UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to __________
COMMISSION FILE NUMBER: 0-29279
----------------------------
CHOICE ONE COMMUNICATIONS INC.
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 16-1550742
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 CHESTNUT STREET, ROCHESTER, NEW YORK 14604-2417
(Address of principal executive offices) (Zip Code)
(716) 246-4231
(Registrant's telephone number, including area code)
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes X No _____
As of April 24, 2000 there were outstanding 31,014,570 shares of the
registrant's common stock, par value $.01 per share.
<PAGE>
CHOICE ONE COMMUNICATIONS AND SUBSIDIARIES FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................................. 3
Condensed Consolidated Balance Sheets as of March 31, 2000
and March 31, 1999.............................................. 3
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2000 and March 31, 1999.................. 4
Condensed Consolidated Statements of Cash Flow for the three
months ended March 31, 2000 and March 31, 1999.................. 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 20
Item 2. Changes in Securities and Use of Proceeds......................... 20
Item 3. Defaults Upon Senior Securities................................... 20
Item 4. Submission of Matters to a Vote of Security Holders............... 20
Item 5. Other Information................................................. 20
Item 6. Exhibits and Reports on Form 8-K.................................. 20
Signatures................................................................. 21
<PAGE>
PART I FINANCIAL INFORMATION
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands, except share per share data)
MARCH 31, DECEMBER 31,
---------- ------------
2000 1999
---- ----
(UNAUDITED) (AUDITED)
--------- --------
ASSETS
Current Assets:
Cash and cash equivalents....................... $65,486 $3,615
Accounts receivable, net........................ 5,167 2,929
Prepaid expenses and other current assets....... 1,789 709
----- ---
Total current assets....................... 72,442 7,253
Property and Equipment:
Property and equipment.......................... 97,816 77,318
Less--Accumulated depreciation.................. (7,489) (4,891)
------- ------
Total property and equipment............... 90,327 72,427
Other Assets ........................................ 19,611 14,832
Total assets............................... $182,380 $94,512
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt. ..............$ 2,400 $ -
Accounts payable................................ 1,643 5,060
Accrued expenses................................ 14,480 11,228
------ ------
Total current liabilities................. 18,523 16,288
Long-Term Debt and Other Liabilities:
Long-Term Debt, less current portion.............. - 51,500
Other long-term liabilities....................... 1,703 -
----- ------
Total long-term debt and other liabilities ... 1,703 51,500
Commitment and Contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value, 5,000,000 and - -
5,000,000 shares authorized, respectively; and no
shares issued and outstanding
Common stock, $0.01 par value, 150,000,000 and 310 220
47,730,196 shares authorized, 31,014,570
and 22,022,056 shares issued and outstanding
as of March 31, 2000 and December 31, 1999
respectively....................................
Additional paid-in capital........................ 344,082 72,454
Deferred compensation............................. (63,032) (8,401)
Accumulated deficit............................... (119,206) (37,549)
--------- ---------
Total stockholders' equity...................... 162,154 26,724
Total liabilities and stockholders' equity..... $182,380 $94,512
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
Page 3 of 22
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<TABLE>
<CAPTION>
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Revenues . $6,790 $2
Operating expenses:
Network costs................................................................ 6,990 180
Selling, general and administrative, including noncash 77,427 3,269
deferred compensation of $1,749 and $320 in 2000 and
1999, respectively and non-cash management ownership
allocation charge of $64,529 and $0 in 2000 and
1999, respectively..........................................................
Depreciation and amortization................................................ 2,992 740
----- ---
Total operating expenses.............................................. 80,419 4,009
------ -----
Loss from operations............................................................ (80,619) (4,187)
-------- -------
Interest income/(expense):
Interest income............................................................ 464 -
Interest expense........................................................... (1,502) (260)
------- -----
Interest income/(expense), net........................................ (1,038) (260)
------- -----
Net loss ..................................................................... $(81,657) $(4,447)
========= ========
Net loss per share, basic and diluted........................................... $(3.10) $(0.21)
======= =======
Weighted average number of shares outstanding, basic and diluted................ 26,357,233 21,275,829
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
Page 4 of 22
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<TABLE>
<CAPTION>
CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss . $(81,657) $(4,447)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization......................................... 2,992 740
Amortization of deferred financing costs.............................. 159 57
Deferred compensation and management ownership allocation 66,278 320
charge .
Changes in assets and liabilities:
Accounts receivable, net......................................... (2,058) (4)
Prepaid expenses and other assets................................ (234) (85)
Accounts payable................................................. (3,456) (1,021)
Accrued expenses................................................. 3,185 (4,819)
----- -------
Net cash (used in) provided by operating activities......... (14,781) (9,259)
------- -------
Cash flows from investing activities:
Capital expenditures.................................................. (20,412) (5,890)
Cash payments for acquisition of business, net of cash acquired....... (1,862) -
Net cash used in investing activities................................. (22,274) (5,890)
Cash flows from financing activities:
Additions to long-term debt........................................... 12,900 13,500
Principal payments of long-term debt................................. (64,400) -
Proceeds from capital contributions and issuance of 150,838 328
common stock.
Payments of financing costs........................................... (402) (132)
Net cash provided by financing activities................... 98,936 13,696
------ ------
Net increase in cash and cash equivalents....................................... 61,871 (1,453)
Cash and cash equivalents, beginning of period.................................. 3,615 1,491
----- -----
Cash and cash equivalents, end of period........................................ 65,486 38
------ -----
Supplemental disclosures of cash flow information:
Interest paid.............................................................. $1,895 $185
====== ====
Income taxes paid.......................................................... $241 $10
==== ===
</TABLE>
Page 5 of 22
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CHOICE ONE COMMUNICATIONS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
THREE MONTH PERIOD ENDED MARCH 31, 2000
(Unaudited)
NOTE 1. GENERAL
The Company is an integrated communications provider offering broadband
data and voice telecommunications services primarily to small and medium- sized
businesses in second and third tier markets in the northeastern United States.
The Company's services include high-speed data and Internet service, principally
utilizing digital subscriber line technology, and local exchange service and
long distance service. The Company seeks to become the leading integrated
communications provider in each target market by offering a single source for
competitively priced, high quality, customized telecommunications services.
Until February 1999, the Company was in the development stage, as
defined by Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." The Company's
principal activities included developing its business plans; procuring
governmental authorizations; raising capital; hiring management and other key
personnel; developing, acquiring and integrating operations support systems and
other back office systems; 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 in connection with the formation of any new business, and the
competitive environment in which the Company operates. The Company's performance
will further be affected by its ability to access potential markets; secure
financing or raise additional capital; implement expanded interconnection and
collocation with established telephone company facilities; lease adequate
trunking capacity from established telephone companies or competitive local
exchange carriers; purchase and install switches in additional markets;
implement its anticipated services; manage future growth; implement efficient
operations support systems and other back office systems; develop a sufficient
customer base; attract, retain and motivate qualified personnel; develop
strategic alliances or investments needed to complement existing business; and
achieve acceptable profits on long distance business due to high levels of
competition, declining prices and low customer retention rates. The Company's
networks and the provisions of telecommunications services are subject to
significant regulation at the federal, state and local levels. Delays in
receiving required regulatory approvals or the enactment of new adverse
regulation or regulatory requirements may have a material adverse effect upon
the Company. The telecommunications industry is subject to rapid and significant
changes in technology and is highly competitive. Although management believes
that the Company will be able to successfully mitigate these risks, there can be
no assurance that the Company will be able to do so or that the Company will
ever operate profitably.
Expenses are expected to exceed revenues in each location in which the
Company offers service until a sufficient customer base is established. It is
anticipated that obtaining a sufficient customer base will take a number of
years, and positive cash flows from operations are not expected in the near
future.
Page 6 of 22
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NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). The interim consolidated
financial statements include the consolidated accounts of Choice One
Communications Inc. and its wholly-owned subsidiaries (collectively, "the
Company") with all significant intercompany transactions eliminated. In the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the financial position, results
of operations and cash flows for the interim periods presented have been made.
Certain footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles (GAAP) have been
condensed or omitted pursuant to such SEC rules and regulations.
These financial statements should be read in conjunction with the
Company's audited financial statements as of and for the year ended December 31,
1999. The results of operations for the three months ended March 31, 2000 are
not necessarily indicative of the results to be expected for the full year.
Certain amounts in the prior period's consolidated financial statements
have been reclassified to conform to the current period presentation.
NOTE 3. ACQUISITION
On February 24, 2000, the Company acquired EdgeNet, Inc. a corporation
based in Buffalo, New York, which is engaged in the business of providing
Internet home page design and development. The purchase price was approximately
$4.1 million, approximately $1.7 million in cash and approximately $2.4 million
in a promissory note that is convertible into 132,148 shares of our common stock
not sooner than 180 days after the closing of the initial public offering. The
acquisition was accounted for using the purchase method of accounting and,
accordingly, the net assets and results of operations of EdgeNet, Inc. have been
included in the Company's consolidated statement since the acquisition date.
The purchase price was allocated based upon the fair value of the
assets acquired and liabilities assumed with any excess reflected as goodwill
($3.5 million), which is being amortized on a straight-line basis over ten
years.
In connection with the acquisition, liabilities assumed and cash paid
were as follows:
Fair value of assets acquired, including cash acquired........... $4,397
Less-liabilities assumed........................................ 134
---
Total consideration paid......................................... 4,263
Less-cash acquired................................................ 1
Less-amounts borrowed............................................. 2,400
-----
Net cash paid for acquisition................................... $1,862
======
Page 7 of 22
<PAGE>
NOTE 4. PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma condensed results of operations
combine the operations of the Company with those of Atlantic Connections as
adjusted for the acquisition on November 3, 1999 by the Company. The pro forma
results of operations are presented as if the acquisition of Atlantic
Connections was consummated on January 1, 1999. The pro forma information is
presented after giving effect to certain adjustments for depreciation,
amortization of intangible assets and interest expense on the acquisition
financing. The pro forma statements do not give effect to the up to $2.1 million
additional purchase price payable in cash or, at our option, our common stock if
specified performance criteria are met in the 12 months following the
acquisition.
The unaudited pro forma results of operations are based upon currently
available information and upon certain assumptions that the Company believes are
reasonable. The unaudited pro forma statements do not purport to represent what
the Company's financial position or results of operations would actually have
been if the transaction in fact occurred on such date or at the beginning of the
period indicated or to project the Company's financial position or the results
of operations at any future date or for any future period.
Pro Forma Three Months Ended
March 31, 1999
Revenues $1,783
Loss from operations (4,570)
Net loss $(4,795)
Net loss per share, basic and diluted $(0.23)
Weighted average number of shares outstanding, 21,275,829
basic and diluted
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment, at cost consisted of the following at March 31,
2000 and December 31, 1999:
March 31, 2000 December 31, 1999
Switch equipment $71,915 $56,263
Computer equipment and software 14,034 11,416
Office furniture and equipment 4,493 2,687
Leasehold improvement 4,367 1,675
Construction in progress 3,007 5,277
------ ---------
$97,816 $77,318
======= =======
Page 8 of 22
<PAGE>
NOTE 6. OTHER ASSETS
Other assets consisted of the following at March 31, 2000 and December
31, 1999:
March 31, 2000 December 31, 1999
Goodwill $ 9,298 $5,464
Deferred financing costs 5,340 5,305
Customer base 3,800 3,300
Indefeasible right to use 1,703 -
Other assets 664 1,406
------- -----
20,805 15,475
Less-Accumulated amortization (1,194) (643)
-------- -------
19,611 14,832
====== ======
NOTE 7. LONG-TERM DEBT
In October 1998, the Company, as a guarantor, and the Company's
subsidiaries, as borrowers, entered into an agreement for a revolving credit
facility with three financial institutions (the "Credit Agreement"). The Credit
Agreement provided the Company with a maximum credit facility of $60.0 million.
The Credit Agreement was used to finance capital expenditures and to provide
working capital.
In November 1999, the Company, as a guarantor, and the Company's
subsidiaries, as borrowers, amended and restated the Credit Agreement (the
"Amended Agreement"). The Amended Agreement, which terminates on November
3,2007, provides the Company with a maximum revolving credit facility of $100.0
million and a delayed draw term loan of $50.0 million. Any unused portion of the
term loan commitment will expire on November 3, 2000. The Amended Agreement was
used to finance the purchase of Atlantic, and will be used to finance capital
expenditures and to provide working capital. Borrowings under the Amended
Agreement are secured by substantially all of the assets of the Company and bear
interest, at the Company's option, at either the LIBOR rate or the base rate
(the higher of the prime interest rate or the federal funds rate plus 0.5
percent), with additional percentage points added based on the Company's
leverage ratio, as defined in the agreement. In addition, the Company is also
required to pay a commitment fee of 0.75 percent to 1.50 percent per annum based
on the Company's utilization of the Amended Agreement.
The Amended Agreement revised certain covenants including maximum debt
to capital ratio, minimum revenue amounts, maximum earnings before interest,
taxes, depreciation and amortization (EBITDA) losses, maximum capital
expenditure levels, minimum ratio of fixed assets to total debt, maximum
leverage ratio, maximum fixed charge coverage ratio, and minimum interest
coverage ratio, all as defined in the Amended Agreement. At March 31, 2000,the
Company was in compliance with these covenants.
The Amended Agreement also requires the Company to enter into hedging
agreements with respect to interest rate exposure with an aggregate notional
principal amount equal to 50 percent of the outstanding borrowings once at least
50 percent of the aggregate commitment has been utilized. The aggregate
commitment under the Amended Agreement is reduced by 1.25 percent per quarter
commencing on December 31, 2002 until September 30, 2003, by 2.50 percent per
quarter commencing on December 31, 2003 until September 30, 2004, by 6.25
percent per quarter commencing on December 31, 2004 until September 30, 2005,
and by 7.50 percent per quarter commencing on December 31,2005 until termination
of the loan on November 3, 2007. At March 31, 2000, there were no borrowings
under the Amended Agreement.
In February 2000, in connection with the acquisition of EdgeNet, the
Company entered into $2.4 million of promissory notes with the shareholders of
EdgeNet. The promissory notes are convertible into 132,148 shares of our common
stock not sooner than 180 days after the closing of the initial public offering.
Page 9 of 22
<PAGE>
NOTE 8. CAPITALIZATION
On January 17, 2000, the Company's Board of Directors voted to amend
the Certificate of Incorporation of the Company to increase the number of
authorized common shares and preferred shares to 150 million and 5 million
respectively, as calculated after the stock split.
On January 25, 2000, the Company's Board of Directors approved a
354.60-for-one stock split, the effect of which is retroactively reflected
within these financial statements for all periods presented.
On February 16, 2000, The Company raised $164.3 million of gross
proceeds in an initial public offering of Common Stock (the "Equity Offering").
The Company's institutional investors and management owned 95.0 percent
and 5.0 percent, respectively, of the ownership interests of Choice One LLC, an
entity that owned substantially all of the Company's outstanding capital stock.
As a result of the successful initial public offering, Choice One LLC was
dissolved and its assets, which consisted almost entirely of such capital stock,
was distributed to the Company's institutional investors and management in
accordance with the LLC Agreement. The LLC Agreement provided that the Equity
Allocation between the Company's institutional investors and management be 68.5
percent to the Investor Members and 31.5 percent to management based upon the
valuation implied by the initial public offering.
Under generally accepted accounting principles, upon the consummation
of the initial public offering, the Company was required to record the increase
(based upon the valuation of the Common Stock implied by the Equity Offering) in
the assets of Choice One LLC allocated to management as a $119.9 million
increase in additional paid-in capital, with a corresponding increase in noncash
deferred compensation, of which we were required to record $64.5 million as a
noncash, nonrecurring charge to operating expense and $55.4 million was recorded
as a deferred management ownership allocation charge. The deferred charge will
be amortized at $19.0 million, $23.9 million, $11.6 million and $0.9 million
during 2000, 2001, 2002 and 2003, respectively, which is the period over which
the Company has the right to repurchase the securities (at the lower of fair
market value or the price paid by the employee) in the event the management
employee's employment with the Company is terminated.
Page 10 of 22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are an integrated communications provider offering broadband data and
voice telecommunications services primarily to small and medium-sized businesses
in second and third tier markets in the northeastern United States. Our
offerings include high-speed data and Internet service, principally utilizing
DSL technology, local exchange service and long distance service. We seek to
become the leading integrated service provider in each of our target markets by
offering a single source for competitively priced, high quality, customized
telecommunications services. A key element of our strategy is to be one of the
first integrated service providers to provide comprehensive coverage in each of
the markets we serve. We are achieving this market coverage by installing both
data and voice network equipment in the central offices of established telephone
companies, a process known as collocation. We also intend to maximize
utilization of our market network coverage by offering data and voice services
on a wholesale basis to Internet service and other telecommunications providers.
Through our strategy of connecting substantially all of our clients directly to
our own switches, we are able to more efficiently route traffic, ensure quality
service and control costs.
Since our inception on June 2, 1998 through January 1999, we were in the
development stage of operations and did not generate any revenue. Our principal
activities during that time consisted of the following:
o the hiring of management and other key personnel;
o the raising of capital;
o the procurement of governmental authorizations and space in
central offices;
o the acquisition of equipment and facilities;
o the development, acquisition and integration of operations
support systems and other back office systems;
o the negotiation of interconnection agreements
Included in our management's discussion and analysis of financial
condition and results of operations are EBITDA, as adjusted, amounts. EBITDA, as
adjusted, represents earnings before interest, income taxes, depreciation and
amortization and non-cash deferred compensation. EBITDA, as adjusted is used by
management and certain investors as an indicator of a company's historical
ability to service debt. Management believes that an increase in EBITDA is an
indicator of improved ability to service existing debt, to sustain potential
future increases in debt and to satisfy capital requirements. However, EBITDA,
as adjusted is not intended to represent cash flows for the period, nor has it
been presented as an alternative to either operating income, as determined by
generally accepted accounting principles, nor as an indicator of operating
performance or cash flows from operating, investing and financing activities, as
determined by generally accepted accounting principles, and is thus susceptible
to varying calculations. EBITDA, as adjusted as presented may not be comparable
to other similarly titled measures of other companies.
Therefore, our revenues during this period are not indicative of revenues
that may be attained in the future. As a result of our development activities,
we have experienced significant operating losses and negative EBITDA, as
adjusted to date. We do not expect to achieve positive EBITDA, as adjusted in
any market while we emphasize development, construction and expansion of our
telecommunications services business in such market and until we establish a
sufficient revenue-generating client base. We expect to continue to experience
Page 11 of 22
<PAGE>
increasing operating losses and negative EBITDA, as adjusted as we expand our
operations.
In as much as the Company has significantly increased the scope and size
of its operations from its infancy during the first quarter of 1999, a
comparison of the first quarter 2000 results with the first quarter of 1999 are
not meaningful.
The net loss (after noncash one-time management allocation charge and
amortization of deferred compensation and a portion of the deferred management
allocation charge) for the first quarter of 2000 was $81.7 million. The net loss
for the first quarter of 1999 was $4.4 million. Earnings before interest, taxes,
depreciation, amortization, non-cash deferred compensation and management
allocation charge ("EBITDA, as adjusted") was a negative $11.3 million for the
first quarter of 2000 versus a negative $3.1 million for the first quarter of
1999.
We have rapidly deployed our networks since commencing service. We were
operational in 12 markets across the northeastern United States as of March 31,
2000. The table below provides selected key operational data for the three
months ended:
March 31, 2000 March 31, 1999
Markets Served 12 2
Number of switches-voice 8 2
Number of switches-data 17 0
Central Office Collocations-voice 162 3
Central Office Collocations-data 178 0
Addressable Market (Business Lines) 1.9 million 0.1 million
Lines Sold in quarter-total 16,588 625
Lines sold in quarter-voice 15,518 600
Lines sold in quarter-data 1,070 25
Lines Installed in quarter-total 13,014 293
Lines installed in quarter-voice 12,543 290
Lines installed in quarter-data 471 3
Lines in service-total 33,110 293
Lines in service-voice 32,411 290
Lines in service-data 699 3
Total Employees 520 127
Sales Employees 214 38
Page 12 of 22
<PAGE>
RESULTS OF OPERATIONS
REVENUES
The Company generated $6.8 million in revenue during the three months
ended March 31, 2000. The first quarter revenue represents a 90% increase
compared to revenue for the fourth quarter of 1999. The Company installed 13,014
lines during the first quarter of 2000; an increase of 60% compared with 8,140
lines installed during the fourth quarter of 1999. At March 31, 2000, the
Company has a total installed base of 33,110 lines, which compares with 20,096
access lines installed as December 31, 1999. Sales are expected to increase from
the level realized in the first quarter of 2000 as new markets are opened and as
sales employees in existing markets are increased.
The Company has significantly increased sales of facilities-based lines.
Of the 13,014 access lines installed during the first quarter of 2000, 100% are
facility based and the Company is not currently marketing telephone company
provided service via resale. At March 31, 2000, facility-based lines represent
87% of the total installed base as compared to 75% of the total installed base
at December 31, 1999.
Revenues were generated from the following categories:
o Revenues from DSL and other data services, which consists primarily
of monthly recurring charges for connections from the end-user to our
facilities;
o Local calling services, which consists of monthly recurring charges
for basic service, usage charges for local calls, service charges for
features such as call waiting and call forwarding;
o Long distance services, which includes a full range of retail long
distance services, including traditional switched and dedicated long
distance, 800/888 calling, international, calling card and operator
services;
o Access charges, which we earned by connecting our clients to their
selected long distance carrier for outbound calls or by delivering
inbound long distance traffic to our local service clients; and as
well as billing the established telephone companies for calls in the
same local calling area, placed by the telephone company's clients to
our clients.
o E services, which consists of Internet home page design, development
and hosting
The market for local and long distance services is well established and we
expect revenue growth principally from taking market share away from other
service providers. Similarly, we expect revenue from access charges that are
based on long distance calls made by and to our customers, to grow as we are
able to increase our client base.
The market for high-speed data communications services and Internet access
is rapidly growing and intensely competitive. However, we believe that this
market is currently under served and represents a significant growth opportunity
that we are pursuing. We expect to generate most of our revenues from the sale
of services to end user clients in the small and medium-sized business market
segments, but may augment this core revenue source by selectively supplying
wholesale services, including equipment collocation and facilities management
services, to information providers, such as audio-text service providers, and
Internet service providers.
We price our services competitively in relation to those of the
established telephone companies and offer combined service discounts designed to
give clients incentives to buy a portfolio of services and enter into multi-year
service agreements. During the past several years, market prices for many
telecommunications services have been declining, which is a trend
Page 13 of 22
<PAGE>
that we believe will likely continue. This decline will have a negative effect
on our revenue that may not be offset completely by savings from decreases in
our cost of services. As prices decline for any service, we believe that the
total number of users and their usage will increase. Although pricing will be an
important part of our strategy, we believe that direct relationships with our
customers and consistent, high quality service and customer support will be key
to generating customer loyalty.
Our experience demonstrates that there is significant churn of customers
within the telecommunications industry, and we believe that churn is especially
high when customers are only buying long distance services from a carrier or
when customers are buying resold services. We expect to minimize churn by
providing superior customer care, by offering a competitively priced portfolio
of local, long distance, data and Internet services, and by focusing on offering
our own facilities based services.
There is uncertainty caused by pending regulatory proceedings surrounding
the payment of reciprocal compensation by the established telephone companies
for calls delivered to Internet service providers. However, the amount of
reciprocal compensation revenue that we receive related to Internet service
providers is not material.
NETWORK COSTS
Network costs for the three months ended March 31, 2000 were $7.0 million.
The first quarter network costs represent a 58% increase compared to network
costs for the fourth quarter of 1999. This sharp increase is consistent with the
deployment of our networks and growth of our services.
Under our network buildout strategy, we are deploying voice and data
switches with local and long distance capability and leasing transmission lines
from the established telephone companies and other competitive local exchange
carriers to connect our switch with our transmission equipment collocated in the
established telephone company's central offices. We will lease transmission
lines from the established telephone companies to connect our clients and other
carriers' networks to our network. We plan to lease capacity or overbuild
specific network segments in certain markets as economically justified by
traffic volume growth. In addition, we expect to increase the capacity of our
switches, and may install additional switches, in a market as demand warrants.
We have acquired the rights to two transmission lines between Springfield and
Worcester, and have an option to purchase the rights to additional transmission
lines.
We expect switch site lease costs will be a significant part of our
ongoing cost of services. For use of their central offices for collocation,
established telephone companies typically charge both a start-up fee as well as
a monthly recurring fee. The costs to lease transmission lines from the
established telephone companies will vary by company and are regulated by state
authorities. Collocation costs are also expected to be a significant part of our
network development and ongoing cost of services. We will be required to invest
a significant amount of funds to develop the central office collocation sites
and to deploy the transmission and distribution electronics. We have entered
into an agreement with Lucent Technologies, Inc. to purchase Lucent equipment at
a discount to their standard pricing with a term expiring in December 2002. We
expect that the costs associated with these leases will increase with client
volume and will be a significant part of our ongoing cost of services. However,
we believe that offering integrated data and voice services by means of DSL
technology will provide us with a cost advantage over competitors as we will be
able to reduce the number of access lines we will need to lease from the
established telephone company to provide the same amount of service.
In order to enter a market, we must enter into an interconnection
agreement with the established telephone company to make comprehensive calling
available to our clients. Typically these agreements set the cost per minute to
be charged by each party for the calls which have traversed between each
carrier's network. These costs will grow in proportion to our clients' outbound
call volume and are expected to be a major portion of our cost of
Page 14 of 22
<PAGE>
services. However, we do expect to generate increased revenue from the
established telephone companies as our clients' inbound calling volume
increases. To the extent our clients' outbound call volume is equivalent to
their inbound call volume, we expect that our interconnection costs paid to the
established telephone companies will be substantially offset by the
interconnection revenues received from the established telephone companies.
We have entered into a resale agreement with Frontier Communications of
the West Inc. to provide us with long distance transmission services. This
agreement provides for the resale of long distance services on a per-minute
basis and contains minimum volume commitments. In the event we fail to meet our
minimum volume commitments, we may be obligated to pay under-utilization charges
and in the event we underestimate our need for transmission capacity, we may be
required to obtain capacity through more expensive means. Transmission capacity
costs will increase as our clients' long distance calling volume increases, and
we expect that these costs will be a significant portion of our cost of long
distance services. As traffic on specific routes increases, however, we may
lease or otherwise acquire transmission capacity which, over time, would have
the effect of reducing our per unit network costs and increasing our
depreciation and amortization expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
March 31, 2000 were $77.4 million. This compares to selling, general and
administrative expenses of $9.2 million during the fourth quarter of 1999. These
increased expenses resulted primarily from the recording of a $64.5 million
noncash management allocation charge and an expansion of the Company's staffing
and deployment of its networks. The number of employees increased to 520 as of
March 31, 2000, from 390 as of December 31, 1999 and 127 as of March 31, 1999.
As of March 31, 2000, sales employees (which include direct sales, sales support
and sales management) increased to 214. This compares to 161 as of December 31,
1999 and 38 as of March 31, 1999. We expect the number of sales employees and
total employees to increase significantly throughout the remainder of 2000.
Our selling, general and administrative expenses include selling and
marketing costs, client care, billing, corporate administration, personnel and
network maintenance.
We employ a large direct sales force in each market we enter. To attract
and retain a highly qualified sales force, we are offering our sales and client
care personnel a compensation package emphasizing commissions and stock options.
In addition to our direct sales force, we may use independent sales agents in
each of our markets to sell our products through indirect channels. We expect to
incur significant selling and marketing costs as we continue to expand our
operations. We also plan to offer sales promotions to win clients, especially in
the first few years as we establish our market presence.
We have developed a customized information system and procedures for
operations support systems and other back office systems that are required to
enter, schedule, provision and track a client order from point of sale to the
installation and testing of service and that will include or interface with
trouble management, inventory, billing, collection and client care service
systems. Along with the development cost of the systems, we will also incur
ongoing expenses for client care and billing. As our strategy stresses the
importance of personalized client care, we expect that our client care
department will become a larger part of our ongoing administrative expenses. We
also expect billing costs to increase as our number of clients and call volume
increase. We currently outsource our billing under an agreement with Saville
Systems Inc. This agreement provides for the processing of our billing records
and includes minimum monthly transaction fees of between $100,000 and $130,000
based on the number of calls and access lines billed to customers. Billing is
expected to be a significant part of our ongoing administrative expenses.
Page 15 of 22
<PAGE>
We will incur other costs and expenses, including the costs associated
with the maintenance of our network, administrative overhead, office leases and
bad debt. We expect that these costs will grow significantly as we expand our
operations and that administrative overhead will be a large portion of these
expenses during the start-up phase of our business. However, we expect these
expenses to become smaller as a percentage of our revenue as we build our client
base.
MANAGEMENT OWNERSHIP ALLOCATION CHARGE
The magnitude of the loss for the three months ended March 31, 2000 is
principally due to the management ownership allocation charge included in
selling, general and administrative expenses. Institutional investors of Choice
One Communications L.L.C. and 27 members of our management owned approximately
95.0% and 5.0%, respectively, of the ownership interests of Choice One
Communications L.L.C., the entity that owned all of our outstanding capital
stock. As a result of the successful completion of the initial public offering,
Choice One Communications L.L.C. was dissolved and its assets, which consisted
almost entirely of our capital stock, was distributed to our institutional
investors and management. Approximately 68.5% of the stock held by the L.L.C.
was distributed to our institutional investors and 31.5% was distributed to
management, which is the full amount allocable to management under the L.L.C.
agreement.
Under generally accepted accounting principles, upon consummation of the
initial public offering, we were required to record the $119.9 million increase
in the assets of Choice One Communications L.L.C. allocated to management as an
increase in additional paid-in capital, with a corresponding increase in
deferred compensation, of which we were required to record $64.5 million as a
noncash, non-recurring charge to operating expense during the period in which
this offering is consummated and $55.4 million was recorded as deferred
management ownership allocation charge. The deferred charge will be amortized at
$19.0 million, $23.9 million, $11.6 million and $.9 million during 2000, 2001,
2002 and 2003, respectively, which is based upon the period over which we have
the right to repurchase the securities.
In addition to the above expenses, we recognized $1.7 million during the
three months ended March 31, 2000 of amortization of deferred compensation
expense. This also is a noncash charge. Deferred compensation was recorded in
connection with membership units of Choice One Communications LLC sold to
certain management employees and grants to employees under our 1998 Stock Option
Plan.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the three months ended March 31, 2000
was $3.0 million. The first quarter depreciation and amortization expense
represents a 68% increase compared to depreciation and amortization expenses for
the fourth quarter of 1999. The increase is consistent with the deployment of
our networks and initiation of services in 12 markets by March 31, 2000. Our
depreciation and amortization expense includes depreciation of switch related
equipment, non-recurring charges and equipment collocated in established
telephone company central offices, network infrastructure equipment, information
systems and furniture and fixtures.
It also includes amortization of goodwill and customer base. Our
acquisition of Atlantic Connections was accounted for using the purchase method
of accounting. The amount of the purchase price in excess of the fair value of
the net assets acquired, $5.5 million, is being amortized over a 10-year period.
The value of the customer base acquired from Atlantic Connections, which
management estimates to be approximately $3.3 million, is being amortized over a
five-year period. Our acquisition of EdgeNet Inc. was accounted for using the
purchase method of accounting. The amount of the purchase price in excess of the
fair value of the net assets acquired, $3.5 million, is being amortized over a
10-year period. The value of the customer base acquired from EdgeNet, which
management estimates to be approximately $0.5 million, is being amortized over a
five-year period. We expect that our
Page 16 of 22
<PAGE>
depreciation and amortization expense will increase as we continue to make
capital expenditures, acquire long-term rights in telecommunications facilities
and acquire other businesses.
INTEREST EXPENSE AND INCOME
Interest expense for the three months ended March 31, 2000 was $1.5
million. Interest expense includes interest payments on borrowings under our
credit facility. It also includes amortization of deferred financing costs
related to our credit facility. Interest income for the three months ended March
31, 2000 was $0.5 million. Interest income results from the investment of cash
and cash equivalents. There was no interest income during the three months ended
March 31, 1999. Interest income results from the cash proceeds generated from
the initial public offering of our common stock.
INCOME TAXES
We have not generated any taxable income to date and do not expect to
generate taxable income in the next few years. Use of our net operating loss
carryforwards, which begin to expire in 2018, may be subject to limitations
under Section 382 of the Internal Revenue Code of 1986, as amended. We have
recorded a full valuation allowance on the deferred tax asset, consisting
primarily of net operating loss carryforwards, due to the uncertainty of its
realizability.
LIQUIDITY AND CAPITAL RESOURCES
CREDIT FACILITY. Our credit facility permits us to borrow up to $150.0
million, subject to various conditions, covenants and restrictions for the next
eight years with maximum borrowing limits to be reduced starting in 2002 by 5.0%
with increasing reductions thereafter for each year. The $50.0 million term loan
portion of the credit facility will not be available for borrowing by us after
November 3, 2000 if these funds have not been borrowed before that date. As of
March 31, 2000, there were no borrowings outstanding under the revolving portion
of the credit facility. The credit facility, which is secured by liens on
substantially all of our and our subsidiaries' assets and a pledge of our
subsidiaries' common stock, contains covenants and events of default that are
customary for credit of this nature.
CASH FLOWS. We have incurred significant operating and net losses since
our inception. We expect to continue to experience increasing operating losses
and negative EBITDA as we expand our operations and build our client base. As of
March 31, 2000, we had an accumulated deficit of $119.2 million. Net cash used
for operating activities was approximately $14.8 million for the three months
ended March 31, 2000 and approximately $9.3 million for the three months ended
March 31, 1999. The net cash used for operating activities during the three
months ended March 31, 2000 was primarily due to net losses and an increase in
accounts receivable.
Net cash provided by financing activities was $98.9 million for the three
months ended March 31, 2000 and $13.7 million for the three months ended March
31, 1999. Net cash provided by financing activities for the three months ended
March 31, 2000 was primarily related to the initial public offering. Net cash
provided by financing activities for the three months ended March 31, 1999 was
related to borrowings under the credit facility.
CAPITAL REQUIREMENTS. Capital expenditures were $20.4 million and $5.9
million for the three months ended March 31, 2000 and March 31, 1999,
respectively. We expect that our capital expenditures will be substantially
higher in future periods in connection with the purchase of infrastructure
Page 17 of 22
<PAGE>
equipment necessary for the development and expansion of our network, the
development of new markets and potential acquisitions, investments and strategic
alliances.
To expand and develop our business, we will need a significant amount of
cash. The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of the demand for our services and
regulatory, technological and competitive developments, including additional
market developments and new opportunities in the industry and other factors. We
also expect that we may require additional financing, or require financing
sooner than anticipated, if our development plans or projections change or prove
to be inaccurate or to complete our roll-out plan to 20 markets. We may also
require additional financing in order to take advantage of unanticipated
opportunities, to effect acquisitions of businesses, to develop new services or
to otherwise respond to changing business conditions or unanticipated
competitive pressures. Sources of additional financing may include commercial
bank borrowings, vendor financing or the private or public sale of equity or
debt securities. Our ability to obtain additional financing is uncertain.
At March 31, 2000, we had approximately $65.5 million in cash and cash
equivalents. In addition, the Company has a $150.0 million credit facility. At
March 31, 2000, there were no borrowings outstanding on that facility. The
Company believes that its cash resources and available credit facilities are
sufficient to meet its requirements for at least the next twelve months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 2000, the carrying value of our debt obligations excluding
capital lease obligations was $2.4 million and the fair value of those
obligations was $2.4 million.
We have not, in the past, used in any material respect financial
instruments as hedges against financial and currency risks or for trading.
However, as we expand our operations, we may begin to use various financial
instruments, including derivative financial instruments, in the ordinary course
of business, for purposes other than trading. These instruments could include
letters of credit, guarantees of debt and interest rate swap agreements. We do
not intend to use derivative financial instruments for speculative purposes.
Interest rate swap agreements would be used to reduce our exposure to risks
associated with interest rate fluctuations and, subject to limitations and
conditions, are required by our credit facility. By their nature, these
instruments would involve risk, including the risk of nonperformance by
counterparties, and our maximum potential loss may exceed the amount recognized
in our balance sheet. We would attempt to control our exposure to counterparty
credit risk through monitoring procedures and by entering into multiple
contracts.
YEAR 2000
The Year 2000, or Y2K, problem results from the fact that many existing
computer programs are written to handle two digits, rather than four, to define
the applicable year. Accordingly, date-sensitive software or hardware may not be
able to distinguish between the year 1900 and the year 2000, and programs that
perform arithmetic operations, comparisons or sorting of date fields may begin
yielding incorrect results. This could potentially cause a system failure or
miscalculations that could disrupt operations.
As a new integrated communications provider, we have engaged reputable
suppliers of equipment and telecommunications software and other services. For
example, we use Compaq(R) and Dell(R) PCs, Sun(R) Unix-based servers, Lucent(R)
switches, Oracle(R) RDBMS, and Microsoft(R) office products. Software companies
we have used to develop sophisticated systems primarily use known software
development tools and have multiple clients using similar software. In our
corporate headquarters we have off-the-shelf HVAC, security and other systems
installed pursuant to our specifications. We have not experienced any
significant impact on our systems as a result of Year 2000 matters. Our
technical staff, including switch and software engineers, were on-site
Page 18 of 22
<PAGE>
December 31, 1999 through the early hours of January 1, 2000 performing tests to
ensure that all systems continued to operate as expected. We have continued to
monitor operations and have not experienced any Year 2000 related interruption
in the delivery of voice and data services to our customers. Other than time
spent by our internal information technology and other personnel, we have not
incurred any significant costs in identifying or remediating Year 2000 issues.
Page 19 of 22
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports for Form 8-K
A. Exhibits
See Exhibit Index
B. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
Page 20 of 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHOICE ONE COMMUNICATIONS INC.
Registrant
DATE: May 12, 2000 By: /s/ Steve M. Dubnik
Steve M. Dubnik, Chairman and Chief
Executive Officer
By: /s/ Ajay Sabherwal
Ajay Sabherwal, Chief Financial
Officer and Senior Vice President -
Finance
(Principal Accounting and Financial
Officer)
Page 21 of 22
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
10.1 Product Purchase Addendum Number One, made as of January 1, 2000,
between the Company and Lucent Technologies, Inc.*
11.1 Statement regarding computation of per share loss for the three month
period ending March 31, 2000
11.2 Statement regarding computation of per share loss for the three month
period ending March 31, 1999
27.1 Financial Data Schedule
* Portions of this agreement have been omitted and filed separately with the
Commission pursuant to an application for confidential treatment under Rule
24b-2.
Page 22 of 22
CONFIDENTIAL TREATMENT REQUESTED*
Exhibit 10.1
LNM00NMYQ03001
ADDENDUM NUMBER ONE
5ESS(R) SWITCH AND TRANSMISSION SYSTEMS
PURCHASE AGREEMENT
BETWEEN CHOICE ONE COMMUNICATION INC.
AND LUCENT TECHNOLOGIES INC.
This Product Purchase Addendum One Number LNM00NMYQ03001 (hereinafter
"Addendum") is made effective as of the January 1, 2000 ("Effective Date"), by
and between Choice One Communication Inc., a Delaware corporation with offices
located at 100 Chestnut Street, Suite 700, Rochester, New York 14604
(hereinafter "Customer"), and Lucent Technologies Inc., a Delaware corporation,
with offices located at 600 Mountain Avenue, Murray Hill, New Jersey 07974,
(hereinafter "Seller").
WHEREAS, Choice One Communication Inc. and Seller have entered into a certain
General Agreement, LNM980612RMCO (the "General Agreement") effective June 17,
1998, setting forth the terms and conditions pursuant to which Seller agreed to
supply and Customer agreed to procure certain Seller Products, Licensed
Materials or Services (as such terms are defined therein); and
WHEREAS, Customer and Seller desire to establish in this Addendum discounts, and
additional terms and conditions applicable to Customer's purchase and/or license
for use, as appropriate, of certain of Seller's 5ESS(R) Switching Systems,
7R/E(TM) Packet Solutions (7R/E), Transmission Systems and related Licensed
Materials and Services and Operations Software during the term of this Addendum,
as set forth below,
NOW THEREFORE, in consideration of the mutual promises hereinafter set forth and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1.0 SCOPE OF ADDENDUM
Notwithstanding anything to the contrary contained within the General Agreement,
this Addendum shall govern any purchase order placed by Customer during the Term
for Seller's 5ESS Switching Systems, 7R/E Packet Solutions, Transmission
Systems, Power Systems, Communications Software Product, Network Product Group
Products and related Licensed Materials and Services. This Addendum is issued
pursuant to and incorporates the non-conflicting terms and conditions of the
General Agreement. In the event of any conflict or inconsistency between the
terms of this Addendum and the terms of the General Agreement, the terms of this
Addendum shall prevail.
* Portions of this agreement have been omitted and filed separately with the
Commission pursuant to an application for confidential treatment under Rule
24b-2. 1
<PAGE>
By virtue of placing orders with Seller or using any Products, Licensed
Materials or Services provided hereunder, Customer agrees to be bound to the
obligations and limitations set forth in this General Agreement respecting such
Products, Licensed Materials or Services.
2.0 TERM
The term of this Addendum shall commence on the Effective Date. The Term of the
General Agreement his hereby amended so that the General Agreement and this
Addendum shall expire on December 31, 2002.
REFER TO THE GENERAL AGREEMENT AND MODIFY AS FOLLOWS:
ARTICLE 1.9 INVOICES AND TERMS OF PAYMENT: (a) For Products, Licensed
Materials and Services (including transportation charges and taxes, if
applicable) Seller will invoice Customer, all amounts due for Products and
Licensed Materials upon shipment and all amounts due for Services, upon
completion of Services or, in either event, as soon as practical thereafter.
Customer shall pay such invoiced amounts for receipt by Lucent
within( ) of the invoice date. Bill and Hold Products will
be invoiced by Seller upon the earlier of (i) completion of assembly at Seller's
facility or (ii) upon stocking at Customer's designated location. Such invoice
will serve as Seller's notification that Bill and Hold Products are complete and
ready to be released by Customer for final shipment.
(b) Customer shall pay all amounts due Seller hereunder-using Electronic Funds
Transfer ("EFT"). EFT payments by Customer shall be made to the following
account of Seller or such other account as is subsequently designated by Seller
in writing and, concurrent with the EFT payment, Customer shall fax a copy of
the remittal to Seller's Manager Cash Operations at 770-750-4288.
Chase Manhattan Bank
New York, New York
Account Name: Lucent Technologies Inc.
(
)
(c) If Customer fails to pay any invoiced amount when due, the invoiced
amount will be subject to a late payment charge at the rate of
( ) per month, or portion thereof, of the amount due (but not to
exceed the maximum lawful rate). Customer agrees to pay Seller's reasonable
attorneys' fees and other costs incurred by Seller in the collection of any
amounts invoiced hereunder.
(d) Customer agrees to review all invoices furnished by Seller
hereunder upon receipt and, notify Seller of any billing discrepancies within
( ) receipt of the applicable invoice. Such inquiries can be
directed to Seller in writing or by telephone. Inquiries shall be made to the
telephone number or, if in writing, to the address identified on the invoice.
2
<PAGE>
ARTICLE 1.14 WARRANTY:
(a) Seller warrants to Customer only, that during the applicable Warranty
Periods set forth below (i) Seller's manufactured Products (exclusive of
Software) will be free from defects in material and workmanship and will conform
to Seller's Specifications for such Products; (ii) Software developed by Seller
will be free from those defects which materially affect performance in
accordance with Seller's Specifications; and (iii) Services will be performed in
a workmanlike manner and in accordance with good usage and accepted practices in
the community in which Services are provided. With respect to Products or
Software or partial assembly of Products furnished by Seller but neither
manufactured by Seller nor purchased by Seller pursuant to its procurement
Specifications ("Vendor Items"), Seller, to the extent permitted, does hereby
assign to Customer the warranties given to Seller by its vendor(s) of such
Vendor Items.
(b) For purposes of this Agreement the term "Warranty Period" means the period
of time listed below which, unless otherwise stated, commences on date of
shipment or, if installed by Seller the earliest of either: (i) acceptance by
Customer; or (ii) thirty (30) days from the date Seller submits its notice of
completion of its installation; or (iii) the date Customer first puts Products
and/or Licensed Materials into service. For Bill and Hold Products the warranty
will commence upon the date of stocking at Seller's facility or Customer's
designated location. The Warranty Period for any Product or Software (or part
thereof) repaired or replaced under this Section 1.14 is the period listed in
the right column below or the unexpired portion of the new Product Warranty
Period, whichever is longer.
- --------------------------------------------------------------------------------
SELLER'S MANUFACTURED PRODUCTS AND SOFTWARE
WARRANTY PERIOD
- --------------------------------------------------------------------------------
Base Period Repaired
New Product Product
or Part
- --------------------------------------------------------------------------------
5ESS Switching Systems Products ( ) ( )
- --------------------------------------------------------------------------------
7R/E Packet Solutions Product ( ) ( )
- --------------------------------------------------------------------------------
CENTRAL OFFICE POWER EQUIPMENT:
- --------------------------------------------------------------------------------
Associated with Switching Systems ( ) ( )
- --------------------------------------------------------------------------------
Not Associated with Switching Systems ( ) ( )
- --------------------------------------------------------------------------------
TRANSMISSION SYSTEMS PRODUCTS:
- --------------------------------------------------------------------------------
WaveStar 2.5G ( ) ( )
- --------------------------------------------------------------------------------
WaveStar 10G ( ) ( )
- --------------------------------------------------------------------------------
DDM-2000 OC-3 ( ) ( )
- --------------------------------------------------------------------------------
AnyMedia FAST ( ) ( )
- --------------------------------------------------------------------------------
SLC 2000 Access System ( ) ( )
- --------------------------------------------------------------------------------
SLC Series 5 (System and Plug In) ( ) ( )
- --------------------------------------------------------------------------------
CBX500 ATM Switching ( ) ( )
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
SELLER'S MANUFACTURED PRODUCTS AND SOFTWARE
WARRANTY PERIOD
- --------------------------------------------------------------------------------
Base Period Repaired
New Product Product
or Part
- --------------------------------------------------------------------------------
PacketStar PSAX2300 ( ) ( )
- --------------------------------------------------------------------------------
PacketStar PSAX1250 ( ) ( )
- --------------------------------------------------------------------------------
Other Transmission Products (i.e., DDM Plus
Repeater Cases) ( ) ( )
- --------------------------------------------------------------------------------
Network Cable Systems Products ( ) ( )
- --------------------------------------------------------------------------------
All Other Products ( ) ( )
- --------------------------------------------------------------------------------
SOFTWARE:
- --------------------------------------------------------------------------------
5ESS Switching System Software ( ) ( )
- --------------------------------------------------------------------------------
7R/E Packet Solutions Software ( ) ( )
- --------------------------------------------------------------------------------
Transmission Systems Software ( ) ( )
- --------------------------------------------------------------------------------
Operations Systems Software ( ) ( )
- --------------------------------------------------------------------------------
All Other Software ( ) ( )
- --------------------------------------------------------------------------------
(c) If, under normal and proper use, a defect or non-conformity appears in
Seller's manufactured Products or Software during the applicable Warranty Period
and Customer promptly notifies Seller in writing of such defect or
non-conformance and follows Seller's instructions regarding return of defective
or non-conforming Product or Software, Seller, at its option, will either
repair, replace or correct the same without charge at its manufacturing or
repair facility or provide a refund or credit based on the original purchase
price or license fee. If engineering or installation Services prove not to be
performed as warranted within a six (6) month period commencing on the date of
completion of the Services, Seller, at its option, either will correct the
defect or non-conforming Services or render a full or pro-rated refund or credit
based on the original charges for the Services. No Product or Software will be
accepted for repair or replacement without the written authorization of and in
accordance with instructions of Seller. Removal and reinstallation expenses as
well as transportation expenses associated with returning such Product or
Software to Seller shall be borne by Customer. Seller shall pay the costs of
transportation of the repaired or replacing Product or Software to any United
States destination designated by Customer. If Seller determines that returned
Product or Software is not defective, Customer shall pay Seller's costs of
handling, inspecting, testing and transportation and, if applicable, travel and
related expenses. In repairing or replacing any Product, part of Product, or
Software medium under this warranty, Seller may use either new, remanufactured,
reconditioned, refurbished or functionally equivalent Products or parts.
Replaced Products or parts shall become Seller's property.
(d) With respect to Seller's manufactured Products which Seller has ascertained
are not readily returnable for repair, Seller, at its option, with concurrence
from Customer, may elect to
4
<PAGE>
(e) repair or replace the Products at Customer's site. Customer's concurrence
shall not be unreasonably withheld. If a visit to Customer's site is necessary,
reasonable prior notification will be given when access is required. Customer,
at its expense, shall make the Products accessible for repair or replacement and
shall restore the site after Seller has completed its repairs or replacement.
(e) Seller makes no warranty with respect to defective conditions or
non-conformities resulting from any of the following: Customer's modifications,
misuse, neglect, accident or abuse; improper wiring, repairing, splicing,
alteration, installation, storage or maintenance; use in a manner not in
accordance with Seller's or its vendor's Specifications, or operating
instructions or failure of Customer to apply previously applicable Seller's
modifications or corrections. In addition, Seller makes no warranty with respect
to Products which have had their serial numbers or month and year of manufacture
removed, altered and with respect to expendable items, including, without
limitation, fuses, light bulbs, motor brushes and the like. No warranty is made
that Software will run uninterrupted or error free, and in addition Seller makes
no warranty with respect to defects related to Customer's data base errors.
(f) THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER EXPRESS
AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CUSTOMER'S SOLE AND
EXCLUSIVE REMEDY SHALL BE SELLER'S OBLIGATION TO REPAIR, REPLACE, CREDIT, OR
REFUND AS SET FORTH ABOVE IN THIS WARRANTY.
ARTICLE 1.20 NOTICES:
(a) Any notice, demand or other communication (other than an order) required, or
which may be given, under this Agreement shall, unless specifically otherwise
provided in this Agreement, be in writing and shall be given or made by
nationally recognized overnight courier service, confirmed facsimile, or
certified mail, return receipt requested and shall be addressed to the
respective parties as follows:
If to Seller:
Lucent Technologies Inc.
Global Commercial Markets
5440 Millstream Road, E2N32
I-85 & Mt. Hope Church Road
McLeansville, North Carolina 27301
Attn: Contract Manager
5
<PAGE>
If to Customer:
ChoiceOne Communication Inc.
100 Chestnut Street
Suite 700
Rochester, NY 14604
Attn: Kevin Dickens, SVP Engineering and Operations
(b) Any such notice shall be effective upon receipt. Each party may change its
designated representative who is to receive communications and notices and/or
the applicable address for such communications and notices by giving notice
thereof to the other party provided herein.
DELETE APPENDIX A IN ITS ENTIRETY AND REPLACE WITH THE FOLLOWING:
APPENDIX A
A-1.1 SCOPE OF APPENDIX A
This Appendix A (hereinafter "Appendix") shall govern any purchase order placed
by Customer during the Term for Seller's 5ESS(R) Products, 7R/E Packet Solutions
Products, Transmission Systems Products and related Licensed Materials. This
Appendix is issued pursuant to and incorporates the non-conflicting terms and
conditions of the General Agreement. In the event of any conflict or
inconsistency between the terms of this Appendix and the terms of the General
Agreement, the terms of this Appendix shall prevail. The terms Appendix and
Addendum are interchangeable within this Section.
A-1.2 DEFINITIONS
For the purpose of this Appendix, the following definitions will apply:
a) "5ESS Switching Systems Products" means the 5ESS Switch, Growth and related
Licensed Materials including, without limitation, Base Software.
b) "5ESS Switch" means any 5ESS Switch system (including the 5ESS Compact
Digital Exchange ("CDX") and 5ESS Very Compact Digital Exchange ("VCDX")).
With the exception of the VCDX, a 5ESS Switch contains at a minimum, an
Administrative Module (AM), Communications Module (CM), and at least one
(1) switch module. Any such Switch can act as a host for Optically Remote
Modules ("ORMs"), Remote Switch Modules ("RSMs"), Extended Switch Modules
("EXMs") and/or Distinctive Remote Modules (DRMs). The VCDX/DRM contains a
Sun Workstation and one (1) Switch Module.
c) "Base Software" means the operating system and related Software, and
operations, administration and maintenance features and functions, for all
Seller's switch-based platforms.
6
<PAGE>
d) "Growth" means any 5ESS hardware or software not purchased with the
associated 5ESS Switch required to support the expansion of such 5ESS
Switch, which may include without limitation any ORMs, RSMs, DRMs or EXMs.
e) "List Price" means Seller's list price in effect at the time of order
placement.
f) "Switch Module/Switch Module 2000 (SM2000)" means a Module Control/Time
Slot Interchange Unit along with a number of Peripheral units and related
Software added to an embedded 5ESS Switch or to an existing RSM site.
g) "Peripherals" means hardware and/or Software extensions added subsequent to
the installation of the initial 5ESS Switch, or Switch Module/Switch Module
2000.
h) "Transmission Systems Products" means a DDM-2000 OC-1 Fiber Reach
Multiplexer, DDM-2000 OC-3 Multiplexer, WaveStar 2.5G, WaveStar 10G,
AnyMedia FAST, SLC(R)-2000 Access System, SLC(R)-Series 5 Carrier System,
Gateways, Routers, PacketStar PSAX2300, PacketStar PSAX1250, ATM Switch
CBX500, Integrated Access Devices (IAD), Echo Canceller, Millennia ADM
155C, or related Licensed Materials.
i) "Total Paid Purchases" means all Customers purchases of Seller's 5ESS
Switches, 7 R/E and Transmission Systems Products for which Seller has
received payment, including but not limited to hardware, software,
engineering, installation, training and documentation.
j) "7R/E Packet Solution" contains at least a minimum of one unit each of a
Call Feature Server, One-Link Manager, and Packet Gateway purchased and
installed at one time (it also may contain more than one unit of each of
these components) in addition to other 7R/E hardware and Software elements.
A 7R/E Packet Solution does not include the 5ESS Switch or circuit
switching network elements that may interface with the 7R/E Packet
Solutions products.
A-1.3 TERMS OF DISCOUNT
Any purchase orders placed pursuant to this Appendix shall reference
Contract Number ( ) to qualify for the discounts incorporated
herein. During the Term, all discounts shown in this Appendix are applicable to
all Seller's Products, and related Licensed Materials listed herein only and are
not applicable to related Services such as engineering and installation. Such
discounts shall be applied to Seller's List Price. Discounts set forth in this
Appendix will apply to all purchase orders requiring Seller's then-current
standard delivery interval.
A-1.4 CUSTOMER'S PURCHASE COMMITMENT
In consideration for the discounts, allowances, and incentives set
forth in this Appendix, Customer agrees to directly procure from Seller, during
the Term, a minimum of ( ) of Seller's 5ESS, 7R/E Packet
Solutions, Transmission Systems
7
<PAGE>
Products, Operations Software, Profession Services, and related Licensed
Materials (the "Purchase Commitment"). In addition, as consideration of this
contract the customer agrees to give Seller exclusivity during the term of this
contract on all 5ESS Switches, ATM Switches, Optical Lightwave and Digital Loop
Carrier for narrowband services.
A-1.4.1 SELLER VOLUME PURCHASE DISCOUNTS
In addition to the Product discounts given to Customer by Seller in
this Appendix, Seller agrees to grant Customer additional Volume Purchase
Discount Credits as follows:
a) For each calendar year that the Customer purchases forty million dollars
($40 Million) or greater of Products and Services pursuant to Article A-1.4
above from Seller, the Seller will award Customer a 1% purchase credit on
said purchases to be used on future purchases of Products.
b) For each calendar quarter that the Customer purchases twelve and half
million dollars ($12.5 Million) or greater of Products and Services
pursuant to Article A-1.4 above from Seller, the Seller will award Customer
a 1% purchase credit on said purchases to be used on future purchase of
Products.
( ) above shall (
).
A-1.5 ANNUAL FORECAST
Within thirty (30) days of the execution date of this Appendix, Customer will
submit in writing a non-binding current forecast of its planned purchases of
Seller's 5ESS, 7R/E Packet Solutions, Transmission Systems Products and/or
related Licensed Materials and Services. Such forecasts shall include type(s),
quantities, locations and other information as mutually agreed to by the
parties. The forecasts will be updated monthly, and shall provide a twelve (12)
month rolling view of all prospective purchases by month. Customer will submit
such forecasts to Seller's Account Manager at the following address:
Eric Ruhle, Account Manager
Lucent Technologies Inc.
48 Briar Lane
Rochester, NY 14622
Email: [email protected]
Customer will designate upon execution of this Appendix an authorized
representative to coordinate the ordering and distribution of Products and
related Licensed Materials and to interface with Seller's Account Executive as
needed.
8
<PAGE>
A-1.6 PRICING PLAN FOR 5ESS(R) PRODUCTS
In consideration for Customer 's Purchase Commitment as set forth in the Section
"Customer's Purchase Commitment", Seller will provide the following discounts as
described herein off the List Price for all purchases of the following Products
made by Customer directly from Seller during the Term:
A-1.6.1 DISCOUNT SCHEDULE FOR 5ESS(R) SWITCH
PRODUCTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------- ----------------------------
PRODUCT TYPE INITIAL SWITCH DISCOUNTS FOR GROWTH DISCOUNTS FOR PERIPHERAL
DISCOUNTS SM-2000 SWITCH MODULES GROWTH
- ----------------------------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C>
5ESS(R)Switch
(Hardware & Software) ( ) ( ) ( )
- ----------------------------------------------- ----------------------------- ----------------------------
RSM/ORM/EXM/DRM ( ) NA ( )
(Hardware and
Software)
- ----------------------------------------------- ----------------------------- ----------------------------
</TABLE>
*This discount shall apply to SM-2000 Growth purchases only. The
( ) discount shall also apply to Peripherals and circuit
packs contained within such SM-2000 Module and ordered as part of the Growth
purchase order. Pricing for all other Peripheral orders shall be calculated
using the ( ) shown above.
Customer's Regional Office architecture is shown in Exhibit 1 attached hereto.
In addition, Exhibits 2 and 3 attached hereto provide equipment lists and prices
for the 5ESS Host Switch and 5ESS DRM Switch.
A-1.6.2 NETWORK GROWTH WINDOW DISCOUNTS FOR CUSTOMER DESIGNATED PERIODS
( ) Seller will provide to Customer the ability to
designate ( ) 5ESS network growth windows during the Term of this
Addendum, ( ). Each growth window will last(
) . During these designated growth windows, Seller will grant to
Customer a growth discount of ( ) on all 5ESS Host Switch
orders for subsequent Growth and Peripheral Growth of said 5ESS Host Switches
in Customers network. ( ) for subsequent Growth and
Peripheral Growth of said RSM/ORM/EXM/DRM switches in Customers network.
9
<PAGE>
Orders received for Growth and Peripheral Growth for either 5ESS Host Switches
or RSM/ORM/EXM/DRM switches outside of such designated periods shall be priced
in accordance with the discounts contained within Section 1.6.1 entitled,
"Discount Schedule for 5ESS(R)-Switch Products".
The ( ) network growth windows referenced herein must be designated
in writing by the Customer at the time of order placement and the commencement
of such periods can only begin after Turnover of the applicable 5ESS(R) Host
Switch, RSM/ORM/EXM or DRM.
A-1.6.3 PRICING PLAN FOR 5ESS SWITCH SOFTWARE RELEASES
For purposes of this section, the fees for Base Software releases shall mean the
Software RTU and Office Data Assembler ("ODA") fees. The purchase by Customer of
a 5ESS Switch during the Term includes, a license (subject to the licensing
provisions of the General Agreement) to use the then-current Base Software
release. In addition, if Customer licenses each consecutive annual generic Base
Software release (after the generic release in effect at the time of each 5ESS
Switch installation), then the RTU fees for each subsequent generic Base
Software release will be ( )following the
). This (
). Customer
will be responsible for all engineering charges associated with each Base
Software release furnished by Seller under this Appendix. Base Software releases
shall be available to Customer in accordance with Seller's published
announcement stating when customers can order Base Software subject, however, to
Seller's then-current availability process and Seller's standard order
intervals.
For any 5ESS switch for which customer has purchased and installed an
Administrative Services Module (ASM) equipped to support the ODA functionality,
Seller will reduce the Basic Software RTU fee, as stated in the paragraphs above
for said 5ESS Switch to sixty-eight thousand dollars ($68,000) per release for
the first three (3) years following the in-service date (Cutover) of each newly
installed 5ESS Switch or for the Term of the Addendum for existing 5ESS
Switches.
A-1.6.3.1 PRICING PLAN FOR 5ESS SWITCH FEATURE RTU BUYOUT
Offer 1: Seller proposes that for (
) payments of ( )which shall be
(
) for a total of sixteen million five hundred thousand dollars ($16,500,000),
Customer may implement any number of the 5ESS Switch features listed as
"INCLUDED" in either Exhibit 2 section E2-1.2 "5ESS Host Configuration Including
Software Buyout" or Exhibit 3 section E3-1.2 "5ESS DRM Configuration Including
Software Buyout", provided Customer does not exceed the following conditions.
10
<PAGE>
1) Thirty (30) Switch (5ESS Host or DRM) Locations
2) Six hundred thousand (600,000) total lines
3) Maximum of fifteen hundred (1,500) ISDN lines per 30 Switch locations
4) Maximum of three thousand PRI lines per 30 Switch locations
A detailed list of the 5ESS Software RTU features that are included in the 5ESS
Software Buyout are shown in Exhibit 18. Seller authorizes Customer to move line
quantities between the thirty (30) Switch locations provided that Customer does
not exceed a total of six hundred thousand (600,000) network lines. Customer
agrees to purchase Software RTU's in accordance with the discounts contained
within Section 1.6.1 entitled, "Discount Schedule for 5ESS(R)-Switch Products"
for any of the features included in Exhibit 18 that exceed the maximums stated
above or for any other features not listed in Exhibit 18 that were not purchased
with the original 5ESS Host or DRM Switch order.
Offer 2: If Customer ( ) for the above
5ESS Switch Feature RTU's ( ) Seller
agrees to offer Customer ( ) resulting
in a total 5ESS Switch RTU Feature ( ).
Customer agrees to notify Seller within thirty (30) days of the execution of
this Addendum whether or not Customer elects to exercise either of the 5ESS
Switch Feature RTU offers stated above. If Customers elects not to exercise the
5ESS Switch Feature RTU Buyout within the stated thirty (30) days, then Seller
will provide Customer with the Feature Activation and Reconciliation (FACR)
program to track the 5ESS Switch RTU feature fees. Customer agrees to use this
program to track the optional RTU fees which have been activated. On a annual
basis (January), Customer agrees to provide to Seller the FACR report to
facilitate Seller's Software Feature audit process of RTU fees activated by
Customer. For the current contract year Customer agrees to provide the FACR
report within sixty (60) of execution of this Addendum. Seller will provide
billing to Customer for the incremental features which have been activated.
In addition, if Customer elects to implement one of the 5ESS Switch Feature RTU
offers stated above, Seller will provide Customer with the FACR program to track
the 5ESS Switch RTU feature fees annually, against the RTU Buyout conditions
stated above. On an annual basis (each January), Customer agrees to provide to
Seller the FACR report to facilitate a audit process of RTU fees versus the
conditions of the RTU Buyout. Seller will provide billing to Customer for the
incremental features which exceed the terms and conditions of the RTU Buyout
offer.
A-1.6.3.2 5ESS SWITCH FEATURE RTU SOFTWARE POOL
In recognition of Customer's commitment to purchase one of the 5ESS Switch
Feature RTU Buyout offers outlined in Section A-1.6.3.1 Seller commits to create
a 5ESS Switch Feature (
11
<PAGE>
). The 5ESS Switch Feature RTU Software Pool must be used prior to
the end of the term of this Addendum.
A-1.6.3.3 PRICING PLAN FOR 5ESS SWITCH LONG DISTANCE SOFTWARE
FEATURES
During the Term of this Addendum, Seller grants Customer an
( ) on all 5ESS Switch Long Distance Software features.
If Customer elects to purchase the 5ESS Switch Long Distance Software features
at the time Customer purchases a new 5ESS Switch, then the material shall be
priced in accordance with the discounts contained within Section 1.6.1 entitled,
"Discount Schedule for 5ESS(R)-Switch Products". Any 5ESS Switch hardware
required to add the 5ESS Switch Long Distance Software features shall be priced
in accordance with the discounts contained within Section 1.6.1 entitled,
"Discount Schedule for 5ESS-Switch Products" or in accordance with the discounts
contained within Section A-1.6.2 entitled, "Network Growth Window Discounts For
Customer Designated Periods", as applicable.
A-1.6.4 5ESS SWITCH TRAINING INCENTIVE
Seller will provide to Customer ( ) tuition free training days for
each 5ESS Switch and ( ) days for each remote (RSM, ORM, EXM,
DRM) procured from Seller. Training days earned by Customer for each 5ESS Switch
or remote shall be used ( ) prior to or ( )
after the Turnover date of such Switch. Customer is responsible for all
associated travel and living expenses for Customer personnel. Seller, at its
option, shall offer training regionally at Seller's Training Centers. While
Seller recommends core courses from its Customer Training Catalog, Customer may
choose from any of Seller's 5ESS Switch related courses.
A-1.6.5 INVENTORY CONTROL PROVISIONS FOR 5ESS SWITCHES
Seller will offer the Spares Exchange Service for 5ESS Switching Equipment
(SES-5) to address Customer's 5ESS System inventory control requirements. SES-5
will enhance equipment maintenance by facilitating the exchange of defective
circuit packs for new or remanufactured devices in a timely manner. This service
operates on a twenty-four-hour, seven-day-week basis, under the following
delivery services options:
1. Normal Delivery Interval (2 to 7 days) ( ) plug-in
2. Emergency Delivery Interval (24 hours) ( )
3. Critical Delivery Interval (less than 24 hours) ( ) (minimum
( ) order)
SES-5 will exchange Seller-manufactured material required to support a 5ESS
Switch and the embedded 3B21 Computer for "readily returnable" material (e.g.,
circuit packs and plug-ins, but not disk or tape drives). Customer shall not be
charged for the "readily returnable" material
12
<PAGE>
provided by Seller through SES-5 if the material for which it is exchanged is
determined by Seller to be under warranty. If Seller determines such exchanged
material to be out of warranty, Customer will be billed and shall pay for the
material furnished by Seller through SES-5 based on the current SES-5 catalog
price.
A-1.6.6 5ESS SWITCH DOCUMENTATION
Seller shall provide to Customer for each Host Switch and DRM/VCDX site
at no charge, one (1) set of 5ESS-Switch Product documentation (each of the most
recent text and drawing on CD-ROM) and one (1) set of Switch Critical
Documentation on paper. In addition, Seller shall provide to Customer's
headquarters location two (2) sets of 5ESS Switch Product documentation (one in
paper and one on CD-ROM). No documentation will be provided to the RSM, EXM, ORM
sites.
In addition, at no additional charge to the Customer , Seller will provide to
Customer during the two (2) year period following the Turnover of each 5ESS or
DRM/VCDX Switch purchased by Customer hereunder, those updates to the Related
Documentation which Seller makes generally available to its other customers
during such time period. After the initial two (2) year update period described
above, Customer may purchase an update subscription at Seller's standard
subscription rate.
A-1.7 PRICING PLAN FOR 7R/E PACKET SWITCH PRODUCTS
In consideration for Customer 's Purchase Commitment as set forth in the Section
"Customer's Purchase Commitment" Seller will provide the following product
configurations to be available to be deployed in Customer's network in
preparation for the evolution to the 7R/E Packet Solutions platform prior to the
introduction of the 7R/E product line.
A-1.7.1 7R/E PACKET SOLUTIONS MODEL PRICE
Exhibit 4 attached hereto provides a model 7R/E Switch configuration which
approximates the current 5ESS Switch standard market model being used by
Customer in host deployments. Seller will provide firm price quotations to
Customer for its 7R/E Packet Solutions purchases. To constitute a 7R/E Packet
Solution it must contain at least a minimum of one unit each of a Call Feature
Server, One-Link Manager, and Packet Gateway purchased and installed at one time
(it also may contain more than one unit of each of these components) in addition
to other 7R/E hardware and Software elements (hereinafter referred to as "7R/E
Packet Solution"). A 7R/E Packet Solution does not include the 5ESS Switch or
circuit switching network elements that may interface with the 7R/E Packet
Solutions products.
Customer discount levels and list prices for the ( ) Seller
will ( ). The price
level ( ).
A-1.7.2 DRM/VCDX EVOLUTION TO SINGLE 7R/E PACKET SWITCH MODULE (PSM):
13
<PAGE>
Should Customer elect to evolve any DRM/VCDX to a single 7 R/E PSM, Seller will
provide to Customer (
) (1) CFS. (
).
If the 5ESS Hosting Switch of said DRM/VCDX has not been evolved to a 7R/E host,
then customer shall pay for the addition of the 7 R/E OneLink Manager. Customer
will be responsible for the Seller's Engineering and Installation charges and
any 7R/E LAGS and TAGS required for subscriber growth.
A-1.7.3 DRM/VCDX EVOLUTION TO MULTIPLE PSM/SM2K 5ESS-7R/E HOST:
Should Customer exceed the capacity of the DRM/VCDX and desire to evolve the
DRM/VCDX to a multiple PSM/SM2K 5ESS-7R/E Host, Customer agrees to purchase the
7 R/E products for ( ). Included in this purchase
price ( ). Customer will be
responsible for the Seller's Engineering and Installation charges and any 7R/E
LAGS and TAGS required for subscriber growth.
A-1.7.4 EVOLVE EXISTING 5ESS HOST SWITCH TO MULTIPLE PSM/SM2K 5ESS-7R/E
HOST
Any 5ESS Host Switches deployed prior to the Effective Date of this Addendum
which Customer elects to be evolved to a 7 R/E Multiple PSM/SM2K 5ESS-7R/E Host,
Customer agrees to purchase the 7 R/E products for (
).
Customer will be responsible for the Seller's Engineering and Installation
charges and any 7R/E LAGS and TAGS required for subscriber growth.
A-1.7.5 EVOLVE NEW 5ESS HOST SWITCH TO MULTIPLE PSM/SM2K 5ESS-7R/E
HOST
Should the Customer elect to evolve any new 5ESS host switch to a PSM/SM2K
5ESS-7R/E HOST, (
).
Customer will be responsible for the Seller's Engineering and Installation
charges, One Link Manager, and any 7R/E LAGS and TAGS required for subscriber
growth.
A-1.7.6 EVOLVE ANYMEDIA FAST TO 7 R/E LAG
To evolve an AnyMedia FAST system as configured in Exhibit 10 to a 7 R/E LAG
requires the replacement of the AnyMedia FAST Comdacs and the addition of a ATM
Feeder Multiplexer
14
<PAGE>
(AFM) circuit pack, if it has not already been deployed, to provide DSL services
out of the AnyMedia FAST system. (
), Seller agrees to
). Customer agrees to purchase the AFM circuit
pack per Exhibit 10, if Customer has not previously deployed the AFM circuit
pack in the AnyMedia FAST system.
A-1.7.7 7R/E PACKET SOLUTION TRAINING INCENTIVE
Seller will provide to Customer one hundred (100) tuition free training days
with the 1st 7R/E Packet Solutions Host Switch procured from Seller. Customer is
responsible for all associated travel and living expenses for Customer
personnel. Seller, at its option, shall offer training regionally at Seller's
Training Centers. While Seller recommends core courses from its Customer
Training Catalog, Customer may choose from any of Seller's 7R/E Packet Switch
related courses.
A-1.7.8 7R/E SWITCH DOCUMENTATION
Seller shall provide to Customer for each new or evolved 7R/E Host Switch site
at no charge, one standard set of 7R/E Packet Solutions Switch product
documentation in electronic form. In addition, Seller shall provide to (
).
In addition, at no additional charge to the Customer, Seller will provide to
Customer during the one (1) year period following the Turnover of each new or
evolved 7R/E Switch purchased by Customer hereunder, those updates related to
documentation error corrections. After the initial one (1) year update period
described above, Customer may purchase an update subscription at Seller's
standard subscription rate.
A-1.8 TECHNICAL SUPPORT OF SELLER'S SWITCH AND TRANSMISSION SYSTEMS
PRODUCTS AND LICENSED MATERIALS
Seller will, in addition to its repair obligations under the "Warranty" clause
of the General Agreement, make available for purchase by Customer technical
support for Seller's Switch and Transmission Systems Products and related
Licensed Materials. Such technical support shall be provided under mutually
agreed upon, separate technical support agreements entered into by the parties
or on a per-problem basis at Seller's prevailing rates.
Seller will, in addition to the technical support specified above, make
available for purchase by Customer post-warranty technical support. Such
post-warranty technical support shall be provided under mutually agreed upon,
separate post-warranty service contracts entered into by
the parties or on a per-problem basis at Seller's prevailing rates. Separately
from such warranty or post-warranty technical support services, Seller may offer
Services designed to enhance the operating capabilities of Customer 's network
or system on a billable basis.
15
<PAGE>
A-1.8.1 TECHNICAL FIELD SUPPORT AND PROGRAM MANAGEMENT
Seller will during the term of this Addendum provide (
). For both the
technical field engineer and program manager, the product expertise and location
will be mutually agreed upon between Seller and Customer.
A-1.8.2 FIVE FACILITY ACCESS INCENTIVE
In consideration of the Purchase Commitment set forth in Section 4, "Customer
Purchase Commitment," Seller will provide Customer access to Seller's Feature
Interactive Verification Environment (FIVE) facility in Lisle, Illinois to
enable Customer to test the following to the extent relating to the 5ESS
Switching Systems Products purchased under this Appendix: new features of
Seller's 5ESS Switching Systems Products, verification of new applications and
simulation of call scenarios. To the extent relating to Seller's Switching and
Transmission Systems Products purchased under this Appendix, Seller may use the
FIVE facility on a billable basis to integrate other vendor's equipment for
Customer-specific applications. Such access shall be provided on a reservation
basis only. Customer agrees to be reasonable in its requests for reservations
and will provide reasonable notice of any cancellation.
A-1.9 PRICING PLAN FOR TRANSMISSION SYSTEMS PRODUCTS
Seller will provide the following discounts off the List Price for all purchases
of the following Products made by Customer directly from Seller during the Term.
Seller agrees during the Term of this Addendum (
). Seller also agrees (
).
TRANSMISSION SYSTEMS PRODUCTS DISCOUNT SCHEDULE
------------------------------------------------------------------ ------------
TRANSMISSION SYSTEMS PRODUCTS* DISCOUNT
------------------------------------------------------------------ ------------
DDM-2000
------------------------------------------------------------------ ------------
DDM-2000 OC-3 BAYS/SHELVES 70%
------------------------------------------------------------------ ------------
DDM-2000 OC-3 PLUGS-INS 55%
------------------------------------------------------------------ ------------
DDM-2000 OC- 3 SOFTWARE 75%
------------------------------------------------------------------ ------------
WAVESTAR
------------------------------------------------------------------ ------------
2.5G Bays/Shelves 57%
------------------------------------------------------------------ ------------
2.5G Plug-ins 57%
------------------------------------------------------------------ ------------
2.5G Software 57%
------------------------------------------------------------------ ------------
10G Bay/Shelves 50%
------------------------------------------------------------------ ------------
10G Plug-ins 50%
------------------------------------------------------------------ ------------
10G Software 50%
------------------------------------------------------------------ ------------
ANYMEDIA FAST
- ------------------------------------------------------------------ ------------
16
<PAGE>
TRANSMISSION SYSTEMS PRODUCTS DISCOUNT SCHEDULE
------------------------------------------------------------------ ------------
Bays/Shelves/Commons/Application Packs/Software ( )
------------------------------------------------------------------ ------------
ISDN Application Pack (LPU 116) ( )
------------------------------------------------------------------ ------------
Data Application Packs (i.e. ADSL, SDSL, xDSL, ATM Feeder ( )
Multiplexer)
------------------------------------------------------------------ ------------
SLC-2000 CARRIER SYSTEM:
------------------------------------------------------------------ ------------
SLC-2000 Bay/Shelves/Commons/Channel Units/Software ( )
------------------------------------------------------------------ ------------
SLC CONNECTREACH
------------------------------------------------------------------ ------------
Chassis/Shelves/Channel Units/Software ( )
------------------------------------------------------------------ ------------
DATA EQUIPMENT
------------------------------------------------------------------ ------------
CBX ATM Switch ( )
------------------------------------------------------------------ ------------
PacketStar PSAX2300 ( )
------------------------------------------------------------------ ------------
PacketStar PSAX1250 ( )
------------------------------------------------------------------ ------------
Stinger DSLAM
------------------------------------------------------------------ ------------
Hardware Equipment ( )
- ------------------------------------------------------------------ -------------
Software Equipment ( )
------------------------------------------------------------------ ------------
CellPipe IAD's ( )
------------------------------------------------------------------ ------------
Routers (Springtide) ( )
------------------------------------------------------------------ ------------
*This does not include Network Products Group equipment. The applicable
merchandise class for Seller's Transmission Systems Products and related
Licensed Materials shall determine the applicable discount level.
Customers Colocation office architecture is shown in Exhibits 5 and 6. In
addition, Exhibits 7 and 8 provide colocation equipment lists and pricing for
these colocation offices excluding Seller's OS Solutions. Detailed equipment
models for these colocations are shown in Exhibits 9, 10, 11, and 12 attached
hereto. Seller's Element Management hardware/software equipment lists and
pricing for Seller's WaveStar 2.5G, WaveStar 10G, DDM-2000, FT-2000 and AnyMedia
FAST systems are shown in Exhibit 14.
A-1.9.1 TRANSMISSION SYSTEMS PRODUCTS TRAINING
Seller ( ) where said Transmission Products are
deployed. In addition, for new product platforms introductions Seller (
). Training
as used herein shall mean one (1) student day per training class. Training days
earned by Customer for Transmission Systems Products shall be used within
( ) for such Transmission Systems Products. Customer is
responsible for all associated travel and living expenses for Customer
personnel. Seller, at its
17
<PAGE>
option, shall offer training regionally at Seller's Training Centers. While
Seller recommends core courses from its Customer Training Catalog, Customer may
choose from any of Seller's Transmission Systems Product related courses.
A-1.9.2 TRANSMISSION PRODUCTS DOCUMENTATION
Seller ( ),( ) of Transmission Product
Documentation per Host Switch site for the Transmission Products that are
deployed from said Host Switch Site, in both paper and CDROM. During the term of
this contract Seller ( ) to said documentation in both paper and
CDROM.
A-1.10 ADDITIONAL PRODUCT INCENTIVES
In consideration of Customer's Purchase Commitment outlined in Section A-1.4, (
).
A-1.10.1 PACKETSTAR PSAX1250 OFFER FOR EXISTING COLOCATIONS
In recognition of Customer's commitment to Seller to deploy Sellers PacketStar
PSAX1250 in all new colocation sites after the execution of this Addendum,
( ) PacketStar PSAX1250 systems as configured
in Exhibit 11,( ) PacketStar PSAX1250 systems purchased in
accordance with the configuration and pricing specified in Exhibit 11, for
deployment into Customer's existing colocations that were deployed prior to
January 1, 2000. To exercise this offer, at a minimum Customer must place an
order for ( ) PacketStar PSAX1250's ( )
on one order and they all must be deployed into Customer's existing colocations.
Seller agrees to let Customer modify the configuration as shown in Exhibit 11 to
meet Customer's requirements, however ( ) PacketStar PSAX1250's
( ) must be configured either (1) identically to the ( ) on
the same order or (2) identically to the lower priced configuration of any
( ) purchased on the same order, if the configurations are not
identical. The maximum total of PacketStar PSAX1250's provided ( ) .
If desired by Customer, any Engineering or Installation services required by
Seller to perform the retrofit of the existing colocations is to be purchased
pursuant to a separate quote.
(
).
A-1.10.2 STINGER DSLAM OFFER FOR EXISTING COLOCATIONS
In recognition of Customers commitment to Seller to deploy Seller's Stinger
DSLAM in all new colocation sites requiring DSLAM capability, after the
execution of this Addendum,(
) , for the deployment into Customer's existing
colocations that were deployed prior to January 1, 2000. To exercise this offer,
Customer must place an order for (
18
<PAGE>
twenty (20) Stinger DSLAM's (10 purchased and 10 at no charge) on one order and
they all must be deployed into Customer's existing colocations. Seller agrees to
let Customer modify the configuration as shown in Exhibit 12 to meet Customers
requirements, however the ten (10) Stinger DSLAM's provided at no charge cannot
contain more than forty-eight (48) DSL ports of either SDSL or ADSL and must
have common equipment configured either (1) identically to the ten (10)
purchased on the same order of (2) identically to the lower priced configuration
of any one of the ten (10) purchased on the same order, if the configurations
are not identical. For the ten (10) Stinger DSLAM's provided at no charge
Customer agrees to purchase, in accordance with the pricing shown in Exhibit 12,
all growth DSL ports over the initial forty-eight (48) DSL ports provided. The
maximum total of Stinger DSLAM's provided at no charge cannot exceed seventy-two
(72). If desired by Customer, any Engineering or Installation Services required
by Seller to perform the retrofit of the existing colocations is to be purchased
pursuant to a separate quote. In addition, when Customer deploys the Stinger
DSLAM's in Customer's existing colocation sites, Customer agrees to remove
Customer's Paradyne DSLAM's from said existing colocation sites and not
re-deploy them in Customer's network.
(
).
A-1.10.3 NSA-LOOPCARE OFFER FOR EXISTING COLOCATIONS
In recognition of Customer's commitment to Seller to deploy Sellers OneVision
NFM operation system in Customer's network, as well as NSA-LoopCare operation
system in all new colocation sites after the execution of this Addendum, Seller
agrees to provide to Customer one hundred and forty-four (144) CL 2000 or CL
3000 NSA LoopCare systems, as configured in Exhibit 16, for the deployment into
Customer's existing colocations that were deployed prior to January 1, 2000. To
exercise this offer, Customer must place an order for two hundred and
twenty-five (225) CL 2000 or CL 3000 systems (81 purchased and 144 at no charge)
on one order and the one hundred and forty-four (144) provided at no charge must
be deployed into Customer's existing colocations. Customer agrees to notify
Seller on which platform (CL 2000 or CL 3000) Customer plans to deploy in
Customer's new colocation sites and Seller agrees to provide that platform (CL
2000 or CL 3000) for the one hundred and forty-four (144) provided at no charge.
If desired by Customer, any Engineering or Installation Services required by
Seller to perform the retrofit of the existing colocations is to be purchased
pursuant to a separate quote.
In addition, when ( ) in Customer's ( )
Customer (
) and ( ).
A-1.11 OAM&P SOLUTION
Seller agrees to continue to work with Customer to provide the most cost
effective Operating, Administration, Maintenance & Provisioning (OAM&P)
solutions. The OMA&P products available by Seller are shown in Exhibit 16
attached hereto. Seler agrees to hold pricing firm for the Term of this
Addendum.
19
<PAGE>
Seller and Customer agree to split 50:50 the cost of a maximum of two hundred
(200) hours of engineering consulting fees to integrate Seller's OMA&P Products
listed in Exhibit 14 into Seller's OneVision NFM operations system per Exhibit
16.
A-1.12 MARKETING PRICING ADJUSTMENT
The parties agree that Customer shall be extended (
). The parties shall (
) following the Effective Date of this Addendum, led by the Seller's Program
Manager or Account Executive ( ) to determine
(
), taking into account (
). Pricing information shall include (
). If Customer determines Seller's prices for Products and Services
( ), the parties shall (
); provided, however, that (
) Customer's (
) for Seller's ( ).
With regard to 5ESS and 7R/E Switching Product family only, if Seller's prices
are not competitive with comparable products, Customer shall be entitled to the
benefit of the lower price from the time such lower price was first generally
available in the market, provided that such time period shall not exceed six (6)
months. Seller shall provide Customer a credit against future prices for the
difference between the prices originally invoiced Customer during the previous
six (6) months and the new lower price. In order to administer this provision,
both parties shall provide the other with appropriate information: Customer
shall advise Seller about the market prices available from other suppliers, and
Seller shall advise Customer about prices Seller has quoted or charged
Customer's competitors. The information provided by one party to another shall
not identify the other entities and shall otherwise be subject to the
confidentiality and non-disclosure provisions of the General Agreement. For
purposes of this Section, the term "comparable products" shall mean products
which have similar features and functionality to Seller products and when are
made generally available in the market.
A-1.13 CHECKMATE MARKETING & BUSINESS SOLUTIONS MARKETING DEVELOPMET FUND
ALLOWANCE
In consideration for the Purchase Commitment set forth in the Section,
"CUSTOMER'S PURCHASE COMMITMENT," Seller agrees to allocate to the Checkmate
Marketing & Business Solutions Market Development Fund (hereinafter "MDF")
described in Appendix B, Checkmate Marketing & Business Solutions, Marketing
Development Fund Guidelines, attached hereto and by this reference made part of
this Agreement, a total of one percent (1%) of Customer's Total Paid Direct
Purchases of Seller's 5ESS, 7R/E Products (hardware and related Licensed
Materials) and Seller's Transmission Systems Products procured during the Term
of the Addendum.
20
<PAGE>
Said allocation shall be based upon the purchase price paid to Seller by
Customer for such Products and shall be calculated by Seller pursuant to the
Marketing Development Fund Guidelines referenced herein. Any amounts allocated
to the MDF hereunder shall be subject in all respects to and may be utilized by
Customer only in accordance with MDF Guidelines and must be used prior to
expiration of the Term.
A-1.14 CHANGE ORDER PROCESS
The Change Control Process, Exhibit 17 attached hereto, will be the only
authorized mechanism to request and approve changes. The authorized persons to
request and/or approve changes will be identified in writing by both parties as
part of the Process. All work identified and performed through the Contract
Change Control Process will be governed by the terms and conditions of the
aforementioned Exhibit.
3.0 ENTIRE AGREEMENT
Except as specifically modified, amended or supplemented herein, all terms and
conditions of the General Agreement shall remain in full force and effect. The
terms and conditions contained in this Addendum and those nonconflicting terms
and conditions of the General Agreement supersede all prior oral and written
understandings between the parties and shall constitute the entire agreement
between the parties with respect to the subject matter herein.
IN WITNESS WHEREOF, the parties have caused this Appendix to be executed by
their duly authorized representatives on the date(s) indicated.
CHOICE ONE COMMUNICATIONS INC. LUCENT TECHNOLOGIES INC.
By: By:
---------------------------- ---------------------------------
Name: Name:
-------------------------- ---------------------------------
Title: Title:
------------------------- ---------------------------------
Date: Date:
--------------------------- --------------------------------
21
<PAGE>
APPENDIX B
CHECKMATE
MARKETING & BUSINESS SOLUTIONS
MARKETING DEVELOPMENT FUND
GUIDELINES
22
<PAGE>
APPENDIX B
CHECKMATE MARKETING & BUSINESS SOLUTIONS
MARKETING DEVELOPMENT FUND GUIDELINES
The Checkmate Marketing & Business Solutions Marketing Development Fund
(hereinafter "MDF") is a cooperative approach to marketing and promotion. The
program provides assistance for pre-approved market development and promotional
activities executed by authorized Lucent Technologies Global Commercial Markets
(GCM) customers to stimulate switched services sales activity.
MDF FUNDING
o Funding is based on the year's purchases of Lucent Technologies Network
Systems 5ESS(R), 7 R/E, Transmission and OS products only. Network Systems
products are used to calculate the amount of MDF funds. NOTE: Network Cable
Systems products are not eligible for rebate reimbursement calculations
under this plan.
o For customers to be eligible for MDF, a written marketing plan must be
jointly approved by the Lucent Technologies GCM Marketing Administrator and
sales organization and the customer's marketing and sales organization prior
to submission of any MDF reimbursement claims.
o Proper MDF forms are submitted by the customer along with supporting
documentation for pre-approval. After approval, copies of original paid
invoices are submitted. MDF reimbursements are issued as credits to be
applied to current or future Lucent Technologies invoices.
o Funding is based on a percentage of the year's total paid direct purchases.
o MDF reimbursements apply to marketing activity within the approved plan
only.
IT'S A FIVE STEP PROCESS
1. Jointly prepare a Marketing Development Business Plan. This plan must at a
minimum include:
o Marketing opportunities or projects designed to stimulate switched
services sales activities
o Forecasts of new revenues produced with corresponding cost summaries,
and
o Specific "measurements of success."
2. Submit a completed MDF Submittal Form for pre-approval.
3. When the project is completed, the approved MDF Submittal Form will be
returned to Lucent Technologies along with paid invoices and substantiating
documents.
4. The MDF program administrator will process the reimbursement claim, verify
that funding is available, and, if so, forward the approval documentation
to the customer with a reimbursement certificate.
5. When submitted by the customer, the amount of the reimbursement certificate
will be credited to the customer's account.
ANSWERS TO YOUR QUESTIONS . . .
Your primary MDF contact with Lucent Technologies is your Account
Representative. Your Representative can provide whatever assistance you may need
in providing direction and planning marketing strategies. Lucent Technologies
has appointed a Marketing Development Fund Administrator who handles day-to-day
details of tracking and coordinating reimbursement claims within Lucent
Technologies. You may contact the Administrator at the following address: 5 Wood
Hollow Rd., Room 1I82, Parsippany, NJ 07054-2821.
23
<PAGE>
CHECKMATE MARKETING & BUSINESS SOLUTIONS
MARKETING DEVELOPMENT FUND GUIDELINES
ACTIVITIES ELIGIBLE FOR MDF REIMBURSEMENT
DIRECT MARKETING
Direct marketing may include advertising, e.g. print ads and radio spots,
collateral salesware, catalogs, trade show fees, Lucent Technologies product
displays, direct mail and telemarketing programs and other pre-approved
activities. MDF funds may be utilized to assist with individual company
customization of direct marketing materials, including development, printing,
and one-time production costs on authorized mailings.
EVENTS
MDF allowances may be used to off-set Lucent Technologies sponsorship of events
such as technology forums, conferences, seminars, trade shows or other business
related activities. Pre-approval requests must clearly demonstrate goals and
objectives of the event. Reimbursement claims must include a list of any other
co-sponsors, a copy of guest invitations to the event, detailed event cost
estimates, and a full description of the participation, involvement, and
activity by the Lucent Technologies Representative who would attend or support
the event.
DATABASE ACQUISITION
MDF can be utilized to fund a variety of pre-approved database tools such as
market-based automated pricing tools (which could include basic Centrex rates,
standard features, and ISDN rates and features), and Marketing Information
Databases (such as MKIS) for client prospecting, lead generation and
infrastructure modeling.
SALES INCENTIVE PROGRAMS
Incentive programs to stimulate switched services sales are designed and
administered by the customer. A jointly established target for service activity
penetration must be in effect and tracked for the duration of the program.
Proposed incentive programs must conform to the following guidelines:
o An outline of procedures to administer, track and audit the program is
provided.
o Estimated program costs, award descriptions and values are identified.
o A complete program activity description with specific time-frames is
established.
o A list of participating Account Executives and Sales Managers and their
incentive program objectives is submitted to Lucent Technologies.
TRAINING
Lucent Technologies offers a wide range of educational opportunities, and
encourages Lucent Technologies sponsored customers to increase product knowledge
and marketing and sales skills. Lucent Technologies training courses are
delivered at Lucent Technologies training locations or suitcased to remote
locations.
MDF PERSONNEL
Under the MDF program, the Lucent Technologies customer may fund technical
consultants and/or marketing sales consultant personnel to implement marketing
and sales programs to stimulate switched services sales activity. All
pre-approved personnel funded by MDF must be dedicated 100% to stimulating
Lucent Technologies switched services sales. All expenses must conform to
standard Lucent Technologies voucher guidelines. All expenses require
pre-approval and must include: overall project concept, opportunity
identification, program cost, and a detailed action plan with measurable
milestones and start-stop dates. MDF payments for personnel are made quarterly.
24
EXHIBIT 11.1
CHOICE ONE COMMUNICATIONS INC.
COMPUTATION OF PER SHARE LOSS
THREE MONTHS ENDED MARCH 31, 2000
Equivalent
Title Number of Shares Percent Shares
- ----- ---------------- ------- ---------
Choice One Communications, Inc. 22,022,256 100.0% 22,022,256
Choice One Communications, Inc. 770,791 48.4% 372,690
February 2000 Stock Offering 8,216,750 48.4% 3,961,157
1998 Employee Stock Option Plan 4,773 23.7% 1,130
Weighted Average Share Outstanding 26,357,233
Net Loss Applicable to Common Stock $(81,657,000)
Net Loss Per Share, Basic and Diluted $(3.10)
EXHIBIT 11.2
CHOICE ONE COMMUNICATIONS INC.
COMPUTATION OF PER SHARE LOSS
THREE MONTHS ENDED MARCH 31, 1999
Equivalent
Title Number of Shares Percent Shares
- ----- ---------------- ------- ---------
Choice One Communications, Inc. 21,275,829 100.0% 21,275,829
Weighted Average Share Outstanding 21,275,829
Net Loss Applicable to Common Stock $(4,447,000)
Net Loss Per Share, Basic and Diluted $(0.21)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
27.1
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOIDATED BALANCE SHEET AT MARCH 31, 2000 AND FROM THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001091953
<NAME> Choice One Communications Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 65,486
<SECURITIES> 0
<RECEIVABLES> 5,167
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,789
<PP&E> 97,816
<DEPRECIATION> 7,489
<TOTAL-ASSETS> 182,380
<CURRENT-LIABILITIES> 18,523
<BONDS> 0
0
0
<COMMON> 310
<OTHER-SE> 161,844
<TOTAL-LIABILITY-AND-EQUITY> 182,380
<SALES> 6,790
<TOTAL-REVENUES> 6,790
<CGS> 0
<TOTAL-COSTS> 80,419
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,038)
<INCOME-PRETAX> (81,657)
<INCOME-TAX> 0
<INCOME-CONTINUING> (81,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,657)
<EPS-BASIC> (3.10)
<EPS-DILUTED> (3.10)
</TABLE>
