jeffrey R. Tollefson
----------------------------------------------
Name: Jeffrey R. Tollefson
Title: Partner
EAGLE VENTURES WF, LLC
By: /s/Jeffrey R. Tollefson
----------------------------------------------
Name: Jeffrey R. Tollefson
Title: Vice President
CRESCENDO III, L.P.
By: Crescendo Ventures III, LLC
Its: General Partner
By: /s/Jeffrey R. Tollefson
----------------------------------------------
Name: Jeffrey R. Tollefson
Title: Partner
LAWRENCE EQUITY GROUP, LLC
By: /s/Joseph A. Sperske
----------------------------------------------
Name: Jerry Brasfield
Title: President and Managing Member
<PAGE> 1
EXHIBIT 4.3.1
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this
"Amendment") dated December 30, 1998, is effective as of November 23, 1998,
between Allied Riser Communications Holdings, Inc., a Delaware corporation (the
"Company"), EGI-ARC Investors, L.L.C., a Delaware limited liability company
("EGI"), Telecom Partners II, L.P., a Delaware limited partnership ("TP"),
Crescendo World Fund, LLC, a Delaware limited liability company ("Crescendo
WF"), Eagle Ventures WF, LLC, a Minnesota limited liability company ("Eagle"),
Crescendo III, L.P., a Delaware limited partnership ("Crescendo III"), Lawrence
Equity Group, LLC, a California limited liability company ("Lawrence", and
together with EGI, TP, Crescendo WF, Eagle and Crescendo III, the "Original
Investors"), Norwest Venture Partners VII, L.P., a Minnesota limited partnership
("Norwest") and ANDA Partnership, an Illinois general partnership ("ANDA" and,
together with Norwest, the "New Investors"). Collectively, the Original
Investors and the New Investors are referred to herein as the "Investors."
RECITALS
WHEREAS, the Original Investors are parties to a Registration Rights
Agreement dated as of November 23, 1998 (the "Registration Rights Agreement");
and
WHEREAS, the Company and each of Norwest, ANDA, TP, Crescendo WF, Eagle
and Crescendo III are parties to Series A-1 Preferred Stock and Common Stock
Investment Agreements of even date herewith (the "Investment Agreements"), and
in order to induce Norwest, ANDA, TP, Crescendo WF, Eagle and Crescendo III to
enter into the Investment Agreements, the Company and the Original Investors
have agreed to enter into this Amendment to the Registration Rights Agreement;
and
WHEREAS, under Section 9(e) of the Registration Rights Agreement, the
Registration Rights Agreement may be amended with only the written consent of
the Company and the holders of a majority of the Registrable Securities, as that
term is defined in the Registration Rights Agreement.
In consideration of the mutual agreements, covenants and considerations
contained herein, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition
shall have the meanings given to them in the Registration Rights Agreement.
2. AMENDMENT. The definition of "Investors" set forth in the
Registration Agreement is hereby amended to include the New Investors.
3. ADDITIONAL INVESTORS. Upon the effectiveness of this First Amendment
to the Registration Rights Agreement, the New Investors agree to be bound by all
of the terms and conditions of the Registration Rights Agreement applicable to
Investors, as that term is defined in the Registration Rights Agreement.
1
<PAGE> 2
4. NOTICES. All notices set forth in the Registration Rights Agreement
shall remain unchanged, except as follows. Notices to be sent to Telecom
Partners II, L.P. pursuant to the Registration Rights Agreement shall be sent
to:
Telecom Partners, L.P.
6400 S. Fiddlers Green Circle, Suite 720
Englewood, CO 80111.
Fax: 303-874-1110
Attention: Steve Schovee
With a copy to:
Holland & Hart LLP
555 Seventeenth St., Suite 3200
Denver, CO 80202
Fax: 303-295-8261
Attn: Michael S. Quinn
Notices to Norwest pursuant to the Registration Rights Agreement shall
be sent to:
Norwest Venture Partners VII, L.P.
40 William Street, Suite 305
Wellesley, MA 02481-3902
Fax: 781-237-6270
Attn: Blair Whitaker
and
Itasca VC Partners VII, L.L.P.
2800 Piper Jaffray Tower
Minneapolis, MN 55402
Fax: 612-667-1660
Attn: John P. Whaley
With a copy to:
Edwards & Angell, LLP
101 Federal Street, 23rd Floor
Boston, MA 02110
Fax: 617-439-4170
Attn: Leonard Q. Slap
Notices to ANDA pursuant to the Registration Rights Agreement shall be
sent to:
ANDA Partnership
Two North Riverside Plaza
Chicago, IL 60606
Fax: 312-466-3700
Attn: Mark Slezak
2
<PAGE> 3
With a copy to:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, Suite 1600
Chicago, IL 60606
Fax: 312-454-0335
Attn: Jon Wasserman
Notices to the Company pursuant to the Registration Rights Agreement
shall be sent to:
Allied Riser Communications Holdings, Inc.
10 S. Wacker, Suite 3425
Chicago, IL 60606
Fax: 312-454-4081
Attn: President
and
Allied Riser Communications Holdings, Inc
700 North Pearl Street, Suite 200
Dallas, TX 75201
Fax: (214) 855-5905
Attn: Chief Financial Officer
With a copy to:
Crouch & Hallett, LLP
717 N. Harwood, Suite 1400
Dallas, TX 75201
Fax: (214) 922-4193
Attn: Timothy R. Vaughan
EFFECT OF AMENDMENT. Except as amended as set forth above, the
Registration Rights Agreement shall continue in full force and effect.
5. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned parties have executed this First
Amendment to Registration Rights Agreement as of the date set forth in the first
paragraph hereof.
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.
By: /s/ David H. Crawford
-------------------------------------
Name: David H. Crawford
Title: President
EGI-ARC INVESTORS, L.L.C.
By: GAMI Investments, Inc.
Its: Managing Member
By: /s/ Rod Dammeyer
-------------------------------------
Name: Rod Dammeyer
Title:
TELECOM PARTNERS II, L.P.
By: Telecom Management II, L.L.C.,
Its: General Partner
By /s/ Stephen W. Schovee
-------------------------------------
Name: Stephen W. Schovee
Title: Managing Member
CRESCENDO WORLD FUND, LLC
By: Crescendo Ventures World Fund,
LLC
Its: Managing Member
By: /s/ R. David Spreng
-------------------------------------
Name: R. David Spreng
Title: Managing Partner
EAGLE VENTURES WF, LLC
By: /s/ R. David Spreng
-------------------------------------
Name: R. David Spreng
Title: Managing Partner
4
<PAGE> 5
CRESCENDO III, L.P.
By: Crescendo Ventures III, LLC
Its: General Partner
By: /s/ R. David Spreng
-------------------------------------
Name: R. David Spreng
Title: Managing Partner
LAWRENCE EQUITY GROUP, LLC
By: /s/ Joseph A. Sperske
-------------------------------------
Name: Joseph A. Sperske
Title: Vice President and Managing Member
NORWEST VENTURE PARTNERS VII L.P.
By: ITASCA VC PARTNERS VII, L.L.P.
Its: General Partner
By: /s/ Blair Whitaker
-------------------------------------
Name: Blair Whitaker
Title: General Partner
ANDA PARTNERSHIP, an Illinois General
Partnership
By: Ann Only Trust, an Illinois
Trust
By: /s/ Mark Slezak
---------------------------
Name: Mark Slezak
Title: Co-Trustee
By: Ann and Descendants Trust, an
Illinois Trust
By: /s/ Mark Slezak
--------------------------
Name: Mark Slezak
Title: Co-Trustee
5
<PAGE> 1
EXHIBIT 4.3.2
SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this
"2nd Amendment") dated August 18, 1999, by and among Allied Riser Communications
Holdings, Inc., a Delaware corporation (the "Company"), EGI-ARC Investors,
L.L.C., a Delaware limited liability company ("EGI"), Telecom Partners II, L.P.,
a Delaware limited partnership ("TP"), Crescendo World Fund, LLC, a Delaware
limited liability company ("Crescendo WF"), Eagle Ventures WF, LLC, a Minnesota
limited liability company ("Eagle"), Crescendo III, L.P., a Delaware limited
partnership ("Crescendo III"), Lawrence Equity Group, LLC, a California limited
liability company ("Lawrence" and, together with EGI, TP, Crescendo WF, Eagle
and Crescendo III, the "Original Investors"), Norwest Venture Partners VII,
L.P., a Minnesota limited partnership ("Norwest"), ANDA Partnership, an Illinois
general partnership ("ANDA" and, together with Norwest, the "1st Amendment
Investors"), GS Capital Partners III, L.P., a Delaware limited partnership
("Goldman") and Whitehall Street Real Estate Limited Partnership XI, a Delaware
limited partnership ("Whitehall" and together with Goldman, the "2nd Amendment
Investors"). Collectively, the Original Investors, the 1st Amendment Investors
and the 2nd Amendment Investors are referred to herein as the "Investors."
WHEREAS, the Original Investors are parties to a Registration
Rights Agreement dated as of November 23, 1998, as amended (the "Registration
Rights Agreement");
WHEREAS, the Original Investors and the 1st Amendment
Investors are parties to that First Amendment to Registration Rights Agreement
dated as of December 30, 1998, effective as of November 23, 1998, (the "1st
Amendment") pursuant to which the definition of "Investors" in the Registration
Rights Agreement was amended to include the 1st Amendment Investors;
WHEREAS, the Company and each of the 2nd Amendment Investors
are entering into Series B Preferred Stock and Common Stock Investment Agreement
dated as of August 6, 1999 (each an "Investment Agreement");
WHEREAS, the Company and Whitehall are entering into a Warrant
Acquisition Agreement dated as of August __, 1999 (the "Warrant Agreement");
<PAGE> 2
WHEREAS, in order to induce each of the 2nd Amendment
Investors to enter into an Investment Agreement, the Company, the Original
Investors and the 1st Amendment Investors have agreed to enter into this 2nd
Amendment to the Registration Rights Agreement; and
WHEREAS, under Section 9(e) of the Registration Rights
Agreement, the Registration Rights Agreement may be amended only upon the prior
written consent of the Company and the holders of a majority of the Registrable
Securities, as that term is defined in the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the agreements, covenants
and considerations contained herein, the parties hereto agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings given to them in the Registration Rights
Agreement.
2. Amendments.
(a) The definition of "Investors" set forth in the
preamble of the Registration Rights Agreement is hereby amended to include the
2nd Amendment Investors.
(b) The definition of "Investment Agreements" set
forth in the preamble of the Registration Rights Agreement is hereby amended to
include each of the Investment Agreements entered into by the 2nd Amendment
Investors.
(c) The number of Company-paid Long-form Registrations
set forth in Section 1(b) that the holders of Registrable Securities will be
entitled to request shall be increased from two (2) to three (3).
(d) The definition of "Common Stock" set forth in
Section 8 of the Registration Rights Agreement is hereby amended to read as
follows: "Common Stock" means the common stock, $0.0001 par value, of the
Company.
(e) The definition of "Registrable Securities" shall
include (i) any shares of Common Stock held by a 2nd Amendment Investor which
were acquired upon conversion of the Series B Preferred Stock acquired pursuant
to an Investment Agreement or acquired upon exercises of warrants acquired
pursuant to the Warrant Agreement and (ii) any other shares of Common Stock held
by a 2nd Amendment
2
<PAGE> 3
Investor while such 2nd Amendment Investor holds any Common Stock described in
clause (i). Except as supplement herein, the definition of Registrable
Securities in the Registration Rights Agreement remains unchanged.
(f) The definition of "Series A Preferred Stock" set
forth in Section 8 of the Registration Rights Agreement is hereby amended to
read as follows: "Series A Preferred Stock" means the Series A-1 Preferred
Stock, the Series A-2 Preferred Stock and the Series B Preferred Stock, $0.0001
par value per share, issued pursuant to the Investment Agreements.
3. Additional Investors. Upon the effectiveness of this Second
Amendment to the Registration Rights Agreement, each 2nd Amendment Investor
agrees to be bound by all of the terms and conditions of the Registration Rights
Agreement, as amended by the 1st Amendment and 2nd Amendment, applicable to
Investors, as that term is defined in the Registration Rights Agreement. For
purposes of the Registration Rights agreement, the "Closing" of the Investment
Agreements entered into by the 2nd Amendment Investors shall be deemed to be the
date of the closing of the investment agreements of the Original Investors.
4. Notices. The addresses for notices set forth in the
Registration Rights Agreement, as amended by the 1st Amendment, shall remain
unchanged for the Original Investors and the 1st Amendment Investors. Notices to
be sent to the 2nd Amendment Investors shall be sent to the following addresses:
If to Goldman, to:
GS Capital Partners III, L.P.
85 Broad Street, 10th Floor
New York, New York 10004
Fax: (212)357-5505
Attention: Ben Adler
If to Whitehall, to:
GS Capital Partners III, L.P.
C/O Whitehall Street Real Estate Limited Partnership XI
85 Broad Street, 10th Floor
New York, New York 10004
Fax: (212)357-5505
3
<PAGE> 4
Attention: Brahm Cramer
5. Effect of Amendment. Except as amended as set forth above,
the Registration Rights Agreement, as amended by the 1st Amendment, shall
continue in full force and effect.
6. Counterparts. This 2nd Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
7. Governing Law. This 2nd Amendment shall be governed by the
laws of the state of Delaware (other than its rules of conflict of law to the
extent that the application of the laws of another jurisdiction would be
required thereby).
[SIGNATURE PAGES FOLLOW]
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned parties have executed this
Second Amendment to Registration Rights Agreement as of the date set forth
above.
ALLIED RISER COMMUNICATIONS HOLDINGS,
INC.
By: /s/ DAVID H. CRAWFORD
-----------------------------------------
Name: David H. Crawford
Title: Chief Executive Officer
EGI-ARC INVESTORS, L.L.C.
By: GAMI Investment, Inc.
Its: Managing Member
By: /s/ DON LIEBENTRITT
-----------------------------------------
Name: Don Liebentritt
Title: Vice President
TELECOM PARTNERS II, L.P.
By: Telecom Management II, L.L.C.,
Its: General Partner
By: /s/ STEPHEN W. SCHOVEE
-----------------------------------------
Name: Stephen W. Schovee
Title: Managing Member
CRESCENDO WORLD FUND, LLC
By: Crescendo Ventures World Fund, LLC
Its: Managing Member
By: /s/ R. DAVID SPRENG
-----------------------------------------
Name: R. David Spreng
Title: Managing General Partner
5
<PAGE> 6
EAGLE VENTURES WF, LLC
By: /s/ R. DAVID SPRENG
-----------------------------------------
Name: R. David Spreng
Title: Managing General Partner
CRESCENDO III, L.P.
By: Crescendo Ventures III, LLC
Its: General Partner
By: /s/ R. DAVID SPRENG
-----------------------------------------
Name: R. David Spreng
Title: Managing General Partner
LAWRENCE EQUITY GROUP, LLC
By: /s/ JOSEPH A. SPERSKE
-----------------------------------------
Name: Joseph A. Sperske
Title: Vice President and Managing Member
NORWEST VENTURE PARTNERS VII L.P.
By: ITASCA VC PARTNERS VII, L.L.P.
Its: General Partner
By: /s/ BLAIR WHITAKER
-----------------------------------------
Name: Blair Whitaker
Title: General Partner
6
<PAGE> 7
ANDA PARTNERSHIP, an Illinois General
Partnership
By: Ann Only Trust, an Illinois Trust
By: /s/Mark Slezak
-----------------------------------------
Name: Mark Slezak
Title: Co-Trustee
By: Ann and Descendants Trust, and Illinois
Trust
By: /s/ MARK SLEZAK
-----------------------------------------
Name: Mark Slezak
Title: Co-Trustee
GS CAPITAL PARTNERS III, L.P.
By: /s/ Joseph Di Sabato
-----------------------------------------
Name: Joseph De Scbato
Title: Attorney-in-Fact, for GS Advisors
III, L.L.C, general partner of GS
Advisors III, L.P.
WHITEHALL STREET REAL ESTATE LIMITED
PARTNERSHIP XI
By: WH Advisory, LLC XI
Its General Partner
By: /s/ BRAHM S. CRAMER
-----------------------------------------
Name: Brahm S. Cramer
Title: Vice President
7
<PAGE> 1
EXHIBIT 4.3.3
THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS THIRD AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this
"3RD Amendment") dated August 18, 1999, by and among Allied Riser
Communications Corporation f/k/a Allied Riser Communications Holdings, Inc., a
Delaware corporation (the "Company"), EGI-ARC Investors, L.L.C., a Delaware
limited liability company ("EGI"), Telecom Partners II, L.P., a Delaware
limited partnership ("TP"), Crescendo World Fund, LLC, a Delaware limited
liability company ("Crescendo WF"), Eagle Ventures WF, LLC, a Minnesota limited
liability company ("Eagle"), Crescendo III, L.P., a Delaware limited
partnership ("Crescendo III"), Lawrence Equity Group, LLC, a California limited
liability company ("Lawrence"), Norwest Venture Partners VII, L.P., a Minnesota
limited partnership ("Norwest"), ANDA Partnership, an Illinois general
partnership ("ANDA" and together with EGI, TP, Crescendo WF, Eagle, Crescendo
III, Lawrence and Norwest, the "Previous Investors") and the parties listed on
Schedule 1 attached hereto (the "New Investors"). Collectively, the Previous
Investors and the New Investors are referred to herein as the "Investors."
WHEREAS, the Previous Investors are parties to a Registration
Rights Agreement dated as of November 23, 1998, as amended (the "Registration
Rights Agreement");
WHEREAS, the Company and each of the New Investors are
entering into Series B Preferred Stock and Common Stock Investment Agreement
dated as of August 18, 1999 (each an "Investment Agreement");
WHEREAS, in order to induce each of the New Investors to
enter into an Investment Agreement, the Company and the Previous Investors have
agreed to enter into this 3rd Amendment to the Registration Rights Agreement;
and
WHEREAS, under Section 9(e) of the Registration Rights
Agreement, the Registration Rights Agreement may be amended only upon the prior
written consent of the Company and the holders of a majority of the Registrable
Securities, as that term is defined in the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the agreements, covenants
and considerations contained herein, the parties hereto agree as follows:
<PAGE> 2
1. Definitions. All capitalized terms not otherwise
defined herein shall have the meanings given to them in the Registration Rights
Agreement.
2. Amendments.
(a) The definition of "Investors" set forth in
the preamble of the Registration Rights Agreement is hereby amended to include
the New Investors.
(b) The definition of "Investment Agreements"
set forth in the preamble of the Registration Rights Agreement is hereby
amended to include each of the Investment Agreements entered into by the New
Investors.
(c) An additional definition shall be added to
Section 8 of the Registration Rights Agreement and it shall read in its
entirety as follows: "Warrant Agreement" shall mean a Warrant Agreement entered
into between the Company and a New Investor (as defined in the Third Amendment
to Registration Rights Agreement) on or before August 31, 1999 pursuant to
which each New Investor acquired warrants for Common Stock."
(d) An additional definition shall be added to
Section 8 of the Registration Rights Agreement and it shall read in its
entirety as follows: "Warrant Acquisition Agreement" shall mean a Warrant
Acquisition Agreement entered into between the Company and a New Investor (as
defined in the Third Amendment to Registration Rights Agreement) on or before
August 31, 1999 pursuant to which each New Investor acquired warrants for
Common Stock."
(e) The definition of "Registrable Securities"
shall include (i) any Common Stock issued pursuant to the Investment
Agreements, (ii) any shares of Common Stock issued upon the conversion of any
Series B Preferred Stock acquired pursuant to an Investment Agreement or any
shares of Common Stock acquired upon exercises of warrants acquired pursuant to
a Warrant Agreement and a Warrant Acquisition Agreement and (iii) any other
shares of Common Stock held by Persons holding securities described in clause
(i) to (ii), above. Except as supplemented herein, the definition of
Registrable Securities in the Registration Rights Agreement remains unchanged.
3. Additional Investors. Upon the effectiveness of this
Third Amendment to the Registration Rights Agreement, each New Investor agrees
to be bound by all of the terms and conditions of the Registration Rights
Agreement, as
2
<PAGE> 3
amended, applicable to Investors, as that term is defined in the Registration
Rights Agreement. For purposes of the Registration Rights agreement, the
"Closing" of the Investment Agreements entered into by the New Investors shall
be deemed to be November 23, 1998.
4. Notices. The addresses for notices set forth in the
Registration Rights Agreement, as amended, shall remain unchanged for the
Previous Investors. Notices to be sent to the New Investors shall be sent to
the addresses set forth opposite their names on Schedule 1 attached hereto:
5. Effect of Amendment. Except as amended as set forth
above, the Registration Rights Agreement, as amended, shall continue in full
force and effect.
6. Counterparts. This 3rd Amendment may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
7. Governing Law. This 3rd Amendment shall be governed
by the laws of the state of Delaware (other than its rules of conflict of law
to the extent that the application of the laws of another jurisdiction would be
required thereby).
[SIGNATURE PAGES FOLLOW]
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned parties have executed
this Third Amendment to Registration Rights Agreement as of the date set forth
above.
ALLIED RISER COMMUNICATIONS
CORPORATION
By: /s/ DAVID H. CRAWFORD
---------------------------------
Name: David H. Crawford
Title: Chief Executive Officer
EGI-ARC INVESTORS, L.L.C.
By: GAMI Investment, Inc.
Its: Managing Member
By: /s/ DON LIEBENTRITT
---------------------------------
Name: Don Liebentritt
Title: Vice President
TELECOM PARTNERS II, L.P.
By: Telecom Management II, L.L.C.,
Its: General Partner
By: /s/ STEPHEN W. SCHOVEE
---------------------------------
Name: Stephen W. Schovee
Title: Managing Member
CRESCENDO WORLD FUND, LLC
By: Crescendo Ventures World Fund, LLC
Its: Managing Member
By: /s/ JEFFREY R. TOLLEFSON
---------------------------------
Name: Jeffrey R. Tollefson
Title: Partner
4
<PAGE> 5
EAGLE VENTURES WF, LLC
By: /s/ JEFFREY R. TOLLEFSON
---------------------------------
Name: Jeffrey R. Tollefson
Title: Vice President
CRESCENDO III, L.P.
By: Crescendo Ventures III, LLC
Its: General Partner
By: /s/ JEFFREY R. TOLLEFSON
---------------------------------
Name: Jeffrey R. Tollefson
Title: General Partner
LAWRENCE EQUITY GROUP, LLC
By: /s/ JOSEPH A. SPERSKE
---------------------------------
Name: Joseph A. Sperske
Title: President and Managing Member
NORWEST VENTURE PARTNERS VII L.P.
By: ITASCA VC PARTNERS VII, L.L.P.
Its: General Partner
By: /s/ BLAIR P. WHITAKER
---------------------------------
Name: Blair P. Whitaker
Title: General Partner
5
<PAGE> 6
ANDA PARTNERSHIP, an Illinois
General Partnership
By: Ann Only Trust, an Illinois Trust
By: /s/ MARK SLEZAK
---------------------------------
Name: Mark Slezak
Title: Co-Trustee
By: Ann and Descendants Trust,
and Illinois Trust
By: /s/ MARK SLEZAK
---------------------------------
Name: Mark Slezak
Title: Co-Trustee
EOP OPERATING LIMITED PARTNERSHIP
By: Equity Office Properties Trust
Its: Managing General Partner
By: /s/ ROSS SATTERWHITE
---------------------------------
Name: Ross Satterwhite
Title: Vice President
6
<PAGE> 7
CORNERSTONE PROPERTIES LIMITED PARTNER-
SHIP
By: Cornerstone Properties Inc.
Its: General Partner
By: /s/ H. LEE VAN BOVEN
---------------------------------
Name: H. Lee Van Boven
Title: Chief Operating Officer
HINES ARC INVESTORS LIMITED PARTNERSHIP
By: Hines Interests Limited Partnership
Its: General Partner
By: Hines Holdings, Inc.
Its: General Partner
By: /s/ JEFFREY C. HINES
---------------------------------
Name: Jeffrey C. Hines
Title: President
DWS CAPITAL LLC
By: /s/ DOUGLAS W. SHORENSTEIN
---------------------------------
Name: Douglas W. Shorenstein
Title: Managing Member
BOSTON PROPERTIES LIMITED PARTNERSHIP
By: Boston Properties, Inc.
Its: General Partner
By: /s/ ROBERT E. BURKE
---------------------------------
Name: Robert E. Burke
Title: Executive Vice President
7
<PAGE> 8
BCI GROWTH V, L.P.
By: /s/ STEPHEN J. ELEY
---------------------------------
Name: Stephen J. Eley
Title: Managing Member
BCI INVESTORS, INC.
By: /s/ STEPHEN J. ELEY
---------------------------------
Name: Stephen J. Eley
Title: Managing Member
FIRST UNION INVESTORS, INC.
By: /s/ R. WATTS HAMRICK, III
---------------------------------
Name: R. Watts Hamrick, III
Title: Senior Vice President
TRIZECHAHN CORPORATION
By: /s/ RICHARD J. SCROTS
---------------------------------
Name: Richard J. Scrots
Title: Executive Vice President
VORNADO REALTY L.P
By: Vornado Realty Trust
Its: General Partner
By: /s/ JOSEPH MACNOW
---------------------------------
Name: Joseph Macnow
Title: Executive Vice President
8
<PAGE> 9
TRANSWESTERN COMMERCIAL SERVICES, L.L.C.
By: /s/ RANDALL K. ROWE
---------------------------------
Name: Randall K. Rowe
Title: Chairman
CHASE EQUITY ASSOCIATES, L.P.
By: /s/ MICHAEL R. HANNON
---------------------------------
Name: Michael R. Hannon
Title: General Partner
9
<PAGE> 10
SCHEDULE 1
<TABLE>
<S> <C>
1. TrizecHahn Corporation
2. Cornerstone Properties Limited Partnership
3. EOP Operating Limited Partnership
4. Boston Properties Limited Partnership
5. Vornado Realty L.P.
6. DWS Capital LLC
7. Transwestern Commercial Services, L.L.C.
8. Hines ARC Investors Limited Partnership
9. BCI Growth V, L.P. and BCI Investors, Inc.
10. Chase Equity Associates, L.P.
11. First Union Investors, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 10.3
[CISCO SYSTEMS LOGO] Master Agreement No. 1050
MASTER AGREEMENT TO LEASE EQUIPMENT
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (this "Agreement") is entered into as
of October 23, 1997 by and between CISCO SYSTEMS CAPITAL CORPORATION ("Lessor")
having its principal place of business at 3535 Garrett Drive, Santa Clara,
California 95054 and RISERCORP, INC., a Texas corporation ("Lessee"), having a
principal place of business at 700 North Pearl Street, Suite 200, Dallas, TX
75201. In consideration of the covenants set forth herein, Lessor and Lessee
have agreed as follows:
I. THE LEASE
1.1 LEASE OF EQUIPMENT. In accordance with the terms and conditions of this
Agreement, Lessor shall lease to Lessee, and Lessee shall lease from
Lessor, the units of personal property (individually, a "Unit," and,
collectively, the "Equipment") described in the lease schedule(s) (each,
a "Lease") to be entered into from time to time into which this
Agreement is incorporated. Each Lease shall constitute a separate,
distinct, and independent lease and contractual obligation of Lessee.
Lessor or its assignee shall at all times retain the full legal title to
the Equipment, it being expressly agreed by both parties that each Lease
is an agreement of lease only. Each Lease shall be binding upon Lessor
and Lessee from the date of its acceptance and execution by Lessor at
its principal place of business.
1.2 TERM OF LEASE. The original term of each Unit shall commence on the date
specified in the applicable Lease and, subject to Sections 3.3 and 3.5
below, shall terminate on the date specified in such Lease (the
"Original Term"). Notwithstanding the foregoing, the Original Term for
each Unit shall automatically extend for successive 30-day periods after
its expiration unless either party gives the other party written notice,
at least 90 days prior to the expiration of the Original Term or the
then extended term, as the case may be, of its intent not to so extend
the applicable Lease. Except as specifically provided in this Section
1.2, no Lease may be terminated by Lessor or Lessee, for any reason
whatsoever, prior to the end of the Original Term or any extended term.
1.3 RENTAL PAYMENTS. Lessee shall pay Lessor rent ("Rent") for each Unit in
the amounts and at the times specified in the Lease. The Lease Term for
each Unit shall commence on the Acceptance Certificate Execution Date
and shall continue for the period specified in the Lease, [unless
otherwise extended pursuant to Section 3.0 below]. The Lease Term as to
any Unit may not be terminated by Lessee unless otherwise expressly
provided in the Lease. All rental and other amounts payable by Lessee to
Lessor hereunder shall be paid to Lessor at the address specified above,
or at such other place as Lessor may designate in writing to Lessee from
time to time.
1.4 RETURN OF EQUIPMENT. Upon expiration of the Original Term of a Unit,
Lessee shall immediately return such Unit to Lessor as provided in
Section 3.3 below. Except as provided in Section 1.2 above, should
Lessee not return any Unit at the end of its Original Term, Lessee shall
continue to pay Rent to Lessor with respect to such Unit in the sum and
on the due dates set out in the applicable Lease, as a month-to-month
lease, until such Unit is returned by Lessee. If Lessee fails to return
any of the Equipment upon demand therefor by Lessor, Lessee shall pay
Lessor, as the measure of Lessor's damages, the Casualty Value (as
defined in the applicable Lease) of such Equipment.
II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
2.1 DISCLAIMERS; WARRANTIES. Lessee represents and acknowledges that each
Unit is of a size, design, capacity and manufacture selected by it, and
that it is satisfied that each Unit is suitable for its purposes. LESSOR
SUPPLIES THE EQUIPMENT AS IS, AND, NOT BEING THE MANUFACTURER OF THE
EQUIPMENT, THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO
WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE
MERCHANTABILITY, FITNESS FOR ANY PARTICULAR PURPOSE, DESIGN OR CONDITION
OF THE EQUIPMENT, LESSOR SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE
RESULTING FROM THE INSTALLATION, OPERATION OR OTHER USE, OR
DEINSTALLATION OF THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY
DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR LOSS. Lessee
shall look solely to the manufacturer or the supplier of Equipment for
correction of any problems that may arise with respect thereto, and all
warranties made by the manufacturer or such supplier are, to the degree
possible, hereby assigned to Lessee for the term of the applicable
Lease. To the extent any such warranty requires performance of any kind
by the beneficiary of the warranty, Lessee shall perform in accordance
therewith.
2.2 INTELLECTUAL PROPERTY. Except as otherwise expressly provided in each
Lease, LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER WITH
RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING, WITHOUT
LIMITATION, ANY PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD
PARTY WITH RESPECT TO THE EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR
OTHERWISE. Lessor shall, at Lessee's cost and expense, exercise, when
requested by Lessee, rights of indemnification, if any, for patent,
copyright or other intellectual property infringement obtained from the
manufacturer under any agreement for purchase of the Equipment. If
notified promptly in writing of any action brought against Lessee based
on a claim that the Equipment
1
<PAGE> 2
infringes a United States patent, copyright or other intellectual
property right, Lessor shall promptly notify the manufacturer thereof
for purposes of exercising, for the benefit of Lessee, Lessor's rights
with respect to such claim under any such agreement.
III. COVENANTS OF LESSEE
3.1 PAYMENTS UNCONDITIONAL; TAX BENEFITS; ACCEPTANCE. EACH LEASE SHALL BE A
NET LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS
THEREUNDER, AND THE RIGHTS OF LESSOR IN AND TO SUCH PAYMENTS, SHALL BE
ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT,
REDUCTION, SETOFF, DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR
RECOUPMENT, FOR ANY REASON WHATSOEVER. It is the intent of Lessor, and
an inducement to Lessor, to enter into each Lease, to claim all
available tax benefits of ownership with respect to the Equipment
subject thereto. Lessee acknowledges and represents that (a) no right,
title or interest in such Equipment has been or is intended to be passed
to Lessee, other than the right to maintain possession of and use of
such Equipment for the Original Term of such Lease, conditioned on
Lessee's performance of the terms and conditions of such Lease, (b)
Lessee has not taken and will not, at any time during the Original Term
of such Lease, take any action which could cause Lessor to lose any tax
benefits of ownership, and (c) the Casualty Value of each Unit (as
defined in the applicable Lease) includes an amount which provides for
Lessor's recovery of the loss of such tax benefits. Lessee's acceptance
of the Equipment subject to a Lease shall be conclusively and
irrevocably evidenced by Lessee executing a Acceptance Certificate with
respect to such Equipment, and, upon acceptance, such Lease shall be
noncancellable for its Original Term unless otherwise agreed to in
writing by Lessor. Any nonpayment of Rent or other amounts payable under
any Lease shall result in Lessee's obligation to promptly pay Lessor as
additional Rent on such overdue payment, for the period of time during
which it is overdue (without regard to any grace period), interest at a
rate equal to the lesser of (a) 14% per annum, or (b) the maximum rate
of interest permitted by law.
3.2 USE OF EQUIPMENT. Lessee shall use the Equipment solely in the conduct
of its business, in a manner and for the use contemplated by the
manufacturer thereof, and in compliance with all laws, rules and
regulations of every governmental authority having jurisdiction over the
Equipment or Lessee and with the provisions of all policies of insurance
carried by Lessee pursuant to Section 3.6 below; provided, however,
Lessee shall have the right to allow third parties, under Lessee's
supervision, to use the Equipment, so long as Lessee shall retain
uninterrupted possession and control of the Equipment. Lessee shall pay
all costs, expenses, fees and charges incurred in connection with the
use and operation of the Equipment.
3.3 DELIVERY; INSTALLATION; RETURN; MAINTENANCE AND REPAIR; INSPECTION.
Lessee shall be solely responsible, at its own expense, for (a) the
delivery of the Equipment to Lessee, (b) the packing, rigging and
delivery of the Equipment back to Lessor, upon expiration of the
Original Term, in good repair, condition and working order, ordinary
wear and tear excepted, at the location(s) within the continental United
States specified by Lessor, and (c) the installation, de-installation,
maintenance and repair of the Equipment. During the term of the
applicable Lease, Lessee shall ensure that each Unit is covered by a
maintenance agreement, to the extent available, with the manufacturer of
such Unit or such other party, reasonably acceptable to Lessor. Lessee
shall, at its expense, keep the Equipment in good repair, condition and
working order, ordinary wear and tear excepted, and, at the expiration
of the Original Term, or any renewal term, with respect to any of the
Equipment, have such Equipment inspected and certified acceptable for
maintenance service by the manufacturer. In the event any of the
Equipment, upon its return to Lessor, is not in good repair, condition
and working order, ordinary wear and tear excepted, Lessee shall be
obligated to pay Lessor for the out-of-pocket expenses Lessor incurs in
bringing such Equipment up to such status, but not in excess of the
Casualty Value (as defined in the applicable Lease) for such Equipment,
promptly alter its receipt of an invoice for such expenses. Lessor shall
be entitled to inspect the Equipment at Lessee's location at reasonable
times.
3.4 TAXES. Lessee shall be obligated to pay, and hereby indemnifies Lessor
and its successors and assigns against, and holds each of them harmless
from, all license fees, assessments, and sales, use, property, excise
and other taxes and charges, other than those measured by Lessor's net
income, now or hereafter imposed by any governmental body or agency upon
or with respect to any of the Equipment, or the possession, ownership,
use or operation thereof, or any Lease or the consummation of the
transactions contemplated in any Lease or this Agreement.
Notwithstanding the foregoing, Lessor shall file all required personal
property tax returns, and shall pay all personal property taxes payable,
with respect to the Equipment, Lessee shall pay to Lessor, as additional
rental, the amount of all such personal property taxes within 15 days of
its receipt of an invoice for such taxes.
3.5 LOSS OF EQUIPMENT. Lessee shall bear the entire risk of the Equipment
being lost, destroyed or otherwise rendered permanently unfit or
unavailable for use from any cause whatsoever (an "Event of Loss") after
it has been delivered to a common carrier for shipment to Lessee. If an
Event of Loss shall occur with respect to any Unit, Lessee shall
promptly and fully notify Lessor thereof in writing. On the rental
payment date following Lessor's receipt of such notice, Lessee shall pay
to Lessor an amount equal to the rental payment or payments due and
payable with respect to such Unit on or prior to such date, plus a sum
equal to the Casualty Value of such Unit as of the date of such payment,
as set forth in such Lease. Upon the making of such payment by Lessee
regarding any Unit, the rental for such Unit shall cease to accrue, the
term of this Lease as to such Unit shall terminate and (except in the
case of loss, theft or complete destruction) Lessor shall be entitled to
recover possession of such Unit in accordance with the provisions of
Section 3.3 above. Provided that Lessor has received the Casualty Value
for any Unit, Lessee shall be entitled to the proceeds of any recovery
in respect of such Unit from insurance or otherwise.
3.6 INSURANCE. Lessee shall obtain and maintain for the entire term of each
Lease, at its own expense, property damage and liability insurance and
insurance against loss or damage to the Equipment subject to such Lease
including, without limitation, loss by fire (including so-called
extended coverage), theft and such other risks of loss as are normally
maintained
2
<PAGE> 3
on equipment of the type leased hereunder by company's carrying on the
business in which Lessee is engaged, in such amounts, in such form and
with such insurers as shall be satisfactory to Lessor. Each insurance
policy will name Lessee as insured and Lessor as an additional insured
and loss payee thereof as Lessor's interests may appear, and shall
provide that it may not be canceled or altered without at least 30 days
prior written notice thereof being given to Lessor or its successors and
assigns.
3.7 INDEMNITY. Except with respect to the gross negligence or willful
misconduct of Lessor, Lessee hereby indemnifies, protects, defends and
holds harmless Lessor and its successors and assigns, from and against
any and all claims, demands, actions, suits, and proceedings, losses
costs, expenses, damages and liabilities, including, without limitation,
reasonable attorneys' fees and costs (collectively, "Claims"), arising
out of, connected with, or resulting from this Agreement, any Lease or
any of the Equipment, including, without limitation, the manufacture,
selection, purchase, delivery, possession, condition, use, operation, or
return of the Equipment. Each of the parties shall give the other prompt
written notice of any Claim of which it becomes aware. The provisions of
this Section 3.7 shall survive the expiration or termination of this
Agreement or any Lease.
3.8 PROHIBITIONS RELATED TO EQUIPMENT. Without the prior written consent of
Lessor, which consent as it pertains to subsections (a) and (c) below
shall not be unreasonably withheld, Lessee shall not: (a) sublease any
of the Equipment (provided that Lessee may, without the prior written
consent of Lessor, permit any Affiliate (defined below) of Lessee to use
any of the Equipment in the ordinary course of its business); (b) create
or incur, or permit to exist, any lien or encumbrance with respect to
any of the Equipment, or any part thereof; (c) move any of the Equipment
from the location at which it is first installed; or (d) permit any of
the Equipment to be moved outside the continental limits of the United
States. For purposes of this Agreement, the term "Affiliate" shall mean
(i) any corporation which controls, is controlled by, or under common
control with Lessee, (ii) any corporation resulting from the merger or
consolidation of Lessee, or (iii) any entity which acquires all of the
assets of Lessee as a going concern. For purposes of this Section 3.8,
the term "control" shall mean the power to direct the management of the
relevant entity.
3.9 IDENTIFICATION. Lessee shall place and maintain permanent markings
provided by Lessor on each Unit evidencing ownership, security and other
interests therein, as specified from time to time by Lessor. Lessee
shall not place or permit to be placed on any Unit any other markings
that might indicate any other ownership or security interest in such
Unit. Any markings on any Unit not made at Lessor's request shall be
removed by Lessee, at Lessee's sole cost and expense, prior to the
return of such Unit in accordance with Section 3.3.
3.10 ALTERATIONS OR MODIFICATIONS. Lessee shall not make any additions,
attachments, alterations or improvements to the Equipment without the
prior written consent of Lessor. At any time during the Original Term of
a Lease, there may be added to such Lease additional Units of the same
type as are rented thereunder for a term equal to the remaining portion
of such Original Term and, subject to the terms and conditions hereof,
at the Rent applicable to such Units for such term at the time the order
for such Units is placed, provided that the order is in writing and
accepted by Lessor. Such acceptance shall be at the sole discretion of
Lessor. Each addition, attachment, alteration or improvement to any Unit
shall belong to and become the property of Lessor unless, at the request
of Lessor, it is removed prior to the return of such Unit by Lessee.
Lessee shall be responsible for all costs relating to such removal and
shall restore such Unit to its operating condition that existed at the
time it became subject to the applicable Lease.
3.11 EQUIPMENT TO BE PERSONAL PROPERTY. Lessee acknowledges and represents
that the Equipment shall be and remain personal property,
notwithstanding the manner in which it may be attached or affixed to
realty, and Lessee shall do all acts and enter into all agreements
necessary to ensure that the Equipment remains personal property.
3.12 FINANCIAL STATEMENTS. Lessee shall promptly furnish to Lessor such
financial or other statements respecting the condition and operations of
Lessee, and information respecting the Equipment, as Lessor may from
time to time reasonably request.
3.13 LESSEE REPRESENTATIONS. Lessee hereby represents that, with respect to
this Agreement and each Lease: (a) the execution, delivery and
performance thereof by Lessee have been duly authorized by all necessary
corporate action; (b) the individual executing such document is duly
authorized to do so; and (c) such document constitutes legal, valid and
binding obligations of Lessee, enforceable in accordance with its terms.
IV. DEFAULT AND REMEDIES
4.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default hereunder: (a) Lessee shall fail to pay
any rental or other payment due hereunder within five (5) days after its
receipt of notice of nonpayment; (b) any representation or warranty of
Lessee made in this Agreement, any Lease, or in any document furnished
pursuant to the provisions of this Agreement or otherwise, shall prove
to have been false or misleading in any material respect as of the date
when it was made; (c) Lessee shall fail to perform any covenant,
condition or agreement made by it under any Lease, and such failure
shall continue for twenty (20) days after its receipt of notice thereof;
(d) bankruptcy, receivership, insolvency, reorganization, dissolution,
liquidation or other similar proceedings shall be instituted by or
against Lessee or all or any part of its property under the Federal
Bankruptcy Code or other law of the United States or of any other
competent jurisdiction, and, if such proceeding is brought against
Lessee, it shall consent thereto or shall fail to cause the same to be
discharged within thirty (30) days after it is filed; (e) Lessee shall
default under any agreement with respect to the purchase or installation
of any of the Equipment; or (f) Lessee or any guarantor of Lessee's
obligations under any Lease shall default under any other agreement with
Lessor or Cisco Systems, Inc.
4.2 REMEDIES. If an Event of Default hereunder shall occur and be
continuing, Lessor may exercise any one or more of the following
remedies: (a) terminate any or all of the Leases and Lessee's rights
thereunder; (b) proceed, by appropriate court action or actions, either
at law or in equity, to enforce performance by Lessee of the applicable
covenants of any or all of the Leases or to recover damages for the
breach thereof; (c) recover from Lessee an amount equal to the sum of
(i) all amounts due under any or all of the Leases on or before the
Lessor giving Lessee written notice that such Event of Default has
occurred and, if Lessor obtains a judgment against Lessee with respect
to such Event of Default, the entry of such
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<PAGE> 4
judgment, whichever shall last occur, (ii) as liquidated damages for
loss of a bargain and not as a penalty, the present value of the balance
of all rentals and other sums payable thereunder and hereunder, without
any presentment, demand, protest or further notice (all of which are
hereby expressly waived by Lessee), discounted at a rate equal to the
rate for United States Treasury Bills, as the case may be, as shown in
the Wall Street Journal, with a maturity which is closest to the balance
of the term of such Lease (the "Discount Rate") as of the date of the
payment of such amount, and (iii) any loss or damage to the Lessor's
residual interest in the Equipment caused by such Event of Default; (d)
personally, or by its agents, take immediate possession of any or all of
the Equipment from Lessee and, for such purpose, enter upon Lessee's
premises where any of the Equipment is located with or without notice or
process of law and free from all claims by Lessee; and (e) require the
Lessee to, and the Lessee shall, assemble the Equipment and deliver the
Equipment to a location which is reasonably convenient to Lessor and
Lessee. The exercise of any of the foregoing remedies by Lessor shall
not constitute a termination of any Lease or this Agreement unless
Lessor so notifies Lessee in writing.
4.3 DISPOSITION OF EQUIPMENT. In the event, upon the occurrence of an Event
of Default, Lessor repossesses any of the Equipment, Lessor may lease
any or all of such Equipment, or sell any or all of such Equipment at
one or more public or private sales, in such manner, at such times and
upon such terms as Lessor may determine. In the event that Lessor leases
any of such Units, any rentals received by Lessor for the "Remaining
Lease Term" (the period ending on the date when the Original Term for
such Unit would have expired if an Event of Default had not occurred),
discounted to present value, at the Discount Rate, as of the Possession
Date (the "Recovery Rentals"), for such Units shall be applied to the
payment of (a) all costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred by Lessor in retaking possession
of, and removing, storing, repairing, refurbishing and leasing, such
Units, (b) accrued and unpaid rentals as of the date Lessor obtained
possession of such Units or the date on which Lessee made an effective
tender of possession of such Units to Lessor, whichever shall first
occur (the "Possession Date"), (c) the present value of the rentals for
such Units for the balance of the Original Term of the applicable Lease
(the "Discounted Remaining Rentals") and any other sums payable
thereunder or hereunder with respect to such Units, discounted at the
Discount Rate as of the Possession Date, (d) any and all other sums
(other than rentals) with respect to such Units then owing to Lessor by
Lessee thereunder or hereunder, and (e) any loss or damage to the
Lessor's residual interest in such Units caused by such Event of Default
(the aggregate of such amounts being referred to as the "Release
Recovery Amount"). In the event that Lessor shall sell or otherwise
dispose of (other than pursuant to a lease) any such Units, the proceeds
thereof (the "Recovery Proceeds") shall be applied to the payment of the
amounts referred to in clauses (a) through (d) above and the amount by
which the Casualty Value for such Units, as of the Possession Date,
exceeds the Discounted Remaining Rentals (the aggregate of such amounts
being referred to as the "Sale Recovery Amount"). The balance, if any,
of the Recovery Rentals, in the case of a release, and of the Recovery
Proceeds, in the case of a sale or other disposition, shall be applied
first to reimburse Lessee for any sums previously paid by Lessee as
liquidated damages with respect to such Units, and any remaining amounts
shall be retained by Lessor. Lessee shall remain liable to Lessor, with
respect to any Units which are released or sold or otherwise disposed
of, to the extent that the Release Recovery Amount exceeds the Recovery
Rentals or the Sale Recovery Amount exceeds the Recovery Proceeds.
Lessor shall be entitled to, and Lessee shall have no claim with respect
to, all rentals, with respect to any period commencing after the
expiration of the applicable Remaining Lease Term, from released Units.
V. MISCELLANEOUS
5.1 PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure to pay Rent
(or any other sum due hereunder) or perform any obligation hereunder
when due, Lessor shall have the right, but shall not be obligated, to
pay such sum or perform such obligation, whereupon such sum or the cost
of such performance shall immediately become due and payable hereunder
as additional rent, with interest thereon at the highest legal rate from
the date such payment or performance was made.
5.2 Assignment. LESSEE SHALL NOT RELINQUISH POSSESSION OR CONTROL OF, OR
ASSIGN, SUBLEASE, PLEDGE, HYPOTHECATE OR OTHERWISE TRANSFER, DISPOSE OF
OR ENCUMBER ANY UNIT, THIS AGREEMENT OR ANY LEASE OR SCHEDULE, OR ANY
PART THEREOF OR INTEREST THEREIN, OR ANY RIGHT OR OBLIGATION WITH
RESPECT THERETO, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR.
5.3 QUIET ENJOYMENT. So long as Lessee shall not be in default of any of its
obligations under any Lease, neither Lessor not its assignee shall
interfere with Lessee's right of quiet enjoyment and use of the
Equipment.
5.4 FURTHER ASSURANCES. Lessee shall, upon the request of Lessor, from time
to time, execute and deliver such further documents and do such further
acts as Lessor may reasonably request in order fully to effect the
purposes of any Lease and Lessor's rights thereunder. Lessor is
authorized to file a financing statement, signed only by Lessor in
accordance with the Uniform Commercial Code or signed by Lessor as
Lessee's attorney in fact, with respect to any of the Equipment.
5.5 RIGHT AND REMEDIES. Each and every right and remedy granted to Lessor
under any Lease shall be cumulative and in addition to any other right
or remedy therein specifically granted or now or hereafter existing in
equity, at law, by virtue of statute or otherwise, and may be exercised
by Lessor from time to time concurrently or independently and as often
and in such order as Lessor may deem expedient. Any failure or delay on
the part of Lessor in exercising any such right or remedy, or
abandonment or discontinuance of steps to enforce the same, shall not
operate as a waiver thereof or affect Lessor's right thereafter to
exercise the same. Waiver of any right or remedy on one occasion shall
not be deemed to be a waiver of any other right or remedy or of the same
right or remedy on any other occasion.
5.6 NOTICES. Any notice, request, demand, consent, approval or other
communication provided for or permitted hereunder shall be in writing
and shall be conclusively deemed to have been received by a party hereto
on the day it is delivered to such party at its address set forth above
(or at such other address as such party shall specify to the other party
in writing), or if sent by registered or certified mail, return receipt
requested, on the fifth day after the day on which it is mailed,
addressed to such party at such address.
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<PAGE> 5
5.7 SECTION HEADINGS; COUNTERPARTS. Section headings are inserted for
convenience of reference only and shall not affect any construction or
interpretation of this Agreement. This Agreement and each Lease may be
executed in counterparts, and when so executed each counterpart shall be
deemed to be an original, and such counterparts together shall
constitute one and the same instrument.
5.8 ENTIRE LEASE. This Agreement and each Lease constitute the entire
agreement between Lessor and Lessee with respect to the lease of
Equipment and supersede all other prior or contemporaneous agreements,
whether oral or in writing, with respect thereto. No waiver or amendment
of, or any consent with respect to, any provision of this Agreement
shall bind either party unless set forth in writing, specifying such
waiver, consent, or amendment, signed by both parties, and then such
waiver, consent, or amendment shall be effective only in the specific
instance and for the specific purpose given. Any term or condition of
any purchase order or other document (with the exception of any Lease)
submitted by Lessee in connection with this Lease which is in addition
to or inconsistent with the terms and conditions of this Agreement shall
not be binding on Lessor and shall not apply to this Agreement. To the
extent permitted by applicable law and not otherwise specifically
provided to Lessee in this Agreement, Lessee hereby waives any and all
rights or remedies conferred upon a lessee under the California Uniform
Commercial Code, and any other applicable similar code or statutes of
another jurisdiction, with respect to a default by Lessor under this
Agreement.
5.9 SEVERABILITY. Should any provision of this Agreement or any Lease be or
become invalid, illegal, or unenforceable under applicable law, the
other provisions of this Agreement and such Lease shall not be affected
and shall remain in full force and effect, and, to the extent
permissible under applicable law and possible, any such invalid, illegal
or unenforceable provision shall be deemed amended to the extent
necessary to be valid, legal and enforceable and to conform to the
intent of the parties; provided, however, in the event Lessee's
obligation under any Lease to pay rent or any other amount shall be
invalid, illegal or unenforceable, Lessor shall have the right to
terminate such Lease as if an Event of Default shall have occurred.
5.10 ATTORNEYS' FEES. Should either party institute any action or proceeding
to enforce this Agreement or any Lease, or any provision hereof or
thereof, or for a declaration of rights under any such agreement, the
prevailing party in any such action or proceeding shall be entitled to
receive from the other party all reasonable out-of-pocket costs and
expenses, including, without limitation, attorneys' fees, which it
incurs in connection with such action or proceeding.
5.11 GOVERNING LAW. This Lease shall be governed in all respects by the laws
of the State of California with respect to agreements entered into, and
to be performed, entirely in California. EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN ANY LEASE, THIS AGREEMENT AND EACH LEASE SHALL
BE GOVERNED IN ALL RESPECTS BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF CALIFORNIA. LESSOR AND LESSEE WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY LITIGATION ARISING FROM THIS AGREEMENT OR ANY
LEASE. LESSEE CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
COURTS OF CALIFORNIA, AND THE FEDERAL COURTS SITTING IN THE STATE OF
CALIFORNIA, FOR THE RESOLUTION OF ANY DISPUTES HEREUNDER.
5.12 SURVIVAL. All obligations of Lessee to make payments to Lessor under any
Lease or to indemnify Lessor, pursuant to Section 3.4 or 3.7 above, with
respect to a Lease, and all rights of Lessor hereunder with respect to a
Lease, shall survive the termination of such Lease.
LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES
THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS TERMS
AND CONDITIONS.
<TABLE>
<S> <C>
CISCO SYSTEMS CAPITAL CORPORATION (Lessor) RISERCORP, INC. (Lessee)
By: /s/ SAM ZAIDINS By: /s/ CHUCK YEARGAIN
---------------------------------------------- ---------------------------------------------
(Authorized Signature) (Authorized Signature)
Name/Title: Mgr. Customer Service & Ops. Name/Title: Chuck Yeargain, VP, Finance
-------------------------------------- -------------------------------------
Date: 11/20/97 Date: 11/4/97
-------------------------------------- -------------------------------------
</TABLE>
5
<PAGE> 1
EXHIBIT 10.4
STOCKHOLDERS' AGREEMENT
AMONG
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.,
EGI-ARC INVESTORS, L.L.C.,
TELECOM PARTNERS II, L.P.,
AND
EACH PERSON IDENTIFIED
ON
SCHEDULE 1 ATTACHED HERETO
November 5, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS
<S> <C> <C>
Section 1.1 Defined Terms 1
Section 1.2 Headings, etc. 4
ARTICLE II
TRANSFERS OF SECURITIES
Section 2.1 Limitation on Transfer 4
Section 2.2 Transfers by Financial Sponsors or Existing Stockholders 5
Section 2.3 Drag-Along Right 7
Section 2.4 Tag-Along Rights 8
Section 2.5 Financial Sponsor's Right of First Offer for Preferred Stock 8
Section 2.6 Conditions to Transfers 10
Section 2.7 Certain Other Transfers 10
Section 2.8 Effect of Permitted Transfer 11
Section 2.9 Tolling 11
ARTICLE III
GOVERNANCE OF THE COMPANY
Section 3.1 Board Nominees 11
Section 3.2 Removal; Replacement Directors 12
Section 3.3 Proxy 12
Section 3.4 Reimbursement of Expenses 12
ARTICLE IV
CERTAIN OTHER AGREEMENTS OF THE PARTIES
Section 4.1 Stock Certificate Legend 12
Section 4.2 Confidentiality 13
Section 4.3 D&O Insurance 14
Section 4.4 Stock Options 14
Section 4.5 Authorized Common Stock and Preferred Stock 15
Section 4.6 New Financial Sponsors 15
Section 4.7 Qualifying Recapitalization 15
Section 4.8 Amendment to Certificate of Incorporation 15
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE V
MISCELLANEOUS
<S> <C> <C>
Section 5.1 Further Assurances 15
Section 5.2 Notices 15
Section 5.3 Amendments 17
Section 5.4 Additional Securities Subject to Agreement 17
Section 5.5 Inconsistent Agreements 18
Section 5.6 Successors, Assigns and Transferees 18
Section 5.7 Severability 18
Section 5.8 Counterparts 18
Section 5.9 Governing Law 18
Section 5.10 Consent to Jurisdiction and Service of Process;
Appointment of Agent for Service of Process 18
Section 5.11 Waiver of Jury Trial 18
Section 5.12 Entire Agreement; Nonwaiver 19
Section 5.13 Term; Termination 19
</TABLE>
<PAGE> 4
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT, dated as of November 5, 1998, is made and
entered into by and among ALLIED RISER COMMUNICATIONS HOLDINGS, INC., a Delaware
corporation (the "Company"), EGI-ARC INVESTORS, L.L.C., a Delaware limited
liability company ("EGI-ARC"), TELECOM PARTNERS II, L.P., a Delaware limited
partnership ("TP"), and together with EGI -- ARC and such other Persons (defined
below) designated as such pursuant to Section 4.6 below, the "Financial
Sponsors"), the existing stockholders of the Company, a list of which is
available upon request from the Company, (each, an "Existing Stockholder" and
collectively the "Existing Stockholders"), the employee stockholders of the
Company, a list of which is available upon request from the Company, (each, an
"Employee Stockholder", and collectively, the "Employee Stockholders"), and each
Person who may, pursuant hereto from time to time execute a counterpart hereof
as a stockholder of the Company.
WHEREAS, the parties own shares of the issued and outstanding common
stock of the Company, par value $.0001 per share (the "ARC Holdings Common
Stock") and shares of the Series A-1 and Series A-2 Company Preferred Stock
(collectively the "Preferred Stock"); and
WHEREAS, the parties desire to enter into certain agreements with
respect to the Equity Securities (as defined below) of the Company held now or
in the future by the parties and their respective transferees, and certain other
matters as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Section Defined Terms. As used in this Agreement, terms defined in the
heading and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
(1) "Affiliate" shall mean, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, Controls, is
Controlled by or is under common Control with, such Person.
(2) "Agreement" shall mean this Stockholders' Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
(3) "Approved Sale" shall have the meaning set forth in Section 2.3(2).
(4) "ARC Holdings Common Stock Equivalents" shall mean any warrants, rights,
calls, options or other securities exercisable or exchangeable for or
convertible, directly or indirectly, into ARC Holdings Common Stock, but
excluding the Preferred Stock until conversion thereof into ARC Holdings Common
Stock. Where this Agreement calls for the determination of a number of ARC
Holdings Common Stock Equivalents, such determination shall equal the number of
shares of ARC Holdings Common Stock into or for
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which such ARC Holdings Common Stock Equivalents are exercisable, exchangeable
or convertible.
(5) "Board" shall mean the Board of Directors of the Company.
(6) "Buyout Notice" shall have the meaning set forth in Section 2.3(1).
(7) "Bylaws" shall mean the Bylaws of the Company as in effect on the date
hereof, as the same may be amended from time to time in accordance with terms
thereof and hereof.
(8) "Certificate of Incorporation" shall mean the Certificate of Incorporation
of the Company as in effect on the date hereof, as the same may be amended from
time to time in accordance with the terms thereof and hereof.
(9) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
(10) "Confidential Information" shall mean any technical or business
information, knowledge, systems or other information furnished, in whatever form
or medium, or disclosed by one party to another (including, without limitation,
models, drawings, marketing plans, financial data and personnel statistics),
which is marked as confidential or proprietary, or, for information which is
orally disclosed, the disclosing party clearly indicates to the receiving party
at the time of disclosure the confidential or proprietary nature of the
information and confirms the confidential or proprietary nature in writing
within thirty (30) days after the disclosure. Any third-party information
furnished or disclosed with the consent of such third party and marked as or
stated to be confidential or proprietary shall be deemed Confidential
Information and shall be subject to the terms and conditions herein.
(11) "Control" "Controlled" and "Controls" shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting interests or
capital stock, by contract or otherwise.
(12) "Equity Securities" shall mean (a) ARC Holdings Common Stock, ARC Holdings
Common Stock Equivalents and Preferred Stock, (b) any other equity securities
issued by the Company, whether now or hereafter authorized for issuance by the
Company's Certificate of Incorporation, (c) rights, options, or warrants to
subscribe for, purchase or otherwise acquire Common Stock or any securities
convertible, directly or indirectly, into ARC Holdings Common Stock, and (d) any
debt, hybrid or other securities issued by the Company which are convertible
into, exercisable for or exchangeable, directly or indirectly, for any other
Equity Securities, whether now or hereafter authorized for issuance by the
Company's Certificate of Incorporation.
(13) "First Legend" shall mean the legend described in Section 4.1 as the First
Legend.
(14) "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976 or any similar federal law then in force.
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(15) "New Arc" shall have the meaning set forth in Section 2.3(2).
(16) "Offer" shave have the meaning set forth in Section 2.2.
(17) "Offered Securities" shall have the meanings set forth in Section 2.2(1)
and 2.3(1).
(18) "Offeror's Transfer Notice" shall have the meaning set forth in Section
2.2.
(19) "Permitted Transfer" shall have the meaning set forth in Section 2.9.
(20) "Person" shall mean any individual, corporation, partnership, limited
liability company, trust, joint stock company, business trust, unincorporated
association, joint venture, governmental authority or other entity of any nature
whatsoever.
(21) "Preferred Offered Securities" shall have the meaning set forth in Section
2.6.
(22) "Preferred Offeror's Transfer Notice" shall have the meaning set forth in
Section 2.6.
(23) "Preferred Stock Offeror" shall have the meaning set forth in Section 2.6.
(24) "Qualifying Public Offering" shall have the meaning ascribed to it in the
Certificate of Incorporation.
(25) "Second Legend" shall mean the legend described in Section 4.1 as the
Second Legend.
(26) "Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, as the same may be amended from
time to time.
(27) "Selling Stockholder" shall have the meanings set forth in Section 2.3(1),
2.4 and 2.5, as applicable.
(28) "Stockholders" shall mean each of EGI-ARC, TP, the Existing Stockholders,
the Employee Stockholders and any transferee of any, or recipient of newly
issued, Equity Securities of the Company that agrees to be bound by the terms
hereof.
(29) "Subsidiary" shall mean, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors thereof is as the time owned or Controlled by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof, or (ii) if a limited liability company, partnership, association or
other business entity, a majority of the membership, partnership, or other
similar, ownership interest thereof is at the time owned or Controlled, directly
or indirectly,
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by any Person or one or more Subsidiaries of that Person or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or Control any managing
director, managing member, or general partner of such limited liability company,
partnership, association or other business entity.
(30) "Third-Party Purchaser" shall have the meanings set forth in Sections 2.2,
2.3(1), 2.4 and 2.5, as applicable.
(31) "Transfer" shall mean any transfer, assignment, sale, pledge, hypothecation
or other disposition of Equity Securities, whether for cash, other securities or
other property and specifically including any share for share exchange;
provided, however, that the term "Transfer" shall not include any such action
with respect to Equity Securities (i) permitted pursuant to Section 2.7 hereof,
(ii) which constitutes a pledge thereof by a Financial Sponsor made pursuant to
a bona fide loan transaction where a security interest therein is created, (iii)
pledges of Equity Securities by any Existing Stockholder or any Employee
Stockholder pursuant to the Stockholders' Pledge Agreement, dated as of November
5, 1998, by and among the company, EGI-ARC (in its individual capacity and as
collateral agent), TP, certain of the Employee Stockholders and Existing
Stockholders, and the other parties thereto, as the same may be amended from
time to time (or actions taken by the collateral agent or any pledgee pursuant
to those agreements), or (iv) pursuant to a Qualifying Public Offering.
1.2 Section Headings, etc. The headings in this Agreement are included for
convenience of reference only and shall not limit or otherwise affect the
meaning or interpretation of this Agreement. All pronouns and all variations
thereof shall be deemed to refer to the masculine, feminine or neuter, singular
or plural, as the identity of the Person may require.
ARTICLE II
TRANSFERS OF SECURITIES
2.1 Section Limitation on Transfer. From and after the date hereof and until
the consummation of a Qualifying Public Offering, all Stockholders party hereto
and the Company shall have the rights and obligations set forth in this Article
II. Except as provided in Sections 2.3, 2.4 and 2.7, Employee Stockholders may
not Transfer Equity Securities prior to a Qualifying Public Offering. Existing
Stockholders may Transfer Equity Securities only in accordance with the
provisions of this Agreement. Any attempt by a Stockholder to Transfer any
Equity Security in violation of any provision of this Agreement shall be null
and void ab initio, and the Company shall not register or effect any such
Transfer or permit such transferee to exercise or enjoy any rights with respect
thereto.
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2.2 Section Transfers by Financial Sponsors or Existing Stockholders.
(1) Company's Right of First Offer. Except as otherwise provided in Sections
2.3, 2.4, 2.5 and 2.7 hereof, in the event that a Financial Sponsor or other
Stockholder (other than an Employee Stockholder) (an "Offeror") desires to
Transfer any or all of its ARC Holdings Common Stock or ARC Holdings Common
Stock Equivalents (collectively, the "Offered Securities"), to any Person who is
not an Affiliate of the Offeror (a "Third-Party Purchaser"), such Offeror shall
first notify the Company and each of the Financial Sponsors (other than the
Offeror, if the Offeror shall be a Financial Sponsor) in writing of its desire
to Transfer Offered Securities, the number of Offered Securities and the
proposed cash purchase price and other terms of Transfer ("Offeror's Transfer
Notice"). Upon receipt of the Offeror's Transfer Notice, the Company shall have
a right to purchase (exercisable by written notice to the Offeror within 20 days
after receipt of the Offeror's Transfer Notice) all, and not less than all, of
the Offered Securities at the cash purchase price and the other terms specified
in the Offeror's Transfer Notice. Upon delivery of the Offeror's Transfer
Notice, the offer made therein to the Company and the Financial Sponsors shall
be irrevocable unless and until the rights to purchase provided for in this
Section 2.2(1) and Section 2.2(2) have been waived or shall have expired in
accordance with this Agreement. If the Company desires to purchase the Offered
Securities hereunder, the Company will give written notice thereof to the
Offeror and to the Financial Sponsors within 20 days following receipt of the
Offeror's Transfer Notice. The failure to respond within the time periods set
forth in this Section 2.2(1) shall be deemed to be a rejection of such offer
made pursuant to the Offeror's Transfer Notice.
(2) Financial Sponsor's Right of Second Offer.
(a) In the event that the Company has declined to purchase all of the Offered
Securities which it is entitled to purchase under Section 2.2(1) hereof and the
20 day period referred to in Section 2.2(1) has expired, then the Financial
Sponsors (other than the Offeror, if the Offeror shall be a Financial Sponsor)
shall have the second right to purchase all, and not less than all, of the
Offered Securities at the cash purchase price and the other terms specified in
the Offeror's Transfer Notice; provided, however, that the Financial Sponsors
may only exercise rights to purchase hereunder if the Company has not exercised
the rights afforded to the Company by Section 2.2(1) above; and, provided,
further, that the Financial Sponsors, pursuant to this Section 2.2(2) hereof,
may only purchase in the aggregate all, and not less than all, of the Offered
Securities.
(b) If the total number of Offered Securities that the Financial Sponsors desire
to purchase in the aggregate exceeds the aggregate number of Offered Securities
that are the subject of the Offeror's Transfer Notice, each Financial Sponsor
shall have the right to purchase a number of Offered Securities equal to the
product of (A) the aggregate number of Offered Securities that are the subject
of Offeror's Transfer Notice, multiplied by (B) a fraction, (x) the numerator of
which is equal to the number of shares of ARC Holdings Common Stock held by such
Financial Sponsor and (y) the denominator of which is the total number of shares
of ARC Holdings Common Stock held by the Financial Sponsors participating
herein; provided, however, that if a Financial Sponsor does not exercise all or
part of its right to purchase Offered Securities pursuant to this Section
2.2(2), then the other Financial Sponsors shall have the right to purchase all
or any part of the Offered Securities not purchased by such Financial Sponsors.
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(c) If any Financial Sponsor desires to purchase the Offered Securities
hereunder, such Financial Sponsor will give written notice thereof to the
Offeror and to the other Financial Sponsors, stating the number of Offered
Securities such Financial Sponsor desires to purchase, within 30 days following
receipt by the Financial Sponsor of the Offeror's Transfer Notice. The failure
by any Financial Sponsor to respond within the time periods set forth in this
Section 2.2(2) shall be deemed to be a rejection of such offer made pursuant to
the Offeror's Transfer Notice by such Financial Sponsor.
(d) All Financial Sponsors who agree to purchase Offered Securities pursuant to
this Section 2.2(2) will have the further right to purchase, within a 10-day
period following the expiration of the aggregate 30-day period set forth in
Sections 2.2(1) and 2.2(2), any Offered Securities remaining unpurchased at the
end of the expiration of such aggregate 30-day period set forth in Sections
2.2(1) and 2.2(2), in proportion to the amount purchased by each such Financial
Sponsor as a percentage of the total Offered Securities purchased by all such
Financial Sponsors, by giving written notice of such intention to purchase to
the Offeror and the Company and the other participating Financial Sponsors
within 10 days following the expiration of the aggregate 30-day period set forth
in Sections 2.2(1) and 2.2(2). Notwithstanding the foregoing, the Financial
Sponsors may mutually agree to allocate the available Offered Securities among
themselves in any proportion; provided, however, that under all circumstances
that in order to exercise the second right to purchase the Offered Securities
hereunder, all, and not less than all, of the Offered Securities are purchased
under this Section 2.2(2).
(3) In the event that the Company and/or Financial Sponsors do not exercise
their rights to purchase all, and not less than all, of the Offered Securities
pursuant to Section 2.2(1) or 2.2(2) hereof, the Offeror may Transfer all, but
not less than all, of the Offered Securities to the Third-Party Purchaser at a
cash price and on other terms no more favorable to the Offeror than those
specified in the Offeror's Transfer Notice anytime during the 90 day period
immediately following the expiration of the aggregate 30 or 40 day period, as
the case may be, provided in Sections 2.2(1) and 2.2(2) (or such longer period
as may be required to comply with the HSR Act). Any Offered Securities subject
to this Section 2.2 which are not transferred within the foregoing period shall
be subject to the provisions of this Section 2.2 again with respect to any
subsequent Transfer.
(4) The closing of the purchase of Offered Securities by the Company or the
Financial Sponsors shall be held at the principal office of the Company at 11:00
a.m., local time, no later than the twentieth (20th) business day after the
acceptance of the Offer to purchase of Offered Securities pursuant to Section
2.2(1) or Section 2.2(2), or at such time and place as the parties to the
transaction may agree. The sale of the Offered Securities to the Company or the
Financial Sponsors hereunder shall otherwise be on customary terms and
conditions (but in any event in accordance with the terms of the Offeror's
Transfer Notice).
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2.3 Section Drag-Along Right.
(1) In the event that Stockholders desiring to sell (a "Selling Stockholder")
Equity Securities representing 51% or more of the fully diluted Equity
Securities (assuming conversion of the Preferred Stock utilizing an enterprise
value for the Company based upon the proposed sales price set forth in the
Buyout Notice (as defined below)) to a Third-Party Purchaser, such Selling
Stockholders shall have the right to require all other Stockholders to sell a
proportionate amount (based on the proportion that the Equity Securities
proposed to be sold bears to the total amount of such Equity Securities held by
the Selling Stockholders assuming conversion of the Preferred Stock) of their
Equity Securities to such Third-Party Purchaser in connection with such sale on
the same terms as such Selling Stockholders shall sell such Equity Securities
and at a price per share equivalent to the price per share of Equity Securities
to be received by such Selling Stockholders in connection with such sale. Such
right shall be exercisable by written notice setting forth the price, terms and
conditions of such proposed sale, given by such Selling Stockholder (a "Buyout
Notice") to each Stockholder. The Buyout Notice shall state such Selling
Stockholders' proposal to effect the sale of Equity Securities of every party to
such Third-Party Purchaser and shall include the proportion of each Selling
Stockholders' total equity ownership represented thereby. Each Stockholder
agrees that, upon receipt of a Buyout Notice, such Stockholder shall be
obligated to sell a proportionate amount of its Equity Securities for its pro
rata portion (determined assuming exchange, conversion or exercise of all
outstanding Equity Securities) of the purchase price described in the Buyout
Notice and upon the other terms and conditions of such transaction (and
otherwise take all reasonably necessary action to cause consummation of the
proposed transaction, including voting such Equity Securities (and, in the case
of the Financial Sponsors, granting any necessary consent under their respective
Investment Agreements) in favor of such transaction); provided, however, that
each Stockholder shall be obligated as provided above in this Section 2.3 only
if each Existing Stockholder and Employee Stockholder receives consideration
having the same pro rata value as such Selling Stockholder receives for Equity
Securities exercisable or convertible for the same class of ARC Holdings Common
Stock (less equitable adjustments for differences in exercise prices, etc.
determined taking into account the assumed conversion referred to above) being
sold by such Selling Stockholder.
(2) If Stockholders holding 51% or more of the fully diluted Equity Securities
(assuming conversion of the Preferred Stock utilizing an enterprise value for
the Company based upon the proposed sales price set forth in the Buyout Notice)
desire to effect the sale of all or substantially all of the assets of the
Company or all of the equity securities or substantially all of the assets of
the Company's Subsidiary ("New ARC") and/or any Subsidiary, or a merger or
consolidation of the Company, New ARC and/or any Subsidiary (an "Approved
Sale"), then, so long as all of the Stockholders, and such Selling Stockholders
receive consideration having the same pro rata value for ARC Holdings Common
Stock of the same class and Equity Securities exercisable or convertible for the
same class of ARC Holdings Common Stock (less equitable adjustments for
differences in exercise prices, etc., determined taking into account the assumed
conversion referred to above) in connection therewith, each Stockholder agrees
to vote in favor thereof and will use its best efforts (including, in the case
of the Financial Sponsors, granting any necessary consent under their respective
Investment Agreements) to cooperate in the Approved Sale and will take all
necessary and desirable actions in connection with the
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consummation of the Approved Sale as are reasonably requested by the Selling
Stockholders.
2.4 Section Tag-Along Rights. At least ten (10) business days prior to the
Transfer (in one or a series of Transfers) by one or more Financial Sponsors to
a Third-Party Purchaser (other than a Financial Sponsor) of ARC Holdings Common
Stock representing 40% or more of the then outstanding ARC Holdings Common Stock
(other than pursuant to a public sale, or pursuant to Section 2.2 or 2.3 above),
each such Selling Stockholder shall deliver a written notice to each other party
to this Agreement, specifying in reasonable detail the identity of the
prospective transferee(s), the class and number of Selling Stockholder shares to
be Transferred, and the other material terms and conditions of such contemplated
Transfer. Each recipient of such notice (excluding the Company) may elect to
participate in such contemplated Transfer by delivering written notice to the
Selling Stockholders within five (5) business days after its receipt of the sale
notice. If any of the recipients of such notice elect to participate in such
Transfer, each of the parties who properly have elected to participate in such
sale shall be entitled to sell in such contemplated Transfer, at the same price
and on the same terms, a number of shares of ARC Holdings Common Stock equal to
the product of (x) the quotient determined by dividing the percentage of ARC
Holdings Common Stock owned by such Stockholder by the aggregate percentage of
ARC Holdings Common Stock owned by the Stockholders participating in such
contemplated Transfer and (y) the aggregate number of shares of ARC Holdings
Common Stock to be sold in such contemplated Transfer. Each Stockholder
Transferring ARC Holdings Common Stock pursuant to this Section shall pay its
pro rata share (based on the number of shares of ARC Holdings Common Stock to be
sold) of the expenses incurred by the Stockholders in connection with such
Transfer and shall take all necessary and desirable actions as directed by the
initial Selling Stockholder in connection with the consummation of such
Transfer, including without limitation executing the applicable purchase and
sale documents.
2.5 Section Financial Sponsor's Right of First Offer for Preferred Stock.
(1) In the event that the Financial Sponsors do not unanimously agree to permit
the Transfer of Preferred Stock among or between Financial Sponsors, then if a
Financial Sponsor (a "Preferred Stock Offeror") desires to Transfer any or all
of its Preferred Stock (collectively, the "Preferred Offered Securities"), to
any Third-Party Purchasers, such Preferred Stock Offeror shall first notify
Company and each of the Financial Sponsors (other than the Preferred Stock
Offeror) in writing of its desire to Transfer Preferred Offered Securities, the
number of Preferred Offered Securities and the proposed purchase price (whether
payable in cash, other securities or other property) and other terms of Transfer
("Preferred Stock Offeror's Transfer Notice"). Upon receipt of Preferred Stock
Offeror's Transfer Notice, the other Financial Sponsors shall have a right to
purchase (exercisable by written notice to Preferred Stock Offeror within 10
days after receipt of Preferred Stock Offeror's Transfer Notice) all, and not
less than all, of the Preferred Offered Securities at the purchase price (or the
cash equivalent thereof in the case of securities or other property) and the
other terms specified in Preferred Stock Offeror's Transfer Notice. Upon
delivery of the Preferred Stock Offer's Transfer Notice, the offer made therein
to the other Financial Sponsors shall be irrevocable unless and until the right
to purchase provided for in this Section 2.5 have been waived or shall have
expired in accordance with this Agreement.
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(2) If the total number of Preferred Offered Securities that the Financial
Sponsors desire to purchase in the aggregate exceeds the aggregate number of
Preferred Offered Securities that are the subject of Preferred Stock Offeror's
Transfer Notice, each Financial Sponsor shall have the right to purchase a
number of Preferred Offered Securities equal to the product of (A) the aggregate
number of Preferred Offered Securities that are the subject of Preferred Stock
Offeror's Transfer Notice, multiplied by (B) a fraction, (x) the numerator of
which is equal to the number of shares of Preferred Stock held by such Financial
Sponsor and (y) the denominator of which is total number of shares of Preferred
Stock held by the Financial Sponsors participating herein; provided, however,
that if a Financial Sponsor does not exercise all or part of its right to
purchase Preferred Offered Securities pursuant to this Section 2.5(2), then the
other Financial Sponsors shall have the right to purchase all or any part of the
Preferred Offered Securities not purchased by such Financial Sponsors.
(3) If any Financial Sponsor desires to purchase the Preferred Offered
Securities hereunder, such Financial Sponsor will give written notice thereof to
the Preferred Stock Offeror and to the other Financial Sponsors, stating the
number of Preferred Offered Securities such Financial Sponsor desires to
purchase, within 10 days following receipt by the Financial Sponsor of the
Preferred Stock Offeror's Transfer Notice. The failure by any Financial Sponsor
to respond within the time periods set forth in this Section 2.5 shall be deemed
to be a rejection of such offer made pursuant to the Preferred Stock Offeror's
Transfer Notice by such Financial Sponsor.
(4) All Financial Sponsors who agree to purchase Preferred Offered Securities
pursuant to this Section 2.5 will have the further right to purchase, within a
10-day period following the expiration of the 10-day period set forth in Section
2.5 any Preferred Offered Securities remaining unpurchased at the end of the
expiration of such 10-day period set forth in Section 2.5, in proportion to the
amount purchased by each such Financial Sponsor as a percentage of the total
Preferred Offered Securities purchased by all such Financial Sponsors, by giving
written notice of such intention to purchase to the Preferred Stock Offeror and
the other participating Financial Sponsors within 10 days following the
expiration of the 10-day period set forth in Section 2.5. Notwithstanding the
foregoing, the Financial Sponsors may mutually agree to allocate the available
Preferred Offered Securities among themselves in any proportion; provided,
however, that under all circumstances that in order to exercise the right to
purchase the Preferred Offered Securities hereunder all, and not less than all,
of the Preferred Offered Securities are purchased under this Section 2.5.
(5) In the event that Company and/or Financial Sponsors do not exercise their
rights to purchase all, and not less than all, of the Preferred Offered
Securities pursuant to Section 2.5 hereof, Preferred Stock Offeror may Transfer
all, but not less than all, of the Preferred Offered Securities to a
transferee(s) at a price (including the form of payment, e.g., cash, other
marketable Securities or other property) and on other terms no more favorable to
Preferred Stock Offeror than those specified in Preferred Stock Offeror's
Transfer Notice anytime during the 90 day period immediately following the
expiration of the 10 or 20 day period, as the case may be, provided in Sections
2.5 (or such longer period as may be required to comply with the HSR Act. Any
Preferred Offered Securities subject to this Section 2.5 which are not
transferred within the foregoing period shall be subject to the provisions of
this Section 2.5 again with respect to any subsequent Transfer.
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(6) The closing of the purchase of Preferred Offered Securities by the Financial
Sponsors shall be held at the principal office of the Company or at such other
location as the purchasing Financial Sponsors agree, at 11:00 a.m. local time,
no later than the twentieth (20th) business day after the acceptance of the
Preferred Offered Securities pursuant to this Section 2.5, or at such other time
as the parties may agree. The sale of the Preferred Offered Securities to the
Financial Sponsors hereunder shall otherwise be on customary terms and
conditions (but in any event in accordance with the terms of the Preferred Stock
Offeror's Transfer Notice).
2.6 Section Conditions to Transfers. In addition to all other terms and
conditions contained in this Agreement, and unless waived in writing by the
Financial Sponsors holding more than 50% of the ARC Holdings Common Stock held
by all Financial Sponsors, no Transfers of any Equity Securities of the Company
to which the provisions of Article II would apply shall be completed or
effective for any purpose (and, no new Equity Securities of the Company shall be
issued to any Person) unless prior thereto:
(1) The transferor shall have provided to the Company and each Financial Sponsor
(i) at least five (5) business days' prior notice of such Transfer, (ii) a
transferor's certificate delivered with such notice, containing a statement that
such Transfer is permitted under this Article II, together with such information
as is reasonably necessary for the recipient of such notice to determine whether
such Transfer is permitted under this Article II, and (iii) such other
information and documents as may be reasonably requested by the recipient of
such notice in order for it to make such determination.
(2) The transferee (or recipient of newly issued Equity Securities) of such
Equity Securities shall have executed and delivered to each recipient of such
notice an agreement satisfactory in form and substance to the Company and each
Financial Sponsor by which the transferee (or such recipient) shall become a
party to and be bound by all of the terms and provisions of this Agreement as if
such transferee (or such recipient) were the Transferor.
(3) If requested by the Company or any Financial Sponsor, the Company shall have
received a written opinion of counsel to the Company, at the transferring
Stockholder's expense, satisfactory in form and substance to the Company, to the
effect that (i) such Transfer would not violate the Securities Act or any state
securities or "blue sky" laws applicable to the Company or the Equity Securities
to be Transferred, (ii) such Transfer shall not impose liability or reporting
obligations on the Company or New ARC in any jurisdiction, whether domestic or
foreign, or result in the Company or New ARC becoming subject to the
jurisdiction of any court or governmental entity anywhere, other than the
states, courts and governmental entities in which the Company and/or New ARC are
then subject to such liability, reporting obligation or jurisdiction, and (iii)
such Transfer would not, individually or together with other concurrently
proposed Transfers, cause the Company to be regarded as an "investment company"
under the Investment Company Act of 1940, as amended.
2.7 Section Certain Other Transfers. Any Existing Stockholder and Employee
Stockholder who is an individual shall not be prohibited by this Agreement from
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Transferring unpledged Equity Securities to (i) such person's spouse, former
spouse, and descendants (whether natural or adopted), parents, and their
descendants and/or any spouse of the foregoing persons (collectively,
"Relatives") or (ii) the trustee, fiduciary or personal representative of such
person and any trust solely for the benefit of such person and/or such person's
Relatives; provided, however that any such Transfer must first comply with
Section 2.6. Each Financial Sponsor shall further be permitted to Transfer any
Equity Securities to any Affiliate or equity holder of such Financial Sponsor,
or to any other Financial Sponsor or Affiliate of any other Financial Sponsor,
subject only to Section 2.6 (and not to Sections 2.2, 2.3, 2.4 or 2.5 above);
provided, however, that in connection with any Transfer to any other Financial
Sponsor, all Financial Sponsors shall consent to such proposed Transfer.
2.8 Section Effect of Permitted Transfer. Upon consummation of any Transfer of
Equity Securities in accordance with the provisions of this Agreement (a
"Permitted Transfer"), the transferred Equity Securities shall continue to be
subject to all the provisions of this Agreement. No Transfer shall relieve the
transferor (or any of its Affiliates) of any of their obligations or liabilities
under this Agreement arising prior to the closing of the consummation of such
Permitted Transfer.
2.9 Section Tolling. All time periods specified in this Article II are subject
to reasonable extension for the purpose of complying with requirements of
applicable law or regulation
ARTICLE III
GOVERNANCE OF THE COMPANY
3.1 Section Board Nominees. The parties hereto shall take such action as shall
be necessary to establish and maintain the Board as a board of directors of no
fewer than seven (7) and no more than twelve (12) members (or such higher number
as is approved by holders of a majority of the outstanding shares of Preferred
Stock). For purposes of this Section and Sections 3.2 and 3.4, "Board" shall
also be deemed to refer to the board of directors or other governing body of any
direct or indirect Subsidiary. As long as either of EGI-ARC and TP hold Equity
Securities which, calculated on an "as converted" basis, represent 10% or more
of the ARC Holdings Common Stock, (1) each shall have the right, at its
discretion, to nominate three (3) Board members. Each of the Chief Executive
Officer of the Company, and the Chief Operating Officer of the Company
(following the retention thereof), shall also be nominated to the Board. The
Financial Sponsors shall also, in consultation with management members of the
Board, nominate three outside directors to the Board. All of the parties hereto
shall vote their shares in favor of the election of nominees for members of the
Board designated in accordance with this Section and shall use their best
efforts to cause the members so nominated to be elected as members of the Board.
In addition to the members of the Board nominated as provided above, Todd
Doshier shall be invited to serve as a non-voting advisory member of the
Company's board of directors, entitled to notice of, an opportunity to attend
and copies of materials provided to that board, except as the Board may
otherwise direct. Such invitation shall be extended to Mr. Doshier for a period
of one year from the date of this Agreement, subject to extension by the Board.
Notwithstanding anything to the contrary set forth in this Agreement, the
Financial Sponsors holding a majority of the outstanding Preferred Stock shall
have the right, and the other parties shall take all reasonable action
necessary, to increase the size of the Board and reallocate the rights to
designate nominees; provided, however, that no such modification shall (a)
reduce the number of Board seats available to
11
<PAGE> 15
members of management below two (2), (b) reduce the number of outside directors
below three (3), (c) alter the rights of EGI-ARC or TP set forth above without
that Person's consent, or (d) rescind the invitation extended to Mr. Doshier as
set forth above.
3.2 Section Removal; Replacement Directors. A member of the Board that is
nominated in the manner set forth in Section 3.1 may be removed in the sole
discretion of the Person(s) empowered to make such nomination, and each of the
parties hereto shall use its best efforts to cause the removal of such member of
the Board. In the event that any member of the Board nominated in the manner set
forth in Section 3.1 is unable to serve, or once having commenced to serve is
removed or withdrawn from the Board, such member's replacement shall be
nominated in the same manner, and by the same party, that the member that is
unable to serve, has withdrawn or is removed, was nominated by, or, in the case
of an officer of the Company, the nominee for such member's replacement shall be
the successor to such position. Each of the parties shall use its best efforts
to cause the election of such replacement member.
3.3 Section Proxy. If any of the Stockholders shall refuse to vote its shares
as provided in this Section 3 (or as required pursuant to and in furtherance of
the purposes of Sections 2.3(2), 4.5, and 4.7) at any meeting of stockholders of
the Company, or shall refuse to give its written consent in lieu of a meeting as
provided in this Section 3 (or in furtherance of the purposes of said Section
2.3(2), 4.5, and 4.7), thereupon, without further action by such Stockholder,
the holder of the largest number of shares of ARC Holdings Common Stock, in
consultation with all Financial Sponsors (the "Largest Holder") shall be, and
hereby is, irrevocably appointed the attorney-in-fact and proxy of such
Stockholder for the purpose of voting, and shall vote such shares at such
meeting as provided in this Article III or give such consent as provided in this
Article III, as the case may be. Such appointment is for an initial period of
nine (9) years, is coupled with an interest and shall survive the death,
incapacity, dissolution or bankruptcy of such Stockholder and shall extend to
its successors and assigns.
3.4 Section Reimbursement of Expenses. Each Director shall be reimbursed by the
Company for actual expenses incurred by such Director (or his representative in
the absence of such Director) in connection with attending meetings of the Board
or any committee thereof.
ARTICLE IV
CERTAIN OTHER AGREEMENTS OF THE PARTIES
4.1 Section Stock Certificate Legend. A copy of this Agreement shall be filed
with the Secretary of the Company and kept with the records of the Company. Each
certificate representing shares of ARC Holdings Common Stock or Preferred Stock
shall bear the following legends:
First Legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED OR OTHERWISE
DISPOSED OF
12
<PAGE> 16
IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM THE ACT AND ALL
APPLICABLE STATE SECURITIES LAWS.
Second Legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF AND PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 5,
1998, AMONG ALLIED RISER COMMUNICATIONS HOLDINGS (THE "COMPANY") AND
THE STOCKHOLDERS NAMED THEREIN (AS SUCH AGREEMENT MAY BE SUPPLEMENTED,
MODIFIED, AMENDED OR RESTATED FROM TIME TO TIME, THE "STOCKHOLDERS
AGREEMENT") AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED (COLLECTIVELY "TRANSFERRED")
UNLESS AND UNTIL SUCH TRANSFER COMPLIES WITH THE STOCKHOLDERS
AGREEMENT, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE
COMPANY.
All of the parties hereto shall be bound by the requirements of such legends to
the extent that such legends are applicable. Upon request of any Stockholder who
is a party hereto, the Company shall remove the First Legend from the
certificate or issue to such Stockholder a replacement certificate without the
First Legend if, with such request, the Company shall have received an opinion
of counsel to such Stockholder reasonably acceptable to the Company and Largest
Holder to the effect that such legend is no longer necessary under the
Securities Act. All certificates representing shares of ARC Holdings Common
Stock and Preferred Stock shall be replaced, at the expense of the Company, with
certificates not bearing the Second Legend following the termination of this
Agreement at the expense of the Company, with certificates not bearing either of
the legends required by this Section 4.1 or upon the agreement of the Company
and Largest Holder that the Second Legend is no longer applicable.
4.2 Section Confidentiality.
(1) Nondisclosure. During the term of this Agreement and thereafter, each party
hereto agrees to hold all Confidential Information received by it in strictest
confidence. The receiving party shall not copy such Confidential Information
without permission. The receiving party shall not disclose such Confidential
Information to anyone except employees, consultants and subcontractors of the
receiving party to whom disclosure is necessary for the purposes set forth in
this Agreement. The receiving party shall appropriately notify each such
recipient that the disclosure is made in confidence and must be kept in
confidence in accordance with this Agreement. The obligations set forth herein
shall be satisfied by each party through the exercise of the same degree of care
used to restrict disclosure and use of its own information of like importance.
(2) Required Disclosure. If any party is requested to disclose any Confidential
Information of another party by any federal, state, local or foreign court or
legislative, executive or regulatory agency, such party will promptly notify the
disclosing party to permit it to seek a protective order or take other action
that the disclosing party in its discretion deems appropriate, and the receiving
party will cooperate in any such efforts to obtain a protective order or other
reasonable assurance that confidential treatment will be
13
<PAGE> 17
accorded such Confidential Information. If, in the absence of a protective
order, a receiving party is compelled as a matter of law to disclose any such
Confidential Information in any proceeding or pursuant to legal process, such
party may disclose to the person compelling disclosure only the part of such
Confidential Information as is required by law to be disclosed (in which case,
prior to such disclosure, such party will advise and, if requested by the
disclosing party consult with the disclosing party and its counsel as to such
disclosure and the nature and wording of such disclosure), and such receiving
party will use its reasonable best efforts to obtain confidential treatment
therefor.
(3) Return of Confidential Information. All copies of Confidential Information
in written, graphic or other tangible form shall be returned to the disclosing
party within sixty (60) days following termination of this Agreement or upon the
disclosing party's written request.
(4) Limitation. The obligations imposed in this Section 4.2 shall not apply to
any information that:
(1) is already in the possession of the receiving party (other than in
connection with due diligence attendant to such Person's investment in
the Company or any predecessor thereto), is independently developed by
the receiving party, or is or becomes publicly available through no
fault of the receiving party;
(2) is obtained by the receiving party from a third person who is
under no obligation of confidence to the party whose Confidential
Information is disclosed;
(3) is disclosed without restriction by the disclosing party; or
(4) is required to be disclosed by law, regulation, legal process or
order of any court or governmental body having jurisdiction.
(5) Indemnification. Each party shall indemnify each other party for any loss,
damage, liability, claims and expenses incurred, suffered or sustained by any of
them as a result of any breach by such party of this Section 4.2
(6) Survival. The requirements of use and confidentiality set forth in this
Section 4.2 shall survive the expiration, termination or cancellation of this
Agreement.
4.3 Section D&O Insurance. The Company hereby agrees to pay up to $50,000 per
year through the third anniversary of the effective date of this Agreement, for
application towards insurance premiums and deductibles for insurance coverage
obtained by the Company's Chief Financial Officer and designed to protect
officers and directors of predecessors to the Company for actual or alleged
actions and omissions prior to the date of this Agreement.
4.4 Section Stock Options. Promptly following the date of this Agreement, the
Company shall work to prepare and implement a stock option and/or ownership
plan, pursuant to which ARC Holdings could issue shares of ARC Holdings Common
Stock, constituting approximately 10% of its issued and outstanding common
stock, on a fully diluted basis (not taking into account conversion of any
Preferred Stock), or options
14
<PAGE> 18
exercisable for such stock, to employees of ARC Holdings and New ARC. Such plan,
and awards thereunder, would be subject to Board approval.
4.5 Section Authorized Common Stock and Preferred Stock. Each party to this
Agreement agrees to take and cause to be taken all actions necessary to cause
the Company to comply with the Company's obligations under the applicable
Section of the Investment Agreements between the Company and each Financial
Sponsor, pursuant to which the Company is obligated to cause an adequate
quantity of Preferred Stock and ARC Holdings Common Stock to be authorized and
available for issuance to satisfy the Company's obligation to all current and
future Financial Sponsors.
4.6 Section New Financial Sponsors. Holders of a majority of the outstanding
shares of Preferred Stock shall have the right to designate any purchaser of
newly issued Preferred Stock (or any new series of preferred stock) as a
"Financial Sponsor" by written notice to the Company, whereupon each such
designated Person shall be a Financial Sponsor for all purposes of this
Agreement, entitled to all of the rights and subject to all of the obligations
attendant hereunder to that status.
4.7 Section Qualifying Recapitalization. In the event of a Qualifying
Recapitalization (as defined in the Certificate of Incorporation) as a result of
which the Company receives consideration consisting substantially of cash and/or
securities, each party hereto agrees to vote all shares of ARC Holdings Common
Stock controlled by such Person in order to effect a liquidating distribution
thereof.
4.8 Section Amendment to Certificate of Incorporation. Each party agrees to
refrain from voting ARC Holdings Common Stock in favor of any amendment to the
terms of the Preferred Stock as set forth in the Certificate of Incorporation if
such amendment would adversely impact the rights of the ARC Holdings Common
Stock.
ARTICLE V
MISCELLANEOUS
5.1 Section Further Assurances. Each party agrees to execute, acknowledge,
deliver, file and record such further certificates, amendments, instruments and
documents, and to do all such other acts and things, as may be required by law
or as may be necessary or advisable to carry out the intent and purposes of this
Agreement.
5.2 Section Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) when
transmitted by telecopy (with an acknowledgment of receipt) or personally
delivered on a business day during normal business hours, (b) on the business
day following the date of dispatch by overnight courier or (c) on the fifth
(5th) business day following the date of mailing by registered or certified
mail, with postage prepaid, return receipt requested, in each case addressed to
an Existing Stockholder at such Existing Stockholder's address shown on Schedule
1, or to the Company, EGI-ARC or the Financial Sponsors at the addresses set
forth below, or in any such case to such other address as the Company or any
party hereto shall have last designated to the other parties by notice given in
accordance with this Section 5.2; provided; however, that a notice of a change
of address shall not be deemed to have been given until actually received by the
addressee.
15
<PAGE> 19
(1) Notice Address for the Company:
Allied Riser Communications Holdings, Inc.
Two North Riverside Plaza, Suite 1900
Chicago, Illinois 60606
Fax: (312) 454-5956
Attention: President
and:
Allied Riser Communications Holdings, Inc.
700 Pearl Street, Suite 200
Dallas, Texas 75201
Fax: (214) 855-9121
Attention: Chief Financial Officer
with a copy to:
Crouch & Hallett, LLP
717 N. Harwood, Suite 1400
Dallas, Texas 75201
Fax: (214) 922-4193
Attention: Timothy R. Vaughan
(2) Address for EGI-ARC:
EGI-ARC Investors, L.L.C.
c/o EGI Corporate Investments
Two North Riverside Plaza, Suite 600
Chicago, Illinois 60606
Fax: (312)575-7024
(312)454-9678
Attention: Donald J. Liebentritt
William White
with a copy to:
Rosenberg & Liebentritt, P.C.
Two North Riverside Plaza, Suite 1600
Chicago, Illinois 60606
Fax: (312) 454-0335
Attention: Jon Wasserman
16
<PAGE> 20
(3) Address for TP:
Telecom Partners II, L.P.
3200 Cherry Creek Drive South
Suite 450
Denver, CO 80209
Fax: (303) 765-1110
Attention: Steve Schovee
with a copy to:
Holland & Hart LLP
555 Seventeenth St.
Suite 3200
Denver, CO 80202
Fax: (303) 295-8261
Attention: Michael S. Quinn
5.3 Section Amendments. Except as otherwise provided in this Agreement, this
Agreement may be amended, and, except as provided in the next sentence, the
observance of any term hereof may be waived, only by a written instrument signed
by (i) the Company, (ii) holders of not less than fifty percent (50%) of the
outstanding Preferred Stock, and (iii) Stockholders holding not less than fifty
percent (50%) of the total number of shares of ARC Holdings Common Stock and ARC
Holdings Common Stock Equivalents then held by all Stockholders; provided that
if any amendment is not unanimously approved by all of the Existing Stockholders
and Employee Stockholders, any changes set forth in such amendment must apply in
the same manner to all Existing Stockholders and Employee Stockholders in their
capacities as such. Notwithstanding the preceding sentence, the observance or
nonobservance of any term hereof by one or more of the Existing Stockholders and
Employee Stockholders may be waived only by written instrument signed by the
Company and holders of not less than fifty percent (50%) of the outstanding
Preferred Stock. Sections 2.2(1), 2.4, 2.7, 4.7, 4.8 and this Section 5.3 may be
amended, and the observance of any term of any such section may be waived, only
by a written instrument signed by the (i) holders of more than 50% of the
outstanding Preferred Stock, and (ii) holders of more than 50% of the
outstanding ARC Holdings Common Stock held by Persons who neither own, nor are
Affiliates of Persons who own, Preferred Stock.
5.4 Section Additional Securities Subject to Agreement. Each Stockholder agrees
that any Equity Securities which it shall hereafter acquire by means of a stock
split, stock dividend, distribution, grants of stock options or restricted
stock, exercise of preemptive rights or anti-dilution protections if applicable,
including, without limitation, any Equity Securities issued pursuant to the
exercise of certain pre-emptive and anti-dilution rights contained in Company
employment agreements with any Employee Stockholders, and Company Investment
Agreements existing on the date hereof, or entered into by the Company with
Board approval in the future, or otherwise (other than pursuant to a public
offering) shall be subject to the provisions of this Agreement to the same
extent as if held on the date hereof.
17
<PAGE> 21
5.5 Section Inconsistent Agreements. None of the parties shall enter with any
Person into any agreement or other arrangement of any kind which is inconsistent
with the provisions of this Agreement or which may impair its ability to comply
with this Agreement.
5.6 Section Successors, Assigns and Transferees. The provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their permitted transferees and their respective successors, each of
which permitted transferees shall agree in a writing in form and substance
satisfactory to the Company, to become a party hereto and to be bound to the
same extent as its transferor hereby, provided that (i) no Existing Stockholder
may assign to any permitted transferee any of its rights and obligations
hereunder other than in connection with a Transfer to such permitted transferee
of Equity Securities in accordance with the provisions of this Agreement, and
(ii) each Financial Sponsor shall be entitled to assign or delegate, as the case
may be, any of its rights and obligations hereunder to a transferee of any
Equity Securities by such Financial Sponsor.
5.7 Section Severability. Each provision of this Agreement shall be considered
severable and if for any reason any provision which is not essential to the
effectuation of the basic purposes of this Agreement is determined by a court of
competent jurisdiction to be invalid, unenforceable or contrary to existing or
future applicable law, such invalidity, unenforceability or illegality shall not
impair the operation of or affect those provisions of this Agreement which are
valid, enforceable and legal. In that case, this Agreement shall be construed to
the minimum extent necessary so as to limit any term or provision to the minimum
extent necessary so as to make it valid, enforceable and legal within the
requirements of any applicable law, and, in the event such term or provision
cannot be so limited, this Agreement shall be construed to omit such invalid,
unenforceable or illegal provisions.
5.8 Section Counterparts. This Agreement may be executed in counterparts, each
of which shall constitute an original and all of which, when taken together,
shall constitute one and the same agreement.
5.9 Section Governing Law. This Agreement shall be governed by the laws of the
State of Delaware (other than its rules of conflicts of law to the extent that
the application of the laws of another jurisdiction would be required thereby).
5.10 Section Consent to Jurisdiction and Service of Process; Appointment of
Agent for Service of Process. The parties hereto each hereby consent to the
jurisdiction of any state or federal court located within the State of Delaware
and irrevocably agree that all actions or proceedings arising out of or relating
to this Agreement shall be litigated in such courts. Each of the parties hereto
accepts for itself and in connection with its respective properties, generally
and unconditionally, the exclusive jurisdiction and venue of the aforesaid
courts and waives any defense of forum non conveniens, and irrevocably agrees to
be bound by any nonappealable judgment rendered thereby in connection with this
agreement.
5.11 Section Waiver of Jury Trial. Each of the parties hereto hereby
irrevocably waives any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby.
18
<PAGE> 22
5.12 Section Entire Agreement; Nonwaiver. This Agreement supersedes all prior
agreements between the parties with respect to the subject matter hereof and
contains the entire agreement between the parties with respect to such subject
matter. No delay on the part of any party in exercising any right hereunder
shall operate as a waiver thereof, nor shall any waiver, express or implied, by
any party of any right hereunder or of any failure to perform or breach hereof
by any other party constitute or be deemed a waiver of any other right hereunder
or of any other failure to perform or breach hereof by the same or any other
party, whether of a similar or dissimilar nature.
5.13 Section Term; Termination. This Agreement shall become effective on the
date hereof and shall continue in effect until terminated by upon a Qualifying
Public Offering or at the election of each Financial Sponsor and holders of 50%
or more of the ARC Holdings Common Stock (excluding the Preferred Stock and ARC
Holdings Common Stock Equivalents); provided, however, that Sections 4.2, 4.3
and 4.5 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
EGI-ARC INVESTORS, L.L.C.
By:
-----------------------------------
Name:
Title:
TELECOM PARTNERS II, L.P.
By:
-----------------------------------
Name:
Title:
19
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
--------------------------------------
-------------------------------------
[Spouse, if applicable]
20
<PAGE> 1
EXHIBIT 10.4.1
AMENDMENT NO. 1 AND JOINDER TO
STOCKHOLDERS' AGREEMENT
AMENDMENT NO. 1 AND JOINDER (the "AMENDMENT AND JOINDER"), dated as of
November __, 1998, by and among Allied Riser Communications Holdings, Inc., a
Delaware corporation (the "COMPANY"), EGI-ARC Investors, L.L.C., a Delaware
limited liability company ("EGI-ARC"), Telecom Partners II, L.P., a Delaware
limited partnership ("TP"), Crescendo World Fund, LLC, a Delaware limited
liability company ("CWF"), Eagle Ventures WF, LLC, a Minnesota limited liability
company ("EVW"), Crescendo III, L.P., a Delaware limited partnership ("CIII")
and Lawrence Equity Group, L.L.C., a California limited liability company
("LEG", and, collectively with the Company, EGI-ARC, TP, CWF and EVW, the
"PARTIES"), to that certain Stockholders' Agreement (the "STOCKHOLDERS'
AGREEMENT"), dated as of November 13, 1998, by and among the Company, EGI-ARC,
TP and other persons identified therein. All terms not otherwise defined herein
shall have the meanings given such terms in the Stockholders' Agreement.
WHEREAS, the Company, EGI-ARC, TP and the other persons identified therein
have entered into the Stockholders' Agreement and desire to amend the
Stockholders' Agreement as provided herein;
WHEREAS, Section 5.3 of the Stockholders' Agreement permits amendment of
Section 2.5 of the Stockholders' Agreement by a written instrument signed by (i)
the Company, (ii) EGI-ARC, (iii) TP, and (iv) Stockholders holding not less than
fifty percent (50%) of the total number of shares of ARC Holdings Common Stock
and ARC Holdings Common Stock Equivalents then held by all Stockholders;
WHEREAS, EGI-ARC, TP, CWF, EVW, CIII and LEG collectively hold in excess of
fifty percent (50%) of the total number of shares of ARC Holdings Common Stock
and ARC Holdings Common Stock Equivalents held by all Stockholders as of the
date hereof and accordingly can, together with the Company, enter into this
Amendment and Joinder;
WHEREAS, EGI-ARC and TP desire that CWF, EVW, CIII and LEG become parties
to the Stockholders' Agreement as "Financial Sponsors" thereunder, and CWF, EWV,
CIII and LEG desire to become parties to the Stockholders' Agreement as
"Financial Sponsors" thereunder, as provided herein;
WHEREAS, Section 4.6 of the Stockholders' Agreement permits holders of a
majority of the outstanding shares of Preferred Stock to designate any purchaser
of newly issued Preferred Stock as a "Financial Sponsor" for all purposes under
the Stockholders' Agreement;
WHEREAS, EGI-ARC and TP together hold a majority of the outstanding shares
of Preferred Stock outstanding and accordingly can designate additional
Financial Sponsors pursuant to and for all purposes under the Stockholders'
Agreement;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties mutually agree to amend
the Stockholders' Agreement as follows;
1. Amendment. Section 2.5(2) of the Stockholders' Agreement is hereby
amended and restated in its entirety to read as follows:
<PAGE> 2
"(2) If the total number of Preferred Offered Securities that the
Financial Sponsors desire to purchase in the aggregate exceeds the
aggregate number of Preferred Offered Securities that are the subject
of Preferred Stock Offeror's Transfer Notice, each Financial Sponsor
shall have the right to purchase a number of Preferred Offered
Securities equal to the product of (A) the aggregate number of
Preferred Offered Securities that are the subject of Preferred Stock
Offeror's Transfer Notice, multiplied by (B) a fraction, (x) the
numerator of which is equal to the number of shares of ARC Holdings
Common Stock held by such Financial Sponsor and (y) the denominator of
which is equal to the total number of shares of ARC Holdings Common
Stock held by the Financial Sponsors participating herein; provided,
however, that if a Financial Sponsor does not exercise all or part of
its right to purchase Preferred Offered Securities pursuant to this
Section 2.5(2), then the other Financial Sponsors shall have the
right to purchase all or any part of the Preferred Offered Securities
not purchased by such Financial Sponsors."
2. Designation and Joinder. (a) EGI-ARC and TP hereby designate each of
CWF, EVW, CIII and LEG as a "Financial Sponsor" for all purposes under the
Stockholders' Agreement, entitled to all of the rights and subject to all of the
obligations attendant thereunder to that status. CWF, EVW, CIII and LEG hereby
consent and agree to such designation, and further agree that upon execution of
this Amendment and Joinder, it shall become a party to the Stockholders'
Agreement as a "Financial Sponsor" thereunder and shall be fully bound by, and
subject to, all of the covenants, terms and conditions of the Stockholders' as a
"Financial Sponsor" thereunder as though originally a party as a "Financial
Sponsor" thereunder.
(b) The execution and delivery of this Amendment and Joinder shall be
deemed to constitute "written notice to the Company" of the designation set
forth in Section 2(a) above, in satisfaction of such requirement of Section 4.6
of the Stockholders' Agreement.
3. Miscellaneous.
(a) Reaffirmation. Except as expressly modified hereby, the Parties hereby
reaffirm each and every provision set forth in the Stockholders' Agreement and,
except as modified hereby, the Parties acknowledge and agree that each
provision and obligation therein continues in full force and effect. References
to the "Agreement" in the Stockholders' Agreement shall hereinafter be deemed to
mean such agreement as amended by this Amendment and Joinder.
(b) Additional Provisions. Sections 5.1, 5.9, 5.10, 5.11 and 5.12 of the
Stockholders' Agreement are hereby incorporated by reference into this Amendment
and Joinder, mutatis mutandis.
(c) Counterparts. This Amendment and Joinder may be executed in one or
more counterparts, each of which shall be deemed an original but both of which
together will constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 3
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment and
Joinder to the Stockholders' Agreement as of the date first above written.
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.
By: /s/ TODD DOSHIER
-------------------------------
Name: Todd Doshier
Title: Chief Financial Officer
EGI-ARC INVESTORS, L.L.C.
By: GAMI Investments, Inc., its
Managing Member
By: /s/ DON LIEBENTRITT
---------------------------
Name: Don Liebentritt
Title: Vice President
TELECOM PARTNERS II, L.P.
By: Telecom Management II, L.L.C., its
General Partner
By: /s/ STEVEN W. SCHOVEE
---------------------------
Name: Steven W. Schovee
Title: Managing Member
CRESCENDO WORLD FUND, LLC
By: Crescendo Ventures World Fund, LLC,
its Managing Member
By: /s/ JEFFREY R. TOLLEFSON
---------------------------
Name: Jeffrey R. Tollefson
Title: Partner
EAGLE VENTURES WF, LLC
By: /s/ JEFFREY R. TOLLEFSON
---------------------------
Name: Jeffrey R. Tollefson
Title: Vice President
<PAGE> 1
EXHIBIT 10.5
RCH HOLDINGS, INC.
SUBSCRIPTION AGREEMENT
FOR FLORIDA RESIDENTS ONLY:
WHEN SALES ARE MADE TO FIVE OR MORE PERSONS IN THE STATE OF FLORIDA, ANY SALE
IN THE STATE OF FLORIDA IS VOIDABLE BY THE PURCHASER IN SUCH SALE EITHER WITHIN
THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO
THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW AGENT OR WITHIN THREE DAYS
AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER,
WHICHEVER OCCURS LATER.
<PAGE> 2
SOUTH CAROLINA RESIDENTS ONLY:
THESE SECURITIES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER ONE OR MORE
SECURITIES ACTS.
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION
OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE OFFERING,
INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN
RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSIONER OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ADEQUACY OR DETERMINED THE ADEQUACY OF THESE DOCUMENTS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL
BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE
PERIOD OF TIME.
<PAGE> 3
---------------------------------
Name of Subscriber
SUBSCRIPTION AGREEMENT
RCH Holdings, Inc.
700 N. Pearl Street, Suite 200
Dallas, Texas 75201
Attention: Todd Doshier
Gentlemen:
1. SUBSCRIPTION. The undersigned (the "Subscriber"), intending to
be legally bound, hereby irrevocably subscribes for and agrees to purchase,
subject to the terms and conditions set forth below, the number of shares (the
"Company Shares") of common stock, no par value per share ("Company Common
Stock"), of RCH Holdings, Inc., a Texas corporation ("RCH Holdings"), specified
on the signature page hereof. The Subscriber's subscription for the Company
Shares is being made in connection with the reorganization and recapitalization
of RCH Holdings (the "Reorganization and Recapitalization"), pursuant to which
all of the shareholders of RCH Holdings, including the Subscriber (assuming the
Subscriber purchases the Shares), will become stockholders of Allied Riser
Communications Holdings, Inc., a Delaware corporation and successor-in-interest
to substantially all of the assets and liabilities of RCH Holdings ("ARC
Holdings"). Such reorganization and recapitalization is more fully described in
the Proxy Statement attached as Appendix A (the "Proxy Statement").
If the Subscriber is already a holder of Company Common Stock and is
not subscribing for shares of Company Common Stock hereby, the Subscriber's
execution of this Subscription Agreement is being provided for the benefit of
the Company and ARC Holdings in connection with the Reorganization and
Recapitalization.
In connection with the Reorganization and Recapitalization,
shareholders of RCH Holdings will become stockholders of ARC Holdings and as
such will be required to enter into a stockholders' agreement (the
"Stockholders' Agreement"), a copy of which is attached as Appendix B.
The Subscriber hereby tenders to RCH Holdings the following:
(a) a fully completed and executed copy of this Subscription
Agreement (this "Agreement");
(b) a fully executed copy of the Stockholders' Agreement; and
2
<PAGE> 4
(c) payment in full (by personal or cashier's check, payable to
the order of RCH Holdings, Inc.) for the Company Shares,
which payment (the "Funds") shall be in an amount equal to
$.0001 multiplied by the number of Company Shares set forth
on the signature page hereof, rounded up to the nearest $.01.
Tender of a fully completed and executed copy of this Subscription Agreement,
the executed Stockholders' Agreement and the Funds shall be by delivery of the
same to the Company at the address shown above.
The Subscriber acknowledges that RCH Holdings reserves the right, in
its sole and absolute discretion, to reject this subscription, in whole or in
part, for any reason. If this subscription is rejected, this Agreement and the
Stockholders' Agreement shall, with respect to the Subscriber, be null and void
and all Funds paid by the Subscriber shall be returned by RCH Holdings as soon
as practicable. The Subscriber`s signature hereon constitutes an irrevocable
subscription to purchase the Company Shares specified on the signature page.
Upon the acceptance of this Agreement by RCH Holdings, a fully executed copy of
this Agreement, together with a fully executed copy of the Stockholders'
Agreement (without attachments) will be furnished to the Subscriber.
2. REORGANIZATION AND RECAPITALIZATION. As part of the
Reorganization and Recapitalization, RCH Holdings will sell substantially all
of its assets, and assign substantially all of its liabilities, to ARC Holdings
and receive, as consideration therefor, an aggregate of approximately
50,191,806 shares of common stock, $.0001 value per share, of ARC Holdings (the
"Purchase Shares"). As soon as practicable after such sale, RCH Holdings will
be dissolved and the Purchase Shares will be distributed to shareholders of RCH
Holdings in complete liquidation of RCH Holdings. As a result of the
Reorganization and Recapitalization, the shareholders of RCH Holdings,
including the Subscriber, will receive Purchase Shares and, therefore, become
stockholders of ARC Holdings. In connection with the Reorganization and
Recapitalization, stockholders of ARC Holdings will be required to enter into
the Stockholders' Agreement. The Reorganization and Recapitalization is more
fully described in the Proxy Statement. As used herein, the term "Company"
shall refer to RCH Holdings and its successors in interest under the
Reorganization and Recapitalization, including without limitation, ARC
Holdings.
THE SUBSCRIBER IS URGED TO READ THE PROXY STATEMENT IN ITS ENTIRETY
AND ALL REFERENCES TO THE REORGANIZATION AND RECAPITALIZATION IN THIS AGREEMENT
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE PROXY STATEMENT.
3. ACKNOWLEDGMENT OF INVESTMENT RISKS. The Subscriber
acknowledges that, if the Reorganization and Recapitalization is consummated,
the Subscriber will receive Purchase Shares in respect of the Company Shares
owned by the Subscriber. As a result, the Subscriber must not only evaluate the
risks attendant to an investment in the Company Shares but also the risks
related to an investment in the Purchase Shares. The Subscriber further
acknowledges that the various representations and warranties of the Subscriber
herein are a material inducement to ARC Holdings to consummate the
Reorganization and Recapitalization and that, but for such representations and
warranties, ARC Holdings might not consummate the Reorganization and
Recapitalization.
3
<PAGE> 5
In light of the foregoing, the Subscriber hereby acknowledges that an
investment in the Company Shares and the Purchase Shares received in respect of
such Company Shares (collectively, the "Shares") involves certain significant
risks. Each prospective investor acknowledges that there is a substantial risk
that the Subscriber will lose all or a portion of his or her investment and
should be financially capable of bearing the risk of such investment for an
indefinite period of time.
4. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER. The
Subscriber acknowledges, warrants and represents to the Company as follows:
(a) The Subscriber has received, has thoroughly read, is
familiar with and understands the contents of the Proxy Statement of
RCH Holdings, a copy of which is enclosed herewith as Appendix A
(together with all exhibits and attachments, the "Proxy Statement")
concerning the Reorganization and Recapitalization, RCH Holdings and
ARC Holdings, and the risks associated with the Shares.
(b) The Subscriber has received, has thoroughly read, is
familiar with and understands the contents of the Stockholders'
Agreement including, without limitation, the restrictions on transfer
of the Shares and the drag-along rights relating to the Shares
contained therein.
(c) The Subscriber has no need for liquidity in his or her
investment in the Shares and is able to bear the risk of that
investment for an indefinite period. The Subscriber understands that
there presently is no public market for the Shares and none is
anticipated to develop in the foreseeable future. The Subscriber's
present financial condition is such that the Subscriber is under no
present or contemplated future need to dispose of any portion of the
Shares subscribed for hereby to satisfy any existing or contemplated
undertaking, need or indebtedness. The Subscriber's overall commitment
to investments which are not readily marketable is not
disproportionate to his or her net worth and the investment in the
Company will not cause such overall commitment to become excessive.
The Subscriber's investment in the Shares does not exceed 20% of the
Subscriber's net worth (or, if applicable, the joint net worth of the
Subscriber and the Subscriber's spouse).
(d) The Shares have not been registered under the Securities
Act, or any state securities act other than those state securities
acts that the Company believes require registration of the Shares
thereunder, and are being sold on the basis of exemptions from
registration under the Securities Act and applicable state securities
acts, except those state securities acts that require registration of
the Shares thereunder. Reliance on such exemptions, where applicable,
is predicated in part on the accuracy of the Subscriber's
representations and warranties set forth herein. The Subscriber
acknowledges and hereby agrees that the Shares will not be
transferable under any circumstances unless the Subscriber either
registers his or her Shares in accordance with federal and state
securities laws or finds and complies with an exemption under such
laws. Accordingly, the Subscriber hereby acknowledges that there can
be no assurance that the Subscriber will be able to liquidate his
investment in the Company. The Subscriber understands that the Company
is under no obligation to register the Shares under the Securities Act
or to comply with any applicable
4
<PAGE> 6
exemption under the Securities Act on behalf of the Subscriber with
respect to any resale of the Shares and that the Subscriber will not
be able to avail himself of the provisions of Rule 144 promulgated
under the Securities Act with respect to the resale of the Shares
until the Shares have been beneficially owned by the Subscriber for a
period of at least one (1) year from date of purchase. The Subscriber
further understands that any certificates evidencing the Company
Shares will bear a legend referring to the foregoing transfer
restrictions.
The Subscriber also understands that certificates evidencing the Purchase
Shares received in respect of the Company Shares will bear the legends required
by the Stockholders' Agreement, in addition to the legends required by
applicable law.
In evaluating the merits and risks of an investment in the Company,
the Subscriber has had the opportunity to seek the advice of his or her legal
and financial advisors, has availed himself or herself of that right to the
extent deemed appropriate, and has not relied on the advice of the Company or
the Company's legal and financial counsel.
The Shares are being acquired solely for the Subscriber's own account,
for investment purposes only, and are not being purchased with a view to or for
the resale, distribution, subdivision or fractionalization thereof; and the
Subscriber has no present plans to enter into any contract, undertaking,
agreement or arrangement for such resale, distribution, subdivision or
fractionalization. In order to induce the Company to issue and sell to the
undersigned the Shares subscribed for hereby, the parties hereto agree that the
Company will have no obligation to recognize the ownership, beneficial or
otherwise, of the Shares by anyone other than the Subscriber. The Subscriber is
not taking and will not take or cause to be taken any action that would cause
the Subscriber to be deemed an "underwriter" within the meaning of Section
2(11) of the Securities Act.
There are substantial risk factors pertaining to an investment in the
Company. The Subscriber acknowledges that he or she has read the information
set forth above regarding certain of such risks and is familiar with the nature
and scope of all such risks, including, without limitation, risks arising from
the fact that the Company is an entity with limited operating history and
financial resources; and the Subscriber is fully able to bear the economic
risks of such investment for an indefinite period, and can afford a complete
loss thereof.
The Subscriber has been given the opportunity to (X) ask questions of
and receive answers from the Company and its designated representatives
concerning the terms and conditions of the offering, the Company and the
business and financial condition of the Company and (Y) obtain any additional
information that the Company possesses or can acquire without unreasonable
effort or expense that is necessary to assist the Subscriber in evaluating the
advisability of an investment in the Company and verifying the accuracy of
information furnished in the Proxy Statement. The Subscriber further represents
and warrants that, prior to signing this Agreement, he or she has asked such
questions, received such answers and obtained such information as he or she has
deemed necessary or advisable to evaluate the merits and risks of an investment
in the Company. The Subscriber is not relying on any oral representation made
by any other person as to the Company or its operations, financial condition or
prospects.
5
<PAGE> 7
The Subscriber understands that no federal, state or other
governmental authority has made any recommendation, findings or determination
relating to the merits of an investment in the Company.
The address of the Subscriber set forth on the signature page hereof
is a true and correct residence address, and the Subscriber is a bona fide
resident and domiciliary of such state or jurisdiction and has no present
intention of becoming a resident of any other state or jurisdiction.
The foregoing representations and warranties of the Subscriber are complete,
true and accurate as of the date hereof and shall survive delivery of the Funds
to the Company for all purposes. If in any respect any of such representations
and warranties shall not be true and accurate following delivery of the Funds
but prior to the sale of the Shares, the Subscriber shall give prompt written
notice of such fact to the Company, specifying which representations and
warranties are not true and accurate and the reasons therefor.
5. STOCK PURCHASE RIGHTS. In consideration for the Subscriber's
purchase of the Shares, ARC Holdings hereby grants to the Subscriber the
following rights to purchase shares of common stock, $.0001 par value per
share, of ARC Holdings:
(a) Protection Against Dilution.
(i) The Subscriber will have the right to purchase
additional shares of common stock, $.0001 par value per share
of ARC Holdings (the "ARC Holdings Common Stock"), for a cash
purchase price of $.0001 per share, upon the issuance by ARC
Holdings to non-employees of additional ARC Holdings Common
Stock exclusively for cash (including ARC Holdings Common
Stock issued upon conversion of convertible debt) in a
transaction other than a Qualifying Public Offering (as
defined in the Certificate of Incorporation of ARC Holdings,
attached as Appendix D to the Proxy Statement) such that
following any such additional issuance, each such individual
will be entitled to own the same percentage of ARC Holdings
Common Stock (excluding any conversion of ARC Holdings
Preferred Stock (as defined in the Stockholders' Agreement))
that he or she held immediately prior to such additional
issuance, without giving effect to the conversion of the ARC
Holdings Preferred Stock.
(ii) All of such purchase rights will terminate upon
the earlier to occur of (A) three years from the closing of
the Reorganization and Recapitalization, or (B) the
completion of cash equity investments in ARC Holdings, or its
successors or any other joint venture or other entity through
which all or a portion of the ARC Holdings business is
conducted, of $60 million in the aggregate (including the
capital to be invested by the investors upon their purchase
of ARC Holdings Preferred Stock in connection with the
Reorganization and Recapitalization; or (C) immediately prior
to a Qualifying Public Offering. In addition, if the
Subscriber is, as of the date of this Subscription Agreement,
an Employee Subscriber (as defined below), such Subscriber's
purchase right will terminate at such time as such
Subscriber's
6
<PAGE> 8
employment is terminated, for any reason, with RCH Holdings,
ARC Holdings or Allied Riser Communications, Inc., a Delaware
corporation and wholly owned subsidiary of ARC Holdings ("New
ARC"), or any other affiliate of ARC Holdings (RCH Holdings,
ARC Holdings, New ARC and any such affiliate who employs the
Subscriber are collectively referred to herein as the
"Employer") or by any third party who furnishes employees to
Employer.
(b) Restricted Shares and Vesting.
(i) With respect to a Subscriber who is, as of the
date of this Agreement, an employee of Employer, or who
serves in the capacity of an employee of the Employer,
whether employed directly by the Employer or by a third party
who furnishes employees to Employer, ("Employee Subscriber"),
the Shares owned by such Employee Subscriber (including
shares of ARC Holdings Common Stock hereafter acquired by
Subscriber pursuant to this Section 5) shall be restricted,
non-transferable and subject to repurchase by the Company
(the "Restricted Shares") until vested in accordance with
this subsection 5(b). The Employee Subscriber shall not be
entitled to vote with respect to any of such unvested
Restricted Shares. The Shares shall vest in accordance with
Exhibit A hereto.
(ii) If the Employee Subscriber voluntarily
terminates his or her employment with Employer, or is
terminated by the Employer for any reason, or by reason of
the death, disability, injury or illness of the Employee
Subscriber, then the Subscriber shall be entitled to retain
all Restricted Shares in which the Subscriber has vested. In
such event, pursuant to this Agreement and without further
action by the Employee Subscriber, the Company shall have the
right to repurchase all unvested Restricted Shares upon
payment to the Employee Subscriber of an amount equal to the
product of $.0001 multiplied by the number of unvested
Restricted Shares. The purchase price payable by the Company
pursuant to the preceding sentence shall be subject to
appropriate adjustment upon the occurrence of stock split,
stock dividend, recapitalization, merger or other similar
capital transaction.
(iii) In the event of a Qualifying Public Offering
or a business combination of ARC Holdings prior to vesting of
all unvested Restricted Shares notwithstanding the vesting
schedule set forth on Exhibit A hereof, all of the unvested
Restricted Shares shall immediately vest and the Company's
right of repurchase shall terminate. For purposes of this
Agreement, a "business combination" shall mean a sale to an
unaffiliated third party of at least a majority of the
outstanding shares of ARC Holdings Common Stock, a sale or
transfer to an unaffiliated third party of the power to elect
a majority of the members of the Board of Directors of
Employer, a sale to an unaffiliated third party of
substantially all of the assets of Employer, a merger or
other consolidation with an unaffiliated third party
following which the ability to elect a majority of the
members of the Board of Directors of Employer or a majority
of the voting power of the surviving corporation is not held
by the Financial Sponsors (as defined in the Stockholders'
Agreement).
7
<PAGE> 9
(c) Right to Purchase Reserved Management Shares.
The Subscriber hereby acknowledges that ARC Holdings
has reserved up to 11,950,000 shares of its ARC Holdings
Common Stock for issuance to certain specified future members
of senior management of ARC Holdings (the "Reserved
Management Shares"). If all of such Reserved Management
Shares are not issued to the members of management, for whom
such shares have been reserved, upon the earlier of (i) three
years from the closing of the Reorganization and
Recapitalization or (ii) immediately prior to consummation of
a Qualifying Public Offering, then each holder of ARC
Holdings Common Stock (other than the Investors (as defined
in the Proxy Statement)) shall be entitled to purchase, on a
pro rata basis, for a price of $.0001 per share, unissued
Reserved Management Shares in an amount and to the extent
that such stockholder would have been permitted to purchase
shares of ARC Holdings Common Stock had such shares been
issued to such stockholder upon consummation of the
Reorganization and Recapitalization.
The Subscriber understands that, if the Subscriber
is an Employee Subscriber, any shares of ARC Holdings Common
Stock purchased by such Employee Subscriber pursuant to this
Section 5(c) ("Allocated Reserved Shares") in respect of
unvested shares of ARC Holdings Common Stock already owned by
such Employee Subscriber shall also be unvested, and shall
vest at the same time as, and proportionate to, the vesting
of shares of ARC Holdings Common Stock already owned by such
Employee Subscriber in respect of which such Allocated
Reserved Shares were purchased.
6. COVENANTS IN RESPECT OF EMPLOYMENT. If the Subscriber is an
Employee Subscriber, he or she agrees that, in consideration for the issuance
of the shares to the Employee Subscriber, he or she will observe and perform
the covenants set forth on Exhibit B hereto to the same extent as if fully set
out herein (the "Employment Covenants").
(a) In connection with agreeing to perform the Employment
Covenants, the Employee Subscriber acknowledges and understands that
during the course of his or her employment, he or she will become
familiar with and/or create or develop certain confidential
information of the Employer which is exceptionally valuable to the
Employer and vital to the success of the Employer's business; and the
Employer acknowledges that the Employer would terminate or prohibit
Employee Subscriber's access to the Customers, employees and
Confidential Information (as each term is defined in the Employment
Covenants) of the Employer or its affiliates in the absence of the
restrictions and protections contained in the Employment Covenants;
and Employee Subscriber and the Employer desire to protect such
business and Confidential Information from disclosure to third parties
or its use to the detriment of the Employer; and the Employee
Subscriber acknowledges the reasonableness and necessity of the
restrictions contained in the Employment Covenants and is willing to
undertake such covenants.
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<PAGE> 10
(b) In the event that the Employee Subscriber breaches any of
the terms contained in the Employment Covenants, the Employee
Subscriber stipulates that such breach will result in immediate and
irreparable harm to the business and goodwill of the Employer and that
damages, if any, and remedies at law for such breach would be
inadequate. The Employee Subscriber hereby agrees that the Employer
shall therefore be entitled to apply for and receive from any court of
competent jurisdiction an injunction to restrain any violation of the
Employment Covenants (without the requirement of posting a bond) and
for such further relief as the court may deem just and proper, and the
Employee Subscriber shall, in addition, pay to the Employer, following
judgment or other final determination by such court, the Employer's
costs and expenses in enforcing such terms (including court costs and
reasonable attorneys' fees).
(c) The obligations, duties and liabilities of the Employee
Subscriber pursuant to the Employment Covenants are continuing,
absolute and unconditional and shall remain in full force and effect
as provided herein. If (i) the Employee Subscriber's employment is
terminated and (ii) the Employee Subscriber is receiving severance
benefits, and (iii) the Employee Subscriber violates the Employment
Covenants, the Employee Subscriber agrees that he or she shall forfeit
all rights to any unpaid portion of the severance benefits. The
Employer may also exercise any additional remedies available to it
whether at law or in equity, upon any such violation.
(d) If any restriction or limitation in the Employment
Covenants is deemed to be unenforceable, onerous, unduly restrictive
or unreasonable as to scope, activity, territory or duration, by a
court of competent jurisdiction, it shall not be stricken in its
entirety and held totally void and unenforceable, but shall be deemed
rewritten to the minimum extent possible in order to limit any
restriction or limitation or other term to the minimum extent
necessary in order to effectuate the intent of the parties and shall
remain enforceable to the maximum extent permissible within reasonable
bounds in order to effect such lesser restriction as such court shall
deem reasonable. If any phrase, clause or provision of the Employment
Covenants is declared invalid or unenforceable by a court of competent
jurisdiction, and such phrase, clause or revision is not capable of
being rewritten pursuant to the foregoing sentence, then such phrase,
clause or provision shall be deemed severed from the Employment
Covenants, but will not affect any other provisions of the Employment
Covenants, which shall otherwise remain in full force and effect.
(e) If the Employee Subscriber enters into an employment
agreement with Employer that contains provisions comparable to those
contained in the Employment Covenants, the provisions of this Section
6 shall control unless such employment agreement specifically
provides, by reference to this Section 6, that it supersedes this
Section 6.
7. ASSIGNMENT. The Subscriber shall not assign or transfer this
Agreement, and hereby further agrees and acknowledges that any transfer of the
Shares to be acquired by the Subscriber pursuant to the terms hereof shall be
made only in accordance with the transfer restrictions described in this
Agreement and the Stockholders' Agreement and any other restrictions under
applicable federal and state securities laws.
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<PAGE> 11
8. INDEMNIFICATION. The Subscriber understands and acknowledges
that the sale of the Shares to the Subscriber will be based upon the
representations and warranties set forth herein and in other instruments and
documents relating to the Subscriber's subscription for the Shares, and the
Subscriber hereby agrees to indemnify, hold harmless and defend the Company,
its successors, and current and future investors and affiliates thereof (other
than the Subscriber), together with each officer, director, employee and
attorney of any such party from and against any and all loss, damage, liability
or expense, including costs and reasonable attorneys' fees, to which they may
be put or which they may incur by reason of, or in connection with, any
misrepresentation made by the Subscriber herein or elsewhere, any breach by the
Subscriber of the representations or warranties set forth herein or elsewhere,
or the failure by the Subscriber to fulfill any of his or her covenants or
agreements set forth herein or elsewhere or arising out of the sale or
distribution of any of the Shares by the Subscriber in violation of the
Securities Act or any other applicable securities or "Blue Sky" laws.
9. CONFIDENTIALITY. The Subscriber understands and acknowledges
that this Agreement, the Proxy Statement and the Stockholders' Agreement are
confidential, and hereby represents and warrants to the Company that the
Subscriber will not reproduce or distribute them, in whole or in part, nor
divulge any of their contents, to any person other than his or her legal, tax,
accounting or other advisors, if any, without the prior written consent of the
Company.
10. NO WAIVER. Notwithstanding any of the representations,
warranties, acknowledgments or agreements made herein by the Subscriber, the
Subscriber does not thereby or in any other manner waive any rights granted to
him under applicable federal or state securities laws.
11. NOTICES. Any notices or other communications required or
permitted hereby shall be made in writing and shall be deemed sufficiently
given if sent by registered or certified mail, postage prepaid, return receipt
requested, (i) to the Subscriber, at the residence address set forth on the
signature page hereof, and (ii) to the Company, at 700 N. Pearl Street, Suite
200, Dallas, Texas 75201, Attn: Todd C. Doshier.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and to the successors or
assigns of the Company and to the personal and legal representatives, heirs,
guardians and successors of the Subscriber.
13. SPOUSES. By executing this Agreement, the spouse of the
undersigned Subscriber, if applicable, who is a natural person agrees to be
bound in all respects by the terms of this Agreement to the same extent as the
Subscriber. Such spouse further agrees that should such spouse predecease the
Subscriber or should such spouse become divorced from such Subscriber, any of
the Shares which such spouse may own or in which such spouse may have any
interest shall remain subject to all of the restrictions and to all of the
rights of the Subscriber contained in this Agreement.
14. APPLICABLE LAW. NOTWITHSTANDING THE PLACE WHERE THIS
AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY
AGREE THAT ALL OF THE TERMS AND PROVISIONS HEREOF SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE
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<PAGE> 12
LAWS OF THE STATE OF DELAWARE, EXCLUSIVE OF ITS CONFLICTS OF LAWS RULES,
APPLICABLE TO AGREEMENTS MADE AND TO BE WHOLLY PERFORMED THEREIN.
15. ACCEPTANCE BY THE COMPANY. This Agreement may be accepted or
rejected by the Company, in its sole and absolute discretion, in whole or in
part. Acceptance by the Company shall be effected by counterpart execution of
this Agreement by an authorized signatory thereof.
16. EXECUTION BY ARC HOLDINGS. If this Agreement is accepted by
the Company, ARC Holdings shall execute this Agreement for the limited purposes
set forth in Section 5.
17. WAIVER OF JURY TRIAL. To the extent permitted by applicable
law, the Subscriber hereby irrevocably, knowingly, voluntarily and
intentionally waives all right of trial by jury in any litigation, action,
proceeding or counterclaim based hereon or arising out of, under or in
connection with this Agreement.
18. ACKNOWLEDGMENTS WITH RESPECT TO PROXY STATEMENT. The
Subscriber hereby acknowledges that:
(a) Notwithstanding anything to the contrary contained in the
Proxy Statement, the rights of the Subscriber to purchase additional shares of
ARC Holdings Common Stock as described in Section 5 hereof shall commence and
expire as provided in Section 5, and that any conflicting or contradictory
descriptions contained in the Proxy Statement are incorrect and superseded by
the terms of this Agreement.
(b) In the Section of the Proxy Statement entitled "Dilution" (on
page 34 of the enclosed Proxy Statement), it was erroneously stated that "Non
Employee RCH Shareholders will be diluted by the Stock Issuance, pursuant to
which the Employee and Management Group members will purchase an aggregate of
46,570,308 newly issued shares of RCH Common Stock for nominal consideration."
The Subscriber understands that, in fact, management, current and former
employees and non-employee shareholders of the Company will purchase these
46,570,308 shares and that a correct statement as to the identity of the
purchasers of these shares is contained in the cover letter accompanying the
Proxy Statement, on page 1 thereof and the tabular information presented under
the caption "Dilution" on page 34.
(c) By executing this Agreement and delivering it to the Company,
the Subscriber consents to the consummation of the Reorganization and
Recapitalization on the terms set forth in the Proxy Statement, subject to the
corrections noted above, ratifies and confirms any consent previously delivered
to the Company pertaining to the Reorganization and Recapitalization and
further acknowledges that the consummation of the Reorganization and
Recapitalization on the terms set forth in the Proxy Statement, subject to the
corrections noted above, is substantially the same as the Reorganization and
Recapitalization described in the Proxy Statement, prior to the making of such
corrections.
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<PAGE> 13
SIGNATURE PAGE
EXECUTED this day of November, 1998 at
------ -------------------------
- -------------------------------------------.
Number of
Company Shares:
-----------------------------
Price per
Company Share: $
--------
Total Purchase Price $
--------
Subscriber's Address: -------------------------------------------
(Signature of Subscriber)
- ----------------------------------
-------------------------------------------
- ---------------------------------- (Printed Name of Subscriber)
Social Security No.:
-----------------------
Subscriber's Spouse's Address: -------------------------------------------
(If different from Subscriber's (Signature of Subscriber's Spouse)
Address)
- ----------------------------------
-------------------------------------------
(Printed Name of Subscriber's Spouse)
- ----------------------------------
Social Security No.:
------------------------
APPROVED AND ACCEPTED AS
OF NOVEMBER , 1998:
-------
RCH HOLDINGS, INC.
By:
----------------------------------
Todd C. Doshier
Its: Chief Financial Officer
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.
By:
----------------------------------
Todd C. Doshier
Its: Chief Financial Officer
12
<PAGE> 1
EXHIBIT 10.5.1
-------------------------
Name of Subscriber
AMENDMENT NO. 1 TO
SUBSCRIPTION AGREEMENT
RCH Holdings, Inc.
700 N. Pearl Street, Suite 200
Dallas, Texas 75201
Attention: Todd Doshier
Gentlemen:
WHEREAS, the undersigned (the "Subscriber") is a party to that certain
Subscription Agreement (the "Subscription Agreement") attached hereto as ANNEX
A, pursuant to which Subscriber has agreed to purchase that number of shares of
common stock, no par value per share, of RCH Holdings, Inc., a Texas corporation
(the "Company"), all as set forth in the Subscription Agreement; and
WHEREAS, the Company and Subscriber desire to amend certain terms of
the Subscription Agreement as provided herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Subscriber hereby
agree to amend the Subscription Agreement as provided herein. All capitalized
terms not otherwise defined herein, shall have the meaning given such terms in
the Subscription Agreement.
1. AMENDMENTS.
a. Section 5(b)(iii) of the Subscription Agreement is
hereby deleted in its entirety.
b. Section 1(e) of EXHIBIT B to the Subscription
Agreement is hereby amended in its entirety to read
as follows:
"(e) FURTHER ASSURANCES. The Employee
Subscriber shall lend such assistance as may
be reasonably requested by the Company
without charge, in connection with any
proceedings relating to such letters of
patent, trade secrets, copyright or
application thereof, as may be determined by
the Company to be reasonably necessary. In
such case, the Company will reimburse
expenses which the Employee Subscriber may
reasonably incur in assisting the Company or
any of its affiliates to obtain, assert,
defend and protect such letters of patent,
trade secrets, copyright or other
protection."
<PAGE> 2
c. If applicable, the last 20 words of Section 4 of
EXHIBIT B to the Subscription Agreement, regarding
restrictions on competition, are deleted in their
entirety and replaced with the following:
"facilities-based intra-building provider of
enhanced telecommunications services,
without the prior written consent of the
Company, which consent may be granted or
withheld at the Company's sole discretion."
2. MISCELLANEOUS.
a. REAFFIRMATION. Except as expressly modified hereby,
Subscriber hereby reaffirms each and every provision
set forth in the Subscription Agreement and, except
as modified hereby, Subscriber acknowledges and
agrees that each provision and obligation therein
continues in full force and effect. References to the
"Agreement" in the Subscription Agreement shall
hereinafter be deemed to mean such agreement as
amended by this Amendment No. 1 to the Subscription
Agreement (the "Amendment")
b. ADDITIONAL PROVISIONS. Sections 11 through 18,
inclusive, of the Subscription Agreement are hereby
incorporated by reference into this Amendment,
mutatis mutandis.
c. COUNTERPARTS. This Amendment may be executed in one
or more counterparts, each of which shall be deemed
an original but both of which together will
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE> 3
SIGNATURE PAGE
EXECUTED this day of November, 1998 at
----- -----------------------------------
Subscriber's Address:
--------------------------------------
- --------------------- (Signature of Subscriber)
- --------------------- --------------------------------------
(Printed Name of Subscriber)
- ---------------------
Social Security Number:
---------------
Subscriber's Spouse's Address:
(If different from Subscriber's
Address)
--------------------------------------
(Signature of Subscriber's Spouse)
- ---------------------
- --------------------- --------------------------------------
(Printed Name of Subscriber's Spouse)
- --------------------- Social Security Number of
Subscriber's Spouse:
------------------
Approved and Accepted as of
, 19
- ---------------------- --
RCH HOLDINGS, INC.
By:
----------------------------------------
Todd C. Doshier, Chief Financial Officer
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.
By:
----------------------------------------
Todd C. Doshier, Chief Financial Officer
3
<PAGE> 1
EXHIBIT 10.11
EXECUTION COPY
================================================================================
$45,000,000
CREDIT AGREEMENT
among
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.,
ALLIED RISER COMMUNICATIONS, INC.,
as Borrower,
The Several Lenders
from Time to Time Parties Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of March 25, 1999
CHASE SECURITIES INC.,
as Lead Arranger and Book Manager
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS ............................................................... 1
1.1 Defined Terms ......................................................... 1
1.2 Other Definitional Provisions ......................................... 14
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS ........................................... 14
2.1 Commitments ........................................................... 14
2.2 Procedure for Loan Borrowing .......................................... 14
2.3 Commitment Fees, Etc. ................................................. 15
2.4 Termination or Reduction of Commitments ............................... 15
2.5 Optional Prepayments .................................................. 15
2.6 Mandatory Prepayments and Commitment Reductions ....................... 15
2.7 Conversion and Continuation Options ................................... 16
2.8 Limitations On Eurodollar Tranches .................................... 16
2.9 Interest Rates and Payment Dates ...................................... 16
2.10 Computation of Interest and Fees ...................................... 17
2.11 Inability to Determine Interest Rate .................................. 17
2.12 Pro Rata Treatment and Payments ....................................... 18
2.13 Requirements of Law ................................................... 18
2.14 Taxes ................................................................. 19
2.15 Indemnity ............................................................. 21
2.16 Change of Lending Office .............................................. 21
2.17 Replacement of Lenders ................................................ 21
SECTION 3. REPRESENTATIONS AND WARRANTIES ............................................ 22
3.1 Financial Condition ................................................... 22
3.2 No Change ............................................................. 22
3.3 Corporate Existence; Compliance With Law .............................. 23
3.4 Corporate Power; Authorization; Enforceable Obligations ............... 23
3.5 No Legal Bar .......................................................... 23
3.6 Litigation ............................................................ 23
3.7 No Default ............................................................ 23
3.8 Ownership of Property; Liens .......................................... 23
3.9 Intellectual Property ................................................. 24
3.10 Taxes ................................................................. 24
3.11 Federal Regulations ................................................... 24
3.12 Labor Matters ......................................................... 24
3.13 Erisa ................................................................. 24
3.14 Investment Company Act; Other Regulations ............................. 25
3.15 Subsidiaries .......................................................... 25
3.16 Use of Proceeds ....................................................... 25
3.17 Environmental Matters ................................................. 25
3.18 Accuracy of Information, etc .......................................... 26
3.19 Security Documents .................................................... 26
3.20 Solvency .............................................................. 26
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
3.21 Year 2000 Matters ..................................................... 26
3.22 Real Estate ........................................................... 27
SECTION 4. CONDITIONS PRECEDENT ...................................................... 27
4.1 Conditions to Initial Extension of Credit ............................. 27
4.2 Conditions to Each Extension of Credit ................................ 29
SECTION 5. AFFIRMATIVE COVENANTS ..................................................... 29
5.1 Financial Statements .................................................. 30
5.2 Certificates; Other Information ....................................... 30
5.3 Payment of Obligations ................................................ 31
5.4 Maintenance of Existence; Compliance................................... 31
5.5 Maintenance of Property; Insurance .................................... 31
5.6 Inspection of Property; Books and Records; Discussions ................ 32
5.7 Notices ............................................................... 32
5.8 Environmental Laws .................................................... 32
5.9 Additional Collateral, Etc ............................................ 33
SECTION 6. NEGATIVE COVENANTS ........................................................ 34
6.1 Financial Condition Covenants ......................................... 34
6.2 Indebtedness .......................................................... 36
6.3 Liens ................................................................. 37
6.4 Fundamental Changes ................................................... 38
6.5 Disposition of Property ............................................... 38
6.6 Restricted Payments ................................................... 39
6.7 Capital Expenditures .................................................. 39
6.8 Investments ........................................................... 39
6.9 Optional Payments and Modifications of Certain Debt Instruments........ 40
6.10 Transactions With Affiliates .......................................... 40
6.11 Sales and Leasebacks .................................................. 40
6.12 Changes in Fiscal Periods ............................................. 40
6.13 Negative Pledge Clauses ............................................... 41
6.14 Clauses Restricting Subsidiary Distributions .......................... 41
6.15 Lines of Business ..................................................... 41
6.16 New License Agreements................................................. 41
SECTION 7. EVENTS OF DEFAULT ......................................................... 41
SECTION 8. THE ADMINISTRATIVE AGENT .................................................. 44
8.1 Appointment ........................................................... 44
8.2 Delegation of Duties .................................................. 44
8.3 Exculpatory Provisions ................................................ 44
8.4 Reliance by Administrative Agent ...................................... 45
8.5 Notice of Default ..................................................... 45
8.6 Non-reliance On Agents and Other Lenders .............................. 45
8.7 Indemnification ....................................................... 46
8.8 Agent in Its Individual Capacity ...................................... 46
8.9 Successor Administrative Agent ........................................ 46
SECTION 9. MISCELLANEOUS ............................................................. 47
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
9.1 Amendments and Waivers ................................................ 47
9.2 Notices ............................................................... 47
9.3 No Waiver; Cumulative Remedies ........................................ 48
9.4 Survival of Representations and Warranties ............................ 48
9.5 Payment of Expenses and Taxes ......................................... 48
9.6 Successors and Assigns; Participations and Assignments ................ 49
9.7 Adjustments; Set-off .................................................. 51
9.8 Effectiveness; Counterparts ........................................... 51
9.9 Severability .......................................................... 51
9.10 Integration ........................................................... 52
9.11 GOVERNING LAW ......................................................... 52
9.12 Submission to Jurisdiction; Waivers ................................... 52
9.13 Acknowledgements ...................................................... 52
9.14 Releases of Guarantees and Liens ...................................... 53
9.15 Confidentiality ....................................................... 53
9.16 WAIVERS OF JURY TRIAL ................................................. 53
</TABLE>
SCHEDULES:
1.1A Commitments
3.4 Consents, Authorizations, Filings and Notices
3.15 Subsidiaries
3.19 UCC Filing Jurisdictions
6.2(d) Existing Indebtedness
6.3(f) Existing Liens
7(k) Capital Stock of Holdings Owned by Permitted Investors
EXHIBITS:
A Form of Guarantee and Collateral Agreement
B Form of Compliance Certificate
C Form of Closing Certificate
D Form of Consent
E Form of Assignment and Acceptance
F-1 Form of Legal Opinion of Kirkland & Ellis
F-2 Form of Legal Opinion of Local Counsel
G Form of Exemption Certificate
-iii-
<PAGE> 5
CREDIT AGREEMENT, dated as of March 25, 1999, among ALLIED RISER
COMMUNICATIONS HOLDINGS, INC., a Delaware corporation ("Holdings"), ALLIED RISER
COMMUNICATIONS, INC., a Delaware corporation (the "Borrower"), the several banks
and other financial institutions or entities from time to time parties to this
Agreement (the "Lenders"), and THE CHASE MANHATTAN BANK, as administrative
agent.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in this
Section 1.1 shall have the respective meanings set forth in this Section 1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on
such day, (b) the Base CD Rate in effect on such day plus 1% and (c) the Federal
Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof:
"Prime Rate" shall mean the rate of interest per annum publicly announced from
time to time by the Reference Lender as its prime rate in effect at its
principal office in New York City (the Prime Rate not being intended to be the
lowest rate of interest charged by the Reference Lender in connection with
extensions of credit to debtors); "Base CD Rate" shall mean the sum of (a) the
product of (i) the Three-Month Secondary CD Rate and (ii) a fraction, the
numerator of which is one and the denominator of which is one minus the C/D
Reserve Percentage and (b) the C/D Assessment Rate; and "Three-Month Secondary
CD Rate" shall mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such day (or, if such day
shall not be a Business Day, the next preceding Business Day) by the Board
through the public information telephone line of the Federal Reserve Bank of New
York (which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following such
day), or, if such rate shall not be so reported on such day or such next
preceding Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York City
received at approximately 10:00 A.M., New York City time, on such day (or, if
such day shall not be a Business Day, on the next preceding Business Day) by the
Reference Lender from three New York City negotiable certificate of deposit
dealers of recognized standing selected by it. Any change in the ABR due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal Funds
Effective Rate shall be effective as of the opening of business on the effective
day of such change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
"Administrative Agent": The Chase Manhattan Bank, together with its
affiliates, as the arranger of the Commitments and as the administrative agent
for the Lenders under this Agreement and the other Loan Documents, together with
any of its successors.
"Affiliate": as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.
"Aggregate Exposure": with respect to any Lender at any time, an amount
equal to (a) until the Closing Date, the aggregate amount of such Lender's
Commitments at such time and (b)
<PAGE> 6
2
thereafter, the amount of such Lender's Commitment then in effect or, if the
Commitments have been terminated, the amount of such Lender's Extensions of
Credit then outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at any
time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure
at such time to the Aggregate Exposure of all Lenders at such time.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Margin": for ABR Loans, 3.5% per annum, and for Eurodollar
Loans, 4.5% per annum.
"Assignee": as defined in Section 9.6(c).
"Assignment and Acceptance": an Assignment and Acceptance,
substantially in the form of Exhibit E.
"Assignor": as defined in Section 9.6(c).
"Available Commitment": as to any Lender at any time, an amount equal
to the excess, if any, of (a) such Lender's Commitment then in effect over (b)
such Lender's Extensions of Credit then outstanding.
"Benefitted Lender": as defined in Section 9.7(a).
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrower": as defined in the preamble hereto.
"Borrowing Date": any Business Day specified by the Borrower as a date
on which the Borrower requests the relevant Lenders to make Loans hereunder.
"Building Unit": 500,000 square feet of commercially rentable space.
"Business": as defined in Section 3.17(b).
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
close, provided that with respect to notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, such day is
also a day for trading by and between banks in Dollar deposits in the interbank
eurodollar market.
"Capital Expenditures": for any period, with respect to any Person, the
aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Lease Obligations": as to any Person, the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal
<PAGE> 7
3
property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person
under GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such time
determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants, rights or options to purchase any of the foregoing.
"Cash Balance": at any time, the amount which, in conformity with GAAP,
would constitute cash and Cash Equivalents of Holdings and its Subsidiaries on a
consolidated balance sheet of Holdings for such time.
"Cash Equivalents": (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; (b) demand
deposits, certificates of deposit, time deposits, eurodollar time deposits or
overnight bank deposits having maturities of six months or less from the date of
acquisition issued by any Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's
Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition; (d) repurchase obligations of
any Lender or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by any
Lender or any commercial bank satisfying the requirements of clause (b) of this
definition; or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"C/D Assessment Rate": for any day as applied to any ABR Loan, the
annual assessment rate in effect on such day that is payable by a member of the
Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the
"FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. Section 327.4 (or any successor provision) to the FDIC (or any successor)
for the FDIC's (or such successor's) insuring time deposits at offices of such
institution in the United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for a
Depositary Institution (as defined in Regulation D of the Board as in effect
from time to time) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.
<PAGE> 8
4
"Closing Date": the date on which the conditions precedent set forth in
Section 4.1 shall have been satisfied.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all property of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security Document.
"Commitment": as to any Lender, the Commitment of such Lender.
"Commitment": as to any Lender, the obligation of such Lender, if any,
to make Loans in an aggregate principal and/or face amount not to exceed the
amount set forth under the heading "Commitment" opposite such Lender's name on
Schedule 1.1A or in the Assignment and Acceptance pursuant to which such Lender
became a party hereto, as the same may be changed from time to time pursuant to
the terms hereof. The original amount of the Total Commitments is $45,000,000.
"Commitment Fee Rate": 1.5% per annum.
"Commitment Period": the period from and including the Closing Date to
the Scheduled Termination Date.
"Commonly Controlled Entity": an entity, whether or not incorporated,
that is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group that includes the Borrower and that is
treated as a single employer under Section 414 of the Code.
"Compliance Certificate": a certificate duly executed by a Responsible
Officer substantially in the form of Exhibit B.
"Consolidated Total Revenue": for any period, the total revenue of
Holdings and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP.
"Continuing Directors": the directors of Holdings on the Closing Date,
after giving effect to the transactions contemplated hereby, and each other
director, if, in each case, such other director's nomination for election to the
board of directors of Holdings is recommended by at least 66-2/3% of the then
Continuing Directors or such other director receives the vote of the Permitted
Investors in his or her election by the shareholders of Holdings.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 7, whether or not any
requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": with respect to any property, any sale, lease, sale and
leaseback, assignment, conveyance, transfer or other disposition thereof. The
terms "Dispose" and "Disposed of" shall have correlative meanings.
"Dollars" and "$": dollars in lawful currency of the United States.
<PAGE> 9
5
"Domestic Subsidiary": any Subsidiary of the Borrower organized under
the laws of any jurisdiction within the United States.
"EBITDA": for any fiscal period, the Net Income or Net Loss, as the
case may be, for such fiscal period, after restoring thereto amounts deducted
for, without duplication, (a) interest expense, (b) income tax expense, (c)
depreciation and amortization and (d) other non-cash charges.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on
such screen), the "Eurodollar Base Rate" shall be determined by reference to
such other comparable publicly available service for displaying eurodollar rates
as may be selected by the Administrative Agent or, in the absence of such
availability, by reference to the rate at which the Administrative Agent is
offered Dollar deposits at or about 11:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where its eurodollar and foreign currency and exchange operations are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein.
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche": the collective reference to Eurodollar Loans the
then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall originally
have been made on the same day).
<PAGE> 10
6
"Event of Default": any of the events specified in Section 7, provided
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Excluded Foreign Subsidiary": any Foreign Subsidiary in respect of
which either (a) the pledge of all of the Capital Stock of such Subsidiary as
Collateral or (b) the guaranteeing by such Subsidiary of, or its granting of a
Lien to secure, the Obligations, would, in the good faith judgment of the
Borrower, result in adverse tax consequences to the Borrower.
"Extensions of Credit": as to any Lender at any time, an amount equal
to the aggregate principal amount of all Loans held by such Lender then
outstanding.
"Federal Funds Effective Rate": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by the Reference Lender
from three federal funds brokers of recognized standing selected by it.
"Foreign Subsidiary": any Subsidiary of the Borrower that is not a
Domestic Subsidiary.
"Funding Office": the office of the Administrative Agent specified in
Section 9.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Borrower and
the Lenders.
"GAAP": generally accepted accounting principles in the United States
as in effect from time to time, except that for purposes of Section 6.1, GAAP
shall be determined on the basis of such principles in effect on the date hereof
and consistent with those used in the preparation of the most recent audited
financial statements delivered pursuant to Section 3.1(b). In the event that any
"Accounting Change" (as defined below) shall occur and such change results in a
change in the method of calculation of financial covenants, standards or terms
in this Agreement, then the Borrower and the Administrative Agent agree to enter
into negotiations in order to amend such provisions of this Agreement so as to
equitably reflect such Accounting Changes with the desired result that the
criteria for evaluating the Borrower's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
the Borrower, the Administrative Agent and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred. "Accounting
Changes" refers to changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
"Guarantee and Collateral Agreement": the Guarantee and Collateral
Agreement to be executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.
<PAGE> 11
7
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person (including
any bank under any letter of credit) to induce the creation of which the
guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
of any other third Person (the "primary obligor") in any manner, whether
directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.
"Guarantors": the collective reference to Holdings and the Subsidiary
Guarantors.
"Hedge Agreements": all interest rate swaps, caps or collar agreements
or similar arrangements providing for protection against fluctuations in
interest rates or currency exchange rates or the exchange of nominal interest
obligations, either generally or under specific contingencies.
"Holdings": as defined in the preamble hereto.
"Indebtedness": of any Person at any date, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person for the deferred purchase price of property or services (other than
current trade payables and accrued expenses incurred in the ordinary course of
such Person's business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party under acceptance, letter of credit or similar facilities, (g) the
liquidation value of all preferred Capital Stock of such Person redeemable at
the option of the holder thereof (other than preferred Capital Stock issued and
outstanding on the date hereof), (h) all Guarantee Obligations of such Person in
respect of obligations of the kind referred to in clauses (a) through (g) above;
(i) all obligations of the kind referred to in clauses (a) through (h) above
secured by (or for which the holder of such obligation has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including
accounts and contract rights) owned by such Person, whether or not such Person
has assumed or become liable for the payment of such obligation; and (j) for the
purposes of Section 7(e) only, all obligations of such Person in respect of
Hedge Agreements.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
<PAGE> 12
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"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date": (a) as to any ABR Loan, the last day of each
March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, (b) as to any Eurodollar Loan having an
Interest Period of three months or less, the last day of such Interest Period,
(c) as to any Eurodollar Loan having an Interest Period longer than three
months, each day that is three months, or a whole multiple thereof, after the
first day of such Interest Period and the last day of such Interest Period and
(d) as to any Loan (other than any Loan that is an ABR Loan), the date of any
repayment or prepayment made in respect thereof.
"Interest Period": as to any Eurodollar Loan, (a) initially, the period
commencing on the borrowing or conversion date, as the case may be, with respect
to such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and (b) thereafter, each period
commencing on the last day of the next preceding Interest Period applicable to
such Eurodollar Loan and ending one, two, three or six months thereafter, as
selected by the Borrower by irrevocable notice to the Administrative Agent not
less than three Business Days prior to the last day of the then current Interest
Period with respect thereto; provided that, all of the foregoing provisions
relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;
(ii) the Borrower may not select an Interest Period that would
extend beyond the Scheduled Termination Date;
(iii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an Interest
Period for such Loan.
"Investments": as defined in Section 6.8.
"Lenders": as defined in the preamble hereto.
"License Agreement": a license, right-of-entry, construction or other
comparable agreement entered into by Holdings or any of its Subsidiaries and the
owner of a building pursuant to which Holdings or its Subsidiaries have a right
to install, operate and maintain its System in such building.
<PAGE> 13
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"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement and any capital lease having substantially the
same economic effect as any of the foregoing).
"Loans": as defined in Section 2.1(a).
"Loan Documents": this Agreement, the Security Documents and the Notes.
"Loan Parties": Holdings, the Borrower and each other Subsidiary of
Holdings that is a party to a Loan Document.
"Material Adverse Effect": a material adverse effect on (a) the
business, property, operations or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole or (b) the validity or
enforceability of this Agreement or any of the other Loan Documents or the
rights or remedies of the Administrative Agent or the Lenders hereunder or
thereunder.
"Material Environmental Amount": an amount payable by the Borrower
and/or its Subsidiaries in excess of $500,000 for remedial costs, compliance
costs, compensatory damages, punitive damages, fines, penalties or any
combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including asbestos, polychlorinated biphenyls
and urea-formaldehyde insulation.
"Multiemployer Plan": a Plan that is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Cash Proceeds": (a) in connection with any Recovery Event, the
proceeds thereof in the form of cash and Cash Equivalents (including any such
proceeds received by way of deferred payment of principal pursuant to a note or
installment receivable or purchase price adjustment receivable or otherwise, but
only as and when received) of such Recovery Event, net of attorneys' fees,
accountants' fees, investment banking fees, amounts required to be applied to
the repayment of Indebtedness secured by a Lien expressly permitted hereunder on
any asset that is the subject of such Recovery Event (other than any Lien
pursuant to a Security Document) and other customary fees and expenses actually
incurred in connection therewith and net of taxes paid or reasonably estimated
to be payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements) and net of any reserves
for indemnities and (b) in connection with any issuance or sale of equity
securities or debt securities or instruments or the incurrence of loans, the
cash proceeds received from such issuance or incurrence, net of attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Net Income" or "Net Loss": for any fiscal period, the amount which, in
conformity with GAAP, would constitute net income or net loss, as the case may
be, of Holdings and its Subsidiaries on a consolidated basis for such fiscal
period, provided that Net Income or Net Loss shall exclude extraordinary,
unusual or non-recurring gains or losses.
"Non-Excluded Taxes": as defined in Section 2.14(a).
<PAGE> 14
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"Non-U.S. Lender": as defined in Section 2.14(d).
"Notes": the collective reference to any promissory note evidencing
Loans.
"Obligations": the unpaid principal of and interest on (including
interest accruing after the maturity of the Loans and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding)
the Loans and all other obligations and liabilities of the Borrower to the
Administrative Agent or to any Lender (or, in the case of Hedge Agreements, any
affiliate of any Lender), whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, any other Loan Document or
any Hedge Agreement entered into with any Lender or any affiliate of any Lender,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including all fees, charges and disbursements of
counsel to the Administrative Agent or to any Lender that are required to be
paid by the Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies arising from
any payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement or any other Loan Document.
"Participant": as defined in Section 9.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA (or any successor).
"Percentage": as to any Lender at any time, the percentage which such
Lender's Commitment then constitutes of the Total Commitments (or, at any time
after the Commitments shall have expired or terminated, the percentage which the
aggregate principal amount of such Lender's Loans then outstanding constitutes
of the aggregate principal amount of the Loans then outstanding).
"Permitted Investors": the collective reference to EGI-ARC Investors,
L.L.C. and Telecom Partners II, L.P.
"Permitted Subordinated Indebtedness": unsecured subordinated
Indebtedness of Holdings having no amortization of principal and a scheduled
final maturity no earlier than the Scheduled Termination Date and having
subordination terms and other terms and conditions (including, covenants, events
of default, interest rate) as shall be satisfactory to the Required Lenders in
the exercise of their sole discretion.
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan that is covered
by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pro Forma Balance Sheet": as defined in Section 3.1(a).
<PAGE> 15
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"Projections": as defined in Section 5.2(c).
"Properties": as defined in Section 3.17(a).
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding relating to
any asset of the Borrower or any of its Subsidiaries.
"Register": as defined in Section 9.6(d).
"Regulation U": Regulation U of the Board as in effect from time to
time.
"Reinvestment Deferred Amount": with respect to any Reinvestment Event,
the aggregate Net Cash Proceeds received by Holdings, the Borrower or any of its
Subsidiaries in connection therewith that are not applied to reduce the
Commitments pursuant to Section 2.6(b) as a result of the delivery of a
Reinvestment Notice.
"Reinvestment Event": any Recovery Event in respect of which the
Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice": a written notice executed by a Responsible
Officer stating that no Event of Default has occurred and is continuing and that
the Borrower (directly or indirectly through a Subsidiary) intends and expects
to use all or a specified portion of the Net Cash Proceeds of a Recovery Event
to acquire, repair or replace assets (including by means of acquisitions of
Persons owning such assets) useful in its business.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended or contractually committed to be expended prior to the relevant
Reinvestment Prepayment Date to acquire, repair or replace assets (including by
means of acquisitions of Persons owning such assets) useful in the Borrower's
business.
"Reinvestment Prepayment Date": with respect to any Reinvestment Event,
the earlier of (a) the date occurring six months after such Reinvestment Event
and (b) the date on which the Borrower shall have determined not to, or shall
have otherwise ceased to, acquire, repair or replace assets (including by means
of acquisitions of Persons owning such assets) useful in the Borrower's business
with all or any portion of the relevant Reinvestment Deferred Amount.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.
Section 4043.
"Required Lenders": at any time, the holders of more than 50% of (a)
until the Closing Date, the Commitments then in effect and (b) thereafter, the
Total Commitments then in effect or, if the Commitments have been terminated,
the Total Extensions of Credit then outstanding.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or
<PAGE> 16
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determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chief executive officer, president or chief
financial officer of the Borrower, but in any event, with respect to financial
matters, the chief financial officer of the Borrower.
"Restricted Payments": as defined in Section 6.6.
"Scheduled Termination Date": October 24, 2000.
"SEC": the Securities and Exchange Commission, any successor thereto
and any analogous Governmental Authority.
"Security Documents": the collective reference to the Guarantee and
Collateral Agreement and all other security documents hereafter delivered to the
Administrative Agent granting a Lien on any property of any Person to secure the
obligations and liabilities of any Loan Party under any Loan Document.
"Senior Debt": at any time, Total Debt less the principal amount of
Permitted Subordinated Debt, in each case, at such time.
"SG&A Expenses": for any period, the amount which, in conformity with
GAAP, would constitute selling, general and administrative expenses of Holdings
and its Subsidiaries on a consolidated income statement of Holdings for such
period.
"Single Employer Plan": any Plan that is covered by Title IV of ERISA,
but that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any
date of determination, (a) the amount of the "present fair saleable value" of
the assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise
<PAGE> 17
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qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of Holdings.
"Subsidiary Guarantor": each Subsidiary of Holdings other than the
Borrower and any Excluded Foreign Subsidiary.
"System": any structured fiber optic communications network consisting
of fiber optic cabling installed in a building in a dedicated conduit system
with junction boxes, intermediate distribution frames, main distribution frames
and all related electronics necessary to operate and provide communications
services over such network.
"Total Capitalization": at any time, the sum of (a) Total Debt at such
time plus (b) the aggregate amount in cash which shall theretofore have been
received by Holdings as a contribution to or in respect of its issuance of
equity capital plus (c) the fair market value of property or services which
shall theretofore have been received by or provided to Holdings in respect of
its equity capital; provided that, for purposes of calculating Total
Capitalization, the amount included under the foregoing clause (c) shall not
exceed $5,000,000.
"Total Commitments": at any time, the aggregate amount of the
Commitments then in effect.
"Total Debt": at any time, the aggregate amount of Indebtedness of
Holdings and its Subsidiaries on a consolidated basis then outstanding
(including capitalized and accreted interest).
"Total Extensions of Credit": at any time, the aggregate amount of the
Extensions of Credit of the Lenders outstanding at such time.
"Transferee": any Assignee or Participant.
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"United States": the United States of America.
"U.S. Taxes": as defined in Section 9.6(d).
"Wholly Owned Subsidiary": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a
Wholly Owned Subsidiary of the Borrower.
"Wired Building Units": Building Units in which the Borrower (a) shall
have installed its fiber optic cable and other equipment and (b) is then able to
provide commercial service to all the tenants of such Building Units.
<PAGE> 18
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1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in the other Loan Documents or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) As used herein and in the other Loan Documents, and any certificate
or other document made or delivered pursuant hereto or thereto, (i) accounting
terms relating to Holdings, the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP, (ii)
the words "include", "includes" and "including" shall be deemed to be followed
by the phrase "without limitation", (iii) the word "incur" shall be construed to
mean incur, create, issue, assume, become liable in respect of or suffer to
exist (and the words "incurred" and "incurrence" shall have correlative
meanings), and (iv) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, Capital Stock, securities, revenues,
accounts, leasehold interests and contract rights.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to the terms and conditions hereof, each
Lender severally agrees to make revolving credit loans ("Loans") to the Borrower
from time to time during the Commitment Period in an aggregate principal amount
at any one time outstanding which does not exceed the amount of such Lender's
Commitment. During the Commitment Period the Borrower may use the Commitments by
borrowing, prepaying the Loans in whole or in part, and reborrowing, all in
accordance with the terms and conditions hereof. The Loans may from time to time
be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to
the Administrative Agent in accordance with Sections 2.2 and 2.7.
(b) The Borrower shall repay all outstanding Loans on the Scheduled
Termination Date.
2.2 Procedure for Loan Borrowing. The Borrower may borrow under the
Commitments during the Commitment Period on any Business Day, provided that the
Borrower shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 12:00 Noon, New York City
time, (a) three Business Days prior to the requested Borrowing Date, in the case
of Eurodollar Loans, or (b) on the requested Borrowing Date, in the case of ABR
Loans), specifying (i) the amount and Type of Loans to be borrowed, (ii) the
requested Borrowing Date and (iii) in the case of Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Period therefor. Each borrowing under the Commitments shall be
in an amount equal to (x) in the case of ABR Loans, $1,000,000 or a whole
multiple thereof (or, if the then aggregate Available Commitments are less than
$1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans,
$5,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of
any such notice from the Borrower, the Administrative Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Administrative Agent for the account of
the Borrower at the Funding Office prior to 12:00 Noon, New York City time, on
the Borrowing Date requested by the Borrower in funds immediately available to
the Administrative
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Agent. Such borrowing will then be made available to the Borrower by the
Administrative Agent crediting the account of the Borrower on the books of such
office with the aggregate of the amounts made available to the Administrative
Agent by the Lenders and in like funds as received by the Administrative Agent.
2.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a commitment fee for the
period from and including the Closing Date to the last day of the Commitment
Period, computed at the Commitment Fee Rate on the average daily amount of the
Available Commitment of such Lender during the period for which payment is made,
payable quarterly in arrears on the last day of each March, June, September and
December and on the Scheduled Termination Date, commencing on the first of such
dates to occur after the date hereof.
(b) The Borrower agrees to pay to the Administrative Agent the fees in
the amounts and on the dates previously agreed to in writing by the Borrower and
the Administrative Agent.
2.4 Termination or Reduction of Commitments. The Borrower shall have
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Commitments or, from time to time, to reduce the amount
of the Commitments; provided that no such termination or reduction of
Commitments shall be permitted if, after giving effect thereto and to any
prepayments of the Loans made on the effective date thereof, the Total
Extensions of Credit would exceed the Total Commitments. Any such reduction
shall be in an amount equal to $1,000,000, or a whole multiple thereof, and
shall reduce permanently the Commitments then in effect.
2.5 Optional Prepayments. The Borrower may at any time and from time to
time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice delivered to the Administrative Agent at least three Business
Days prior thereto in the case of Eurodollar Loans and at least one Business Day
prior thereto in the case of ABR Loans, which notice shall specify the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR
Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the
last day of the Interest Period applicable thereto, the Borrower shall also pay
any amounts owing pursuant to Section 2.15. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with (except in the case of
Loans that are ABR Loans) accrued interest to such date on the amount prepaid.
Partial prepayments of Loans shall be in an aggregate principal amount of
$1,000,000 or a whole multiple thereof.
2.6 Mandatory Prepayments and Commitment Reductions. (a) Unless the
Required Lenders shall otherwise agree, if any Capital Stock or Indebtedness
shall be issued or incurred by Holdings or any of its Subsidiaries (excluding
any Indebtedness issued or incurred in accordance with Section 6.2 as in effect
on the date of this Agreement), an amount equal to 100% of the Net Cash Proceeds
thereof shall be applied on the date of such issuance or incurrence toward the
reduction of the Commitments as set forth in Section 2.6(c); provided that,
notwithstanding the foregoing, an amount equal to $75,000,000 in the aggregate
of the Net Cash Proceeds from the issuance or incurrence of Capital Stock and
Permitted Subordinated Indebtedness may be excluded from the foregoing
requirement.
(b) Unless the Required Lenders shall otherwise agree, if on any date
Holdings or any of its Subsidiaries shall receive Net Cash Proceeds from any
Recovery Event then, unless a Reinvestment Notice shall be delivered in respect
thereof, such Net Cash Proceeds shall be applied on such date toward the
reduction of the Commitments as set forth in Section 2.6(c); provided, that,
notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Recovery
Events that may be excluded from the
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foregoing requirement pursuant to a Reinvestment Notice shall not exceed
$2,000,000 in any fiscal year of the Borrower and (ii) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the reduction
of the Commitments as set forth in Section 2.6(c).
(c) Amounts to be applied in connection with Commitment reductions made
pursuant to Section 2.6 shall be applied to reduce permanently the Commitments.
Any such reduction of the Commitments shall be accompanied by prepayment of the
Loans to the extent, if any, that the Total Extensions of Credit exceed the
amount of the Total Commitments as so reduced. The application of any prepayment
pursuant to Section 2.6 shall be made, first, to ABR Loans and, second, to
Eurodollar Loans. Each prepayment of the Loans under Section 2.6 (except in the
case of Loans that are ABR Loans) shall be accompanied by accrued interest to
the date of such prepayment on the amount prepaid.
2.7 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election, provided that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election (which notice shall specify the length of the initial Interest
Period therefor), provided that no ABR Loan may be converted into a Eurodollar
Loan when any Event of Default has occurred and is continuing and the
Administrative Agent or the Required Lenders have determined in its or their
sole discretion not to permit such conversions. Upon receipt of any such notice
the Administrative Agent shall promptly notify each relevant Lender thereof.
(b) Any Eurodollar Loan may be continued as such upon the expiration of
the then current Interest Period with respect thereto by the Borrower giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan may be continued as such when any Event of Default has
occurred and is continuing and the Administrative Agent has or the Required
Lenders have determined in its or their sole discretion not to permit such
continuations, and provided, further, that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to ABR Loans on the last day of such then expiring
Interest Period. Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof.
2.8 Limitations on Eurodollar Tranches. Notwithstanding anything to the
contrary in this Agreement, all borrowings, conversions and continuations of
Eurodollar Loans hereunder and all selections of Interest Periods hereunder
shall be in such amounts and be made pursuant to such elections so that, (a)
after giving effect thereto, the aggregate principal amount of the Eurodollar
Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole
multiple of $1,000,000 in excess thereof and (b) no more than five Eurodollar
Tranches shall be outstanding at any one time.
2.9 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
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17
(c) (i) If all or a portion of the principal amount of any Loan shall
not be paid when due (whether at the stated maturity, by acceleration or
otherwise), all outstanding Loans (whether or not overdue) shall bear interest
at a rate per annum equal to the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this Section plus 2%, and (ii) if all or
a portion of any interest payable on any Loan or any commitment fee or other
amount payable hereunder shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate per annum equal to the rate then applicable to ABR Loans plus 2%, in
each case, with respect to clauses (i) and (ii) above, from the date of such
non-payment until such amount is paid in full (as well after as before
judgment).
(d) Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (c) of this Section shall
be payable from time to time on demand.
2.10 Computation of Interest and Fees. (a) Interest and fees payable
pursuant hereto shall be calculated on the basis of a 360-day year for the
actual days elapsed, except that, with respect to ABR Loans the rate of interest
on which is calculated on the basis of the Prime Rate, the interest thereon
shall be calculated on the basis of a 365- (or 366-, as the case may be) day
year for the actual days elapsed. The Administrative Agent shall as soon as
practicable notify the Borrower and the relevant Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a
change in the ABR or the Eurocurrency Reserve Requirements shall become
effective as of the opening of business on the day on which such change becomes
effective. The Administrative Agent shall as soon as practicable notify the
Borrower and the relevant Lenders of the effective date and the amount of each
such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.9(a).
2.11 Inability to Determine Interest Rate. If prior to the first day of
any Interest Period:
(a) the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Borrower) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means
do not exist for ascertaining the Eurodollar Rate for such Interest Period,
or
(b) the Administrative Agent shall have received notice from the
Required Lenders that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the relevant Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as ABR Loans, (y) any Loans that were to
have been converted on the first day of such Interest Period to Eurodollar Loans
shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall
be converted, on the last day of the then-current Interest Period, to ABR Loans.
Until such notice has been withdrawn by the Administrative Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert Loans to Eurodollar Loans.
<PAGE> 22
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2.12 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee and any reduction of the Commitments of the Lenders shall be
made pro rata according to the Percentages of the Lenders.
(b) Each payment (including each prepayment) by the Borrower on account
of principal of and interest on the Loans shall be made pro rata according to
the respective outstanding principal amounts of the Loans then held by the
Lenders.
(c) All payments (including prepayments) to be made by the Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff or counterclaim and shall be made prior to 12:00 Noon,
New York City time, on the due date thereof to the Administrative Agent, for the
account of the Lenders, at the Funding Office, in Dollars and in immediately
available funds. The Administrative Agent shall distribute such payments to the
Lenders promptly upon receipt in like funds as received. If any payment
hereunder (other than payments on the Eurodollar Loans) becomes due and payable
on a day other than a Business Day, such payment shall be extended to the next
succeeding Business Day. If any payment on a Eurodollar Loan becomes due and
payable on a day other than a Business Day, the maturity thereof shall be
extended to the next succeeding Business Day unless the result of such extension
would be to extend such payment into another calendar month, in which event such
payment shall be made on the immediately preceding Business Day. In the case of
any extension of any payment of principal pursuant to the preceding two
sentences, interest thereon shall be payable at the then applicable rate during
such extension.
(d) Unless the Administrative Agent shall have been notified in writing
by any Lender prior to a borrowing that such Lender will not make the amount
that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the Administrative
Agent by the required time on the Borrowing Date therefor, such Lender shall pay
to the Administrative Agent, on demand, such amount with interest thereon at a
rate equal to the daily average Federal Funds Effective Rate for the period
until such Lender makes such amount immediately available to the Administrative
Agent. A certificate of the Administrative Agent submitted to any Lender with
respect to any amounts owing under this paragraph shall be conclusive in the
absence of manifest error. If such Lender's share of such borrowing is not made
available to the Administrative Agent by such Lender within three Business Days
of such Borrowing Date, the Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans, on demand, from the Borrower.
(e) Unless the Administrative Agent shall have been notified in writing
by the Borrower prior to the date of any payment being made hereunder that the
Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that the Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by the Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against the Borrower.
2.13 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or
<PAGE> 23
19
directive (whether or not having the force of law) from any central bank or
other Governmental Authority made subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement or any Eurodollar Loan made by it, or change the
basis of taxation of payments to such Lender in respect thereof (except for
Non-Excluded Taxes covered by Section 2.14 and changes in the rate of tax
on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender that is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans, or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Lender, upon its demand, any additional amounts necessary to
compensate such Lender for such increased cost or reduced amount receivable (but
only to the extent actually suffered); provided that the Borrower shall not be
required to compensate a Lender pursuant to this paragraph for any amounts
incurred more than six months prior to the date that such Lender notifies the
Borrower of such Lender's intention to claim compensation therefor; and
provided, further, that, if the circumstances giving rise to such claim have a
retroactive effect, then such six-month period shall be extended to include the
period of such retroactive effect.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, after submission by such Lender to the
Borrower (with a copy to the Administrative Agent) of a written request
therefor, the Borrower shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction; provided that the
Borrower shall not be required to compensate a Lender pursuant to this paragraph
for any amounts incurred more than six months prior to the date that such Lender
notifies the Borrower of such Lender's intention to claim compensation therefor;
and provided, further, that, if the circumstances giving rise to such claim have
a retroactive effect, then such six-month period shall be extended to include
the period of such retroactive effect.
(c) A certificate as to any additional amounts payable pursuant to this
Section submitted by any Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrower pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.14 Taxes. (a) All payments made by the Borrower under this Agreement
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future
<PAGE> 24
20
income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions
or withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent
or any Lender as a result of a present or former connection between the
Administrative Agent or such Lender and the jurisdiction of the Governmental
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
other Loan Document). If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") or Other Taxes
are required to be withheld from any amounts payable to the Administrative Agent
or any Lender hereunder, the amounts so payable to the Administrative Agent or
such Lender shall be increased to the extent necessary to yield to the
Administrative Agent or such Lender (after payment of all Non-Excluded Taxes and
Other Taxes) interest or any such other amounts payable hereunder at the rates
or in the amounts specified in this Agreement, provided, however, that the
Borrower shall not be required to increase any such amounts payable to any
Lender with respect to any Non-Excluded Taxes (i) that are attributable to such
Lender's failure to comply with the requirements of paragraph (d) or (e) of this
Section or (ii) that are United States withholding taxes imposed on amounts
payable to such Lender at the time the Lender becomes a party to this Agreement,
except to the extent that such Lender's assignor (if any) was entitled, at the
time of assignment, to receive additional amounts from the Borrower with respect
to such Non-Excluded Taxes pursuant to this paragraph.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
(d) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America (or any
jurisdiction thereof), or any estate or trust that is subject to federal income
taxation regardless of the source of its income (a "Non-U.S. Lender") shall
deliver to the Borrower and the Administrative Agent (or, in the case of a
Participant, to the Lender from which the related participation shall have been
purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form
4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit G and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Borrower under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Borrower (or any other form of certification
adopted by the U.S. taxing authorities for
<PAGE> 25
21
such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S.
Lender shall not be required to deliver any form pursuant to this paragraph that
such Non-U.S. Lender is not legally able to deliver.
(e) A Lender that is entitled to an exemption from or reduction of
non-U.S. withholding tax under the law of the jurisdiction in which the Borrower
is located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
legally entitled to complete, execute and deliver such documentation and in such
Lender's judgment such completion, execution or submission would not materially
prejudice the legal position of such Lender.
(f) The agreements in this Section shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
2.15 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense that such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of or conversion
from Eurodollar Loans after the Borrower has given a notice thereof in
accordance with the provisions of this Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day that is not the last day of an Interest
Period with respect thereto. Such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest that would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of such Interest Period (or, in the case of a failure
to borrow, convert or continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) that would have accrued to such Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. A certificate as to any amounts payable
pursuant to this Section submitted to the Borrower by any Lender shall be
conclusive in the absence of manifest error. This covenant shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
2.16 Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.13 or 2.14(a)
with respect to such Lender, it will, if requested by the Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans affected by such event with the
object of avoiding the consequences of such event; provided that such
designation is made on terms that, in the sole judgment of such Lender, cause
such Lender and its lending office(s) to suffer no economic, legal or regulatory
disadvantage, and provided, further, that nothing in this Section shall affect
or postpone any of the obligations of any Borrower or the rights of any Lender
pursuant to Section 2.13 or 2.14(a).
2.17 Replacement of Lenders. The Borrower shall be permitted to replace
any Lender that (a) requests reimbursement for amounts owing pursuant to Section
2.13 or 2.14(a) or (b) defaults in its obligation to make Loans hereunder, with
a replacement financial institution; provided that (i) such replacement does not
conflict with any Requirement of Law, (ii) no Event of Default shall have
occurred and be continuing at the time of such replacement, (iii) prior to any
such replacement, such Lender shall
<PAGE> 26
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have taken no action under Section 2.16 so as to eliminate the continued need
for payment of amounts owing pursuant to Section 2.13 or 2.14(a), (iv) the
replacement financial institution shall purchase, at par, all Loans and other
amounts owing to such replaced Lender on or prior to the date of replacement,
(v) the Borrower shall be liable to such replaced Lender under Section 2.15 if
any Eurodollar Loan owing to such replaced Lender shall be purchased other than
on the last day of the Interest Period relating thereto, (vi) the replacement
financial institution, if not already a Lender, shall be reasonably satisfactory
to the Administrative Agent, (vii) the replaced Lender shall be obligated to
make such replacement in accordance with the provisions of Section 9.6 (provided
that the Borrower shall be obligated to pay the registration and processing fee
referred to therein), (viii) until such time as such replacement shall be
consummated, the Borrower shall pay all additional amounts (if any) required
pursuant to Section 2.13 or 2.14(a), as the case may be, and (ix) any such
replacement shall not be deemed to be a waiver of any rights that the Borrower,
the Administrative Agent or any other Lender shall have against the replaced
Lender.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans, Holdings and the Borrower hereby jointly and
severally represent and warrant to the Administrative Agent and each Lender
that:
3.1 Financial Condition. (a) The unaudited pro forma consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at December
31, 1998 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies
of which have heretofore been furnished to each Lender, has been prepared giving
effect (as if such events had occurred on such date) to (i) the Loans to be made
on the Closing Date and the use of proceeds thereof and (ii) the payment of fees
and expenses in connection with the foregoing. The Pro Forma Balance Sheet has
been prepared based on the best information available to the Borrower as of the
date of delivery thereof, and presents fairly on a pro forma basis the estimated
financial position of Borrower and its consolidated Subsidiaries as at December
31, 1998, assuming that the events specified in the preceding sentence had
actually occurred at such date.
(b) The audited consolidated balance sheets of the Borrower as at
December 31, 1997 and December 31, 1998, and the related consolidated statements
of income and of cash flows for the fiscal years ended on such dates, reported
on by and accompanied by an unqualified report from Arthur Andersen LLP, present
fairly the consolidated financial condition of the Borrower as at such dates,
and the consolidated results of its operations and its consolidated cash flows
for the respective fiscal years then ended. The unaudited consolidated balance
sheet of the Borrower as at January 31, 1999, and the related unaudited
consolidated statements of income and cash flows for the one-month period ended
on such date, present fairly the consolidated financial condition of the
Borrower as at such date, and the consolidated results of its operations and its
consolidated cash flows for the one-month period then ended (subject to normal
year-end audit adjustments). All such financial statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by the
aforementioned firm of accountants and disclosed therein). Holdings, the
Borrower and its Subsidiaries do not have any material Guarantee Obligations,
contingent liabilities and liabilities for taxes, or any long-term leases or
unusual forward or long-term commitments, including any interest rate or foreign
currency swap or exchange transaction or other obligation in respect of
derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from December 31, 1998 to and
including the date hereof there has been no Disposition by the Borrower of any
material part of its business or property.
3.2 No Change. Since December 31, 1998 there has been no development or
event that has had or could reasonably be expected to have a Material Adverse
Effect.
<PAGE> 27
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3.3 Corporate Existence; Compliance with Law. Each of Holdings and its
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (b) has the corporate power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan
Party has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and, in the case
of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Loan Documents to which it is a party and, in the case of the Borrower, to
authorize the borrowings on the terms and conditions of this Agreement. No
consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person is required in
connection with the borrowings hereunder or with the execution, delivery,
performance, validity or enforceability of this Agreement or any of the Loan
Documents, except (i) consents, authorizations, filings and notices described in
Schedule 3.4, which consents, authorizations, filings and notices have been
obtained or made and are in full force and effect and (ii) the filings referred
to in Section 3.19. Each Loan Document has been duly executed and delivered on
behalf of each Loan Party party thereto. This Agreement constitutes, and each
other Loan Document upon execution will constitute, a legal, valid and binding
obligation of each Loan Party party thereto, enforceable against each such Loan
Party in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (whether enforcement is sought by proceedings in equity or
at law).
3.5 No Legal Bar. The execution, delivery and performance of this
Agreement and the other Loan Documents, the borrowings hereunder and the use of
the proceeds thereof will not violate any Requirement of Law or any Contractual
Obligation of Holdings or any of its Subsidiaries and will not result in, or
require, the creation or imposition of any Lien on any of their respective
properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).
No Requirement of Law or Contractual Obligation applicable to Holdings or any of
its Subsidiaries could reasonably be expected to have a Material Adverse Effect.
3.6 Litigation. No litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the knowledge of
Holdings or the Borrower, threatened by or against Holdings or any of its
Subsidiaries or against any of their respective properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) that could reasonably be expected to have a Material
Adverse Effect.
3.7 No Default. Neither Holdings nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect that could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Each of Holdings and its Subsidiaries
has title in fee simple to, or a valid leasehold interest in, or rights to use,
all its real property, and good title to, or a valid leasehold interest in, or
rights to use, all its other property, and none of such property is subject to
any Lien except as permitted by Section 6.3.
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3.9 Intellectual Property. Holdings and each of its Subsidiaries owns,
is licensed to use or has made all necessary applications or registrations for
all Intellectual Property necessary for the conduct of its business as currently
conducted. No material claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any Intellectual Property, nor does Holdings or the Borrower
know of any valid basis for any such claim. The use of Intellectual Property by
Holdings and its Subsidiaries does not infringe on the rights of any Person in
any material respect.
3.10 Taxes. Each of Holdings and each of its Subsidiaries has filed or
caused to be filed all Federal, state and other material tax returns and
extensions that are required to be filed and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it or any of its
property and all other taxes, fees or other charges imposed on it or any of its
property by any Governmental Authority (other than any the amount or validity of
that are currently being contested in good faith by appropriate proceedings and
with respect to which reserves in conformity with GAAP have been provided on the
books of Holdings or its Subsidiaries, as the case may be); no tax Lien has been
filed, and, to the knowledge of Holdings and the Borrower, no claim is being
asserted, with respect to any such tax, fee or other charge.
3.11 Federal Regulations. No part of the proceeds of any Loans will be
used for "buying" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U as now and from time to
time hereafter in effect or for any purpose that violates the provisions of the
Regulations of the Board. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1, as applicable, referred to in Regulation U.
3.12 Labor Matters. Except as, in the aggregate, could not reasonably
be expected to have a Material Adverse Effect: (a) there are no strikes or other
labor disputes against Holdings or any of its Subsidiaries pending or, to the
knowledge of Holdings or the Borrower, threatened; (b) hours worked by and
payment made to employees of Holdings and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable Requirement of
Law dealing with such matters; and (c) all payments due from Holdings or any of
its Subsidiaries on account of employee health and welfare insurance have been
paid or accrued as a liability on the books of Holdings or the relevant
Subsidiary.
3.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could reasonably be expected to result in a material liability
under ERISA, and neither the Borrower nor any Commonly Controlled Entity would
become subject to any material liability under ERISA if the Borrower or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
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3.14 Investment Company Act; Other Regulations. No Loan Party is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.
3.15 Subsidiaries. Except as disclosed to the Administrative Agent by
the Borrower in writing from time to time after the Closing Date, () Schedule
3.15 sets forth the name and jurisdiction of incorporation of each Subsidiary
and, as to each such Subsidiary, the percentage of each class of Capital Stock
owned by any Loan Party and () there are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other than stock
options granted to employees or directors and directors' qualifying shares) of
any nature relating to any Capital Stock of the Borrower or any other Subsidiary
of Holdings, except as created by the Loan Documents.
3.16 Use of Proceeds. The proceeds of the Loans shall be used to
finance the Borrower's build-out of fiber optic networks, to pay related fees
and expenses, to finance the working capital needs of the Borrower and its
Subsidiaries in the ordinary course of business and for other general corporate
purposes.
3.17 Environmental Matters. Except as, in the aggregate, could not
reasonably be expected to result in the payment of a Material Environmental
Amount:
(a) to the best knowledge of the Borrower after reasonable
investigation, the facilities and properties owned, leased or operated by
Holdings, the Borrower or any of its Subsidiaries (the "Properties") do not
contain, and have not previously contained, any Materials of Environmental
Concern in amounts or concentrations or under circumstances that constitute
or constituted a violation of, or could give rise to liability under, any
Environmental Law;
(b) neither Holdings, the Borrower nor any of its Subsidiaries has
received or is aware of any notice of violation, alleged violation,
non-compliance, liability or potential liability regarding environmental
matters or compliance with Environmental Laws with regard to any of the
Properties or the business operated by Holdings or any of its Subsidiaries
(the "Business"), nor does Holdings or the Borrower have knowledge or
reason to believe that any such notice will be received or is being
threatened;
(c) to the best knowledge of the Borrower after reasonable
investigation, Materials of Environmental Concern have not been transported
or disposed of from the Properties in violation of, or in a manner or to a
location that could give rise to liability under, any Environmental Law,
nor have any Materials of Environmental Concern been generated, treated,
stored or disposed of at, on or under any of the Properties in violation
of, or in a manner that could give rise to liability under, any applicable
Environmental Law;
(d) to the best knowledge of the Borrower after reasonable
investigation, no judicial proceeding or governmental or administrative
action is pending or, to the knowledge of Holdings and the Borrower,
threatened, under any Environmental Law to which Holdings, the Borrower or
any Subsidiary is or will be named as a party with respect to the
Properties or the Business, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental
Law with respect to the Properties or the Business;
(e) to the best knowledge of the Borrower after reasonable
investigation, there has been no release or threat of release of Materials
of Environmental Concern at or from the Properties,
<PAGE> 30
26
or arising from or related to the operations of Holdings or any Subsidiary
in connection with the Properties or otherwise in connection with the
Business, in violation of or in amounts or in a manner that could give
rise to liability under Environmental Laws;
(f) the Properties and all operations at the Properties are in
compliance, and have in the last two years been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under or
about the Properties or violation of any Environmental Law with respect to
the Properties or the Business; and
(g) neither Holdings nor any of its Subsidiaries has assumed any
liability of any other Person under Environmental Laws.
3.18 Accuracy of Information, etc. No statement or information
contained in this Agreement, any other Loan Document or any other document,
certificate or statement prepared by or on behalf of and furnished by or on
behalf of any Loan Party to the Administrative Agent or the Lenders, or any of
them, for use in connection with the transactions contemplated by this Agreement
or the other Loan Documents, contained as of the date such statement,
information, document or certificate was so furnished, any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements contained herein or therein not misleading. The projections and pro
forma financial information contained in the materials referenced above are
based upon good faith estimates and assumptions believed by management of the
Borrower to be reasonable at the time made, it being recognized by the Lenders
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount. There is no fact known to any Loan Party that
could reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents or in any other
documents, certificates and statements furnished to the Administrative Agent and
the Lenders for use in connection with the transactions contemplated hereby and
by the other Loan Documents.
3.19 Security Documents. The Guarantee and Collateral Agreement is
effective to create in favor of the Administrative Agent, for the benefit of the
Lenders, a legal, valid and enforceable security interest in the Collateral
described therein and proceeds thereof. In the case of the Pledged Stock
described in the Guarantee and Collateral Agreement, when stock certificates
representing such Pledged Stock are delivered to the Administrative Agent, and
in the case of the other Collateral described in the Guarantee and Collateral
Agreement, when financing statements and other filings specified on Schedule
3.19 in appropriate form are filed in the offices specified on Schedule 3.19,
the Guarantee and Collateral Agreement shall constitute a fully perfected Lien
on (to the extent a security interest is perfected by the filing of a financing
statement), and security interest in, all right, title and interest of the Loan
Parties in such Collateral and the proceeds thereof, as security for the
Obligations (as defined in the Guarantee and Collateral Agreement), in each case
prior and superior in right to any other Person (except, in the case of
Collateral other than Pledged Stock, Liens permitted by Section 6.3).
3.20 Solvency. Each Loan Party is, and after giving effect to the
incurrence of all Indebtedness and obligations being incurred in connection
herewith will be and will continue to be, Solvent.
3.21 Year 2000 Matters. Any reprogramming required to permit the proper
functioning (but only to the extent that such proper functioning would otherwise
be impaired by the occurrence of the year 2000) in and following the year 2000
of material computer systems and other equipment containing embedded microchips,
in either case owned or operated by Holdings or any of its Subsidiaries or used
or relied upon in the conduct of their business (including, to the best
knowledge of Holdings and the
<PAGE> 31
27
Borrower, any such systems and other equipment supplied by others or with which
the computer systems of Holdings or any of its Subsidiaries interface), and the
testing of all such systems and other equipment as so reprogrammed, will be
completed on or before September 30, 1999. The costs to Holdings and its
Subsidiaries that have not been incurred as of the date hereof for such
reprogramming and testing and for the other reasonably foreseeable consequences
to them of any improper functioning of other computer systems and equipment
containing embedded microchips due to the occurrence of the year 2000 could not
reasonably be expected to result in a Default or Event of Default or to have a
Material Adverse Effect. Except for any reprogramming referred to above, the
computer systems of Holdings and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to be,
sufficient for the conduct of their business as currently conducted.
3.22 Real Estate. None of Holdings or any of its Subsidiaries holds any
real property having a value (together with improvements thereof) of at least
$250,000 which property is not covered by a mortgage in favor of the
Administrative Agent, for the benefit of the Lenders.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Extension of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date (but in any event no later than the
Scheduled Termination Date), of the following conditions precedent:
(a) Credit Agreement; Guarantee and Collateral Agreement. The
Administrative Agent shall have received (i) this Agreement, executed and
delivered by the Administrative Agent, Holdings, the Borrower and each
Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral
Agreement, executed and delivered by Holdings, the Borrower and each
Subsidiary Guarantor and (iii) an Acknowledgement and Consent in the form
attached to the Guarantee and Collateral Agreement, executed and delivered
by each Issuer (as defined therein), if any, that is not a Loan Party.
(b) Pro Forma Balance Sheet; Financial Statements. The Lenders shall
have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated
financial statements of the Borrower for the 1997 and 1998 fiscal years and
(iii) unaudited interim consolidated financial statements of the Borrower
for each fiscal month and quarterly period ended subsequent to the date of
the latest applicable financial statements delivered pursuant to clause
(ii) of this paragraph as to which such financial statements are available,
and such financial statements shall not, in the reasonable judgment of the
Lenders, reflect any material adverse change in the consolidated financial
condition of the Borrower.
(c) Approvals. All governmental and third party approvals (including
landlords' and other consents) necessary or, in the discretion of the
Administrative Agent, advisable in connection with the continuing
operations of Holdings and its Subsidiaries and the transactions
contemplated hereby shall have been obtained and be in full force and
effect, and all applicable waiting periods shall have expired without any
action being taken or threatened by any competent authority that would
restrain, prevent or otherwise impose adverse conditions on the financing
contemplated hereby.
(d) Lien Searches. The Administrative Agent shall have received the
results of a recent lien search in each of the jurisdictions where assets
of the Loan Parties are located, and such search shall reveal no liens on
any of the assets of the Borrower or its Subsidiaries except for
<PAGE> 32
28
liens permitted by Section 6.3 or discharged on or prior to the Closing
Date pursuant to documentation satisfactory to the Administrative Agent.
(e) Fees. The Lenders and the Administrative Agent shall have received
all fees required to be paid, and all expenses for which invoices have been
presented (including the reasonable fees and expenses of legal counsel), on
or before the Closing Date. All such amounts will be paid with proceeds of
Loans made on the Closing Date and will be reflected in the funding
instructions given by the Borrower to the Administrative Agent on or before
the Closing Date.
(f) Closing Certificate. The Administrative Agent shall have received,
with a counterpart for each Lender, a certificate of each Loan Party, dated
the Closing Date, substantially in the form of Exhibit C, with appropriate
insertions and attachments.
(g) Legal Opinions. The Administrative Agent shall have received the
following executed legal opinions:
(i) the legal opinion of Kirkland & Ellis, counsel to Holdings
and its Subsidiaries, substantially in the form of Exhibit F-1;
(ii) the legal opinion of local counsel in each of California,
Texas, Massachusetts, Georgia and Washington, DC, and of such other
special and local counsel as may be required by the Administrative
Agent, such opinions to be substantially in the form of Exhibit F-2;
and
(iii) the legal opinion of special telecommunications counsel
to Holdings and its Subsidiaries, in form and substance satisfactory
to the Lenders.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
(h) Pledged Stock; Stock Powers; Pledged Notes. The Administrative
Agent shall have received (i) the certificates representing the shares of
Capital Stock pledged pursuant to the Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in
blank by a duly authorized officer of the pledgor thereof and (ii) each
promissory note (if any) pledged to the Administrative Agent pursuant to
the Guarantee and Collateral Agreement endorsed (without recourse) in blank
(or accompanied by an executed transfer form in blank) by the pledgor
thereof.
(i) Filings, Registrations and Recordings. Each document (including any
Uniform Commercial Code financing statement) required by the Security
Documents or under law or reasonably requested by the Administrative Agent
to be filed, registered or recorded in order to create in favor of the
Administrative Agent, for the benefit of the Lenders, a perfected Lien on
the Collateral described therein, prior and superior in right to any other
Person (other than with respect to Liens expressly permitted by Section
6.3), shall be in proper form for filing, registration or recordation.
(j) License Agreement Consents. The Administrative Agent shall have
received consents, in form and substance satisfactory to the Administrative
Agent and at least covering the items set forth in Exhibit D, from
licensors under all License Agreements to the assignment of such License
Agreements pursuant to the Guarantee and Collateral Agreement.
<PAGE> 33
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(k) Insurance. The Administrative Agent shall have received insurance
certificates satisfying the requirements of Section 5.2(b) of the Guarantee
and Collateral Agreement.
(l) Permitted Subordinated Indebtedness; Capital Structure. If Holdings
has issued or incurred any Permitted Subordinated Indebtedness, the
Administrative Agent shall have received satisfactory evidence that the
terms and conditions of such Permitted Subordinated Indebtedness are
acceptable to the Administrative Agent, in its sole discretion. The capital
structure of each Loan Party shall be satisfactory in all respects to the
Administrative Agent.
(m) Business Plan. The Lenders shall have received a satisfactory
business plan for fiscal years 1999-2002 and a satisfactory written
analysis of the business and prospects of the Borrower and its Subsidiaries
for the period from the Closing Date through the Scheduled Termination
Date.
(n) Budget. The Lenders shall have received a detailed budget for
fiscal year 2000 of the Borrower and its Subsidiaries in form and substance
satisfactory to the Lenders.
(o) Financial Covenants. The Lenders and the Borrower shall have
executed and delivered an amendment to this Agreement whereby (i) amounts
and numbers for each month ending after fiscal year 1999 with respect to
the covenants set forth in Sections 6.1(d), (e) and (f) shall be added to
this Agreement and (ii) amounts for Capital Expenditures with respect to
the covenant set forth in Section 6.7(b) shall be added to this Agreement,
such amendment to be satisfactory to the Lenders in their absolute and sole
discretion.
4.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including its initial extension of credit) is subject to the satisfaction of
the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by any Loan Party in or pursuant to the Loan Documents
shall be true and correct in all material respects on and as of such date
as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the extensions of
credit requested to be made on such date.
(c) Utilization of Other Capital. (i) All but $12,500,000 of the
aggregate Net Cash Proceeds of sales or issuances of equity securities
prior to the Closing Date by Holdings and its Subsidiaries and (ii) all the
Net Cash Proceeds from the incurrence of Permitted Subordinated
Indebtedness by Holdings, shall have been utilized, with evidence, in form
and substance satisfactory to the Administrative Agent, of such utilization
having been delivered to the Administrative Agent.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such extension of credit that the
conditions contained in this Section 4.2 have been satisfied.
SECTION 5. AFFIRMATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect or any Loan or other amount (other than
contingent obligations and indemnities which are not then due and payable but
which survive repayment of the Loans and
<PAGE> 34
30
termination of the Commitments) is owing to any Lender or the Administrative
Agent hereunder, each of Holdings and the Borrower shall and shall cause each of
its Subsidiaries to:
5.1 Financial Statements. Furnish to the Administrative Agent and each
Lender:
(a) as soon as available, but in any event within 90 days after the end
of each fiscal year of Holdings, a copy of the audited consolidated balance
sheet of Holdings and its consolidated Subsidiaries as at the end of such
year and the related audited consolidated statements of income and of cash
flows for such year, setting forth in each case in comparative form the
figures for the previous year, reported on without a "going concern" or
like qualification or exception, or qualification arising out of the scope
of the audit, by Arthur Andersen LLP or other independent certified public
accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days after
the end of each of the first three quarterly periods of each fiscal year of
Holdings, the unaudited consolidated balance sheet of Holdings and its
consolidated Subsidiaries as at the end of such quarter and the related
unaudited consolidated statements of income and of cash flows for such
quarter and the portion of the fiscal year through the end of such quarter,
setting forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all
material respects (subject to normal year-end audit adjustments); and
(c) as soon as available, but in any event not later than 45 days after
the end of each month occurring during each fiscal year of Holdings (other
than the third, sixth, ninth and twelfth such month), the unaudited
consolidated balance sheets of Holdings and its Subsidiaries as at the end
of such month and the related unaudited consolidated statements of income
and of cash flows for such month and the portion of the fiscal year through
the end of such month, setting forth in each case in comparative form the
figures for the previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end audit
adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 Certificates; Other Information. Furnish to the Administrative
Agent and each Lender (or, in the case of clause (g), to the relevant Lender):
(a) concurrently with the delivery of the financial statements referred
to in Section 5.1(a), a certificate of the independent certified public
accountants reporting on such financial statements stating that in making
the examination necessary therefor no knowledge was obtained of any Default
or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of any financial statements pursuant
to Section 5.1, (i) a certificate of a Responsible Officer stating that, to
the best of each such Responsible Officer's knowledge, each Loan Party
during such period has observed or performed all of its covenants and other
agreements, and satisfied every condition, contained in this Agreement and
the other Loan Documents to which it is a party to be observed, performed
or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default except as specified in such
certificate and (ii) in the case of quarterly or annual financial
statements, (x) a Compliance Certificate containing all information and
calculations necessary for determining
<PAGE> 35
31
compliance by Holdings and its Subsidiaries with the provisions of this
Agreement referred to therein as of the last day of the fiscal quarter or
fiscal year of Holdings, as the case may be, and (y) to the extent not
previously disclosed to the Administrative Agent, a listing of any county
or state within the United States where any Loan Party keeps inventory or
equipment and of any federally-registered Intellectual Property acquired
by any Loan Party since the date of the most recent list delivered
pursuant to this clause (y) (or, in the case of the first such list so
delivered, since the Closing Date);
(c) as soon as available, and in any event no later than 45 days after
the end of each fiscal year of the Borrower, a detailed consolidated budget
for the following fiscal year (including a projected consolidated balance
sheet of Holdings and its Subsidiaries as of the end of the following
fiscal year, the related consolidated statements of projected cash flow,
projected changes in financial position and projected income and a
description of the underlying assumptions applicable thereto), and, as soon
as available, significant revisions, if any, of such budget and projections
with respect to such fiscal year (collectively, the "Projections"), which
Projections shall in each case be accompanied by a certificate of a
Responsible Officer stating that such Projections are based on reasonable
estimates, information and assumptions and that such Responsible Officer
has no reason to believe that such Projections are incorrect or misleading
in any material respect;
(d) within 45 days after the end of each fiscal quarter of Holdings, a
narrative discussion and analysis of the financial condition and results of
operations of Holdings and its Subsidiaries for such fiscal quarter and for
the period from the beginning of the then current fiscal year to the end of
such fiscal quarter, as compared to the portion of the Projections covering
such periods and to the comparable periods of the previous year;
(e) within five days after the same are sent, copies of all financial
statements and reports that Holdings or the Borrower sends to the holders
of any class of its debt securities or public equity securities and, within
five days after the same are filed, copies of all financial statements and
reports that Holdings or the Borrower may make to, or file with, the SEC;
and
(f) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
material obligations (other than Indebtedness) of whatever nature, except where
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and reserves in conformity with GAAP with respect
thereto have been provided on the books of Holdings, the Borrower or its
Subsidiaries, as the case may be.
5.4 Maintenance of Existence; Compliance. (a) (i) preserve, renew and
keep in full force and effect its corporate existence and (ii) take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business, except, in each case, as
otherwise permitted by Section 6.4 and except, in the case of clause (ii) above,
to the extent that failure to do so could not reasonably be expected to have a
Material Adverse Effect; and (b) comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. (a) Keep all property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted and (b) maintain with financially sound and reputable
insurance companies insurance on all its property in at least such
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32
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.
5.6 Inspection of Property; Books and Records; Discussions. (a) Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities and (b) permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of Holdings and its
Subsidiaries with officers and employees of Holdings and its Subsidiaries and
with its independent certified public accountants.
5.7 Notices. Promptly give notice to the Administrative Agent and each
Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of Holdings or any of its Subsidiaries or (ii) litigation,
investigation or proceeding that may exist at any time between Holdings or
any of its Subsidiaries and any Governmental Authority, that in either
case, if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting Holdings or any of its
Subsidiaries in which the amount involved is $100,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) the following events, as soon as possible and in any event within
30 days after Holdings or the Borrower knows or has reason to know thereof:
(i) the occurrence of any Reportable Event with respect to any Plan, a
failure to make any required contribution to a Plan, the creation of any
Lien in favor of the PBGC or a Plan or any withdrawal from, or the
termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Plan; and
(e) any development or event that has had or could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this Section 5.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action Holdings or the relevant Subsidiary proposes to
take with respect thereto.
5.8 Environmental Laws. (a) Comply in all material respects with all
applicable Environmental Laws, and obtain and comply in all material respects
with and maintain any and all licenses, approvals, notifications, registrations
or permits required by applicable Environmental Laws, to the extent that failure
to comply with or so obtain could reasonably be expected to have a Material
Adverse Effect.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all
<PAGE> 37
33
material respects with all lawful orders and directives of all Governmental
Authorities regarding Environmental Laws.
5.9 Additional Collateral, etc. (a) With respect to any property
acquired after the Closing Date by Holdings or any of its Subsidiaries (other
than (x) any property described in paragraph (b), (c) or (d) below, (y) any
property subject to a Lien expressly permitted by Section 6.3(g) and (z)
property acquired by any Excluded Foreign Subsidiary) as to which the
Administrative Agent, for the benefit of the Lenders, does not have a perfected
Lien, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement or such other documents as
the Administrative Agent deems necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a security interest in
such property and (ii) take all actions necessary or advisable to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in such property, including the filing of Uniform Commercial
Code financing statements in such jurisdictions as may be required by the
Guarantee and Collateral Agreement or by law or as may be requested by the
Administrative Agent; provided that Holdings and its Subsidiaries shall not be
required to comply with the requirements of this Section 5.9(a) if the
Administrative Agent, in its sole discretion, determines that the cost of such
compliance is excessive in relation to the value of the collateral security to
be afforded thereby.
(b) With respect to any fee interest in any real property having a
value (together with improvements thereof) of at least $500,000 acquired after
the Closing Date by Holdings, the Borrower or any of its Subsidiaries (other
than (x) any such real property subject to a Lien expressly permitted by Section
6.3(g) and (z) real property acquired by any Excluded Foreign Subsidiary),
promptly (i) execute and deliver a first priority mortgage (in form and
substance satisfactory to the Administrative Agent), in favor of the
Administrative Agent, for the benefit of the Lenders, covering such real
property, (ii) if requested by the Administrative Agent, provide the Lenders
with (x) title and extended coverage insurance covering such real property in an
amount at least equal to the purchase price of such real property (or such other
amount as shall be reasonably specified by the Administrative Agent) as well as
a current ALTA survey thereof, together with a surveyor's certificate and (y)
any consents or estoppels reasonably deemed necessary or advisable by the
Administrative Agent in connection with such mortgage or deed of trust, each of
the foregoing in form and substance reasonably satisfactory to the
Administrative Agent and (iii) if requested by the Administrative Agent, deliver
to the Administrative Agent legal opinions relating to the matters described
above, which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
(c) With respect to any new Subsidiary (other than an Excluded Foreign
Subsidiary) created or acquired after the Closing Date by Holdings (which, for
the purposes of this paragraph (c), shall include any existing Subsidiary that
ceases to be an Excluded Foreign Subsidiary) or any of its Subsidiaries,
promptly (i) execute and deliver to the Administrative Agent such amendments to
the Guarantee and Collateral Agreement as the Administrative Agent deems
necessary or advisable to grant to the Administrative Agent, for the benefit of
the Lenders, a perfected first priority security interest in the Capital Stock
of such new Subsidiary that is owned by Holdings or any of its Subsidiaries,
(ii) deliver to the Administrative Agent the certificates representing such
Capital Stock, together with undated stock powers, in blank, executed and
delivered by a duly authorized officer of Holdings or such Subsidiary, as the
case may be, (iii) cause such new Subsidiary (A) to become a party to the
Guarantee and Collateral Agreement, (B) to take such actions necessary or
advisable to grant to the Administrative Agent for the benefit of the Lenders a
perfected first priority security interest in the Collateral described in the
Guarantee and Collateral Agreement with respect to such new Subsidiary,
including the filing of Uniform Commercial Code financing statements in such
jurisdictions as may be required by the Guarantee and Collateral Agreement or by
law or as may be requested by the Administrative Agent and (C) to deliver to the
Administrative Agent a certificate of such Subsidiary, substantially in the form
of Exhibit C, with
<PAGE> 38
34
appropriate insertions and attachments, and (iv) if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(d) With respect to any new Excluded Foreign Subsidiary created or
acquired after the Closing Date by Holdings, the Borrower or any of its
Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such
amendments to the Guarantee and Collateral Agreement as the Administrative Agent
deems necessary or advisable to grant to the Administrative Agent, for the
benefit of the Lenders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary that is owned by Holdings, the Borrower or
any of its Subsidiaries (provided that in no event shall more than 65% of the
total outstanding voting Capital Stock of any such new Subsidiary be required to
be so pledged), (ii) deliver to the Administrative Agent the certificates
representing such Capital Stock, together with undated stock powers, in blank,
executed and delivered by a duly authorized officer of Holdings, the Borrower or
such Subsidiary, as the case may be, and take such other action as may be
necessary or, in the opinion of the Administrative Agent, desirable to perfect
the Administrative Agent's security interest therein, and (iii) if requested by
the Administrative Agent, deliver to the Administrative Agent legal opinions
relating to the matters described above, which opinions shall be in form and
substance, and from counsel, reasonably satisfactory to the Administrative
Agent.
(e) With respect to any License Agreement entered into by Holdings or
any of its Subsidiaries after the Closing Date, promptly (i) cause to be filed
such further UCC financing statements or other documents as requested by the
Administrative Agent to protect the Administrative Agent's and the Lenders'
Liens under the Guarantee and Collateral Agreement in connection therewith,
including, without limitation, any fixture filings which are so requested and
(ii) cause the building owner party to such License Agreement to execute and
deliver a consent in substantially the form of Exhibit D to the extent the
provisions of such Exhibit D are not included in such License Agreement.
SECTION 6. NEGATIVE COVENANTS
Holdings and the Borrower hereby jointly and severally agree that, so
long as the Commitments remain in effect or any Loan or other amount (other than
contingent obligations and indemnities which are not then due and payable but
which survive repayment of the Loans and termination of the Commitments) is
owing to any Lender or the Administrative Agent hereunder, each of Holdings and
the Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly:
6.1 Financial Condition Covenants.
(a) Minimum Cash Balance. Permit the Cash Balance on any date to be
less than $6,000,000.
(b) Maximum Senior Debt to Total Capitalization. Permit the ratio of
Senior Debt to Total Capitalization on any date to exceed 0.55 to 1.
(c) Maximum Total Debt to Total Capitalization. Permit the ratio of
Total Debt to Total Capitalization on any date to exceed 0.70 to 1.
(d) Minimum Buildings Units Wired and Revenue. (i) Permit the number of
Wired Building Units on any of the dates set forth below to be less than the
number set forth opposite such date:
<TABLE>
<CAPTION>
Dates Number
----- ------
<S> <C>
June 30, 1999 36
</TABLE>
<PAGE> 39
35
<TABLE>
<S> <C>
July 31, 1999 41
August 31, 1999 58
September 30, 1999 67
October 31, 1999 77
November 30, 1999 88
December 31, 1999 99
</TABLE>
or permit the number of Wired Building Units on the last day of each month
thereafter to be less than the number agreed upon pursuant to Section 4.1(o), or
(ii) permit Consolidated Total Revenue for the month ended on any of the dates
set forth below to be less than the amount set forth opposite such date:
<TABLE>
<CAPTION>
Dates Amount
----- ------
<S> <C>
June 30, 1999 $ 42,000
July 31, 1999 $ 45,000
August 31, 1999 $ 91,000
September 30, 1999 $ 94,000
October 31, 1999 $129,000
November 30, 1999 $270,000
December 31, 1999 $352,000
</TABLE>
or permit Consolidated Total Revenue for the the month ended on the last day of
each month thereafter to be less than the amount agreed upon pursuant to Section
4.1(o). On any date specified in the foregoing clauses (i) and (ii), Holdings
and the Borrower shall be required to comply with either the covenant set forth
in clause (i) or the covenant in clause (ii), and shall not be required to
comply on such date with the covenants set forth in both clauses (i) and (ii).
(e) Maximum SG&A Expenses. Permit SG&A Expenses for the three months
ended on any of the dates set forth below to exceed the amount set forth
opposite such date:
<TABLE>
<CAPTION>
Dates Amount
----- ------
<S> <C>
March 31, 1999 $5,400,000
April 30, 1999 $6,600,000
May 31, 1999 $7,200,000
June 30, 1999 $7,700,000
July 31, 1999 $7,900,000
August 31, 1999 $7,900,000
September 30, 1999 $7,900,000
October 31, 1999 $7,900,000
November 30, 1999 $7,900,000
December 31, 1999 $7,900,000
</TABLE>
or permit SG&A Expenses for the three months ended on the last day of each month
thereafter to exceed the amount agreed upon pursuant to Section 4.1(o).
(f) Minimum EBITDA. Permit EBITDA for the three months ended on any of
the dates set forth below to be less than the amount set forth opposite such
date:
<TABLE>
<CAPTION>
Dates Amount
----- ------
<S> <C>
March 31, 1999 ($6,500,000)
April 30, 1999 ($7,800,000)
May 31, 1999 ($8,800,000)
</TABLE>
<PAGE> 40
36
<TABLE>
<S> <C>
June 30, 1999 ($9,400,000)
July 31, 1999 ($9,800,000)
August 31, 1999 ($9,800,000)
September 30, 1999 ($9,800,000)
October 31, 1999 ($9,500,000)
November 30, 1999 ($9,500,000)
December 31, 1999 ($9,500,000)
</TABLE>
or permit EBITDA for the three months ended on the last day of each month
thereafter to be less than the amount agreed upon pursuant to Section 4.1(o).
6.2 Indebtedness. Create, issue, incur, assume, become liable in
respect of or suffer to exist any Indebtedness, except:
(a) Indebtedness of any Loan Party pursuant to any Loan Document;
(b) Indebtedness of the Borrower to any Subsidiary and of any Wholly
Owned Subsidiary Guarantor to the Borrower or any other Subsidiary;
(c) Guarantee Obligations incurred in the ordinary course of business
by the Borrower or any of its Subsidiaries of obligations of any Wholly
Owned Subsidiary Guarantor;
(d) Indebtedness outstanding on the date hereof and listed on Schedule
6.2(d) and any refinancings, refundings, renewals or extensions thereof
(without increasing, or shortening the maturity of, the principal amount
thereof);
(e) Indebtedness (including, without limitation, Capital Lease
Obligations) secured by Liens permitted by Section 6.3(g) in an aggregate
principal amount not to exceed (i) at all times on or prior to December 31,
1999, $16,000,000 and (ii) thereafter, $20,000,000, in each case at any one
time outstanding;
(f) (i) Permitted Subordinated Indebtedness in an aggregate principal
amount not to exceed $75,000,000; provided that the Net Cash Proceeds of
such Indebtedness are immediately (A) contributed as cash equity to the
Borrower or (B) loaned to the Borrower, provided that no amortization of
principal of such loan shall occur until after the Scheduled Termination
Date and after all Obligations have been fully paid and satisfied and such
loan shall have subordination terms and other terms and conditions
(including, covenants, events of default, interest rate) as shall be
satisfactory to the Required Lenders in the exercise of their sole
discretion, and (ii) Guarantee Obligations of the Borrower and any
Subsidiary Guarantor in respect of such Permitted Subordinated Indebtedness,
provided that such Guarantee Obligations are subordinated to the same extent
as the obligations of Holdings in respect of the Permitted Subordinated
Indebtedness;
(g) Indebtedness resulting from refinancings, refundings, renewals or
extensions of Permitted Subordinated Indebtedness which do not increase or
shorten the maturity of the principal amount thereof and which is on terms
and conditions (including, covenants, events of default, interest rate) as
are satisfactory to the Required Lenders in the exercise of their sole
discretion;
(h) Indebtedness of a corporation which becomes a Subsidiary after the
date hereof, provided that (A) such Indebtedness existed at the time such
corporation became a Subsidiary
<PAGE> 41
37
and was not created in anticipation of the acquisition and (B) immediately
after giving effect to the acquisition of such corporation by the Borrower
no Default or Event of Default shall have occurred and be continuing; and
(i) additional Indebtedness of the Borrower or any of its Subsidiaries
in an aggregate principal amount (for the Borrower and all Subsidiaries) not
to exceed $1,000,000 at any one time outstanding.
6.3 Liens. Create, incur, assume or suffer to exist any Lien upon any
of its property, whether now owned or hereafter acquired, except for:
(a) Liens for taxes not yet due or that are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, landlords', mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
that are not overdue for a period of more than 30 days or that are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not substantial in amount and that do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or any of its Subsidiaries;
(f) Liens in existence on the date hereof listed on Schedule 6.3(f),
securing Indebtedness permitted by Section 6.2(d), provided that no such
Lien is spread to cover any additional property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased, and
extensions, renewals and replacements of such Liens that do not increase
the outstanding principal amount thereof;
(g) Liens securing Indebtedness of the Borrower or any other Subsidiary
incurred pursuant to Section 6.2(e) to finance the acquisition of fixed or
capital assets, provided that (i) such Lien shall be created substantially
simultaneously with the acquisition of such fixed or capital assets, (ii)
such Lien does not at any time encumber any property other than the
property financed by such Indebtedness and (iii) the amount of Indebtedness
secured by any such Lien is not increased; and extensions, renewals and
replacements of each such Lien that do not increase the outstanding
principal amount secured by such Lien;
(h) Liens created pursuant to the Security Documents;
(i) any interest or title of a lessor or licensor under any lease or
License Agreement entered into by the Borrower or any other Subsidiary in
the ordinary course of its business and covering only the assets so leased
or licensed, and any restriction or encumbrance to which the interest or
title of such lessor or licensor may be subject, and extensions, renewals
and
<PAGE> 42
38
replacements of such restrictions and encumbrances that do not increase the
outstanding principal amount thereof;
(j) any Lien existing on any property or asset prior to the acquisition
thereof by the Borrower or any Subsidiary or existing on any property or
asset of any Person that becomes a Subsidiary after the date hereof prior
to the time such Person becomes a Subsidiary; provided that (i) such Lien
is not created in contemplation of or in connection with such acquisition
or such Person becoming a Subsidiary, as the case may be, (ii) such Lien
shall not apply to any other property or assets of the Borrower or any
Subsidiary and (iii) such Lien shall secure only those obligations which it
secures on the date of such acquisition or the date such Person becomes a
Subsidiary, as the case may be, and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof; and
(k) Liens not otherwise permitted by this Section so long as neither
(i) the aggregate outstanding principal amount of the obligations secured
thereby nor (ii) the aggregate fair market value (determined as of the date
such Lien is incurred) of the assets subject thereto exceeds (as to the
Borrower and all Subsidiaries) $500,000 at any one time.
6.4 Fundamental Changes. Enter into any merger, consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or with or into any Wholly Owned Subsidiary
Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the
continuing or surviving corporation);
(b) any Subsidiary of the Borrower may Dispose of any or all of its
assets (upon voluntary liquidation or otherwise) to the Borrower or any
Wholly Owned Subsidiary Guarantor; and
(c) any Subsidiary of the Borrower may effect pursuant to a merger or
consolidation any Investment permitted by Section 6.8(f).
6.5 Disposition of Property. Dispose of any of its property, whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of such Subsidiary's Capital Stock to any Person, except:
(a) the Disposition of obsolete or worn out property and property no
longer used or useful in the ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
(c) Dispositions permitted by Section 6.4(b);
(d) the sale or issuance of any Subsidiary's Capital Stock to the
Borrower or any Wholly Owned Subsidiary Guarantor;
(e) the lease or license of property to non-Affiliates in the ordinary
course of business;
<PAGE> 43
39
(f) the Disposition of Cash Equivalents in exchange for Cash
Equivalents of substantially equal value; and
(g) the Disposition of other property having a fair market value not to
exceed $500,000 in the aggregate for any fiscal year of the Borrower.
6.6 Restricted Payments. Declare or pay any dividend (other than
dividends payable solely in common stock of the Person making such dividend) on,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any Capital Stock of Holdings or any Subsidiary, whether now or
hereafter outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of
Holdings or any Subsidiary (collectively, "Restricted Payments"), except that:
(a) any Subsidiary may make Restricted Payments to the Borrower or any
Wholly Owned Subsidiary Guarantor of the Borrower; and
(b) the Borrower may pay dividends to Holdings to permit Holdings to
(i) pay corporate overhead expenses incurred in the ordinary course of
business not to exceed $100,000 in any fiscal year, (ii) pay interest
expenses incurred and payable in connection with Permitted Subordinated
Indebtedness, (iii) repurchase shares of Capital Stock of Holdings from
former employees of Holdings, provided that the aggregate amount of
dividends paid for such purpose shall not exceed $100,000 in any fiscal
year, and (iv) pay any taxes that are due and payable by Holdings and the
Borrower as part of a consolidated group.
6.7 Capital Expenditures. (a) Make or commit to make any Capital
Expenditure in respect of the build out of the Borrower's System in excess of
$500,000 per Building Unit in which the Borrower is installing its System.
(b) Make or commit to make any other Capital Expenditure, except (i)
Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course
of business not exceeding an amount to be agreed upon pursuant to Section
4.1(o); provided that (A) an amount to be agreed upon pursuant to Section 4.1(o)
of any such amount referred to above, if not so expended in the fiscal year for
which it is permitted, may be carried over for expenditure in the next
succeeding fiscal year and (B) Capital Expenditures made pursuant to this clause
(i) during any fiscal year shall be deemed made, first, in respect of amounts
permitted for such fiscal year as provided above and, second, in respect of
amounts carried over from the prior fiscal year pursuant to subclause (A) above
and (ii) Capital Expenditures made with the proceeds of any Reinvestment
Deferred Amount.
6.8 Investments. Make any advance, loan, extension of credit (by way of
guaranty or otherwise) or capital contribution to, or purchase any Capital
Stock, bonds, notes, debentures or other debt securities of, or any assets
constituting a business unit of, or make any other investment in, any Person
(all of the foregoing, "Investments"), except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Guarantee Obligations permitted by Section 6.2;
<PAGE> 44
40
(d) loans and advances to employees of Holdings, the Borrower or any
Subsidiary of the Borrower in the ordinary course of business (including
for travel, entertainment and relocation expenses) in an aggregate amount
for Holdings, the Borrower or any Subsidiary of the Borrower not to exceed
$250,000 at any one time outstanding;
(e) Investments in assets useful in the business of the Borrower and
its Subsidiaries made by the Borrower or any of its Subsidiaries with the
proceeds of any Reinvestment Deferred Amount;
(f) Investments by Holdings or any of its Subsidiaries in the Borrower
or any Person that, prior to such investment is, or (in the case of
newly-created Subsidiaries) simultaneously with such investment becomes, a
Wholly Owned Subsidiary Guarantor; and
(g) in addition to Investments otherwise expressly permitted by this
Section, Investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $500,000 during the term of
this Agreement.
6.9 Optional Payments and Modifications of Certain Debt Instruments.
(a) Make or offer to make any optional or voluntary payment, prepayment,
repurchase or redemption of or otherwise optionally or voluntarily defease or
segregate funds with respect to any Permitted Subordinated Indebtedness, (b)
amend, modify, waive or otherwise change, or consent or agree to any amendment,
modification, waiver or other change to, any of the terms of any Permitted
Subordinated Indebtedness (other than any such amendment, modification, waiver
or other change that (i) would extend the maturity or reduce the amount of any
payment of principal thereof or reduce the rate or extend any date for payment
of interest thereon and (ii) does not involve the payment of a consent fee) or
(c) amend, modify, waive or otherwise change, or consent or agree to any
amendment, modification, waiver or other change to, any of the terms of the
Series A-1 Preferred Stock or Series A-2 Preferred Stock of Holdings (other than
any such amendment, modification, waiver or other change that (i) would extend
the scheduled redemption date or reduce the amount of any scheduled redemption
payment or reduce the rate or extend any date for payment of dividends thereon
and (ii) does not involve the payment of a consent fee).
6.10 Transactions with Affiliates. Enter into any transaction,
including any purchase, sale, lease or exchange of property, the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliate (other than Holdings, the Borrower or any Wholly Owned Subsidiary
Guarantor) unless such transaction is (a) otherwise permitted under this
Agreement, (b) in the ordinary course of business of Holdings, the Borrower or
such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no
less favorable to Holdings, the Borrower or such Subsidiary, as the case may be,
than it would obtain in a comparable arm's length transaction with a Person that
is not an Affiliate.
6.11 Sales and Leasebacks. Enter into any arrangement with any Person
providing for the leasing by Holdings, the Borrower or any Subsidiary of real or
personal property that has been or is to be sold or transferred by Holdings, the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of Holdings, the Borrower or such Subsidiary.
6.12 Changes in Fiscal Periods. Permit the fiscal year of Holdings and
the Borrower to end on a day other than December 31 or change Holdings' and the
Borrower's method of determining fiscal quarters.
<PAGE> 45
41
6.13 Negative Pledge Clauses. Enter into or suffer to exist or become
effective any agreement that prohibits or limits the ability of Holdings or any
of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon
any of its property or revenues, whether now owned or hereafter acquired, or to
secure its obligations under the Loan Documents to which it is a party, other
than (a) this Agreement and the other Loan Documents, (b) any agreements
governing any purchase money Liens or Capital Lease Obligations otherwise
permitted hereby (in which case, any prohibition or limitation shall only be
effective against the assets financed thereby) and (c) any agreement governing
any Liens permitted by Section 6.3(i).
6.14 Clauses Restricting Subsidiary Distributions. Enter into or suffer
to exist or become effective any consensual encumbrance or restriction on the
ability of any Subsidiary of the Borrower to (a) make Restricted Payments in
respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness
owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or
advances to, or other Investments in, the Borrower or any other Subsidiary of
the Borrower or (c) transfer any of its assets to the Borrower or any other
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant
to an agreement that has been entered into in connection with the Disposition of
all or substantially all of the Capital Stock or assets of such Subsidiary and
(iii) any restrictions with respect to Liens permitted by Section 6.3(i).
6.15 Lines of Business. Enter into any lines of business, either
directly or through any Subsidiary, except for those lines of businesses in
which the Borrower and its Subsidiaries are engaged on the date of this
Agreement or that are reasonably related thereto and activities incidental
thereto.
6.16 New License Agreements. Enter into any License Agreement after the
Closing Date which does not include the provision of Exhibit D (or such other
provisions which have in all material respects the same substantive effect of
the provisions of Exhibit D).
SECTION 7. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms hereof; or the Borrower shall fail to pay any
interest on any Loan, or any other amount payable hereunder or under any
other Loan Document, within five days after any such interest or other
amount becomes due in accordance with the terms hereof; or
(b) any representation or warranty made or deemed made by any Loan
Party herein or in any other Loan Document or that is contained in any
certificate, document or financial or other statement furnished by it at
any time under or in connection with this Agreement or any such other Loan
Document shall prove to have been inaccurate in any material respect on or
as of the date made or deemed made; or
(c) (i) any Loan Party shall default in the observance or performance
of any agreement contained in clause (i) or (ii) of Section 5.4(a) (with
respect to Holdings and the Borrower only), Section 5.7(a) or Section 6 of
this Agreement or Sections 5.5 and 5.7(b) of the Guarantee and Collateral
Agreement or (ii) an "Event of Default" under and as defined in any
Mortgage shall have occurred and be continuing; or
(d) any Loan Party shall default in the observance or performance of
any other agreement contained in this Agreement or any other Loan Document
(other than as provided in
<PAGE> 46
42
paragraphs (a) through (c) of this Section), and such default shall
continue unremedied for a period of 30 days after notice to the Borrower
from the Administrative Agent or any Lender; or
(e) Holdings or any of its Subsidiaries shall (i) default in making any
payment of any principal of any Indebtedness (including any Guarantee
Obligation, but excluding the Loans) on the scheduled or original due date
with respect thereto; or (ii) default in making any payment of any interest
on any such Indebtedness beyond the period of grace, if any, provided in
the instrument or agreement under which such Indebtedness was created; or
(iii) default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due prior to its stated maturity or (in the case of
any such Indebtedness constituting a Guarantee Obligation) to become
payable; provided, that a default, event or condition described in clause
(i), (ii) or (iii) of this paragraph (e) shall not at any time constitute
an Event of Default unless, at such time, one or more defaults, events or
conditions of the type described in clauses (i), (ii) and (iii) of this
paragraph (e) shall have occurred and be continuing with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $1,000,000; or
(f) (i) Holdings or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or Holdings or any of its Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against Holdings or any of its Subsidiaries any case, proceeding
or other action of a nature referred to in clause (i) above that (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a
period of 60 days; or (iii) there shall be commenced against Holdings or
any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets that results in
the entry of an order for any such relief that shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from the
entry thereof; or (iv) Holdings or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
above; or (v) Holdings or any of its Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) (i) any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
<PAGE> 47
43
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could, in the sole judgment of the Required Lenders, reasonably be expected
to have a Material Adverse Effect; or
(h) one or more judgments or decrees shall be entered against Holdings
or any of its Subsidiaries involving in the aggregate a liability (not paid
or fully covered by insurance as to which the relevant insurance company
has acknowledged coverage) of $1,000,000 or more, and all such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending
appeal within 30 days from the entry thereof; or
(i) any of the Security Documents shall cease to be in full force and
effect (other than by reason of a release of Collateral in accordance with
the terms thereof, including by reason of a Disposition permitted by
Section 6.5), or any Loan Party or any Affiliate of any Loan Party shall so
assert, or any Lien created by any of the Security Documents shall cease to
be enforceable and of the same effect and priority purported to be created
thereby; or
(j) the guarantee contained in Section 2 of the Guarantee and
Collateral Agreement shall cease, for any reason, to be in full force and
effect (other than in accordance with its terms) or any Loan Party or any
Affiliate of any Loan Party shall so assert; or
(k) (i) either of the Permitted Investors shall cease to have the power
to vote or direct the voting of securities for the election of at least two
directors of Holdings (the number of directors of Holdings not to exceed
thirteen after the date hereof); (ii) either of the Permitted Investors
shall cease to own of record and beneficially an amount of Capital Stock of
Holdings equal to at least 95% of the amount of each type of Capital Stock
of Holdings owned by the Permitted Investors of record and beneficially as
of the Closing Date, which amount is set forth on Schedule 7(k) for each of
the Permitted Investors; (iii) either of the Permitted Investors shall
cease to own of record and beneficially less than 10% of the outstanding
common stock of Holdings; (iv) the board of directors of Holdings shall
cease to consist of a majority of Continuing Directors; or (v) Holdings
shall cease to own and control, of record and beneficially, directly, 100%
of each class of outstanding Capital Stock of the Borrower free and clear
of all Liens (except Liens created by the Guarantee and Collateral
Agreement); or
(l) Holdings shall (i) conduct, transact or otherwise engage in, or
commit to conduct, transact or otherwise engage in, any business or
operations other than those incidental to its ownership of the Capital
Stock of the Borrower and the Subsidiaries set forth on Schedule 3.15, (ii)
incur, create, assume or suffer to exist any Indebtedness or other
liabilities or financial obligations, except (A) nonconsensual obligations
imposed by operation of law, (B) pursuant to the Loan Documents to which it
is a party, (C) obligations with respect to its Capital Stock, (D)
Permitted Subordinated Indebtedness, (E) Guarantee Obligations with respect
to the Obligations and (F) corporate overhead expenses incurred in the
ordinary course of business or (iii) own, lease, manage or otherwise
operate any properties or assets (including cash (other than cash received
in connection with dividends made by the Borrower in accordance with
Section 6.6 pending application in the manner contemplated by said Section)
and cash equivalents) other than the ownership of shares of Capital Stock
of the Borrower and the Subsdiaries set forth on Schedule 3.15; or
<PAGE> 48
44
(m) any Permitted Subordinated Indebtedness or any guarantee thereof
shall cease, for any reason, to be validly subordinated to the Obligations
or the obligations of the Subsidiary Guarantors under the Guarantee and
Collateral Agreement, as the case may be, or any Loan Party, any Affiliate
of any Loan Party, the trustee in respect of any Permitted Subordinated
Indebtedness or the holders of at least 25% in aggregate principal amount
of any Permitted Subordinated Indebtedness shall so assert;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect to the Borrower,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents shall immediately become due and payable,
and (B) if such event is any other Event of Default, either or both of the
following actions may be taken: (i) with the consent of the Required Lenders,
the Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower declare the Commitments to
be terminated forthwith, whereupon the Commitments shall immediately terminate;
and (ii) with the consent of the Required Lenders, the Administrative Agent may,
or upon the request of the Required Lenders, the Administrative Agent shall, by
notice to the Borrower, declare the Loans hereunder (with accrued interest
thereon) and all other amounts owing under this Agreement and the other Loan
Documents to be due and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived by the Borrower.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and appoints
the Administrative Agent as the agent of such Lender under this Agreement and
the other Loan Documents, and each such Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither any Agent nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except to the extent that any of the foregoing are found by
a final and nonappealable decision of a court of competent jurisdiction to have
resulted from its or such Person's own gross negligence or willful misconduct)
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any Loan Party or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agents under or in connection with, this Agreement or any
other Loan
<PAGE> 49
45
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document or for any failure
of any Loan Party a party thereto to perform its obligations hereunder or
thereunder. The Agents shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
8.4 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any instrument,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to Holdings or the Borrower), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent may
deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. The Administrative Agent shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Loan Document unless it shall first receive such advice or
concurrence of the Required Lenders (or, if so specified by this Agreement, all
Lenders) as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense that may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement and the other Loan Documents in
accordance with a request of the Required Lenders (or, if so specified by this
Agreement, all Lenders), and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
8.5 Notice of Default. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender,
Holdings or the Borrower referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Administrative Agent receives such a notice, the Administrative
Agent shall give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders (or, if so specified by this
Agreement, all Lenders); provided that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
8.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly
acknowledges that neither the Agents nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates have made any
representations or warranties to it and that no act by any Agent hereinafter
taken, including any review of the affairs of a Loan Party or any affiliate of a
Loan Party, shall be deemed to constitute any representation or warranty by any
Agent to any Lender. Each Lender represents to the Agents that it has,
independently and without reliance upon any Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon any Agent or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition
<PAGE> 50
46
and creditworthiness of the Loan Parties and their affiliates. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, the Administrative Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of any Loan Party or any
affiliate of a Loan Party that may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
8.7 Indemnification. The Lenders agree to indemnify each Agent in its
capacity as such (to the extent not reimbursed by Holdings or the Borrower and
without limiting the obligation of Holdings or the Borrower to do so), ratably
according to their respective Aggregate Exposure Percentages in effect on the
date on which indemnification is sought under this Section (or, if
indemnification is sought after the date upon which the Commitments shall have
terminated and the Loans shall have been paid in full, ratably in accordance
with such Aggregate Exposure Percentages immediately prior to such date), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever that may at any time (whether before or after the payment of the
Loans) be imposed on, incurred by or asserted against such Agent in any way
relating to or arising out of, the Commitments, this Agreement, any of the other
Loan Documents or any documents contemplated by or referred to herein or therein
or the transactions contemplated hereby or thereby or any action taken or
omitted by such Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from such Agent's
gross negligence or willful misconduct. The agreements in this Section shall
survive the payment of the Loans and all other amounts payable hereunder.
8.8 Agent in Its Individual Capacity. Each Agent and its affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with any Loan Party as though such Agent was not an Agent. With respect to its
Loans made or renewed by it, each Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may exercise
the same as though it were not an Agent, and the terms "Lender" and "Lenders"
shall include each Agent in its individual capacity.
8.9 Successor Administrative Agent. The Administrative Agent may resign
as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If
the Administrative Agent shall resign as Administrative Agent under this
Agreement and the other Loan Documents, then the Required Lenders shall appoint
from among the Lenders a successor agent for the Lenders, which successor agent
shall (unless an Event of Default under Section 7(a) or Section 7(f) with
respect to the Borrower shall have occurred and be continuing) be subject to
approval by the Borrower (which approval shall not be unreasonably withheld or
delayed), whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. If no successor agent has accepted appointment as
Administrative Agent by the date that is 10 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent's resignation shall nevertheless thereupon become effective and the
Lenders shall assume and perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above. After any retiring Administrative Agent's
resignation as Administrative Agent, the provisions of
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47
this Section 8 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement and the
other Loan Documents.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this Section 9.1. The
Required Lenders and each Loan Party party to the relevant Loan Document may,
or, with the written consent of the Required Lenders, the Administrative Agent
and each Loan Party party to the relevant Loan Document may, from time to time,
(a) enter into written amendments, supplements or modifications hereto and to
the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall (i) forgive the principal amount or extend the
final scheduled date of maturity of any Loan, reduce the stated rate of any
interest or fee payable hereunder or extend the scheduled date of any payment
thereof, or increase the amount or extend the expiration date of any Lender's
Commitment, in each case without the consent of each Lender directly affected
thereby; (ii) amend, modify or waive any provision of this Section 9.1 or reduce
any percentage specified in the definition of Required Lenders, consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents, release all or substantially
all of the Collateral or release all or substantially all of the Subsidiary
Guarantors from their obligations under the Guarantee and Collateral Agreement,
in each case without the written consent of all Lenders; (iii) reduce the
percentage specified in the definition of Required Lenders without the written
consent of all Lenders; or (iv) amend, modify or waive any provision of Section
8 without the written consent of the Administrative Agent. Any such waiver and
any such amendment, supplement or modification shall apply equally to each of
the Lenders and shall be binding upon the Loan Parties, the Lenders, the
Administrative Agent and all future holders of the Loans. In the case of any
waiver, the Loan Parties, the Lenders and the Administrative Agent shall be
restored to their former position and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default, or impair any right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of Holdings, the Borrower and the
Administrative Agent, and as set forth in an administrative questionnaire
delivered to the Administrative Agent in the case of the Lenders, or to such
other address as may be hereafter notified by the respective parties hereto:
Holdings: Allied Riser Communications Holdings, Inc.
1700 Pacific, Suite 4650
Dallas, Texas 75201
Attention: Finance Department
Telecopy: 214-210-3009
Telephone: 214-210-3000
<PAGE> 52
48
The Borrower: Allied Riser Communications, Inc.
1700 Pacific, Suite 4650
Dallas, Texas 75201
Attention: Finance Department
Telecopy: 214-210-3009
Telephone: 214-210-3000
The Administrative Agent: The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Vito Cipriano
Telecopy: 212-552-5662
Telephone: 212-552-7402
with a copy to: The Chase Manhattan Bank
10 South La Salle Street, Suite 2300
Chicago, Illinois 60603
Attention: Jon R. Hinard
Telecopy: 312-807-4077
Telephone: 312-807-4046
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders shall not be effective until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of the Administrative Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including the reasonable fees and disbursements of counsel to the
Administrative Agent and filing and recording fees and expenses, with statements
with respect to the foregoing to be submitted to the Borrower prior to the
Closing Date (in the case of amounts to be paid on the Closing Date) and from
time to time thereafter on a quarterly basis or such other periodic basis as the
Administrative Agent shall deem appropriate, (b) to pay or reimburse each Lender
and the Administrative Agent for all its costs and expenses incurred in
connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents, including the
fees and disbursements of counsel (including the allocated fees and expenses of
in-house counsel) to each Lender and of counsel to the Administrative Agent, (c)
to pay, indemnify, and hold each Lender and the
<PAGE> 53
49
Administrative Agent harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, that may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and the Administrative Agent and their
respective officers, directors, employees, affiliates, agents and controlling
persons (each, an "Indemnitee") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever with respect
to the execution, delivery, enforcement, performance and administration of this
Agreement, the other Loan Documents and any such other documents, including any
of the foregoing relating to the use of proceeds of the Loans or the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of Holdings, the Borrower any of its Subsidiaries or any of the
Properties and the reasonable fees and expenses of legal counsel in connection
with claims, actions or proceedings by any Indemnitee against any Loan Party
under any Loan Document (all the foregoing in this clause (d), collectively, the
"Indemnified Liabilities"), provided, that the Borrower shall have no obligation
hereunder to any Indemnitee with respect to Indemnified Liabilities to the
extent such Indemnified Liabilities resulted from the gross negligence or
willful misconduct of such Indemnitee. Without limiting the foregoing, and to
the extent permitted by applicable law, the Borrower agrees not to assert and to
cause its Subsidiaries not to assert, and hereby waives and agrees to cause its
Subsidiaries to so waive, all rights for contribution or any other rights of
recovery with respect to all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature, under or
related to Environmental Laws, that any of them might have by statute or
otherwise against any Indemnitee. All amounts due under this Section 9.5 shall
be payable not later than five days after written demand therefor. Statements
payable by the Borrower pursuant to this Section 9.5 shall be submitted to
Finance Department (Telephone No. 214-210-3000) (Telecopy No. 214-210-3009), at
the address of the Borrower set forth in Section 9.2, or to such other Person or
address as may be hereafter designated by the Borrower in a written notice to
the Administrative Agent. The agreements in this Section 9.5 shall survive
repayment of the Loans and all other amounts payable hereunder.
9.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of Holdings, the
Borrower, the Lenders, the Administrative Agent, all future holders of the Loans
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights or obligations under this Agreement without
the prior written consent of each Lender.
(b) Any Lender may, without the consent of the Borrower, in accordance
with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Administrative Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
this Agreement and the other Loan Documents. In no event shall any Participant
under any such participation have any right to approve any amendment or waiver
of any provision of any Loan Document, or any consent to any departure by any
Loan Party therefrom, except to the extent that such amendment, waiver or
consent would reduce the principal of, or interest on, the Loans or any fees
payable hereunder, or postpone the date of the final maturity of the Loans, in
each case to the extent subject to such participation. The Borrower agrees that
if amounts outstanding under this
<PAGE> 54
50
Agreement and the Loans are due or unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of Default, each
Participant shall, to the maximum extent permitted by applicable law, be deemed
to have the right of setoff in respect of its participating interest in amounts
owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 9.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.13, 2.14 and 2.15 with respect to its participation
in the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that, in the case of Section 2.14, such Participant shall have
complied with the requirements of said Section and provided, further, that no
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
(c) Any Lender (an "Assignor") may, in accordance with applicable law,
at any time and from time to time assign to any Lender or any affiliate thereof
or, with the consent of the Borrower and the Administrative Agent (which, in
each case, shall not be unreasonably withheld or delayed), to an additional
bank, financial institution or other entity (an "Assignee") all or any part of
its rights and obligations under this Agreement pursuant to an Assignment and
Acceptance, executed by such Assignee, such Assignor and any other Person whose
consent is required pursuant to this paragraph, and delivered to the
Administrative Agent for its acceptance and recording in the Register. Upon such
execution, delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment and/or Loans as set forth therein, and (y) the Assignor
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of an Assignor's rights and obligations
under this Agreement, such Assignor shall cease to be a party hereto).
Notwithstanding any provision of this Section 9.6, the consent of the Borrower
shall not be required for any assignment that occurs when an Event of Default
pursuant to Section 7(f) shall have occurred and be continuing with respect to
the Borrower.
(d) The Administrative Agent shall, on behalf of the Borrower, maintain
at its address referred to in Section 9.2 a copy of each Assignment and
Acceptance delivered to it and a register (the "Register") for the recordation
of the names and addresses of the Lenders and the Commitment of, and the
principal amount of the Loans owing to, each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest error,
and the Borrower, each other Loan Party, the Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register as the
owner of the Loans and any Notes evidencing the Loans recorded therein for all
purposes of this Agreement. Any assignment of any Loan, whether or not evidenced
by a Note, shall be effective only upon appropriate entries with respect thereto
being made in the Register (and each Note shall expressly so provide). Any
assignment or transfer of all or part of a Loan evidenced by a Note shall be
registered on the Register only upon surrender for registration of assignment or
transfer of the Note evidencing such Loan, accompanied by a duly executed
Assignment and Acceptance, and thereupon one or more new Notes shall be issued
to the designated Assignee.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assignor, an Assignee and any other Person whose consent is required by Section
9.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $4,000, the Administrative Agent shall (i)
<PAGE> 55
51
promptly accept such Assignment and Acceptance and (ii) record the information
contained therein in the Register on the effective date determined pursuant
thereto.
(f) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section 9.6 concerning assignments of Loans and
Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests, including any pledge or
assignment by a Lender of any Loan or Note to any Federal Reserve Bank in
accordance with applicable law.
(g) The Borrower, upon receipt of written notice from the relevant
Lender, agrees to issue Notes to any Lender requiring Notes to facilitate
transactions of the type described in paragraph (f) above.
9.7 Adjustments; Set-off. (a) Except to the extent that this Agreement
expressly provides for payments to be allocated to a particular Lender, if any
Lender (a "Benefitted Lender") shall receive any payment of all or part of the
Obligations owing to it, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 7(f), or otherwise), in a greater proportion
than any such payment to or collateral received by any other Lender, if any, in
respect of the Obligations owing to such other Lender, such Benefitted Lender
shall purchase for cash from the other Lenders a participating interest in such
portion of the Obligations owing to each such other Lender, or shall provide
such other Lenders with the benefits of any such collateral, as shall be
necessary to cause such Benefitted Lender to share the excess payment or
benefits of such collateral ratably with each of the Lenders; provided, however,
that if all or any portion of such excess payment or benefits is thereafter
recovered from such Benefitted Lender, such purchase shall be rescinded, and the
purchase price and benefits returned, to the extent of such recovery, but
without interest.
(b) If an Event of Default shall have occurred and be continuing, in
addition to any rights and remedies of the Lenders provided by law, each Lender
shall have the right, without prior notice to Holdings or the Borrower, any such
notice being expressly waived by Holdings and the Borrower to the extent
permitted by applicable law, upon any amount becoming due and payable by
Holdings or the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise), to set off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of Holdings or the Borrower,
as the case may be. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such setoff and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
such setoff and application.
9.8 Effectiveness; Counterparts. This Agreement shall be effective upon
execution and delivery by all parties hereto. This Agreement may be executed by
one or more of the parties to this Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument. Delivery of an executed signature page
of this Agreement by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
9.9 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
<PAGE> 56
52
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.10 Integration. This Agreement and the other Loan Documents represent
the agreement of Holdings, the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
9.12 Submission To Jurisdiction; Waivers. Each of Holdings and the
Borrower hereby irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York, the courts of the United States for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to Holdings or
the Borrower, as the case may be at its address set forth in Section 9.2 or
at such other address of which the Administrative Agent shall have been
notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to
sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, punitive or consequential damages.
9.13 Acknowledgements. Each of Holdings and the Borrower hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to Holdings or the Borrower arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on
<PAGE> 57
53
one hand, and Holdings and the Borrower, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby
among the Lenders or among Holdings, the Borrower and the Lenders.
9.14 Releases of Guarantees and Liens. (a) Notwithstanding anything to
the contrary contained herein or in any other Loan Document, the Administrative
Agent is hereby irrevocably authorized by each Lender (without requirement of
notice to or consent of any Lender except as expressly required by Section 9.1)
to take any action requested by the Borrower having the effect of releasing any
Collateral or Guarantee Obligations (i) to the extent necessary to permit
consummation of any transaction not prohibited by any Loan Document or that has
been consented to in accordance with Section 9.1 or (ii) under the circumstances
described in paragraph (b) below.
(b) At such time as the Loans and the other obligations under the Loan
Documents (other than obligations under or in respect of Hedge Agreements) shall
have been paid in full and the Commitments have been terminated, the Collateral
shall be released from the Liens created by the Security Documents, and the
Security Documents and all obligations (other than those expressly stated to
survive such termination) of the Administrative Agent and each Loan Party under
the Security Documents shall terminate, all without delivery of any instrument
or performance of any act by any Person.
9.15 Confidentiality. Each of the Administrative Agent and each Lender
agrees to keep confidential all non-public information provided to it by any
Loan Party pursuant to this Agreement; provided that nothing herein shall
prevent the Administrative Agent or any Lender from disclosing any such
information (a) to the Administrative Agent, any other Lender or any affiliate
of any Lender, (b) to any Transferee or prospective Transferee that agrees to
comply with the provisions of this Section, (c) to its employees, directors,
agents, attorneys, accountants and other professional advisors or those of any
of its affiliates, (d) upon the request or demand of any Governmental Authority,
(e) in response to any order of any court or other Governmental Authority or as
may otherwise be required pursuant to any Requirement of Law, (f) if required to
do so in connection with any litigation or similar proceeding, (g) that has been
publicly disclosed, (h) to the National Association of Insurance Commissioners
or any similar organization or any nationally recognized rating agency that
requires access to information about a Lender's investment portfolio in
connection with ratings issued with respect to such Lender, or (i) in connection
with the exercise of any remedy hereunder or under any other Loan Document;
provided further that, if permitted under applicable law, with respect to
clauses (d), (e) and (f), the Administrative Agent or the Lender, as applicable,
shall give notice to the relevant Loan Party of any request, demand, order or
requirement for such information.
9.16 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE ADMINISTRATIVE
AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
<PAGE> 58
54
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
ALLIED RISER COMMUNICATIONS HOLDINGS,
INC.
By: /s/ TODD DOSHIER
--------------------------------------
Title: CFO
ALLIED RISER COMMUNICATIONS, INC.
By: /s/ TODD DOSHIER
--------------------------------------
Title: CFO
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender
By: /s/ STEPHEN J. FALISKI
--------------------------------------
Title: Vice President
<PAGE> 59
EXHBIT A
===============================================================================
GUARANTEE AND COLLATERAL AGREEMENT
made by
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.
and certain of its Subsidiaries, including
ALLIED RISER COMMUNICATIONS, INC.
in favor of
THE CHASE MANHATTAN BANK,
as Administrative Agent
Dated as of __________ ___, 1999
===============================================================================
<PAGE> 60
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINED TERMS........................................................................ 1
1.1 Definitions........................................................................ 1
1.2 Other Definitional Provisions...................................................... 5
SECTION 2. GUARANTEE............................................................................ 5
2.1 Guarantee.......................................................................... 5
2.2 Right of Contribution.............................................................. 6
2.3 No Subrogation..................................................................... 6
2.4 Amendments, etc. with respect to the Borrower Obligations.......................... 6
2.5 Guarantee Absolute and Unconditional............................................... 7
2.6 Reinstatement...................................................................... 8
2.7 Payments........................................................................... 8
SECTION 3. GRANT OF SECURITY INTEREST........................................................... 8
SECTION 4. REPRESENTATIONS AND WARRANTIES....................................................... 9
4.1 Title; No Other Liens.............................................................. 9
4.2 Perfected First Priority Liens..................................................... 9
4.3 Chief Executive Office.............................................................10
4.4 Inventory and Equipment............................................................10
4.5 Farm Products......................................................................10
4.6 Investment Property................................................................10
4.7 Receivables........................................................................10
4.8 Contracts..........................................................................10
4.9 Intellectual Property..............................................................11
SECTION 5. COVENANTS............................................................................11
5.1 Delivery of Instruments, Certificated Securities and Chattel Paper.................12
5.2 Maintenance of Insurance...........................................................12
5.3 Payment of Obligations.............................................................12
5.4 Maintenance of Perfected Security Interest; Further Documentation..................12
5.5 Changes in Locations, Name, etc....................................................13
5.6 Notices............................................................................13
5.7 Investment Property................................................................13
5.8 Receivables........................................................................14
5.9 Contracts..........................................................................14
5.10 Intellectual Property.............................................................15
SECTION 6. REMEDIAL PROVISIONS..................................................................16
6.1 Certain Matters Relating to Receivables............................................16
6.2 Communications with Obligors; Grantors Remain Liable...............................16
6.3 Pledged Stock......................................................................17
6.4 Proceeds to be Turned Over To Administrative Agent.................................18
6.5 Application of Proceeds............................................................18
6.6 Code and Other Remedies............................................................18
</TABLE>
i
<PAGE> 61
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.7 Sale of Pledged Stock..............................................................19
6.8 Waiver; Deficiency.................................................................19
SECTION 7. THE ADMINISTRATIVE AGENT.............................................................19
7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc........................19
7.2 Duty of Administrative Agent.......................................................21
7.3 Execution of Financing Statements..................................................21
7.4 Authority of Administrative Agent..................................................21
SECTION 8. MISCELLANEOUS........................................................................22
8.1 Amendments in Writing..............................................................22
8.2 Notices............................................................................22
8.3 No Waiver by Course of Conduct; Cumulative Remedies................................22
8.4 Enforcement Expenses; Indemnification..............................................22
8.5 Successors and Assigns.............................................................23
8.6 Set-Off............................................................................23
8.7 Counterparts.......................................................................23
8.8 Severability.......................................................................23
8.9 Section Headings...................................................................23
8.10 Integration.......................................................................23
8.11 GOVERNING LAW.....................................................................24
8.12 Submission To Jurisdiction; Waivers...............................................24
8.13 Acknowledgements..................................................................24
8.14 Additional Grantors...............................................................25
8.15 Releases..........................................................................25
8.16 WAIVER OF JURY TRIAL..............................................................25
</TABLE>
SCHEDULES
Schedule 1 Notice Addresses
Schedule 2 Investment Property
Schedule 3 Perfection Matters
Schedule 4 Jurisdictions of Organization and Chief Executive Offices
Schedule 5 Inventory and Equipment Locations
Schedule 6 Intellectual Property
Schedule 7 Contracts
ii
<PAGE> 62
GUARANTEE AND COLLATERAL AGREEMENT
GUARANTEE AND COLLATERAL AGREEMENT, dated as of _________ __,
1999, made by each of the signatories hereto (together with any other entity
that may become a party hereto as provided herein, the ("Grantors"), in favor
of THE CHASE MANHATTAN BANK, as Administrative Agent (in such capacity, the
"Administrative Agent") for the banks and other financial institutions (the
"Lenders") from time to time parties to the Credit Agreement, dated as of March
25, 1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Allied Riser Communications Holdings, Inc.
("Holdings"), Allied Riser Communications, Inc. (the "Borrower"), the Lenders
and the Administrative Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make extensions of credit to the Borrower upon the terms
and subject to the conditions set forth therein;
WHEREAS, the Borrower is a member of an affiliated group of
companies that includes each other Grantor;
WHEREAS, the proceeds of the extensions of credit under the
Credit Agreement will be used in part to enable the Borrower to make valuable
transfers to one or more of the other Grantors in connection with the operation
of their respective businesses;
WHEREAS, the Borrower and the other Grantors are engaged in
related businesses, and each Grantor will derive substantial direct and
indirect benefit from the making of the extensions of credit under the Credit
Agreement; and
WHEREAS, it is a condition precedent to the obligation of the
Lenders to make their respective extensions of credit to the Borrower under the
Credit Agreement that the Grantors shall have executed and delivered this
Agreement to the Administrative Agent for the ratable benefit of the Lenders;
NOW, THEREFORE, in consideration of the premises and to
induce the Administrative Agent and the Lenders to enter into the Credit
Agreement and to induce the Lenders to make their respective extensions of
credit to the Borrower thereunder, each Grantor hereby agrees with the
Administrative Agent, for the ratable benefit of the Lenders, as follows:
SECTION 1. DEFINED TERMS
1.1 Definitions. (a) Unless otherwise defined herein, terms
defined in the Credit Agreement and used herein shall have the meanings given
to them in the Credit Agreement, and the following terms are used herein as
defined in the New York UCC: Accounts, Certificated Security, Chattel Paper,
Documents, Equipment, Farm Products, Instruments and Inventory.
<PAGE> 63
2
(b) The following terms shall have the following meanings:
"Agreement"": this Guarantee and Collateral Agreement, as the
same may be amended, supplemented or otherwise modified from time to
time.
"Borrower Obligations": the collective reference to the
unpaid principal of and interest on the Loans and all other
obligations and liabilities of the Borrower (including, without
limitation, interest accruing at the then applicable rate provided in
the Credit Agreement after the maturity of the Loans and interest
accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the
Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) to the Administrative Agent or
any Lender (or, in the case of any Lender Hedge Agreement, any
Affiliate of any Lender), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the
Credit Agreement, this Agreement, the other Loan Documents or any
Lender Hedge Agreement, in each case whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or to the Lenders
that are required to be paid by the Borrower pursuant to the terms of
any of the foregoing agreements).
"Collateral": as defined in Section 3.
"Collateral Account": any collateral account established by
the Administrative Agent as provided in Section 6.1 or 6.4.
"Contracts": the contracts and agreements listed in Schedule
7, as the same may be amended, supplemented or otherwise modified from
time to time, including, without limitation, (i) all rights of any
Grantor to receive moneys due and to become due to it thereunder or in
connection therewith, (ii) all rights of any Grantor to damages
arising thereunder and (iii) all rights of any Grantor to perform and
to exercise all remedies thereunder.
"Copyrights": (i) all copyrights arising under the laws of
the United States, whether registered or unregistered and whether
published or unpublished (including, without limitation, those listed
in Schedule 6), all registrations and recordings thereof, and all
applications in connection therewith, including, without limitation,
all registrations, recordings and applications in the United States
Copyright Office, and (ii) the right to obtain all renewals thereof.
"Copyright Licenses": any written agreement naming any
Grantor as licensor or licensee (including, without limitation, those
listed in Schedule 6), granting any right under any Copyright,
including, without limitation, the grant of rights to manufacture,
distribute, exploit and sell materials derived from any Copyright.
"Deposit Account": as defined in the Uniform Commercial Code
of any applicable jurisdiction and, in any event, including, without
limitation, any demand, time, savings, passbook or like account
maintained with a depositary institution.
<PAGE> 64
3
"Foreign Subsidiary": any Subsidiary organized under the laws
of any jurisdiction outside the United States of America.
"Foreign Subsidiary Voting Stock": the voting Capital Stock
of any Foreign Subsidiary.
"General Intangibles": all "general intangibles" as such term
is defined in Section 9-106 of the New York UCC and, in any event,
including, without limitation, with respect to any Grantor, all
contracts, agreements, instruments and indentures in any form, and
portions thereof, to which such Grantor is a party or under which such
Grantor has any right, title or interest or to which such Grantor or
any property of such Grantor is subject, as the same may from time to
time be amended, supplemented or otherwise modified, including,
without limitation, (i) all rights of such Grantor to receive moneys
due and to become due to it thereunder or in connection therewith,
(ii) all rights of such Grantor to damages arising thereunder and
(iii) all rights of such Grantor to perform and to exercise all
remedies thereunder, in each case to the extent the grant by such
Grantor of a security interest pursuant to this Agreement in its
right, title and interest in such contract, agreement, instrument or
indenture is not prohibited by such contract, agreement, instrument or
indenture without the consent of any other party thereto, would not
give any other party to such contract, agreement, instrument or
indenture the right to terminate its obligations thereunder, or is
permitted with consent if all necessary consents to such grant of a
security interest have been obtained from the other parties thereto
(it being understood that the foregoing shall not be deemed to
obligate such Grantor to obtain such consents); provided that the
foregoing limitation shall not affect, limit, restrict or impair the
grant by such Grantor of a security interest pursuant to this
Agreement in any Receivable or any money or other amounts due or to
become due under any such contract, agreement, instrument or
indenture.
"Guarantor Obligations": with respect to any Guarantor, all
obligations and liabilities of such Guarantor which may arise under or
in connection with this Agreement (including, without limitation,
Section 2) or any other Loan Document to which such Guarantor is a
party, in each case whether on account of guarantee obligations,
reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements
of counsel to the Administrative Agent or to the Lenders that are
required to be paid by such Guarantor pursuant to the terms of this
Agreement or any other Loan Document).
"Guarantors": the collective reference to each Grantor other
than the Borrower.
"Intellectual Property": the collective reference to all
rights, priorities and privileges relating to intellectual property,
whether arising under United States laws, including, without
limitation, the Copyrights, the Copyright Licenses, the Patents, the
Patent Licenses, the Trademarks and the Trademark Licenses, and all
rights to sue at law or in equity for any infringement or other
impairment thereof, including the right to receive all proceeds and
damages therefrom.
"Intercompany Note": any promissory note evidencing loans
made by any Grantor to Holdings or any of its Subsidiaries.
"Investment Property": the collective reference to (i) all
"investment property" as such term is defined in Section 9-115 of the
New York UCC (other than any Foreign Subsidiary
<PAGE> 65
4
Voting Stock excluded from the definition of "Pledged Stock") and (ii)
whether or not constituting "investment property" as so defined, all
Pledged Notes and all Pledged Stock.
"Issuers": the collective reference to each issuer of any
Investment Property.
"Lender Hedge Agreements": all interest rate swaps, caps or
collar agreements or similar arrangements entered into by the Borrower
with any Lender (or any Affiliate of any Lender) providing for
protection against fluctuations in interest rates or currency exchange
rates or the exchange of nominal interest obligations, either
generally or under specific contingencies.
"New York UCC": the Uniform Commercial Code as from time to
time in effect in the State of New York.
"Obligations": (i) in the case of the Borrower, the Borrower
Obligations, and (ii) in the case of each Guarantor, its Guarantor
Obligations.
"Patents": (i) all letters patent of the United States, all
reissues and extensions thereof and all goodwill associated therewith,
including, without limitation, any of the foregoing referred to in
Schedule 6, (ii) all applications for letters patent of the United
States and all divisions, continuations and continuations-in-part
thereof, including, without limitation, any of the foregoing referred
to in Schedule 6, and (iii) all rights to obtain any reissues or
extensions of the foregoing.
"Patent License": all agreements, whether written or oral,
providing for the grant by or to any Grantor of any right to
manufacture, use or sell any invention covered in whole or in part by
a Patent, including, without limitation, any of the foregoing referred
to in Schedule 6.
"Pledged Notes": all promissory notes listed on Schedule 2,
all Intercompany Notes at any time issued to any Grantor and all other
promissory notes issued to or held by any Grantor (other than
promissory notes issued in connection with extensions of trade credit
by any Grantor in the ordinary course of business).
"Pledged Stock": the shares of Capital Stock listed on
Schedule 2, together with any other shares, stock certificates,
options or rights of any nature whatsoever in respect of the Capital
Stock of any Person that may be issued or granted to, or held by, any
Grantor while this Agreement is in effect; provided that in no event
shall more than 65% of the total outstanding Foreign Subsidiary Voting
Stock of any Foreign Subsidiary held by Holdings or any Subsidiary of
Holdings which is not a Foreign Subsidiary be required to be pledged
hereunder and in no event shall any of the shares of Capital Stock of
any Person held by any Foreign Subsidiary be required to be pledged
hereunder.
"Proceeds": all "proceeds" as such term is defined in Section
9-306(1) of the New York UCC and, in any event, shall include, without
limitation, all dividends or other income from the Investment
Property, collections thereon or distributions or payments with
respect thereto.
"Receivable": any right to payment for goods sold or leased
or for services rendered, whether or not such right is evidenced by an
Instrument or Chattel Paper and whether or not it has been earned by
performance (including, without limitation, any Account).
<PAGE> 66
5
"Securities Act": the Securities Act of 1933, as amended.
"System": any structured fiber optic communications network
consisting of fiber optic cabling installed in a building in a
dedicated conduit system with junction boxes, intermediate
distribution frames, main distribution frames and all related
electronics necessary to operate and provide communications services
over such network.
"Trademarks": (i) all trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade
styles, service marks, logos and other source or business identifiers,
and all goodwill associated therewith, now existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States or any State thereof, and all common-law rights related
thereto, including, without limitation, any of the foregoing referred
to in Schedule 6, and (ii) the right to obtain all renewals thereof.
"Trademark License": any agreement, whether written or oral,
providing for the grant by or to any Grantor of any right to use any
Trademark, including, without limitation, any of the foregoing
referred to in Schedule 6.
1.2 Other Definitional Provisions. (a) The words "hereof,"
"herein", "hereto" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Section and Schedule references are
to this Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
(c) Where the context requires, terms relating to the
Collateral or any part thereof, when used in relation to a Grantor, shall refer
to such Grantor's Collateral or the relevant part thereof.
SECTION 2. GUARANTEE
2.1 Guarantee. (a) Each of the Guarantors hereby, jointly and
severally, unconditionally and irrevocably, guarantees to the Administrative
Agent, for the ratable benefit of the Lenders and their respective successors,
indorsees, transferees and assigns, the prompt and complete payment and
performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Borrower Obligations.
(b) Anything herein or in any other Loan Document to the
contrary notwithstanding, the maximum liability of each Guarantor hereunder and
under the other Loan Documents shall in no event exceed the amount which can be
guaranteed by such Guarantor under applicable federal and state laws relating
to the insolvency of debtors (after giving effect to the right of contribution
established in Section 2.2).
(c) Each Guarantor agrees that the Borrower Obligations may
at any time and from time to time exceed the amount of the liability of such
Guarantor hereunder without impairing the guarantee
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contained in this Section 2 or affecting the rights and remedies of the
Administrative Agent or any Lender hereunder.
(d) The guarantee contained in this Section 2 shall remain in
full force and effect until all the Borrower Obligations and the obligations of
each Guarantor under the guarantee contained in this Section 2 shall have been
satisfied by payment in full and the Commitments shall be terminated,
notwithstanding that from time to time during the term of the Credit Agreement
the Borrower may be free from any Borrower Obligations.
(e) No payment made by the Borrower, any of the Guarantors,
any other guarantor or any other Person or received or collected by the
Administrative Agent or any Lender from the Borrower, any of the Guarantors,
any other guarantor or any other Person by virtue of any action or proceeding
or any set-off or appropriation or application at any time or from time to time
in reduction of or in payment of the Borrower Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of any Guarantor
hereunder which shall, notwithstanding any such payment (other than any payment
made by such Guarantor in respect of the Borrower Obligations or any payment
received or collected from such Guarantor in respect of the Borrower
Obligations), remain liable for the Borrower Obligations up to the maximum
liability of such Guarantor hereunder until the Borrower Obligations are paid
in full and the Commitments are terminated.
2.2 Right of Contribution. Each Guarantor hereby agrees that
to the extent that a Guarantor shall have paid more than its proportionate
share of any payment made hereunder, such Guarantor shall be entitled to seek
and receive contribution from and against any other Guarantor hereunder which
has not paid its proportionate share of such payment. Each Guarantor's right of
contribution shall be subject to the terms and conditions of Section 2.3. The
provisions of this Section 2.2 shall in no respect limit the obligations and
liabilities of any Guarantor to the Administrative Agent and the Lenders, and
each Guarantor shall remain liable to the Administrative Agent and the Lenders
for the full amount guaranteed by such Guarantor hereunder.
2.3 No Subrogation. Notwithstanding any payment made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
the Administrative Agent or any Lender, no Guarantor shall be entitled to be
subrogated to any of the rights of the Administrative Agent or any Lender
against the Borrower or any other Guarantor or any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender for
the payment of the Borrower Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other Guarantor in respect of payments made by such Guarantor hereunder, until
all amounts then owing and due and payable to the Administrative Agent and the
Lenders by the Borrower on account of the Borrower Obligations are paid in full
and the Commitments are terminated. If any amount shall be paid to any
Guarantor on account of such subrogation rights at any time when all of the
Borrower Obligations shall not have been paid in full, such amount shall be
held by such Guarantor in trust for the Administrative Agent and the Lenders,
segregated from other funds of such Guarantor, and shall, forthwith upon
receipt by such Guarantor, be turned over to the Administrative Agent in the
exact form (if in physical form) received by such Guarantor (duly indorsed by
such Guarantor to the Administrative Agent, if required), to be applied against
the Borrower Obligations, whether matured or unmatured, in such order as the
Administrative Agent may determine.
2.4 Amendments, etc. with respect to the Borrower
Obligations. Each Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against any Guarantor
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and without notice to or further assent by any Guarantor, any demand for
payment of any of the Borrower Obligations made by the Administrative Agent or
any Lender may be rescinded by the Administrative Agent or such Lender and any
of the Borrower Obligations continued, and the Borrower Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended,
modified, accelerated, compromised, waived, surrendered or released by the
Administrative Agent or any Lender, and the Credit Agreement and the other Loan
Documents and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Administrative Agent (or the Required Lenders or all Lenders, as
the case may be) may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by the Administrative
Agent or any Lender for the payment of the Borrower Obligations may be sold,
exchanged, waived, surrendered or released. Neither the Administrative Agent
nor any Lender shall have any obligation to protect, secure, perfect or insure
any Lien at any time held by it as security for the Borrower Obligations or for
the guarantee contained in this Section 2 or any property subject thereto.
2.5 Guarantee Absolute and Unconditional. Each Guarantor
waives any and all notice of the creation, renewal, extension or accrual of any
of the Borrower Obligations and notice of or proof of reliance by the
Administrative Agent or any Lender upon the guarantee contained in this Section
2 or acceptance of the guarantee contained in this Section 2; the Borrower
Obligations, and any of them, shall conclusively be deemed to have been
created, contracted or incurred, or renewed, extended, amended or waived, in
reliance upon the guarantee contained in this Section 2; and all dealings
between the Borrower and any of the Guarantors, on the one hand, and the
Administrative Agent and the Lenders, on the other hand, likewise shall be
conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this Section 2. Each Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon the Borrower or any of the Guarantors with respect to the Borrower
Obligations. Each Guarantor understands and agrees that the guarantee contained
in this Section 2 shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity or
enforceability of the Credit Agreement or any other Loan Document, any of the
Borrower Obligations or any other collateral security therefor or guarantee or
right of offset with respect thereto at any time or from time to time held by
the Administrative Agent or any Lender, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Borrower or any other Person against
the Administrative Agent or any Lender, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of the Borrower or such
Guarantor) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Borrower for the Borrower Obligations, or of such
Guarantor under the guarantee contained in this Section 2, in bankruptcy or in
any other instance. When making any demand hereunder or otherwise pursuing its
rights and remedies hereunder against any Guarantor, the Administrative Agent
or any Lender may, but shall be under no obligation to, make a similar demand
on or otherwise pursue such rights and remedies as it may have against the
Borrower, any other Guarantor or any other Person or against any collateral
security or guarantee for the Borrower Obligations or any right of offset with
respect thereto, and any failure by the Administrative Agent or any Lender to
make any such demand, to pursue such other rights or remedies or to collect any
payments from the Borrower, any other Guarantor or any other Person or to
realize upon any such collateral security or guarantee or to exercise any such
right of offset, or any release of the Borrower, any other Guarantor or any
other Person or any such collateral security, guarantee or right of offset,
shall not relieve any Guarantor of any obligation or liability hereunder, and
shall not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Administrative Agent or any Lender against
any Guarantor.
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For the purposes hereof "demand" shall include the commencement and continuance
of any legal proceedings.
2.6 Reinstatement. The guarantee contained in this Section 2
shall continue to be effective, or be reinstated, as the case may be, if at any
time payment, or any part thereof, of any of the Borrower Obligations is
rescinded or must otherwise be restored or returned by the Administrative Agent
or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower or any Guarantor, or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrower or any Guarantor or any substantial part of its
property, or otherwise, all as though such payments had not been made.
2.7 Payments. Each Guarantor hereby guarantees that payments
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the office of the Administrative Agent located at
270 Park Avenue, New York, New York 10017.
SECTION 3. GRANT OF SECURITY INTEREST
Each Grantor hereby assigns and transfers to the
Administrative Agent, and hereby grants to the Administrative Agent, for the
ratable benefit of the Lenders, a security interest in, all of the following
property now owned or at any time hereafter acquired by such Grantor or in
which such Grantor now has or at any time in the future may acquire any right,
title or interest (collectively, the "Collateral"), as collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of such Grantor's Obligations:
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Deposit Accounts;
(e) all Documents;
(f) all Equipment (other than any Equipment that is subject
to a Lien permitted under Sections 6.3(f), (g), (i) or (j) to the
extent that documentation creating, evidencing or otherwise relating
to such Lien prohibits a grant of a security interest therein under
this Agreement);
(g) all General Intangibles;
(h) all Instruments;
(i) all Intellectual Property (other than any Intellectual
Property that is subject to a Lien permitted under Sections 6.3(f),
(i) or (j) to the extent that documentation creating, evidencing or
otherwise relating to such Lien prohibits a grant of a security
interest therein under this Agreement);
(j) all Inventory;
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(k) all Investment Property;
(l) all other property not otherwise described above,
including all of the fixtures, chattels, fiber optic cable, co-axial
and copper wires, business machines, machinery, apparatus, equipment,
furnishings, fittings and articles of personal property of every kind
and nature whatsoever, and all appurtenances and additions thereto and
substitutions or replacements thereof (together with, in each case,
attachments, components, parts and accessories) currently owned or
subsequently acquired by such Grantor and now or subsequently attached
to, or contained in a System located in or on any building,
improvement or structure located on the parcels of real property which
are subject to Contracts, including but without limiting the
generality of the foregoing, all Equipment relating to Systems,
appliances, fittings and fixtures of every kind and description (other
than any such property that is subject to a Lien permitted under
Sections 6.3(f), (g), (i) or (j) to the extent that documentation
creating, evidencing or otherwise relating to such Lien prohibits a
grant of a security interest therein under this Agreement);
(m) all books and records pertaining to the Collateral; and
(n) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing and all collateral security
and guarantees given by any Person with respect to any of the
foregoing.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter
into the Credit Agreement and to induce the Lenders to make their respective
extensions of credit to the Borrower thereunder, each Grantor hereby represents
and warrants to the Administrative Agent and each Lender that:
4.1 Title; No Other Liens. Except for the security interest
granted to the Administrative Agent for the ratable benefit of the Lenders
pursuant to this Agreement and the other Liens permitted to exist on the
Collateral by the Credit Agreement, such Grantor owns or has rights in each
item of the Collateral free and clear of any and all Liens or claims of others.
No financing statement or other public notice with respect to all or any part
of the Collateral is on file or of record in any public office, except such as
have been filed in favor of the Administrative Agent, for the ratable benefit
of the Lenders, pursuant to this Agreement or as are permitted by the Credit
Agreement.
4.2 Perfected First Priority Liens. The security interests
granted pursuant to this Agreement (a) upon completion of the filings and other
actions specified on Schedule 3 (which, in the case of all filings and other
documents referred to on said Schedule, have been delivered to the
Administrative Agent in completed and duly executed form) will constitute valid
perfected security interests in all of the Collateral in favor of the
Administrative Agent, for the ratable benefit of the Lenders, as collateral
security for such Grantor's Obligations, enforceable in accordance with the
terms hereof against all creditors of such Grantor and any Persons purporting
to purchase any Collateral from such Grantor and (b) are prior to all other
Liens on the Collateral in existence on the date hereof except for Liens
permitted by the Credit Agreement which have priority over the Liens created
hereby on the Collateral by operation of law.
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4.3 Chief Executive Office. On the date hereof, such
Grantor's jurisdiction of organization and the location of such Grantor's chief
executive office or sole place of business are specified on Schedule 4.
4.4 Inventory and Equipment. On the date hereof, the
Inventory and the Equipment (other than mobile goods) are kept at the locations
listed on Schedule 5.
4.5 Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.
4.6 Investment Property. (a) The shares of Pledged Stock
pledged by such Grantor hereunder constitute all the issued and outstanding
shares of all classes of the Capital Stock of each Issuer owned by such Grantor
or, in the case of Foreign Subsidiary Voting Stock, if less, 66% of the
outstanding Foreign Subsidiary Voting Stock of each relevant Issuer.
(b) All the shares of the Pledged Stock have been duly and
validly issued and are fully paid and nonassessable.
(c) Each of the Pledged Notes constitutes the legal, valid
and binding obligation of the obligor with respect thereto, enforceable in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
(d) Such Grantor is the record and beneficial owner of, and
has good and marketable title to, the Investment Property pledged by it
hereunder, free of any and all Liens or options in favor of, or claims of, any
other Person, except the security interest created by this Agreement.
4.7 Receivables. (a) No amount payable to such Grantor under
or in connection with any Receivable is evidenced by any Instrument or Chattel
Paper which has not been delivered to the Administrative Agent.
(b) None of the obligors on any Receivables is a Governmental
Authority.
(c) The amounts represented by such Grantor to the Lenders
from time to time as owing to such Grantor in respect of the Receivables will
at such times be accurate.
4.8 Contracts. (a) Except as set forth on Schedule 3.4 of the
Credit Agreement, no consent of any party (other than such Grantor) to any
Contract is required, or purports to be required, in connection with the
execution, delivery and performance of this Agreement.
(b) Each Contract is in full force and effect and constitutes
a valid and legally enforceable obligation of the Grantor which is a party
thereto, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, general equitable principles (whether
considered in a proceeding in equity or at law) and an implied covenant of good
faith and fair dealing.
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(c) No consent or authorization of, filing with or other act
by or in respect of any Governmental Authority is required in connection with
the execution, delivery, performance, validity or enforceability of any of the
Contracts by any party thereto other than those which have been duly obtained,
made or performed, are in full force and effect and do not subject the scope of
any such Contract to any material adverse limitation, either specific or
general in nature.
(d) Neither such Grantor nor (to the best of such Grantor's
knowledge) any of the other parties to the Contracts is in default in the
performance or observance of any of the terms thereof in any manner that, in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
(e) The right, title and interest of such Grantor in, to and
under the Contracts are not subject to any defenses, offsets, counterclaims or
claims that, in the aggregate, could reasonably be expected to have a Material
Adverse Effect.
(f) Such Grantor has delivered to the Administrative Agent a
complete and correct copy of each Contract, including all amendments,
supplements and other modifications thereto.
(g) No amount payable to such Grantor under or in connection
with any Contract is evidenced by any Instrument or Chattel Paper which has not
been delivered to the Administrative Agent.
(h) None of the parties to any Contract is a Governmental
Authority.
4.9 Intellectual Property. (a) Schedule 6 lists all
Intellectual Property owned by such Grantor in its own name on the date hereof.
(b) On the date hereof, all Intellectual Property is valid,
subsisting, unexpired and enforceable, has not been abandoned and does not
infringe the intellectual property rights of any other Person in any manner
that could reasonably be expected to have a Material Adverse Effect.
(c) Except as set forth in Schedule 6, on the date hereof,
none of the Intellectual Property is the subject of any licensing or franchise
agreement pursuant to which such Grantor is the licensor or franchisor.
(d) No holding, decision or judgment has been rendered as of
the date hereof by any Governmental Authority which would limit, cancel or
question the validity of, or such Grantor's rights in, any Intellectual
Property in any respect that could reasonably be expected to have a Material
Adverse Effect.
(e) No action or proceeding is pending, or, to the knowledge
of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or
question the validity of any Intellectual Property or such Grantor's ownership
interest therein, or (ii) which, if adversely determined, would have a material
adverse effect on the value of any Intellectual Property.
SECTION 5. COVENANTS
Each Grantor covenants and agrees with the Administrative
Agent and the Lenders that, from and after the date of this Agreement until the
Obligations shall have been paid in full (other than
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contingent obligations and indemnities which are not then due and payable but
which survive repayment of the Loans and termination of the Commitments) and
the Commitments shall have terminated:
5.1 Delivery of Instruments, Certificated Securities and
Chattel Paper. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any Instrument, Certificated
Security or Chattel Paper, such Instrument, Certificated Security or Chattel
Paper shall be immediately delivered to the Administrative Agent, duly indorsed
in a manner satisfactory to the Administrative Agent, to be held as Collateral
pursuant to this Agreement.
5.2 Maintenance of Insurance. (a) Such Grantor will maintain,
with financially sound and reputable companies, insurance policies (i) insuring
the Inventory and Equipment against loss by fire, explosion, theft and such
other casualties as may be reasonably satisfactory to the Administrative Agent
and (ii) insuring such Grantor, the Administrative Agent and the Lenders
against liability for personal injury and property damage relating to such
Inventory and Equipment, such policies to be in such form and amounts and
having such coverage as may be reasonably satisfactory to the Administrative
Agent and the Lenders.
(b) All such insurance shall (i) provide that no
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the
Administrative Agent of written notice thereof, (ii) name the Administrative
Agent as insured party or loss payee and (iii) be reasonably satisfactory in
all other respects to the Administrative Agent.
(c) The Borrower shall deliver to the Administrative Agent
and the Lenders a report of a reputable insurance broker with respect to such
insurance substantially concurrently with each delivery of the Borrower's
audited annual financial statements and such supplemental reports with respect
thereto as the Administrative Agent may from time to time reasonably request.
5.3 Payment of Obligations. Such Grantor will pay and
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, assessments and governmental charges
or levies imposed upon the Collateral or in respect of income or profits
therefrom, as well as all other claims of any kind which if not paid,
discharged or otherwise satisfied would become a Lien thereon (including,
without limitation, claims for labor, materials and supplies) against or with
respect to the Collateral, except that no such charge need be paid if the
amount or validity thereof is currently being contested in good faith by
appropriate proceedings, reserves in conformity with GAAP with respect thereto
have been provided on the books of such Grantor and such proceedings could not
reasonably be expected to result in the sale, forfeiture or loss of any
material portion of the Collateral or any interest therein.
5.4 Maintenance of Perfected Security Interest; Further
Documentation. (a) Such Grantor shall maintain the security interest created by
this Agreement as a perfected security interest having at least the priority
described in Section 4.2 and shall defend such security interest against the
claims and demands of all Persons whomsoever.
(b) Such Grantor will furnish to the Administrative Agent and
the Lenders from time to time statements and schedules further identifying and
describing the assets and property of such Grantor and such other reports in
connection therewith as the Administrative Agent may reasonably request, all in
reasonable detail.
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(c) At any time and from time to time, upon the written
request of the Administrative Agent, and at the sole expense of such Grantor,
such Grantor will promptly and duly execute and deliver, and have recorded,
such further instruments and documents and take such further actions as the
Administrative Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights and powers
herein granted, including, without limitation, (i) filing any financing or
continuation statements under the Uniform Commercial Code (or other similar
laws) in effect in any jurisdiction with respect to the security interests
created hereby and (ii) in the case of Investment Property, Deposit Accounts
and any other relevant Collateral, taking any actions necessary to enable the
Administrative Agent to obtain "control" (within the meaning of the applicable
Uniform Commercial Code) with respect thereto.
5.5 Changes in Locations, Name, etc. Such Grantor will not,
except upon 15 days' prior written notice to the Administrative Agent and
delivery to the Administrative Agent of (a) all additional executed financing
statements and other documents reasonably requested by the Administrative Agent
to maintain the validity, perfection and priority of the security interests
provided for herein and (b) if applicable, a written supplement to Schedule 5
showing any additional location at which Inventory or Equipment shall be kept:
(i) permit any of the Inventory or Equipment to be kept at a
location other than those listed on Schedule 5;
(ii) change its jurisdiction of organization or the location
of its chief executive office or sole place of business from that
referred to in Section 4.3; or
(iii) change its name, identity or corporate structure to
such an extent that any financing statement filed by the
Administrative Agent in connection with this Agreement would become
misleading.
5.6 Notices. Such Grantor will advise the Administrative
Agent and the Lenders promptly, in reasonable detail, of:
(a) any Lien (other than security interests created hereby or
Liens permitted under the Credit Agreement) on any of the Collateral which
would adversely affect the ability of the Administrative Agent to exercise any
of its remedies hereunder; and
(b) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the aggregate value
of the Collateral or on the security interests created hereby.
5.7 Investment Property. (a) If such Grantor shall become
entitled to receive or shall receive any stock certificate (including, without
limitation, any certificate representing a stock dividend or a distribution in
connection with any reclassification, increase or reduction of capital or any
certificate issued in connection with any reorganization), option or rights in
respect of the Capital Stock of any Issuer, whether in addition to, in
substitution of, as a conversion of, or in exchange for, any shares of the
Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the
same as the agent of the Administrative Agent and the Lenders, hold the same in
trust for the Administrative Agent and the Lenders and deliver the same
forthwith to the Administrative Agent in the exact form received, duly indorsed
by such Grantor to the Administrative Agent, if required, together with an
undated stock power covering such certificate duly executed in blank by such
Grantor and with, if the Administrative Agent so
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requests, signature guaranteed, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Obligations. Any
sums paid upon or in respect of the Investment Property upon the liquidation or
dissolution of any Issuer shall be paid over to the Administrative Agent to be
held by it hereunder as additional collateral security for the Obligations, and
in case any distribution of capital shall be made on or in respect of the
Investment Property or any property shall be distributed upon or with respect
to the Investment Property pursuant to the recapitalization or reclassification
of the capital of any Issuer or pursuant to the reorganization thereof, the
property so distributed shall, unless otherwise subject to a perfected security
interest in favor of the Administrative Agent, be delivered to the
Administrative Agent to be held by it hereunder as additional collateral
security for the Obligations. If any sums of money or property so paid or
distributed in respect of the Investment Property shall be received by such
Grantor, such Grantor shall, until such money or property is paid or delivered
to the Administrative Agent, hold such money or property in trust for the
Lenders, segregated from other funds of such Grantor, as additional collateral
security for the Obligations.
(b) Without the prior written consent of the Administrative
Agent, such Grantor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of any nature
or to issue any other securities convertible into or granting the right to
purchase or exchange for any stock or other equity securities of any nature of
any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or
grant any option with respect to, the Investment Property or Proceeds thereof
(except pursuant to a transaction expressly permitted by the Credit Agreement),
(iii) create, incur or permit to exist any Lien or option in favor of, or any
claim of any Person with respect to, any of the Investment Property or Proceeds
thereof, or any interest therein, except for the security interests created by
this Agreement or (iv) enter into any agreement or undertaking restricting the
right or ability of such Grantor or the Administrative Agent to sell, assign or
transfer any of the Investment Property or Proceeds thereof.
(c) In the case of each Grantor which is an Issuer, such
Issuer agrees that (i) it will be bound by the terms of this Agreement relating
to the Investment Property issued by it and will comply with such terms insofar
as such terms are applicable to it, (ii) it will notify the Administrative
Agent promptly in writing of the occurrence of any of the events described in
Section 5.7(a) with respect to the Investment Property issued by it and (iii)
the terms of Sections 6.3(c) and 6.7 shall apply to it, mutatis mutandis, with
respect to all actions that may be required of it pursuant to Section 6.3(c) or
6.7 with respect to the Investment Property issued by it.
5.8 Receivables. Other than in the ordinary course of
business consistent with its past practice, such Grantor will not (i) grant any
extension of the time of payment of any Receivable, (ii) compromise or settle
any Receivable for less than the full amount thereof, (iii) release, wholly or
partially, any Person liable for the payment of any Receivable, (iv) allow any
credit or discount whatsoever on any Receivable or (v) amend, supplement or
modify any Receivable in any manner that could adversely affect the value
thereof.
5.9 Contracts. (a) Such Grantor will not amend, modify,
terminate or waive any provision of any Contract in any manner which could
reasonably be expected to materially adversely affect the value of the
Contracts as Collateral, taken as a whole.
(b) Such Grantor will exercise promptly and diligently each
and every material right which it may have under each Contract (other than any
right of termination).
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(c) Such Grantor will deliver to the Administrative Agent a
copy of each material demand, notice or document received by it relating in any
way to any Contract that questions the validity or enforceability of such
Contract.
5.10 Intellectual Property. (a) Such Grantor (either itself
or through licensees) will (i) continue to use each material Trademark on each
and every trademark class of goods applicable to its current line as reflected
in its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) use such Trademark with the appropriate notice of registration
and all other notices and legends required by applicable Requirements of Law,
(iv) not adopt or use any mark which is confusingly similar or a colorable
imitation of such Trademark unless the Administrative Agent, for the ratable
benefit of the Lenders, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark may become invalidated or impaired in any way.
(b) Such Grantor (either itself or through licensees) will
not do any act, or omit to do any act, whereby any material Patent may become
forfeited, abandoned or dedicated to the public.
(c) Such Grantor (either itself or through licensees) (i)
will employ each material Copyright and (ii) will not (and will not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any material portion of the material Copyrights may become invalidated
or otherwise impaired. Such Grantor will not (either itself or through
licensees) do any act whereby any material portion of the material Copyrights
may fall into the public domain.
(d) Such Grantor (either itself or through licensees) will
not do any act that knowingly uses any material Intellectual Property to
infringe the intellectual property rights of any other Person.
(e) Such Grantor will notify the Administrative Agent and the
Lenders immediately if it knows, or has reason to know, that any application or
registration relating to any material Intellectual Property may become
forfeited, abandoned or dedicated to the public, or of any adverse
determination or development (including, without limitation, the institution
of, or any such determination or development in, any proceeding in the United
States Patent and Trademark Office, the United States Copyright Office or any
court or tribunal in any country) regarding such Grantor's ownership of, or the
validity of, any material Intellectual Property or such Grantor's right to
register the same or to own and maintain the same.
(f) Whenever such Grantor, either by itself or through any
agent, employee, licensee or designee, shall file an application for the
registration of any Intellectual Property with the United States Patent and
Trademark Office, the United States Copyright Office, such Grantor shall report
such filing to the Administrative Agent within five Business Days after the
last day of the fiscal quarter in which such filing occurs. Upon request of the
Administrative Agent, such Grantor shall execute and deliver, and have
recorded, any and all agreements, instruments, documents, and papers as the
Administrative Agent may request to evidence the Administrative Agent's and the
Lenders' security interest in any Copyright, Patent or Trademark and the
goodwill and general intangibles of such Grantor relating thereto or
represented thereby.
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(g) Such Grantor will take all reasonable and necessary
steps, including, without limitation, in any proceeding before the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency, to maintain and pursue each application (and to
obtain the relevant registration) and to maintain each registration of the
material Intellectual Property, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of incontestability.
(h) In the event that any material Intellectual Property is
infringed, misappropriated or diluted by a third party, such Grantor shall (i)
take such actions as such Grantor shall reasonably deem appropriate under the
circumstances to protect such Intellectual Property and (ii) if such
Intellectual Property is of material economic value, promptly notify the
Administrative Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and
to recover any and all damages for such infringement, misappropriation or
dilution.
SECTION 6. REMEDIAL PROVISIONS
6.1 Certain Matters Relating to Receivables. (a) The
Administrative Agent shall have the right to make test verifications of the
Receivables in any manner and through any medium that it reasonably considers
advisable, and each Grantor shall furnish all such assistance and information
as the Administrative Agent may require in connection with such test
verifications. At any time after the occurrence and during the continuance of
an Event of Default, upon the Administrative Agent's request and at the expense
of the relevant Grantor, such Grantor shall cause independent public
accountants or others satisfactory to the Administrative Agent to furnish to
the Administrative Agent reports showing reconciliations, aging and test
verifications of, and trial balances for, the Receivables.
(b) The Administrative Agent hereby authorizes each Grantor
to collect such Grantor's Receivables, subject to the Administrative Agent's
direction and control, and the Administrative Agent may curtail or terminate
said authority at any time after the occurrence and during the continuance of
an Event of Default. If required by the Administrative Agent at any time after
the occurrence and during the continuance of an Event of Default, any payments
of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in
any event, within two Business Days) deposited by such Grantor in the exact
form received (if received in physical form), duly indorsed by such Grantor to
the Administrative Agent if required, in a Collateral Account maintained under
the sole dominion and control of the Administrative Agent, subject to
withdrawal by the Administrative Agent for the account of the Lenders only as
provided in Section 6.5, and (ii) until so turned over, shall be held by such
Grantor in trust for the Administrative Agent and the Lenders, segregated from
other funds of such Grantor. Each such deposit of Proceeds of Receivables shall
be accompanied by a report identifying in reasonable detail the nature and
source of the payments included in the deposit.
(c) At any time after the occurrence and during the
continuance of an Event of Default, upon the Administrative Agent's request,
each Grantor shall deliver to the Administrative Agent all original and other
documents evidencing, and relating to, the agreements and transactions which
gave rise to the Receivables, including, without limitation, all original
orders, invoices and shipping receipts.
6.2 Communications with Obligors; Grantors Remain Liable. (a)
At any time after the occurrence and during the continuance of an Event of
Default, the Administrative Agent in its own name or in the name of others may
at any time communicate with obligors under the Receivables and parties to the
Contracts to verify with them to the Administrative Agent's satisfaction the
existence, amount and terms of any Receivables or Contracts.
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(b) Upon the request of the Administrative Agent at any time
after the occurrence and during the continuance of an Event of Default, each
Grantor shall notify obligors on the Receivables and parties to the Contracts
that the Receivables and the Contracts have been assigned to the Administrative
Agent for the ratable benefit of the Lenders and that payments in respect
thereof shall be made directly to the Administrative Agent.
(c) Notwithstanding anything herein to the contrary, each
Grantor shall remain liable under each of the Receivables and Contracts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise thereto. Neither the Administrative Agent nor any Lender shall have
any obligation or liability under any Receivable (or any agreement giving rise
thereto) or Contract by reason of or arising out of this Agreement or the
receipt by the Administrative Agent or any Lender of any payment relating
thereto, nor shall the Administrative Agent or any Lender be obligated in any
manner to perform any of the obligations of any Grantor under or pursuant to
any Receivable (or any agreement giving rise thereto) or Contract, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party
thereunder, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
6.3 Pledged Stock. (a) Unless an Event of Default shall have
occurred and be continuing and the Administrative Agent shall have given notice
to the relevant Grantor of the Administrative Agent's intent to exercise its
corresponding rights pursuant to Section 6.3(b), each Grantor shall be
permitted to receive all cash dividends paid in respect of the Pledged Stock
and all payments made in respect of the Pledged Notes, in each case paid in the
normal course of business of the relevant Issuer and consistent with past
practice, to the extent permitted in the Credit Agreement, and to exercise all
voting and corporate rights with respect to the Investment Property; provided,
however, that no vote shall be cast or corporate right exercised or other
action taken which, in the Administrative Agent's reasonable judgment, would
impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, this Agreement or any other
Loan Document.
(b) If an Event of Default shall occur and be continuing and
the Administrative Agent shall give notice of its intent to exercise such
rights to the relevant Grantor or Grantors, (i) the Administrative Agent shall
have the right to receive any and all cash dividends, payments or other
Proceeds paid in respect of the Investment Property and make application
thereof to the Obligations in such order as the Administrative Agent may
determine, and (ii) any or all of the Investment Property shall be registered
in the name of the Administrative Agent or its nominee, and the Administrative
Agent or its nominee may thereafter exercise (x) all voting, corporate and
other rights pertaining to such Investment Property at any meeting of
shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all
rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to such Investment Property as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the Investment Property upon the merger,
consolidation, reorganization, recapitalization or other fundamental change in
the corporate structure of any Issuer, or upon the exercise by any Grantor or
the Administrative Agent of any right, privilege or option pertaining to such
Investment Property, and in connection therewith, the right to deposit and
deliver any and all of the Investment Property with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms and
conditions as the Administrative Agent may determine), all without liability
except to account for property actually received by it, but the Administrative
Agent shall
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have no duty to any Grantor to exercise any such right, privilege or option and
shall not be responsible for any failure to do so or delay in so doing.
(c) Each Grantor hereby authorizes and instructs each Issuer
of any Investment Property pledged by such Grantor hereunder to (i) comply with
any instruction received by it from the Administrative Agent in writing that
(x) states that an Event of Default has occurred and is continuing and (y) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that each
Issuer shall be fully protected in so complying, and (ii) unless otherwise
expressly permitted hereby, pay any dividends or other payments with respect to
the Investment Property directly to the Administrative Agent.
6.4 Proceeds to be Turned Over To Administrative Agent. In
addition to the rights of the Administrative Agent and the Lenders specified in
Section 6.1 with respect to payments of Receivables, if an Event of Default
shall occur and be continuing, all Proceeds received by any Grantor consisting
of cash, checks and other near-cash items shall be held by such Grantor in
trust for the Administrative Agent and the Lenders, segregated from other funds
of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned
over to the Administrative Agent in the exact form received by such Grantor
(duly indorsed by such Grantor to the Administrative Agent, if required). All
Proceeds received by the Administrative Agent hereunder shall be held by the
Administrative Agent in a Collateral Account maintained under its sole dominion
and control. All Proceeds while held by the Administrative Agent in a
Collateral Account (or by such Grantor in trust for the Administrative Agent
and the Lenders) shall continue to be held as collateral security for all the
Obligations and shall not constitute payment thereof until applied as provided
in Section 6.5.
6.5 Application of Proceeds. At such intervals as may be
agreed upon by the Borrower and the Administrative Agent, or, if an Event of
Default shall have occurred and be continuing, at any time at the
Administrative Agent's election, the Administrative Agent may apply all or any
part of Proceeds held in any Collateral Account in payment of the Obligations
in such order as the Administrative Agent may elect, and any part of such funds
which the Administrative Agent elects not so to apply and deems not required as
collateral security for the Obligations shall be paid over from time to time by
the Administrative Agent to the Borrower or to whomsoever may be lawfully
entitled to receive the same. Any balance of such Proceeds remaining after the
Obligations shall have been paid in full and the Commitments shall have
terminated shall be paid over to the Borrower or to whomsoever may be lawfully
entitled to receive the same.
6.6 Code and Other Remedies. If an Event of Default shall
occur and be continuing, the Administrative Agent, on behalf of the Lenders,
may exercise, in addition to all other rights and remedies granted to them in
this Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the New York UCC or any other applicable law. Without limiting the generality
of the foregoing, the Administrative Agent, without demand of performance or
other demand, presentment, protest, advertisement or notice of any kind (except
any notice required by law referred to below) to or upon any Grantor or any
other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase,
or otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, at any exchange, broker's board or office of the
Administrative Agent or any Lender or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as
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it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent or any Lender shall
have the right upon any such public sale or sales, and, to the extent permitted
by law, upon any such private sale or sales, to purchase the whole or any part
of the Collateral so sold, free of any right or equity of redemption in any
Grantor, which right or equity is hereby waived and released. Each Grantor
further agrees, at the Administrative Agent's request, to assemble the
Collateral and make it available to the Administrative Agent at places which
the Administrative Agent shall reasonably select, whether at such Grantor's
premises or elsewhere. The Administrative Agent shall apply the net proceeds of
any action taken by it pursuant to this Section 6.6, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Administrative Agent and the
Lenders hereunder, including, without limitation, reasonable attorneys' fees
and disbursements, to the payment in whole or in part of the Obligations, in
such order as the Administrative Agent may elect, and only after such
application and after the payment by the Administrative Agent of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the New York UCC, need the Administrative Agent account for the
surplus, if any, to any Grantor. To the extent permitted by applicable law,
each Grantor waives all claims, damages and demands it may acquire against the
Administrative Agent or any Lender arising out of the exercise by them of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least 10 days before such sale or other disposition.
6.7 Sale of Pledged Stock. Each Grantor recognizes that the
Administrative Agent may be unable to effect a public sale of any or all the
Pledged Stock, by reason of certain prohibitions contained in the Securities
Act and applicable state securities laws or otherwise, and may be compelled to
resort to one or more private sales thereof to a restricted group of purchasers
which will be obliged to agree, among other things, to acquire such securities
for their own account for investment and not with a view to the distribution or
resale thereof. Each Grantor acknowledges and agrees that any such private sale
may result in prices and other terms less favorable than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall be deemed to have been made in a commercially reasonable
manner. The Administrative Agent shall be under no obligation to delay a sale
of any of the Pledged Stock for the period of time necessary to permit the
Issuer thereof to register such securities for public sale under the Securities
Act, or under applicable state securities laws, even if such Issuer would agree
to do so.
6.8 Waiver; Deficiency. Each Grantor shall remain liable for
any deficiency if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay its Obligations and the fees and
disbursements of any attorneys employed by the Administrative Agent or any
Lender to collect such deficiency.
SECTION 7. THE ADMINISTRATIVE AGENT
7.1 Administrative Agent's Appointment as Attorney-in-Fact,
etc. (a) Each Grantor hereby irrevocably constitutes and appoints the
Administrative Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Grantor and in the name of
such Grantor or in its own name, for the purpose of carrying out the terms of
this Agreement, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby
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gives the Administrative Agent the power and right, on behalf of such Grantor,
without notice to or assent by such Grantor, to do any or all of the following:
(i) in the name of such Grantor or its own name, or
otherwise, take possession of and indorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any Receivable or Contract or with respect to any
other Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Administrative Agent for the purpose of collecting
any and all such moneys due under any Receivable or Contract or with
respect to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property, execute and
deliver, and have recorded, any and all agreements, instruments,
documents and papers as the Administrative Agent may request to
evidence the Administrative Agent's and the Lenders' security interest
in such Intellectual Property and the goodwill and general intangibles
of such Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of
the premiums therefor and the costs thereof;
(iv) execute, in connection with any sale provided for in
Section 6.6 or 6.7, any indorsements, assignments or other instruments
of conveyance or transfer with respect to the Collateral; and
(v) (1) direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become
due thereunder directly to the Administrative Agent or as the
Administrative Agent shall direct; (2) ask or demand for, collect, and
receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or
arising out of any Collateral; (3) sign and indorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (4)
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) defend any suit, action or proceeding
brought against such Grantor with respect to any Collateral; (6)
settle, compromise or adjust any such suit, action or proceeding and,
in connection therewith, give such discharges or releases as the
Administrative Agent may deem appropriate; (7) assign any Copyright,
Patent or Trademark (along with the goodwill of the business to which
any such Copyright, Patent or Trademark pertains), throughout the
world for such term or terms, on such conditions, and in such manner,
as the Administrative Agent shall in its sole discretion determine;
and (8) generally, sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and do, at the Administrative Agent's option
and such Grantor's expense, at any time, or from time to time, all
acts and things which the Administrative Agent deems necessary to
protect, preserve or realize upon the Collateral and the
Administrative Agent's and the Lenders' security interests therein and
to effect the intent of this Agreement, all as fully and effectively
as such Grantor might do.
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Anything in this Section 7.1(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the
power of attorney provided for in this Section 7.1(a) unless an Event of
Default shall have occurred and be continuing.
(b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Administrative Agent, at its option, but
without any obligation so to do, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
(c) The expenses of the Administrative Agent incurred in
connection with actions undertaken as provided in this Section 7.1, together
with interest thereon at a rate per annum equal to the highest rate per annum
at which interest would then be payable on any category of past due ABR Loans
under the Credit Agreement, from the date of payment by the Administrative
Agent to the date reimbursed by the relevant Grantor, shall be payable by such
Grantor to the Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. All powers,
authorizations and agencies contained in this Agreement are coupled with an
interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
7.2 Duty of Administrative Agent. The Administrative Agent's
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the New York UCC or
otherwise, shall be to deal with it in the same manner as the Administrative
Agent deals with similar property for its own account. Neither the
Administrative Agent, any Lender nor any of their respective officers,
directors, employees or agents shall be liable for failure to demand, collect
or realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Grantor or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
7.3 Execution of Financing Statements. Pursuant to Section
9-402 of the New York UCC and any other applicable law, each Grantor authorizes
the Administrative Agent to file or record financing statements and other
filing or recording documents or instruments with respect to the Collateral
without the signature of such Grantor in such form and in such offices as the
Administrative Agent determines appropriate to perfect the security interests
of the Administrative Agent under this Agreement, provided that the
Administrative Agent shall first give the Grantor a reasonable opportunity to
sign any such financing statements. A photographic or other reproduction of
this Agreement shall be sufficient as a financing statement or other filing or
recording document or instrument for filing or recording in any jurisdiction.
7.4 Authority of Administrative Agent. Each Grantor
acknowledges that the rights and responsibilities of the Administrative Agent
under this Agreement with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any
option, voting
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right, request, judgment or other right or remedy provided for herein or
resulting or arising out of this Agreement shall, as between the Administrative
Agent and the Lenders, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Grantors, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Lenders with full
and valid authority so to act or refrain from acting, and no Grantor shall be
under any obligation, or entitlement, to make any inquiry respecting such
authority.
SECTION 8. MISCELLANEOUS
8.1 Amendments in Writing. None of the terms or provisions of
this Agreement may be waived, amended, supplemented or otherwise modified
except in accordance with subsection 9.1 of the Credit Agreement.
8.2 Notices. All notices, requests and demands to or upon the
Administrative Agent or any Grantor hereunder shall be effected in the manner
provided for in subsection 9.2 of the Credit Agreement; provided that any such
notice, request or demand to or upon any Guarantor shall be addressed to such
Guarantor at its notice address set forth on Schedule 1.
8.3 No Waiver by Course of Conduct; Cumulative Remedies.
Neither the Administrative Agent nor any Lender shall by any act (except by a
written instrument pursuant to Section 8.1), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default. No failure to exercise, nor any
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Lender
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which the Administrative Agent or such Lender
would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.
8.4 Enforcement Expenses; Indemnification. (a) Each Guarantor
agrees to pay or reimburse each Lender and the Administrative Agent for all its
costs and expenses incurred in collecting against such Guarantor under the
guarantee contained in Section 2 or otherwise enforcing or preserving any
rights under this Agreement and the other Loan Documents to which such
Guarantor is a party, including, without limitation, the fees and disbursements
of counsel (including the allocated fees and expenses of in-house counsel) to
each Lender and of counsel to the Administrative Agent.
(b) Each Guarantor agrees to pay, and to save the
Administrative Agent and the Lenders harmless from, any and all liabilities
with respect to, or resulting from any delay in paying, any and all stamp,
excise, sales or other taxes which may be payable or determined to be payable
with respect to any of the Collateral or in connection with any of the
transactions contemplated by this Agreement.
(c) Each Guarantor agrees to pay, and to save the
Administrative Agent and the Lenders harmless from, any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever with respect to the
execution,
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delivery, enforcement, performance and administration of this Agreement to the
extent the Borrower would be required to do so pursuant to Section 9.5 of the
Credit Agreement.
(d) The agreements in this Section 8.4 shall survive
repayment of the Obligations and all other amounts payable under the Credit
Agreement and the other Loan Documents.
8.5 Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of each Grantor and shall inure to the benefit
of the Administrative Agent and the Lenders and their successors and assigns;
provided that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Administrative Agent.
8.6 Set-Off. Each Grantor hereby irrevocably authorizes the
Administrative Agent and each Lender at any time and from time to time after
the occurrence and during the continuance of an Event of Default, without
notice to such Grantor or any other Grantor, any such notice being expressly
waived by each Grantor, to set-off and appropriate and apply any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Administrative Agent or such Lender
to or for the credit or the account of such Grantor, or any part thereof in
such amounts as the Administrative Agent or such Lender may elect, against and
on account of the obligations and liabilities of such Grantor to the
Administrative Agent or such Lender hereunder and claims of every nature and
description of the Administrative Agent or such Lender against such Grantor, in
any currency, whether arising hereunder, under the Credit Agreement, any other
Loan Document or otherwise, as the Administrative Agent or such Lender may
elect, whether or not the Administrative Agent or any Lender has made any
demand for payment and although such obligations, liabilities and claims may be
contingent or unmatured. The Administrative Agent and each Lender shall notify
such Grantor promptly of any such set-off and the application made by the
Administrative Agent or such Lender of the proceeds thereof, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Administrative Agent and each Lender under this
Section 8.6 are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Administrative Agent or such
Lender may have.
8.7 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts
(including by telecopy), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
8.8 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
8.9 Section Headings. The Section headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
8.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Grantors, the Administrative Agent and the
Lenders with respect to the subject matter hereof and thereof, and there are no
promises, undertakings, representations or warranties by the
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Administrative Agent or any Lender relative to subject matter hereof and
thereof not expressly set forth or referred to herein or in the other Loan
Documents.
8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action
or proceeding relating to this Agreement and the other Loan Documents
to which it is a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction
of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate
courts from any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to such Grantor at its address referred to in Section 8.2 or
at such other address of which the Administrative Agent shall have
been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or
proceeding referred to in this Section any special, exemplary,
punitive or consequential damages.
8.13 Acknowledgements. Each Grantor hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents
to which it is a party;
(b) neither the Administrative Agent nor any Lender has any
fiduciary relationship with or duty to any Grantor arising out of or
in connection with this Agreement or any of the other Loan Documents,
and the relationship between the Grantors, on the one hand, and the
Administrative Agent and Lenders, on the other hand, in connection
herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions
contemplated hereby among the Lenders or among the Grantors and the
Lenders.
<PAGE> 86
25
8.14 Additional Grantors. Each Subsidiary of Holdings that is
required to become a party to this Agreement pursuant to Section 5.9 of the
Credit Agreement shall become a Grantor for all purposes of this Agreement upon
execution and delivery by such Subsidiary of an Assumption Agreement in the
form of Annex 1 hereto.
8.15 Releases. (a) At such time as the Loans and the other
Obligations (other than contingent obligations and indemnities which are not
then due and payable but which survive repayment of the Loans and termination
of the Commitments) shall have been paid in full and the Commitments have been
terminated, the Collateral shall be released from the Liens created hereby, and
this Agreement and all obligations (other than those expressly stated to
survive such termination) of the Administrative Agent and each Grantor
hereunder shall terminate, all without delivery of any instrument or
performance of any act by any party, and all rights to the Collateral shall
revert to the Grantors. At the request and sole expense of any Grantor
following any such termination, the Administrative Agent shall deliver to such
Grantor any Collateral held by the Administrative Agent hereunder, and execute
and deliver to such Grantor such documents as such Grantor shall reasonably
request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or
otherwise disposed of by any Grantor in a transaction permitted by the Credit
Agreement, then the Administrative Agent, at the request and sole expense of
such Grantor, shall execute and deliver to such Grantor all releases or other
documents reasonably necessary or desirable for the release of the Liens
created hereby on such Collateral. At the request and sole expense of the
Borrower, a Guarantor shall be released from its obligations hereunder in the
event that all the Capital Stock of such Guarantor shall be sold, transferred
or otherwise disposed of in a transaction permitted by the Credit Agreement;
provided that the Borrower shall have delivered to the Administrative Agent, at
least ten Business Days prior to the date of the proposed release, a written
request for release identifying the relevant Guarantor and the terms of the
sale or other disposition in reasonable detail, including the price thereof and
any expenses in connection therewith, together with a certification by the
Borrower stating that such transaction is in compliance with the Credit
Agreement and the other Loan Documents.
8.16 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN.
<PAGE> 87
26
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee and Collateral Agreement to be duly executed and delivered as of the
date first above written.
ALLIED RISER COMMUNICATIONS, INC.
By:
----------------------------------------------
Title:
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.
By:
----------------------------------------------
Title:
ARC TEXAS, INC. D/B/A ALLIED RISER OF TEXAS, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF CALIFORNIA, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF CONNECTICUT, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF GEORGIA, INC.
By:
----------------------------------------------
Title:
<PAGE> 88
27
ALLIED RISER OF MASSACHUSETTS, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF NEW YORK, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF OHIO, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF PENNSYLVANIA, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF VIRGINIA, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF WASHINGTON, INC.
By:
----------------------------------------------
Title:
ALLIED RISER OF D.C., INC.
By:
----------------------------------------------
Title:
<PAGE> 89
EXHIBIT B
FORM OF
COMPLIANCE CERTIFICATE
This Compliance Certificate is delivered to you pursuant to
Section 5.2 of the Credit Agreement, dated as of March 25, 1999 as amended,
supplemented or modified from time to time (the "Credit Agreement"), among
ALLIED RISER COMMUNICATIONS HOLDINGS, INC., a Delaware corporation, ALLIED
RISER COMMUNICATIONS, INC., a Delaware corporation (the "Borrower"), the
several banks and other financial institutions or entities from time to time
parties thereto (the "Lenders"), and THE CHASE MANHATTAN BANK, as
administrative agent (in such capacity, the "Administrative Agent"). Terms
defined in the Credit Agreement and not otherwise defined herein are used
herein with the meanings so defined.
1. I am the duly elected, qualified and acting [position of
certifying Responsible Officer] of the Borrower.
2. I have reviewed and are familiar with the contents of
this Certificate.
3. I have reviewed the terms of the Credit Agreement and the
Loan Documents and have made or caused to be made under my supervision, a
review in reasonable detail of the transactions and condition of the Borrower
during the accounting period covered by the financial statements attached
hereto as Attachment 1 (the "Financial Statements"). Such review did not
disclose the existence during or at the end of the accounting period covered by
the Financial Statements, and I have no knowledge of the existence, as of the
date of this Certificate, of any condition or event which constitutes a Default
or Event of Default [, except as set forth below].
4. Attached hereto as Attachment 2 are the computations
showing compliance with the covenants set forth in Section 6.1, 6.2, and 6.7 of
the Credit Agreement.
IN WITNESS WHEREOF, I execute this Certificate this ____ day
of ____________________, _____.
ALLIED RISER COMMUNICATIONS, INC.
By:
-----------------------------------------
Title:
<PAGE> 90
Attachment 2
to Compliance Certificate
The information described herein is as of _______, ____, and
pertains to the period from _______ __, ____ to ________________ __, ____.
[Set forth Covenant Calculations]
<PAGE> 91
EXHIBIT C
FORM OF
CLOSING CERTIFICATE
I, the undersigned, [President/Executive Vice President/Chief
Financial Officer] of [Name of Loan Party], a corporation organized and
existing under the laws of the State of _______________ (the "Company"), do
hereby certify on behalf of the Company that:
1. This Certificate is furnished pursuant to the Credit Agreement,
dated as of March 25, 1999, among Allied Riser Communications Holdings, Inc., a
Delaware corporation, Allied Riser Communications, Inc., a Delaware
corporation, the Lenders party thereto, and The Chase Manhattan Bank, as
Administrative Agent (such Credit Agreement, as in effect on the date of this
Certificate, being herein called the "Credit Agreement"). Unless otherwise
defined herein, capitalized terms used in this Certificate shall have the
meanings set forth in the Credit Agreement.
2. The following named individuals are elected or appointed officers
of the Company, each holds the office of the Company set forth opposite his
name and has held such office since __________________, 19__(1). The signature
written opposite the name and title of each such officer is his genuine
signature.
<TABLE>
<CAPTION>
Name(2) Office Signature
------- ------ ---------
<S> <C> <C>
---------------- ---------------- ----------------------
---------------- ---------------- ----------------------
---------------- ---------------- ----------------------
</TABLE>
3. Attached hereto as Exhibit A is a certified copy of the
Certificate of Incorporation of the Company, as filed in the Office of the
Secretary of State of the State of ______________ on __________________, 19__,
together with all amendments thereto adopted through the date hereof.
4. Attached hereto as Exhibit B is a true and correct copy of
the By-Laws of the Company which were duly adopted, are in full force and
effect on the date hereof, and have been in effect since __________________,
19__.
5. Attached hereto as Exhibit C is a true and correct copy of
resolutions which were duly adopted on ________, 19___ [by unanimous written
consent of the Board of Directors of the
- ----------------------
(1) Insert a date prior to the time of any corporate action relating to the Loan
Documents or related documentation
(2) Include name, office and signature of each officer who will sign any Loan
Document, including the officer who will sign the certification at the end of
this Certificate or related documentation.
<PAGE> 92
C-2
Company] [by a meeting of the Board of Directors of the Company at which a
quorum was present and acting throughout], and said resolutions have not been
rescinded, amended or modified. Except as
attached hereto as Exhibit C, no resolutions have been adopted by the Board of
Directors of the Company which deal with the execution, delivery or performance
of any of the Loan Documents to which the Company is party.
6. On the date hereof, all of the conditions set forth in
Sections 4.1 and 4.2 of the Credit Agreement have been satisfied.
7. On the date hereof, the representations and warranties [of
each Loan Party] [of the Company](3) set forth in the Credit Agreement and in
the other Loan Documents are true and correct with the same effect as though
such representations and warranties had been made on the date hereof.
8. On the date hereof, no Default or Event of Default has
occurred and is continuing or would result from any Borrowing to occur on the
date hereof or the application of the proceeds thereof.
9. There is no proceeding for the dissolution or liquidation
of the Company or threatening its existence.
10. As of the date hereof, there are at least 68 Wired
Business Units.(4)
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day
of _________, ___.
[NAME OF LOAN PARTY]
By:
-----------------------
Title:
- ----------------------
(3) Holdings and the Borrower bring down the representations and warranties
for each Loan Party, and each other Loan Party brings down the
representations and warranties made by it.
(4) To be included only in the Closing Certificate of the Borrower.
<PAGE> 93
C-3
I, the undersigned, [Secretary/Assistant Secretary] of the Company, do hereby
certify that:
1. [Name of Person making above certifications] is the duly
elected and qualified [President/Executive Vice President/Chief Financial
Officer] of the Company and the signature above is his genuine signature.
2. The certifications made by [name of Person making above
certifications] in Items 2, 3, 4, 5, 6, 7, 8 and 9 above are true and correct.
IN WITNESS WHEREOF, I have hereunto set my hand this ______
day of ________, ____.
[NAME OF LOAN PARTY]
By:
-----------------------------
Title:
<PAGE> 94
EXHIBIT D
FORM OF CONSENT
CONSENT, dated _____________, ____ (this "Consent"), made by
__________________________________ (the "Consenting Party") in favor of The
Chase Manhattan Bank, as administrative agent (the "Administrative Agent").
W I T N E S S E T H :
WHEREAS, the Consenting Party and Allied Riser
Communications, Inc. (the "Borrower") have entered into a [Communications
License Agreement], dated as of ___________, _____ (the "Contract");
WHEREAS, the Borrower, Allied Riser Communications Holdings,
Inc. ("Holdings"), several lenders (the "Lenders") and the Administrative
Agent, are parties to a Credit Agreement, dated as of March 25, 1999 (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"); and
WHEREAS, to secure the obligations of the Borrower under the
Credit Agreement, the Borrower has granted a security interest in the Contract
to the Administrative Agent, for the benefit of the Lenders, pursuant to an
agreement herein referred to as the "Guarantee and Collateral Agreement";
NOW, THEREFORE, the Consenting Party hereby agrees as
follows:
SECTION 1. CONSENT TO ASSIGNMENT, ETC.
1.1 Consent to Assignment and Perfection. Notwithstanding any
provision in the Contract to the contrary, the Consenting Party (a) consents to
the assignment to the Administrative Agent of all of the Borrower's rights,
title and interest in, to and under the Contract pursuant to the Guarantee and
Collateral Agreement (the "Assigned Interest"), (b) consents to any filings
necessary to perfect the security interests created by the Guarantee and
Collateral Agreement with respect to the Collateral (as defined therein) and
(c) acknowledges the right of the Administrative Agent to exercise its rights
and remedies under the Guarantee and Collateral Agreement[, including the right
to assign the rights of the Borrower under the Contract to a third party].
1.2 Right to Cure. In the event of a default by the Borrower
in the performance of any of its obligations under the Contract which would
immediately or ultimately enable the Consenting Party to terminate or suspend
its obligations under the Contract (hereinafter a "default"), the Consenting
Party will not terminate the Contract unless it has first given the
Administrative Agent notice of such default and affords the Administrative
Agent the same time period to correct such default as it is required to give
the Borrower under the Contract.
1.3 Notice of Transfer. The Consenting Party will not sell,
lease, assign, convey, transfer or otherwise dispose of the [Building] or
[Property] (each as defined in the Contract) to which the Contract relates
unless (a) it has given the Administrative Agent 30 days' written notice of
such disposition and (b) the Consenting Party shall have assigned the Contract
to such purchaser (or other
<PAGE> 95
transferee) and such purchaser (or other transferee) shall have executed and
delivered a consent in favor of the Administrative Agent substantially in the
form of this Consent.
1.4 No Liability. The Consenting Party acknowledges and
agrees that neither the Administrative Agent nor any other lender or agent
which is a party to the Credit Agreement shall have any liability or obligation
under the Contract as a result of this Consent or the Guarantee and Collateral
Agreement, unless they become party to the Contract.
SECTION 2. MISCELLANEOUS
2.1 Notices. All notices and other communications hereunder
shall be in writing, shall be sent by first class mail, by personal delivery or
by a nationally recognized courier service, and shall be directed (a) if to the
Consenting Party, in accordance with the Contract, (b) if to the Administrative
Agent, at 1 Chase Manhattan Plaza, New York, New York 10081, Attention: Vito
Cipriano or (c) to such other address or addressee as the Consenting Party or
the Administrative Agent, as the case may be, may designate by notice given
pursuant hereto.
2.2 GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
2.3 Successors and Assigns. This Consent shall be binding
upon the Consenting Party and its permitted successors and assigns and shall
inure to the benefit of the Administrative Agent, and its respective successors
and assigns.
<PAGE> 96
IN WITNESS WHEREOF, the Consenting Party has caused this
Consent to be executed and delivered by its duly authorized officer, as of the
date first above written.
[NAME OF CONSENTING PARTY]
By:
-----------------------------
Title:
<PAGE> 97
EXHIBIT E
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of March
25, 1999 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among Allied Riser Communications Holdings, Inc.
("Holdings"), Allied Riser Communications, Inc. (the "Borrower"), the Lenders
named therein and The Chase Manhattan Bank, as administrative agent for the
Lenders (in such capacity, the "Administrative Agent"). Unless otherwise
defined herein, terms defined in the Credit Agreement and used herein shall
have the meanings given to them in the Credit Agreement.
The Assignor identified on Schedule l hereto (the "Assignor")
and the Assignee identified on Schedule l hereto (the "Assignee") agree as
follows:
1. The Assignor hereby irrevocably sells and assigns to the
Assignee without recourse to the Assignor, and the Assignee hereby
irrevocably purchases and assumes from the Assignor without recourse
to the Assignor, as of the Effective Date (as defined below), the
interest described in Schedule 1 hereto (the "Assigned Interest") in
and to the Assignor's rights and obligations under the Credit
Agreement with respect to those credit facilities contained in the
Credit Agreement as are set forth on Schedule 1 hereto (individually,
an "Assigned Facility"; collectively, the "Assigned Facilities"), in a
principal amount for each Assigned Facility as set forth on Schedule 1
hereto.
2. The Assignor (a) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties
or representations made in or in connection with the Credit Agreement
or with respect to the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, any other
Loan Document or any other instrument or document furnished pursuant
thereto, other than that the Assignor has not created any adverse
claim upon the interest being assigned by it hereunder and that such
interest is free and clear of any such adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect
to the financial condition of Holdings, any of its Subsidiaries or any
other obligor or the performance or observance by Holdings, any of its
Subsidiaries or any other obligor of any of their respective
obligations under the Credit Agreement or any other Loan Document or
any other instrument or document furnished pursuant hereto or thereto;
and (c) attaches any Notes held by it evidencing the Assigned
Facilities and (i) requests that the Administrative Agent, upon
request by the Assignee, exchange the attached Notes for a new Note or
Notes payable to the Assignee and (ii) if the Assignor has retained
any interest in the Assigned Facility, requests that the
Administrative Agent exchange the attached Notes for a new Note or
Notes payable to the Assignor, in each case in amounts which reflect
the assignment being made hereby (and after giving effect to any other
assignments which have become effective on the Effective Date).
3. The Assignee (a) represents and warrants that it is
legally authorized to enter into this Assignment and Acceptance; (b)
confirms that it has received a copy of the Credit Agreement, together
with copies of the financial statements delivered pursuant to Section
3.1 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (c) agrees that it will, independently
and without reliance upon the Assignor, the Administrative Agent or
any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under the Credit
<PAGE> 98
E-2
Agreement, the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; (d) appoints and authorizes the
Administrative Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Credit Agreement, the other Loan Documents
or any other instrument or document furnished pursuant hereto or thereto as are
delegated to the Administrative Agent by the terms thereof, together with such
powers as are incidental thereto; and (e) agrees that it will be bound by the
provisions of the Credit Agreement and will perform in accordance with its
terms all the obligations which by the terms of the Credit Agreement are
required to be performed by it as a Lender including, if it is organized under
the laws of a jurisdiction outside the United States, its obligation pursuant
to Section 2.14(d) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall
be the Effective Date of Assignment described in Schedule 1 hereto
(the "Effective Date"). Following the execution of this Assignment and
Acceptance, it will be delivered to the Agent for acceptance by it and
recording by the Agent pursuant to the Credit Agreement, effective as
of the Effective Date (which shall not, unless otherwise agreed to by
the Administrative Agent, be earlier than five Business Days after the
date of such acceptance and recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the
Effective Date, the Administrative Agent shall make all payments in
respect of the Assigned Interest (including payments of principal,
interest, fees and other amounts) to the Assignor for amounts which
have accrued to the Effective Date and to the Assignee for amounts
which have accrued subsequent to the Effective Date. The Assignor and
the Assignee shall make all appropriate adjustments in payments by the
Administrative Agent for periods prior to the Effective Date or with
respect to the making of this assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall
be a party to the Credit Agreement and, to the extent provided in this
Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the other Loan Documents and shall be bound by
the provisions thereof and (b) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and
be released from its obligations under the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment and Acceptance to be executed as of the date first above written by
their respective duly authorized officers on Schedule 1 hereto.
<PAGE> 99
EXHIBIT F-1
FORM OF OPINION OF KIRKLAND & ELLIS
[K&E LETTERHEAD]
[Closing Date]
The Chase Manhattan Bank, as Administrative
Agent under the Credit Agreement, as hereinafter
defined
and
The Lenders which are parties to the Credit Agreement
on the date hereof (the "Initial Lenders")
Re: Allied Riser Communications Holdings
Ladies and Gentlemen:
We have acted as special counsel to (i) Allied Riser Communications
Holdings, Inc., a Delaware corporation ("Holdings"), (ii) Allied Riser
Communications, Inc., a Delaware corporation (the "Borrower") and the
additional Subsidiaries of Holdings identified on the Schedule of Subsidiaries
attached hereto (each a "Guarantor" and collectively the "Guarantors")
(Holdings, the Borrower and the Guarantors, collectively referred to herein as
the "Credit Parties"), in connection with the transactions contemplated in that
certain Credit Agreement dated as of March __, 1999, among Holdings, the
Borrower, The Chase Manhattan Bank, as Administrative Agent and each of the
Lenders from time to time a party thereto (as amended as of [Closing Date] the
"Credit Agreement"). Our knowledge of the Credit Parties' business, records,
transactions and activities is limited to the information which has been
brought to our attention by the Credit Parties in connection with such matters
or by a certificate executed and delivered to us by officers of the Credit
Parties in connection with this opinion letter. The opinions expressed below
are being provided pursuant to Section 4.1(g)(i) of the Credit Agreement.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings accorded such terms in the Credit Agreement (with
references herein to the Credit Agreement and each document defined therein
meaning the Credit Agreement and each such document as executed and delivered
this date (or if executed and delivered on an earlier date, as the same is in
effect on the date hereof)). The Initial Lenders and the Administrative Agent
are herein sometimes called "you".
For purposes of this opinion letter, we have reviewed the Credit
Agreement, the Guarantee and Collateral Agreement of even date herewith
executed and delivered by the Credit Parties in favor of the Administrative
Agent for the Lenders (the "Security Agreement") and the UCC Form-1 Financing
Statements executed by each Credit Party, as debtor, and the Administrative
Agent, as secured party, to be filed in the filing offices listed on Exhibit A
attached hereto (the "Financing Statements"). The Credit
<PAGE> 100
The Chase Manhattan Bank
[Closing Date]
Page 2
Agreement and the Security Agreement are referred to herein collectively as the
"Operative Documents," and the Operative Documents and the Financing Statements
are referred to herein collectively as the "Loan Documents." We have also
examined originals or copies of the Certificates of Incorporation and By-Laws
of each Credit Party.
Subject to the assumptions, qualifications, exclusions and other
limitations which are identified in this opinion letter and in the schedules
attached to this opinion letter, it is our opinion that:
1. Each of the Credit Parties is a corporation existing and in good
standing under the Delaware General Corporation Law (the "DGCL"). Each
of the Credit Parties has the corporate power and authority to own and
lease its properties of which we are aware and to carry on the
business, in which, to our knowledge, it is presently engaged.
2. Each Credit Party is qualified to do business as a foreign corporation
and is in good standing in the jurisdictions noted on the Schedule of
Foreign Qualifications attached hereto.
3. Each Credit Party has the corporate power to execute and deliver the
Loan Documents to which it is party, to borrow money under the Credit
Agreement (in the case of the Borrower), to pledge and grant or convey
security interests in and liens upon its assets as collateral as
required under the Operative Documents to which it is a party, and to
perform its obligations under the Operative Documents to which it is
party.
4. All corporate action by each Credit Party has been duly taken or
obtained to authorize such Credit Party's execution and delivery of
each of the Loan Documents to which it is a party and its performance
of each of the Operative Documents to which it is a party.
5. Each Loan Document to which any Credit Party is a party has been duly
executed and delivered by authorized officers of such Credit Party.
6. Each of the Loan Documents is a valid and binding obligation of each
Credit Party that is a party thereto and is enforceable against such
Credit Party in accordance with its terms.
7. The execution and delivery by each Credit Party of the Loan Documents
to which it is a party, the creation and perfection of the security
interests contemplated thereby, the consummation of the transactions
contemplated by each Operative Document to which it is a party to be
consummated on or prior to the Closing Date, the incurrence of the
Loans under the Credit Agreement and the performance of its
obligations under each Operative Document to which it is a party will
not (a) violate any provisions of the Certificate of Incorporation or
By-Laws of such Credit Party, (b) constitute a violation by such
Credit Party of any applicable provision of existing State of New York
or United States Federal statutory law or governmental regulation
covered by this opinion letter, (c) to our actual knowledge, violate
any order, writ, injunction, judgment, determination, award or decree
of any court or governmental instrumentality applicable to such Credit
Party of which we are aware, (d) result in a material breach or other
violation of, or constitute a default under any agreement listed on
the Schedule of Specified Agreements attached hereto (the "Specified
Agreements") (except that we express no opinion
<PAGE> 101
The Chase Manhattan Bank
[Closing Date]
Page 3
with respect to conflicts, breaches or default under cross-default
provisions arising out of a default under any agreement which is not a
Specified Agreement or with respect to financial covenants or tests)
or (e) result in the creation or imposition of (or obligation to
create or impose) any lien, charge, or encumbrance on, or security
interest in, any material property of any Credit Parties pursuant to
the provisions of any of the Specified Agreements, other than Liens
created under the Loan Documents.
8. To our actual knowledge, but without our having made any independent
investigation, there are no actions, suits or proceedings pending or
threatened against or affecting any Credit Party or any properties of
any Credit Party at law or in equity, before any court or
administrative officer or agency, except for the matters disclosed in
the Credit Agreement and the Schedules thereto.
9. None of the Credit Parties is presently required to obtain any
consent, approval, authorization or order of any court or governmental
or regulatory agency in order to obtain the right to execute and
deliver the Loan Documents, to borrow money under the Credit
Agreement, to pledge and grant or convey security interests in and
liens upon its assets as collateral as required under the Operative
Documents, and to perform its obligations under the Operative
Documents except for: (a) those obtained or made prior to the Closing
Date (and which continue in effect), (b) any actions or filings to
perfect the liens and security interests granted under the Operative
Documents or to release existing liens and (c) actions or filings
required in connection with the ordinary course conduct by each Loan
Party of its business and ownership or operation by each Loan Party of
its assets.
10. The Security Agreement creates valid security interests in your favor
in the Collateral therein respectively described which constitutes
property in which a security interest can be granted under Article 9
of the Uniform Commercial Code as enacted in New York (the "New York
UCC"). Such Collateral is referred to herein as the "Code Collateral."
11. Under Section 9-103 of the New York UCC, the perfection and effect of
perfection of your security interests in the Code Collateral (a) which
constitutes documents, instruments and ordinary goods will, as a
general matter, be governed by the laws of the jurisdiction in which
such personal property is located, (b) which constitutes accounts,
general intangibles and mobile goods will, as a general matter, be
governed by the laws of the jurisdiction in which the applicable
grantor's chief executive office is located, (c) which constitutes
certificated securities will be governed by the local law of the
jurisdiction in which the security certificates are located (other than
perfection by filing, which is governed by the local law of the
jurisdiction in which the applicable grantor's chief executive office
is located), and (d) which constitutes other categories will be
governed by the laws of the jurisdiction or jurisdictions specified in
such Section 9-103. To the extent that under the principles described
in the first sentence of this paragraph, the perfection and effect of
perfection of your security interests in the Code Collateral are
governed by the laws of the State of New York, when the Financing
Statements are filed in the filing offices in the State of New York as
set forth on Exhibit A hereto, your security interests under the
Security Agreement in the Code Collateral will be perfected to the
extent such security interests can be perfected by the filing of
financing statements in New York. To the extent that under the
principles described in the first sentence of this paragraph, the
perfection
<PAGE> 102
The Chase Manhattan Bank
[Closing Date]
Page 4
and effect of perfection of your security interests in the Code
Collateral are governed by the laws of the State of Illinois, when the
Financing Statement are filed in the filing offices in the State of
Illinois as set forth on Exhibit A hereto, your security interests
under the Security Agreement in the Cash Collateral will be perfected
to the extent such security interests can be perfected by the filing of
financing statements in Illinois. To the extent that under the
principles described in the first sentence of this paragraph, the
perfection and effect of perfection of your security interests in the
Code Collateral are governed by the laws of the states other than New
York and Illinois, although we express no opinion as to such laws, we
have reviewed the Commerce Clearing House, Inc. Secured Transactions
Guide as supplemented through ___________, 1999 (the "Guide") and,
based solely on such review, it appears that when the Financing
Statements are duly filed or recorded, as appropriate, in the filing
offices in the states other than New York and Illinois set forth on
Exhibit I attached hereto, your security interests under the Security
Agreement in such remaining Code Collateral will be perfected to the
extent such security interests can be perfected by the filing of
financing statements in such other states.
12. With respect to the "Pledged Stock" as defined in the Security
Agreement, assuming (in addition to all other assumptions upon which
this letter is based) that you have taken and are retaining possession
in the State of New York of the certificates representing the Pledged
Stock, duly endorsed to you or in blank by an effective indorsement
(within the meaning of Section 8-102(a)(11) of the New York UCC), your
security interest in such Pledged Stock is perfected under the New
York UCC; and assuming further (in addition to all other assumptions
upon which this letter is based) that you have taken possession of
such certificates and such accompanying indorsements without notice
(actual or constructive), at or prior to the time of the delivery of
such certificates and endorsements to you, of any adverse claim within
the meaning of Section 8-102(a)(1) of the New York UCC, you have
acquired your security interest in such Pledged Stock free of any such
adverse claims. With respect to "Pledged Notes" as defined in the
Security Agreement, assuming (in addition to all other assumptions
upon which this letter is based) that you have taken and are retaining
possession in the State of New York of each Pledged Note, your
security interest in such Pledged Note is perfected under the New York
UCC and is prior to any other security interest therein arising under
the New York UCC.
13. Upon the due filing and recordation of the Security Agreement in the
United States Patent and Trademark Office (the "PTO") and the United
States Copyright Office (the "Copyright Office") and the payment of
all filing and recordation fees associated therewith, the security
interest created under the Security Agreement in the United States
Patents, United States registered Trademarks (and Trademarks for which
United States registration applications are pending) and United States
registered Copyrights specifically identified in Schedule 6 to the
Security Agreement (the "Registered IP Collateral") will be perfected
to the extent the same may be perfected by such filing. We note for
your information that filing with the PTO and the Copyright Office
alone may not be sufficient to perfect fully the security interests in
such Collateral, and that under the applicable Uniform Commercial Code
and federal law, appropriate UCC financing statements may also be
required to be filed in order to perfect fully such security
interests.
<PAGE> 103
The Chase Manhattan Bank
[Closing Date]
Page 5
14. No Credit Party is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
15. The consummation on the date hereof of the making and borrowing under
the Loan Documents will not violate or result in a violation of
Regulation T, U or X of the Board of Governors of the Federal Reserve
System.
Each opinion in this letter is subject to the General Qualifications
that are recited in Schedule A to this letter to the extent relevant to that
opinion. In preparing this opinion letter, we have relied without any
independent verification upon the assumptions recited in Schedule B to this
opinion letter and upon: (i) factual information contained in certificates
obtained from governmental authorities, (ii) factual information represented to
be true in the Credit Agreement and the other Loan Documents; (iii) factual
information provided to us in a support certificate signed by each of the
Credit Parties; and (iv) factual information we have obtained from such other
sources as we have deemed reasonable. We have examined the originals or copies
certified to our satisfaction, of such other corporate records of the Credit
Parties as we deem necessary for or relevant to this opinion, certificates of
public officials and other officers of the Credit Parties and we have assumed
without investigation that there has been no relevant change or development
between the dates as of which the information cited in the preceding sentence
was given and the date of this opinion letter and that the information upon
which we have relied is accurate and does not permit disclosures necessary to
prevent such information from being misleading.
While we have not conducted any independent investigation to determine
facts upon which our opinions are based or to obtain information about which
this opinion letter advises you, we confirm that we do not have any actual
knowledge which has caused us to conclude that our reliance and assumptions
cited in the preceding paragraph are unwarranted or that any information
supplied in this opinion letter is wrong. The terms "knowledge" and "actual
knowledge" and references to "awareness" whenever used in this opinion letter
with respect to our firm means conscious awareness at the time this opinion
letter is delivered on the date it bears by the following Kirkland & Ellis
lawyers who are the only lawyers at Kirkland & Ellis that have had significant
involvement with (i) the negotiation and preparation of the Credit Agreement or
(ii) the Credit Parties (herein called "our Designated Transaction Lawyers"):
Andrew M. Kaufman and Stephanie D. Simon [other K&E lawyers to be added as
appropriate].
Our advice on every legal issue addressed in this opinion letter is
based exclusively on such internal laws of the State of New York (and, for
purposes of paragraph 11, Illinois) and such federal law of the United States
which is in our experience normally applicable to general business corporations
not engaged in regulated business activities and to transactions of the type
contemplated in the Loan Documents between the Credit Parties, on the one hand,
and you on the other hand (but without our having made any special
investigation as to any other laws), except that we express no opinion or
advice as to any law or legal issue (i) which might be violated by any
misrepresentation or omission or a fraudulent act, (ii) to which any Credit
Party may be subject as a result of your legal or regulatory status, your sale
or transfer of the Loans or interests therein or your (as opposed to any other
lender's) involvement in the transactions contemplated by the Loan Documents,
or (iii) identified on Schedule C; provided, that the opinions in paragraphs 1
and 3 through 5 are based on the DGCL and except that the opinion in paragraph
11 (other than with respect to the laws of the State of Illinois) is based
exclusively on our review of the Guide. For purposes of each opinion in the
first sentence of paragraph 1 and each
<PAGE> 104
The Chase Manhattan Bank
[Closing Date]
Page 6
opinion in paragraph 2, we have relied exclusively upon certificates issued by
a governmental authority in each relevant jurisdiction and such opinion is not
intended to provide any conclusion or assurance beyond that conveyed by such
certificates. We advise you that some issues addressed by this opinion letter
may be governed in whole or in part by other laws, but we express no opinion as
to whether any relevant difference exists between the laws upon which our
opinions are based and any other laws which may actually govern. Our opinions
do not cover or otherwise address any provision of the Operative Documents of
any type identified in Schedule D. Provisions in the Operative Documents which
are not excluded by Schedule D or any other part of this opinion letter or its
attachments are called the "Relevant Agreement Terms."
Our advice on each legal issue addressed in this letter represents our
opinion as to how that issue would be resolved were it to be considered by the
highest court of the jurisdiction upon whose law our opinion on that issue is
based. The manner in which any particular issue would be treated in any actual
court case would depend in part on facts and circumstances particular to the
case, and this letter is not intended to guarantee the outcome of any legal
dispute which may arise in the future. It is possible that some Relevant
Agreement Terms may not prove enforceable for reasons other than those cited in
this letter should an actual enforcement action be brought, but (subject to all
the exceptions, qualifications, exclusions and other limitations contained in
this letter) such unenforceability would not in our opinion prevent you from
realizing the principal benefits purported to be provided by the Relevant
Agreement Terms.
This opinion letter speaks as of the time of its delivery on the date
it bears. We do not assume any obligation to provide you with any subsequent
opinion or advice by reason of any fact about which our Designated Transaction
Lawyers did not have actual knowledge at that time, by reason of any change
subsequent to that time in any law covered by any of our opinions, or for any
other reason. The attached schedules are an integral part of this opinion
letter, and any term defined in this opinion letter or any schedule has that
defined meaning wherever it is used in this opinion letter or in any schedule
to this opinion letter.
You may rely upon this letter only for the purpose served by the
provision in the Agreement cited in the initial paragraph of this opinion
letter in response to which it has been delivered. Without our written consent:
(i) no person other than you may rely on this opinion letter for any purpose;
(ii) this opinion letter may not be cited or quoted in any financial statement,
prospectus, private placement memorandum or other similar document; (iii) this
opinion letter may not be cited or quoted in any other document or
communication which might encourage reliance upon this opinion letter by any
person or for any purpose excluded by the restrictions in this paragraph; and
(iv) copies of this opinion letter may not be furnished to anyone for purposes
of encouraging such reliance. Notwithstanding the foregoing persons who
subsequently become Lenders in accordance with the terms of 9.6 of the Credit
Agreement (or participants in accordance with the terms of Section 9.6 of the
Credit Agreement) may rely on this opinion letter as of the time of its
delivery on the date hereof as if this letter were addressed to them.
Sincerely,
Kirkland & Ellis
<PAGE> 105
EXHIBIT F-2
FORM OF OPINION OF LOCAL COUNSEL
______________ __, 1999
The Chase Manhattan Bank, as Administrative Agent
270 Park Avenue
New York, New York 10017
And each of the Lenders parties to the
Credit Agreement referred to below
We have acted as special counsel in the State of (the "State") to
Allied Riser Communications Holdings, Inc., a Delaware corporation
("Holdings"), and its Subsidiaries in connection with (a) the Credit Agreement,
dated as of March 25, 1999 (as amended, the "Credit Agreement"), among
Holdings, the Borrower, the lenders parties thereto (the "Lenders") and The
Chase Manhattan Bank, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent"), and (b) the Security Documents listed on
Schedule 1 attached hereto delivered pursuant to the Credit Agreement.
The opinions expressed below are furnished to you pursuant to
subsection 4.1(g)(ii) of the Credit Agreement. Unless otherwise defined herein,
terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement.
In arriving at the opinions expressed below,
a. we have examined and relied on the originals, or copies certified
or otherwise identified to our satisfaction, of each of (1) the Credit
Agreement and (2) the Security Documents listed on Schedule 1;
b. we have examined copies of the financing statements listed on
Schedule 2 (collectively, the "Financing Statements") naming the Borrower,
Holdings or the Subsidiaries as Debtor and the Administrative Agent as Secured
Party and describing the Collateral (as defined in the Guarantee and Collateral
Agreement) as to which security interests may be perfected by filing under the
Uniform Commercial Code of the State (the "Filing Collateral"), which we
understand will be filed in the filing offices listed on Schedule 2 (the
"Filing Offices");
c. we have examined the report[s] listed on Schedule 3 as to UCC
financing statements ([collectively,] the "UCC Search Report"); and
d. we have examined such corporate documents and records of the
Borrower, Holdings and its Subsidiaries and such other instruments and
certificates of public officials, officers and representatives of
<PAGE> 106
the Borrower, Holdings and its Subsidiaries and other Persons, and we have made
such investigations of law, in each case as we have deemed appropriate as a
basis for such opinions.
In rendering the opinions expressed below, we have assumed, with your
permission, without independent investigation or inquiry, (a) the authenticity
of all documents submitted to us as originals, (b) the genuineness of all
signatures on all documents that we examined (other than those of the Borrower,
Holdings and its Subsidiaries and officers of the Borrower, Holdings and its
Subsidiaries) and (c) the conformity to authentic originals of documents
submitted to us as certified, conformed or photostatic copies.
Based upon and subject to the foregoing, we are of the opinion that:
1. The execution and delivery by each of the Borrower, Holdings and its
Subsidiaries of Security Documents listed on Schedule 1 to which it is
a party, the performance by the Borrower, Holdings and its
Subsidiaries of its obligations thereunder and the creation and
perfection of any security interest upon or with respect to any of the
properties of the Borrower, Holdings or its Subsidiaries provided for
therein do not and will not violate any Requirement of Law of the State
and, except for [consents, authorizations, approvals, notices and
filings described on Schedule 4 attached hereto, all of which have been
obtained, made or waived and are in full force and effect, and] the
filings described on Schedule 2 to perfect the security interests
created by the Guarantee and Collateral Agreement with respect to the
Filing Collateral, do not and will not require any consent or
authorization of, approval by, notice to, filing with or other act by
or in respect of, any Governmental Authority of the State.
2. a. The provisions of the Guarantee and Collateral Agreement
create in favor of the Administrative Agent a legal, valid
and enforceable security interest on the Collateral (as
defined in the Guarantee and Collateral Agreement).
b. The Administrative Agent upon filing of the Financing
Statement[s] in the Filing Offices will have a perfected
security interest in the Filing Collateral.
c. The UCC Search Report sets forth the proper filing office[s]
and the proper debtor[s] necessary to identify those Persons
who have on file in the State financing statements covering
the Filing Collateral as of the dates and times specified on
Schedule 3. Except for the matters listed on Schedule 3, the
UCC Search Report identifies no Person who has filed in any
Filing Office a financing statement describing the Filing
Collateral prior to the effective date[s] of the UCC Search
Report.
3. The courts of the State will enforce those provisions in the Guarantee
and Collateral Agreement which provide that the validity, construction
and enforceability of such documents will be governed by the laws of
the State of New York, except that the Courts of the State may apply
the internal law of the State to determine the perfection and effect
of perfection of the liens created under such documents and the
application of remedies in enforcing such liens with respect to
property located in the State.
Our opinions set forth in paragraph 2 above are subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
and other similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in equity or
at law) and an implied covenant of good faith and fair dealing.
<PAGE> 107
We are members of the bar of the State and we express no opinion as to
the laws of any jurisdiction other than the laws of the State, the General
Corporate Law of the State of Delaware and the Federal laws of the United
States of America.
Very truly yours,
<PAGE> 108
EXHIBIT G
FORM OF EXEMPTION CERTIFICATE
CERTIFICATE RE NON-BANK STATUS
Reference is made to that certain Credit Agreement dated, as
of March 25, 1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among Allied Riser
Communications Holdings, Inc., a Delaware corporation, Allied Riser
Communications, Inc., a Delaware corporation, the lenders parties thereto, and
The Chase Manhattan Bank, as Administrative Agent. Capitalized terms used
herein that are not defined herein shall have the meanings ascribed to them in
the Credit Agreement. [Name of Non-U.S. Person] (the "Lender") is providing
this certificate pursuant to subsection 2.14(d) of the Credit Agreement. The
Lender hereby represents and warrants that:
1. The Lender is the sole record and beneficial owner of the
Note(s) in respect of which it is providing this certificate and it shall
remain the sole beneficial owner of the Notes at all times during which it is
the record holder of such Notes.
2. The Lender is not a "bank" for purposes of Section
881(c)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). In
this regard, the Lender represents and warrants that:
(a) the Lender is not subject to regulatory or other legal
requirements as a bank in any jurisdiction; and
(b) the Lender has not been treated as a bank for purposes of any tax,
securities law or other filing or submission made to any governmental
authority, any application made to a rating agency or qualification for any
exemption from tax, securities law or other legal requirements.
3. The Lender meets all of the requirements under Code
Section 871(a) or 881(c) to be eligible for a complete exemption from
withholding of Taxes on interest payments made to it under the Credit Agreement
(i.e., the Borrower will not be required to withhold any amounts under U.S. tax
law with respect to such interest payments), including without limitation that
it is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B)
or the Code) of the Borrower and is not a controlled foreign corporation
related to the Borrower (within the meaning of Section 864(d)(4) of the Code).
4. The Lender shall promptly notify the Company and the
Administrative Agent if any of the representations and warranties made herein
are no longer true and correct.
IN WITNESS WHEREOF, the undersigned has duly executed this
certificate as of the __day of _______________, _______.
[NAME OF LENDER]
By:
--------------------------
Title:
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 11, 1999 (except with respect to Note 12 as to which the dates are
April 29, 1999 for the matters discussed in the first two paragraphs, and
September 20, 1999 for the matter discussed in the third paragraph), on the
consolidated financial statements of Allied Riser Communications Corporation as
of December 31, 1997 and 1998 and for the period from inception (December 19,
1996) through December 31, 1997 and for the year ended December 31, 1998 (and to
all references to our Firm), included in or made a part of Amendment No. 1 to
this Registration Statement on Form S-1.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas
September 21, 1999
